The Botswana Telecommunications Corporation Limited (BTC) stock is currently riding high after an impressive start to the year that has put the only listed technology stock ahead of all listed equities.
The stock which is trading at P1.20 is up by 22.44%, reversing losses experienced in 2016 when the stock tumbled on the back of negative investor sentiments which had spread across major sectors on the Botswana Stock Exchange (BSE). While the BSE’s Domestic Company Index (DCI) is in the red, down by 4%, the resurgence of the BTC stock has offset what could have been steep losses in the benchmark index.
The reversal in fortunes follows concerted efforts by the telecommunication giant’s concerted efforts that included appointing the market maker, appointment of a solid Board of Directors, and return to profitability. BTC which listed in April boasts of a large pool of investors who snapped up shares on offer during the oversubscribed Initial Public Offering (IPO). Although the IPO was restricted to citizens, the historic IPO ushered in about 47, 125 new investors, representing 65% of all registered investors.
The BTC share price debuted at P1 and quickly reached highs of P1.35 on the first weeks of trading but the share price later retreated following a raft of negative news. The share price started dropping after the company recorded a once off impairment loss which was larger than expected.
While investors were trying to wrap their heads around that, the telecommunication giant announced that it will not be renewing the Mr. Paul Taylor’s contract as managing director. The news shocked investors as there had not been an indication that Mr. Taylor’s contract will not be renewed. The share price then tanked to new lows of 0.85t, representing a loss of 15% from the IPO price.
Mr. Garry Juma, Head of Research at Motswedi Securities, says the listing of BTC was met with great excitement from investors. “There was lots of buying especially from those investors who missed out during the IPO.” Mr. Juma went on to say that after BTC released its financials which showed a loss, the market reacted negatively despite prior warning from BTC contained in their IPO prospectus that the corporation will incur a once off impairment charge. Perhaps it was the larger than expected loss that rattled the investors as evidenced by how quickly the share price fell in the usually slow to react stock exchange.
“There was panic selling. Some investors were selling at any price. Unfortunately because of the demand side which was low, we had a market in which there were many sellers but not many buyers, creating a mismatch which pushed the price down to current levels,” Mr. Juma said.
With the current share price at P1.20, this represents a 20% premium on the IPO price. Mr Juma says real investors who know the value of shares saw BTC as a sitting duck as the share price had fallen low therefore creating opportunities. Mr. Juma is one of the analysts who maintained that BTC will quickly return to profitability in its next set of financials hence stabilization in the share price.
“So investors are now seeing value. We are also seeing lots of buying from participants. As a market maker we have not participated much because our role is only to interfere as the last resort to avoid a mismatch between sellers and buyers.” BTC increased its revenue to P774 million, up by 4% from the previous P741 million. This increase was largely driven by a 4.6% increase in sales of goods and services. The highest revenue growth achievements were mainly in the areas of National Telephony which went up by 9%, followed by a 6% increase in mobile services and an 8% surge in data services.
There was also marked improvement in the gross profit which went up by 4.5% to P468 million. However, the gross profit was later eroded by a slight increase in total costs. Total costs in the period under review totalled P400 million, a 3% increase from the previous corresponding period. While the uptick in total costs is in line with the prevailing inflation rate, the company’s board and management says the increase in costs calls for more robust cost management initiatives that will ensure long-term growth in net earnings and company value.
In the end BTC declared a profit of P88 million, an impressive increase of 19% from the previous interim results. BTC further announced that it remains well capitalised to fund its capital expenditures from internal resources. The company has grown its cash reserves by 23% to P502 million, putting it in an enviable position considering that the company has no large borrowings.
The company’s board of directors was bolstered with an addition of experienced administrators, signalling a new dawn for telecommunication titan. The appointment of two independent non-executive directors, Ms Lorato Boakgomo-Ntakhwana and Mr. Maclean Letshwiti, was well received by investors as the duo are highly revered in the business circles following impressive track records in managing and running successful companies.
BTC further announced that Ms Boakgomo-Ntakhwana has been appointed the board chairperson, replacing Daphne Matlakala whose tenure had expired. The board has since appointed Mr. Anthony Masunga as managing director after a brief stint as the acting managing director.
While the stock is still yet to hit its all time high record of P1.35, analysts are bullish that it is only a matter of time before that happens. The stock continues to be one of the most traded and it might prove to be a hit with investors considering that it has gained the most in a short period of time after delivering stellar financial performance as well as enticing future prospects.
The company with large cash reserves and zero leverage has so far declared dividends in every reporting period. Just recently, the company announced its new dividend policy which prescribes a dividend payout of 50-65% of earnings subject to the financial position of the company, investment strategy, future capital requirements, availability of cash and other factors the board may consider.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.