The Botswana Stock Exchange’s domestic Company Index (DCI) is at a one year low after contradicting by 10% since the beginning of the year. The DCI comprises of 22 listed local companies on the domestic counter and it is a market weighted index. The DCI is dragged down by losses in the financial and retail stocks that make up majority of the domestic listed companies.
However, the six listed property stocks have been resilient in what appears to be a bearish market, delivering capital gains above the DCI. We take a look at the top four property companies that are delighting their shareholders, especially the Botswana Public Pension Fund which has stakes in both companies.
New African Properties
New African Properties(NAP) is not only the best performing property stock but at 11% year-to-date(YTD) returns, it is the overall second best performing stock in the DCI, coming second to Botswana Insurance Holding Limited(BIHL).
This is a reversal of fortunes from last year when the group’s ranked third amongst property companies after delivering 22% in share price increase. The company broke records in June in what was the single biggest day trade in the history of the BSE after the company traded 26% of its issued capital worth P457.3 million.
NAP was listed on the BSE in 2011, with a total of 604 397 124 issued units. According to NAP’s 2015 annual report, the majority of the units are owned by body corporate/trusts at 80 percent, followed by insurance companies, pension/equity funds at 13.6 percent while individuals hold 6.4 percent of issued units.
Of all issued units, the public accounts for 20.1 percent and the rest lies solidly with directors’ interests. The largest unit holder is Cash Bazaar Holdings (Pty) Ltd with 79.3 percent stake. In 2015, the company’s traded units were at 1.98 percent of the total issued units, making the June trade the biggest of the company since its existence.
NAP owns properties such as Riverwalk Mall, Riverwalk Plaza and Kagiso Mall in Gaborone, Mafenyatlala Mall in Molepolole, Kasane Mall and Mokoro Centre in Maun. The portfolio comprises primarily of prime retail sites with a strong tenant base, including Pick ‘n Pay, Spar, Choppies, Mr Price, Woolworths, Pep, Cashbuild, Furnmat, CB Stores, Ackermans, Cape Union Mart, Exclusive Books, FNB, Hi-Fi Corporation, Home Corp, Incredible Connection, Jet, KFC, Nando's, New Capitol Cinema, Mugg & Bean, JB Sports, Truworths and many others.
The second best performing property stock belongs to RDC properties after its share price appreciated by 6% since the beginning of the year. The Share price is currently trading at P2.65. In the previous year the share price surged by 27%, making it the second best performing property stock.
RDC Properties is the first variable rate loan stock company to list on the Botswana Stock Exchange in 1996. The company selectively develops and invests in modern commercial, industrial and residential buildings in prominent locations in Botswana and Madagascar.
RDCP’s property portfolio value surpassed the P1 billion mark in 2015, and the portfolio includes Masa Centre, Chobe Marina Lodge, Standard Chartered House in main mall, Isalo Rock Lodge in Madagascar and RDC flats. The company plans to expand to Namibia and Mozambique with plans in Namibia progressing well after the group reserved a holding company name that will carry out developments after land has been allocated.
The group’s 2015 annual report lists the top unit holders as Realestate Financiere SA, the controlling shareholder at 31.47%, Botswana Public Officers Pension Fund (BPOPF) at 31.6% (the units are held through various nominees), while Chobe Financial Corporation, Aspera Holdings Limited and Motor Vehicle Accident Fund (MVA) each hold 16.62%, 3.74% and 3.70% respectively.
The Gulaam Abdoola led property giant continues to impress its shareholders as the market correctly prices the value of the stock which has spiked by 5.5% in the last 8 months to trade at P3.24. The gains extend the group’s spectacular performance as it ended the previous year as the fourth best performing stock in the domestic board after returning 47% in capital gains.
The group’s property portfolio is valued at P1.7 billion, a portfolio that includes Game City, the largest indoor mall in Botswana and Mlimani City, the largest purpose built indoor shopping centre in Tanzania. The group also owns Nzano Shopping Centre in Francistown, Mogoditshane Supa Save mall, Turnstar House in Mall, Fairgrounds Office Park, Tapologa Estates and other residential and retail properties.
Turnstar Holdings is in the last stages of Game City expansion which when complete will modernise the existing common areas, toilets, entrances and shop fronts of the centre. An additional 9,000 sq.m exhibition hall comprising of restaurants, a food court, multi-function entertainment area, exhibition hall and playground is being constructed on the upper level with a view of the Kgale Hill.
The group is also extending its Mlimani city through additions of two office blocks, a new ticket parking system and refurbishment of the conference centre. The ongoing works are expected to improve the group’s revenue. The Group’s top ten linked unitholders include BPOPF, GH Group, Associated Investment and Development Corporation, Botswana Insurance Fund Management, Debswana Pension Fund and Motor Vehicle Accident Fund.
The group’s property value which is in the north of P750 million and spans the office, retail and industrial sectors with the bulk of revenues coming from the highly competitive and saturated office sector. The group was the fourth best performing property stock in 2015 at 12% share price appreciation. The stock which is now trading at P3.05 is up by 4.8% since the beginning of the year.
The group owns a stellar portfolio comprising of Prime Plaza Buildings in the CBD, Sebele Centre Mall, Letshego Place, South Africa High Commission Building, DHL Building, and G4S headquarters. In Francistown, they own Nswazi Mall and Mantlo House after disposing of Barclays Plaza and Blue Jacket Square Mall to BPOPF. Other properties include Hillside Mall in Lobatse, Boiteko Mall in Serowe, Ramotswa Shopping Centre, Ghanzi Shopping Centre. In the region, the group operates two buildings in Lusaka and Kitwe which houses G4s offices.
Primetime which is set to open its new Pilane Crossing Mall is currently locked in an impasse with the Ministry of Trade and Investment over trade licenses concerning South African companies that are leased as tenants. The Ministry is refusing to grant trade licenses since the Trade act stipulates that such licenses are reserved for citizens. However the silver lining is that the licenses will be approved if the involved retailers cede 51% of shareholding to citizens.
The top major linked unitholders list is led by Linwood Services Limited with 25.99% shareholding, BPOPF has a stake of 16.88% through its nominee, Tati Company Limited holds 14.23%, Metropolitan Life Botswana has 7.51%, while Debswana Pension Fund and D.P Training both hold 3.41% and 3.34% respectively.
The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.
The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.
University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.
According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.
The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”
The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”
According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”
The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.
Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”
According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”
Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.
The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.
Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.” He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.
It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.
He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.
The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.
On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.
BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”
Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.
In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.
Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.
Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.
The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.
The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.
“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.