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Two titans drag down the BSE

Sechaba Brewery Holdings limited stock price has plunged the most since the beginning of this year. The fall in Sechaba share price, is an occurrence repeated across the wholesaling and retail sector in the Botswana Stock Exchange, marked by falling share prices amid tough operating conditions.


 The wholesaling and retail sector has dragged the BSE’s domestic company index (DCI) down by 3.61% since the beginning of the year. The sector’s drag spills over from last year when the DCI declined by 11.3% after the wholesaling and retail sector lost 7.1% to become the worst performing sector in the local stock market. This was a reversal of fortunes from 2015 when the DCI finished the year 11.6% up with the wholesale and retail sector being the second best performing sector at 4.2%.


The performance of the sector this year reflects a broader trend that started earlier last year when African states battled with the fall in commodity prices due to waning demand across major markets. Furthermore wholesaling and retail stocks were under pressure from the El Nino phenomenon that affected many farmers, particularly in Southern Africa. By nature of their business, wholesaling and retail companies’ revenue is directly affected by the spending power of consumers and any negative shocks to the economy that affects government and consumer spending power rattles investors.


Sechaba’s shock share price drop was rapid but not totally unexpected. The group has so far lost 22% of its share value amid a challenging environment that investors have no appetite for. The woes of Sechaba dates back to the introduction of the alcohol levy in 2008. The levy has had an impact on the volumes shipped thus reducing the bottom line margins. However, the brewery giant was able to remain resistant, delivering profits and investors cheering them on the stock market.

 

A spanner was once more thrown in the works when the government introduced the traditional beer regulation that affected some of the group’s operations. The combination of the levies and regulations are now weighing heavily on Sechaba’s operations. To compound the matter further, investors are weary now considering the future of the group under new owners: in 2015, Anheuser-Busch InBev finally offered SABMiller PLC £68 billion in a  takeover bid, creating a brewing giant making about a third of the world’s beer.


In Botswana, SABMiller Plc has a stake in Sechaba Brewery Holdings which trades in the domestic exchange market. According to Botswana Stock Exchange, Sechaba Brewery Holdings limited is an investment holding company with interest in Kgalagadi Breweries (Pty) Limited (KBL).Sechaba holds 60% of the shares of KBL while SABMiller Botswana B.V. holds 40%. SABMiller Plc has management control in the operating company. Their involvement brings management, technical and brand building expertise of the three largest brewing companies in the world to KBL.


The question in the minds of Sechaba’s existing shareholders  is will the new owners put up with the government’s hard stance  on alcohol and if they do what measures will be put on place to system against the swelling pressure. On the other hand some investors have made their minds to exist their positions sooner than wait to find out what’s in store from the new owners.

 

Moreover, the drop in share price follows the shocking financial performance from Kgalagadi Breweries Limited (KBL), the sole associate of Sechaba, in the interim results ended September 2016. Sechaba’s share of results from KBL fell by 39.6%, operating profit went down by 40.1%, profit after tax decreased by 40.7% while basic and diluted earnings per share declined by 40.8%.


Sechaba said the decline in the financial performance of the company is mainly attributable to the current regulatory challenging environment in which the company operates. The other losing stock in the past month is Sefalana Holding Company, also a key player in the wholesaling and retail sector. Sefalana’s stock price took a huge hit in the last three weeks of January.  Shares of Sefalana have plummeted by 15.46% to trade at P10.99.

 

The precipitous drop in the group’s stock price makes it the second worst performing stock under the local counter on the BSE. Combined with 5.8% losses in the previous year, the stock is under pressure from investors who are used to the stock’s good returns last seen in 2015 when it grew by almost 50%.


Through the four decades of operating, Sefalana Group has grown into a large and diverse business, operating in a number of sectors including 67 stores in the Fast Moving Consumer Goods (FMCG) sector within Botswana and Namibia. Whilst its core business is in the FMCG sector, the Group remains well diversified with a solid property portfolio in Botswana, Zambia and Namibia, 3 motor dealerships (MAN, TATA and Honda), agencies for the sale of industrial and agricultural equipment, a well-established grain mill in Serowe, providing nutritious meals for the country’s population and a UHT milk plant, which commenced operations this year. Group remains the only listed company without a controlling shareholder. The single largest shareholder is Botswana Public Officers Pension Fund at 42.85%. Citizens hold a total of 91.87% of all issued shares.


Late last year, Sefalana undertook a Rights Issue program when the board issued an additional 27,858,523 new shares thus increasing stated capital comprising of ordinary shares from 222,868,186 shares to 250,726,709 shares. The additional shares were offered to existing shareholders in a ratio of 1 Offer Share for every 8 shares held by shareholders at a price of P12.60 per offer share, representing a 10% discount to the Sefalana share price at the time.

 

The rights issue was able to raise P351 million. The trailblazing group said the capital will be used to finance the acquisition of the Lesotho Business (TFS), to make an investment in a South Africa Consortium, to assist with future acquisition opportunities, to fund property acquisitions relating to these Transactions, and for other working capital requirements of the Sefalana Group.


In the latest interim financial results released a week ago, Chandra Chauhan, the group Managing Director, says in the face of continued strain on the economic climate in Botswana, following the closure of a number of institutions that has led to an increase in unemployment across the country, Sefalana has had to remain competitive and weather the storm of lower consumer spending.


“Some of our business units in Botswana have generated a lower level of profitability than in the previous year as a result of increased pressure on margins as we attempt to provide our customers with the best possible price in these difficult times. Government spending in some areas has also declined and this has adversely impacted those businesses that are reliant on recurring tenders.” He added that fortunately for the group as a whole, the Namibian business has grown sufficiently to offset the decline experienced locally.


The Group’s overall profit before tax for the 6 months ended 31 October 2016 of P81.1 million was marginally up on the comparative period ended 31 October 2015 at P80.4 million. The group managed to reach the P2 billion threshold in terms of turnover for the current six month period – a long standing target for the group. The overall total comprehensive income for the period is significantly up on the comparative period at P60.1 million compared to P18.5 million at October 2015.

 

Other financial highlights for the 6 months to 31 October 2016, show that the group’s revenue was P2.0 billion – up 9% on prior period; Gross profit was P152 million – up 4% on prior period; Earnings before interest, tax and amortization (EBITA) was P82.2 million, up 4% on prior period; and Profit before tax was P81.1m – marginally up on the prior period.

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P230 million Phikwe revival project kicks off

19th October 2020
industrial hub

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.

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IMF projects deeper recession for 2020, slow recovery for 2021

19th October 2020

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.

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Botswana partly closed economy a further blow of 4.2 fall in revenue

19th October 2020

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.

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