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BSE’s DCI losses spark

The Botswana Stock Exchange’s Domestic Company Index (DCI) lost 95 points during the last three months to end the second quarter at 10,107.12 points, reflecting a decline of 0.93%. The decline in the second quarter follows the 3.8% decline experienced in the first quarter, therefore in the past 6 months the DCI has lost 4.74% and 5.45% in the last 12 months. In this quarter, as in the first quarter, the rally was led by property and tourism stocks while retail and the financial stocks have been most hit.  

It has been a rough start for global equities worldwide following a global markets rout that wiped trillions worth of equities valuation early in 2016 as the world’s largest economy fumbled. The precipitous fall in the Chinese equities led to a global contagion resulting in major markets taking a hit and sparking fresh concerns that a financial crisis is looming.

While the global markets were still reeling from the shock, the United Kingdom voted to leave the European Union, the aftermath was a shakeup in the financial markets that saw leading indices shedding off points. The turmoil in the financial markets has sparked fears that another financial crisis similar to the one experienced in 2008 is looming large in the horizon.

The BSE’s DCI opened the year at 10,610.14 points and from there on the DCI has been in decline. The first quarter ended at 10,2o2.64, representing a decline of 3.8%. The losses were extended in the second quarter with the DCI failing to find a footing, causing concerns amongst investors that their investments this year might be lower than the previous year. The index has been put under pressure by retail and financial stocks which are seen as being more risky given the prevailing market conditions.

The second quarter picks up from the first quarter with both sides of the coin, the gainers and losers, comprising mostly of the same companies that featured in the previous quarter. The trend further continues with property stocks outperforming the DCI index, with the exception of Letlole La Rona.

The travel and leisure (tourism) stocks maintained their favourability amongst investors as they continue to appreciate in value. The financial stocks continue to struggle, with only the exception of Botswana Insurance Holdings Limited and Barclays, as the two financial giants managed to post gains in both quarters. Big retailers also suffered losses signalling that investors are worried about the companies’ profitability given the stubbornly low inflation.

The top 5 gainers in the second quarter of the year were led by Cresta, the leading hotel operator in the country. Its share price has appreciated by 6.5% in the second quarter, bringing its yearly gains to 13%. New African Properties which broke records two weeks back after a single day trading of 26% of its issued shares worth P457.3 million has impressed with year to date returns of 10.6% after gaining 6.2% in the last three months. The Botswana Insurance Holdings Limited remained in the top five performers after a good showing in the first quarter. It retained third position in the second quarter after advancing by 3.8%, totalling its yearly returns to 9%. Chobe, a tourism outfit which operates luxurious lodges saw its share price jump by 5.28% in the quarter under review while its year to date gains is at 8.4%. Turnstar Holdings wrapped up our top five gainers as the real estate developer managed an impressive 6.2% increase in share price, bringing its yearly returns to 5.9%.

Other notable positive movements in the second quarter include RDC properties which brought in 3.13% while its year to date returns stand at 5.20%. Wilderness Holdings gained 5.2%, extending its yearly gains to 3.1%. Primetime moved by 1.3% resulting in 3.8% of year to date returns. Meanwhile Barclays remains the only bank so far this year to deliver share price gains as it locked in 2.9% in yearly returns.  

Botswana Telecommunications Corporation Limited listed in April. The company on the first day of trading closed atP1.30, an incredible 30% surge from P1. However, it the shares quickly retreated and briefly traded for around P1.20 until settling for the current P1.10 price, which is still a win to the shareholders as it represent a 10% premium on the initial P1 they paid during the Initial Public Offering(IPO).

On the losing side, Standard Chartered Bank which is the oldest bank to operate in Botswana was the biggest loser as its share price plunged to new lows as it lost 19% and bringing the yearly losses to 24%. The embattled bank is having a bad year in the stock market after it posted profit which was 85% lower than the previous period. Letshego, the pan-African financial services provider continues to struggle despite its highly liquid stock. Letshego has seen its share price plummet by as much as 2.4% in the second quarter, bringing the yearly losses to 14%. The financial stocks continued the downward trend as First National Bank Botswana dropped 5% resulting in year to date loss of 11%. Choppies Enterprises had its share price tank by 2.4% in the last 3 months, extending its yearly losses to 9%. The furniture shop giant, Furnmart, lost 3% in the second quarter, delivering year to date loss of 4.4%.

The oldest companies in the stock market in terms of listing, Sefalana and Sechaba have had subdued share movements, in the end the two giants are still yet to post positive gains, with Sefalana down by 3.62% in yearly returns while Sechaba is trailing behind by yearly losses of about 1.7%.

The usually inactive Foreign Domestic Index has been on a winning streak as the index recorded positive growth of about 1.1%, pushing the FCI year to date gains by 1.5%.

The index was rallied by Botswana Diamonds which delivered 143% returns in the second quarter, while its yearly gains are at an impressive 162%. Lucara Diamond Corporation has not only impressed so far with its exceptional diamonds as its share price has been soaring since the discovery of Lesedi La Rona. The yearly returns stand at 70% after gaining about 45% in the second quarter. While companies trading under the foreign counter remained largely flat, Shumba Energy share price slid down by 9%, bringing its yearly losses to 10%.

With the first half of the year dusted, the question on many investors’ minds is whether the stock markets will improve without any further shocks or go through another crisis. In Botswana’s case, the probability of the DCI turning around to deliver good returns remains shaky. According to analysts at Trading Economics, they estimate it to trade at 9980.00 points in the third quarter, a further 1.3% decline.

“Botswana Stock Market (BSI DCI) Forecasts are projected using an autoregressive integrated moving average (ARIMA) model calibrated using our analysts’ expectations. We model the past behaviour of Botswana Stock Market (BSI DCI) using vast amounts of historical data and we adjust the coefficients of the econometric model by taking into account our analysts assessments and future expectations. The forecast for – Botswana Stock Market (BSI DCI) – was last predicted on Thursday, June 30, 2016,” they revealed in a research note.

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Diamond industry crises not over yet – De Beers Chief

13th January 2021
De Beers Group Chief Executive Officer: Bruce Cleaver

Following a devastating first half of the year 2020 due to COVID-19, the global diamond industry  started gaining  positive momentum towards the end of the year as key markets entered into  thanks giving and holiday season.

However Bruce Cleaver, Chief Executive Officer of De Beers Group cautioned that the industry is not out of the woods yet, citing prevailing challenges ahead into 2021.

The first half of 2020 was characterized by some of the worst challenges in history of global diamond trade.

The midstream, where rough diamonds are traded in wholesale and bulk to cutters and polishers, was for the most part of second quarter 2020, suffocated by international travel restrictions as countries responded to the contagious Corona Virus.

This halted movement of buyers and shipment of  the rough goods , resulting  in unprecedented decline of sales, in turn  ballooning stockpiles as the upstream  operations produced with little uptake by the midstream.

The situation was exacerbated by muted demand in the downstream where jewelry industries and tail end retailers closed to further curb the spread of COVID-19.

However towards the end of third quarter getting into the last quarter of the year, demand in both midstream and downstream started to steadily pick up as countries relaxed COVID-19 restrictions.

De Beers, the world’s largest diamond producer by value started reporting significant recovery in sales in the sixth and seventh cycle, figures began to reflect an upswing in sentiment as well as increase in uptake of rough goods by midstream.

Sales for the sixth cycle amounted to $116 Million, following a sharp downturn in the previous cycles, significant jump was realized during the seventh cycle, registering $320 million, an over 175 % upswing when gauged against the proceeding cycle.

De Beers noted that diamond markets showed some continued improvement throughout August and into September as Covid-19 restrictions continued to ease in various locations.

“Manufacturers focused on meeting retail demand for polished diamonds, particularly in certain product areas, accordingly, we saw a recovery in rough diamond demand in the seventh sales cycle of the year, reflecting these retail trends, following several months of minimal manufacturing activity and disrupted demand patterns in all major markets,” said De Beers Chief Executive, Bruce Cleaver in September last year.

The diamond mining behemoth continued to register impressive sales in the eighth and ninth cycle signaling the industry could end the year on a positive note.

The momentum was indeed carried into the last cycle of the year. The value of rough diamond sales (Global Sightholder Sales and Auctions) for De Beers’ tenth sales cycle of 2020 amounted to $440 million, a significant increase from the 2019 tenth sales cycle value.

Against what seemed like a positive year end that would split into the New Year Bruce Cleaver, CEO, De Beers Group, however warned the industry not to count eggs before they hatch.

“Positive consumer demand for diamond jewellery resulting from the holiday season is supporting the continuation of retail orders for polished diamonds from the diamond industry’s midstream sector. This in turn supported steady demand for De Beers’s rough diamonds at our final sales cycle of 2020,” Cleaver had said in December.

In caution the De Beers Chief noted that “While the diamond industry ends the year on a positive note, we must recognise the risks that the ongoing Covid-19 pandemic presents to sector recovery both for the rest of this year and as we head into 2021.”

All segments of the supply chain were severely impacted by the global lockdown measures introduced in response to the Covid-19 pandemic in the first half of 2020.

After a strong US holiday season at the end of 2019, the rough diamond industry started 2020 positively as the midstream restocked and sentiment improved.

However, from February 2020, the Covid-19 outbreak began to have a significant impact on diamond jewellery retail sales and supply chain, with many jewelers suspending all polished purchases and/or delaying payments to their suppliers.

Rough diamond sales were materially affected by lockdowns and travel restrictions, delaying the shipping of rough diamonds into cutting and trading centers and preventing buyers from attending sales events.

These resulted in significant decline in total revenue for the business in the first six months of 2020. Total revenue decreased by 54% to $1.2 billion from $2.6 billion registered in the prior half year period ended 30 June 2019.

For the entire first six (6) months of the year 2020 De Beers Rough diamonds sales fell drastically to $1.0 billion from $2.3 billion in the prior H1 period ended 30 June 2019. Sales volumes decreased by 45% to 8.5 million carats compared to 15.5 million carats registered in the prior period.

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Gov’t coffers depleting to record low levels 

13th January 2021
Dr Matsheka

Next month Minister of Finance & Economic Development, Dr Thapelo Matsheka will face the nation to deliver Botswana‘s first budget speech since COVID-19 pandemic put the world on devastating economic trajectory.

The pandemic that broke out in late 2019 in China has put the entire world on unprecedented chaos ,killing over P1 million people across the globe , shattering economies and almost rendering  the year 2020 – a 12 months stretch of complete setback.

The 2021/22 budget speech will come at time when Botswana’s economy is still trying to emerge out of this.

National lockdowns and local travel restrictions have hit small medium enterprises hard, while international travel restrictions halted movement of both good and people, delivering by far some of the heaviest and worst catastrophic blows on the diamond industry and tourism sector, the likes of which this country has never seen before on its largest economic sectors.

As Minister Matsheka faces parliament next month, the reality on the ground is that Botswana’s national current cash resource, the Government Investment Account (GIA) is depleting at lightning speed.

On the other hand the COVID-19 economic mess is  prevailing,  the virus is reported to have taken a new dangerous shape of a deadly variant, spreading like fueled veld fire and causing some of the world’s super powers back to tough restrictions of lockdown.

According official figures released by Bank of Botswana, in October 2020 the GIA was running at P6 billion compared to the P18.3 billion held in the account in October 2019.

However reports indicate that the account could be currently holding just about P3 billion.  The draw down from the GIA has been by exacerbated by declining diamond revenue, the country‘s largest cash cow. The sector was experiencing significant revenue decline even before COVID-19 struck.

 

When the National Development Plan (NDP) 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at a budget deficits.

This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively, since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances.

Taking into account the COVID-19 economic mess in 2020/21 financial year, the budget deficit could add up to P20 billion after revised figures.

Drawing down from government cash balances to finance these budget deficits meant significant withdrawals from the Government Investment Account, hence the near depletion of this buffer.

Meanwhile  should Botswana’s revenue streams completely dry up to zero levels; the country would only have 11 months, before calling out for humanitarian  aids and international donors, because  foreign reserves are also on slow down.

During 2019, the foreign exchange reserves declined by 8.7 percent, from Seventy One Billion, Four Hundred Million Pula (P71.4 billion) in December 2018 to Sixty Five Billion, Three Hundred Million Pula (P65.3 billion) in December 2019.

The reserves declined further in 2020, falling by 2.3 percent to Sixty Three Billion, Seven Hundred Million Pula (P63.7 billion) in July 2020.  This was revealed by President Masisi during State of the Nation Address in November last year.

The decrease was mainly due to foreign exchange outflows associated with Government obligations and economy-wide import requirements.

However latest statistics(October 2020)  from Bank of Botswana reveal that Botswana’s foreign reserves are estimated at P58.4 billion, with  government’s share of these funds significantly low.

Government has since introduced several measures to contain costs and control expenditure with the most recent intervention being the halting of recruitment in government departments and parastatals.

Furthermore, Value Added Tax has been signaled to go up  from 12% to 14% in April this year with more hikes and service fees anticipated as government embarks on unprecedented domestic revenue mobilization.

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Cresta signs lease agreement for Phakalane golf estate hotel. continues with growth agenda despite covid-19 impact

13th January 2021

Botswana Stock Exchange listed hotel group Cresta Marakanelo Limited (“CML” or “the Company”) announced the signing of a lease agreement for Phakalane Golf Estate Hotel & Convention Centre, which will see CML extend its footprint by adding the 4 star Gaborone property to its already impressive portfolio.  The agreement is subject to regulatory approvals therefore the effective date of the transaction is expected to be 1 February 2021.

 

CML brings a wealth of expertise to the lease and despite the difficult year for the tourism and hospitality industry, due to the impact of the COVID-19 pandemic, CML remains confident in the recovery of the sector and the need to invest in expanding the Company’s footprint.

CML Managing Director, Mr Mokwena Morulane commented: “Our continued efforts to improve our offerings, understand the market dynamics and modern day trends in the face of global challenges, means we are ready for the changing face of tourism and international travel, and this addition to the Cresta portfolio signals our confidence in the future.  

 

“Despite the headwinds faced in 2020, Management has continued to focus on projects that enhance CML’s product offering such as the refurbishments at Cresta Mowana Safari Resort & Spa in the tourism capital Kasane and the ongoing refurbishment of Cresta Marang Residency in Francistown. The signing of the lease for the 4 star Phakalane Golf Estate Hotel & Conference Centre is a great addition to the Cresta portfolio and will unlock shareholder value in the future.

 

“We remain vigilant to value-enhancing opportunities including acquisitions or leases, after having reconsidered our pipeline against current and expected market conditions.”  

 

Commenting on the lease agreement, the Chief Executive Officer, Mr S Parthiban, speaking on behalf of Phakalane  noted; “No hotel chain holds as much expertise in the region, understands our local culture and tastes and what hospitality is about better than Cresta Marakanelo Limited. We believe that the renovations done to the property has made Phakalane Hotel and Convention Centre a unique product in Botswana and at par with international facilities.  We believe that this lease will benefit not only us as Phakalane , but the market in general as Cresta has run hotels successfully in Botswana for over 30 years and is therefore expected to bring new offerings that appeal to the local and international markets as well as the residents and visitors to the Golf Estate. We look forward to a long mutually beneficial relationship with Cresta.” 

 

CML like the rest of the tourism and hospitality industry and the entire value chain was hard hit by lockdowns  with the surge of COVID-19. By investing during the low period, the company hopes to realise the future value of spending time in preparing for the new consumer dynamics and behaviour.  Despite business interruptions as a result of a six-month long state of emergency and several lock-down periods declared by the Government of Botswana to limit the spread of COVID-19, the Company is starting to record an increase in occupancies, which bodes well for the recovery of the industry and the Company’s future prospects.

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