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Investors advised to Buy BTCL stock

Investment Analysts at Motswedi securities have strongly recommend investors to BUY the stock during the IPO and also subsequent to listing as Botswana Telecommunications Corporation Limited (BTCL) provides significant growth potential to investors.

BTCL has opened an Initial Public Offering (IPO) of 462mn shares at a price of P1 per share with a minimum offer of 1,000 shares. The offer is expected to close on Friday, the 4th of March 2016 with the shares expected to list on the Botswana Stock Exchange (BSE) on the 8th of April 2016.

“With a listing PE of 5.5x, which is way below the market average PE of 14.7x, the share price has more scope for upside potential. We are targeting a price of 180 thebe for the stock, using a conservative valuation method. This gives an 80% upside potential against the IPO price of 100 thebe per share,” writes Gary Juma and Tlotlo Ramalepa who had embarked on a research project to appraise investors on the viability of the BTCL stock.

WHERE IS THE GROWTH STORY?

According to Juma and Ramalepa, the BTCL growth strategy is centred on leveraging its fixed, mobile and convergent products and services potential. The strategy is intended to leverage BTCL’s unique market position as the only fixed and mobile network operator in Botswana by creating competitive advantages for the company through the provision of traditional fixed and mobile broadband, information and content capabilities.

The two investment analysts further state that the BTCL’s strategic plan focuses on:
• Leveraging BTCL’s unique market position in Botswana, as the sole fixed and mobile operator, combining its mobile and fixed networks coverage, to smartly package unique fixed and mobile value propositions.

Moving BTCL Wholesale to higher value managed services, by offering managed (hosted) data services to mitigate the threat posed by direct competition with BoFiNet and others entering the managed data services market; • Defending the existing business through sophisticated bundling and packaging of traditional products, promoting BTCL tariffs, which are the lowest in Botswana, and marketing the BTCL network presence, and increased focus on customer satisfaction.
• controlling costs through business transformation by unifying networks and minimising the IT platforms estate, ensuring flexibility and agility in products and service offerings.
•innovating and growing revenues through building strategic alliances and partnerships, so as to improve levels of innovation, research and development capabilities within BTCL;

THE DOWNSIDE…

Increased competition in the telecoms sector within the country as a result of market liberalisation and this has led in some instances BTCL losing some of its key clients to competitors.

The business is a high volume business with profitability very sensitive to variation in margins. This is because, BoFinet determines the margins available to network operators and in some cases BTCL may not be able to pass on to the retailer any margin compression enforced by BoFinet and this will eat on margins and profitability.
However, Juma and Ramalepa point out that BTCL has a profitable and strong business model.  They opine that the company has been able to increase its revenue from P1.0bn in 2011 to P1.47bn in 2015, while profit after tax has risen from P177mn in 2011 to a high of P273.6mn in 2013 before falling to P146.8mn in 2015.
“BTCL has been paying a very good dividend of 5.66thebe per share in 2011, 7.11thebe in 2012 and 50.68thebe per share in 2014, reflecting a healthy cash flow position and profitability.”

WHY INVEST IN BTCL

Juma and Ramalepa demonstrate that BTCL has a number of strengths and competences which translate to certain key advantages over other players in the Botswana communications sector.

They first show a measure of the BTCL as a Profitable Company : “BTCL has a profitable and strong business model. The company has been able to increase its revenue from P1.0bn in 2011 to P1.47bn in 2015, while profit after tax has risen from P177mn in 2011 to a high of P273.6mn in 2013 before falling to P146.8mn in 2015.”
BUSINESS MODEL

The two analysts share on the BTCL business model: “BTCL offers its products and services through two operating business units namely: a. BTCL Wholesale – the wholesale arm of BTCL’s business; and b. FMC Organisation – which combines beMobile, Broadband and Fixed into a single business unit.”
Wider Network footprint

Juma and Ramalepa write that BTCL through its BeMobile unit has gained significant competitive advantage in the mobile domain, BTCL has a PTO Licence issued by the regulator, BOCRA. It is one of the three local PTO Licence operators (with the others being Mascom Wireless and Orange Botswana).

“BTCL is, however, the only PTO Licence holder operating both the traditional fixed and mobile networks. The BeMobile unit has gained significant competitive advantage in the mobile domain, particularly in remote areas because of its extensive mobile coverage. This network strength resulted in a 65% market share in fixed broadband and data services, 90% in fixed network voice services and 17% in mobile connections,” they state.  

According to Juma and Ramalepa, the mobile market share is notable in so far as it has been achieved within seven years against two very prominent and well established brands. No other operator has assets deployed as widely across both fixed and mobile services space as BTCL.
Vodafone Partnership

According to the Motswedi Securities analysts, BTCL has entered into a strategic partnership with one of the world’s leading communications services providers, Vodafone.

They state that this partnership will enable Vodafone and BTCL the option to cooperate and deploy certain products and services (including third party products and services); enabling BTCL to gain access to the Vodafone knowledge bank; and permitting the parties to carry out capability assessments and co-operate on procurement for the benefit of BTCL in Botswana for a period of three years.

Juma and Ramalepa argue that the existence of BTCL’s copper access network means BTCL is the only operator with capacity and capability to offer ADSL services. They posit that this affords BTCL a market opportunity to offer voice and ADSL services through the copper network to its clients. With the advent of new technologies such as Ethernet over Copper BTCL will in future be able to offer improved broadband internet speeds over its copper network.

BTCL IN BRIEF

“BTCL was established in 1980 to provide, develop, operate and manage Botswana’s national and international telecommunications services. Since then, BTC has evolved to become one of the leading providers in Botswana of voice telephony (both fixed and mobile), as well as national and international internet, data services, virtual private networks and customer equipment to the nation. Part of the Company’s growth and success stems from the acquisition of the PTO Licence in 2007, which was one of the three licences issued by BOCRA (then the Botswana Telecommunications Authority).

The PTO Licence permits BTCL to offer services of any kind, using any technology, connected with public telecommunications. BTCL is the only PTO Licence holder operating both the traditional fixed and mobile networks,” shares Juma and Ramalepa in their research document.

‘IPO Ya Rona Rotlhe’

Juma and Ramalepa state that BTCL was identified in the Privatisation Master Plan of 2005 as a candidate for privatisation. To facilitate BTCL’s privatisation process,

Parliament, in 2008, passed the Transition Act to enable Government to convert BTC from a statutory body to a limited liability company under the Companies Act. Government further adopted a privatisation model for BTCL in 2010. The key features of the Privatisation Model include, amongst others, the following:
44% of BTCL’s equity would be made available for ownership by Batswana via the BSE;

Government would retain 51% equity, together with the Trans- Kalahari Optic Fibre Network, the Gaborone-Francistown Loop and other backbone infrastructure assets and contracts which would be placed under a separate entity, wholly owned by Government.

Prior to Listing, 5% of the total equity of BTCL would be allocated to BTCL’s citizen employees and an Employee Share Trust will be established to manage and hold these shares for the employees.

Trading of shares in the BSE would be permitted amongst Citizen investors only;

WHY LIST?

Provide an opportunity to Batswana, who have supported BTCL over the years.

Allow Batswana to share in the growth and profitability of BTCL.

Raise the company profile and investor awareness of BTCL locally.

Raise equity capital for the company.

Enable government to privatise BTCL in line with the Privatisation Master Plan of 2005.
 

WHO CAN INVEST?

The Offer is available only to:

a. Natural persons who are citizens of Botswana.
b. Corporate entities registered or operating in Botswana which are wholly citizen owned.
c. Unincorporated associations, partnerships, and investment funds (whether managed directly or by institutional investors registered in Botswana) which are wholly Citizen owned.
d. Trusts whose ultimate beneficiaries are all Botswana citizens.
e. Local Pension Funds managed by institutional investors registered in Botswana.

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Business

Pula smiles at COVID-19 vaccine

25th November 2020
COVID-19 vaccine

A squeaky and glittering metaphoric smile was the look reflected from the Pula against the greenback this week and money market researchers lean this on optimism following Monday’s announcement of another Covid-19 vaccine which is said to have boosted emerging market economies.

With other emerging market currencies, the Pula too reacted to optimism and fanfare on the new Covid-19 vaccine against the weakening US dollar which has been losing its shine since the uncertainty laden US elections.

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Business

Choppies high on JSE rollercoaster volatility

25th November 2020
CHOPPIES

After bouncing back into the Johannesburg Stock Exchange (JSE) last week Friday, following a year of being in the freezer, the Choppies stock started this week with much fluidity.

Choppies was suspended in both the Botswana Stock Exchange and its secondary listing at the JSE for failure to publish financial results. Choppies suspension on Botswana Stock Exchange was lifted on 27 July 2020. On Friday last week, when suspension was being lifted, Choppies explained that this came into fruition “following extensive engagement with the JSE.”

Choppies stock, prior to suspension, hit a mammoth decline in value of more than 60 percent, especially in September 2018. Waking from a 24 month freezer, last week the Choppies share price was at R0.64 and the stock did not make any movement.

However, Monday was the day when Choppies stock moved vibrantly, albeit volatile. Choppies’ value was on a high volatile mood on Monday, reaching highs of 200 percent. At noon, the same Monday, the Choppies share had reached R1.05. Before taking an uphill movement, Choppies stock slightly slipped by 2 cents. But the Choppies share rode up high and by lunch time the stock had reached the day’s summit of R2.00 and that was at 13:30 when investors were buying the stock for lunch.

The same eventful Monday saw gloom on the faces of Choppies rivals, when Choppies gained by 220.31 percent around lunch time its rivals in the JSE Food & Drug Retailers sector were licking wounds. Spar lost 2.94 percent, Pick Pay fell by 2.43 percent, Shoprite 7.52 percent and Dis-Chem 1.98 percent. The only gainer was Clicks by a paltry 0.51 percent.

In an interview with BusinessPost, Choppies sponsors at the JSE PSG Capital Managing Director Johan Holtzhausen explained that the retailer’s stock was in high demand after a long suspension. He said when a company list or a suspension is lifted the market needs to find itself on the pricing of the share.

“Initially when the suspension was lifted there were more buyers than sellers. As far as we could see this created a shortage of shares so to speak and resulted in the price at which the shares traded going to R1.20 and eventually R2.05 before finding its level around R0.80 sent from a JSE perspective.

This is marked dynamics and reflect that there are investors that are positive about the stock in the long run. This is a snapshot over a short period and one requires a longer period to draw further conclusions,” said Holtzhausen in an interview talking about the Choppies stock.

On Monday this week where the Choppies value grew by 200 percent, the stock took a turn looking down, closing the day at R0.87 from a high of R2.00. According to local stockbroker Motswedi Securities on Monday while there was no movement by Choppies in the local stock exchange as the retailer appeared on the board as 141,000 shares traded at P0.60 each.

However in Choppies’ secondary listing the stock price rallied to over 200 percent during intraday trading on Monday before losing steam and declining to around R0.87 share.

Before press yesterday Choppies opened the market with the stock starting the day at R0.80 then went flat for few hours before taking a slide downward, dropping 5 cents in 30 minutes. Choppies then went flat at R0.75 for 50 minutes yesterday before going up at 10:20 am where it nearly recovered the open day price of 80 cents, but was shy of 1 cent. From 79 cents the price went flat until noon.

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Business

Foschini-Jet merger, a class and rivalry conundrum dissection

25th November 2020
Foschini

Competition and Consumer Authority (CCA) has revealed that in its assessment of the Jet take over by Foschini, there were considerations on possible market rivalry and a clash in targeted classes.

According to a merger decision notice seen by this publication this week, high considerations were made to ensure that Foschini’s takeover of Jet is not anyhow an elimination of rivalry or competition or if the two entities; the targeted and the acquiring enterprise serves the same class of customers or offer the same products, to elude the anti-trust issues or a stretch of monopoly.

The two entities are South African retailers whose services stretched to Botswana shores.  Last month local anti-trust body, CCA, received an acquisition proposal from South African clothing retailer, Foschini, stating their intentions to take-over Jet.

South African government’s Business Rescue Practitioners earlier this year after finding out that Jet’s mother company, Edcon, is falling apart, made a decision that Foschini can buy Jet for R480 million. This means that Foschini will add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents.

However the main headache for the CCA decision which was released this week, is distinguishing the targeted and the acquiring entity businesses and services.

When doing a ‘Competitive Analysis and Public Interest’ assessment, CCA is said to have discovered that Foschini is classified as a “standard retailer” which targets middle-to-upper income consumers and it competes with stores such as; Truworths and Woolworths. The targeted entity, Jet, is on the lower league when compared to its acquirer, it serves customers of lower classes and is regarded as a discount/value retailer targeting lower income consumers or a mass market. This makes Jet to be in direct competition with Ackermans, Pepkor, Cash Bazaar and Mr Price.

“Therefore, a narrower view of the market is that Foschini through its stores trading in Botswana is not a close competitor to Jet. Additionally, there exist other major rivals who will continue to exercise competitive constraints on the merged enterprise post-merger,” concluded CCA this month.

The anti-trust body continued to explain that in terms of the Acquisition of a Dominant Position, the analysis shows that the acquisition of the target business by Foschini Botswana will result in an insignificant combined market share in the relevant market.

This made CCA reach to a conclusion that there is no case of an acquisition of a dominant position in the market under consideration or any other market on the account of the proposed transaction.

What supports the merger according to CCA is that it is in compliance with regards to ‘Public Interest Considerations’ because the findings of the assessment revealed that the transaction is as a result of the need for a Business Rescue by the target enterprise. This is so because in the event that the proposed transaction fails, it will translate into the loss of the employment positions at the target business.

“On that note the Authority (CCA) found it necessary to ensure that the proposed merger does not result in any retrenchments or redundancies. In light of this, the assessment revealed the critical need to protect the employees of the merged entity from possible merger specific retrenchments/ redundancies,” said CCA.

Before making a determination that the recently proposed transaction is not likely to result in the prevention or substantial lessening of competition or endanger the continuity of the services offered in the relevant market, CCA said it then moved into a concern for public interest which is a protection enshrined in the Competition Act of 2018.

CCA’s concern was mostly loss of livelihood or employment by 126 Batswana workers at Jet stores, stating that possible retrenchments or redundancies may arise as a result of implementation of the proposed merger.

Much to the desire of trade union or labour movements in Botswana and across Southern Africa where the Jet stores are stemmed-who also raised concerns about the retail’s workers job security- CCA subjects Foschini to keep the target entity 126 workers.

“There shall be no merger specific retrenchments or redundancies that may affect the employees of the merged enterprises. For clarity, merger specific retrenchments or redundancies do not include (the list is not exhaustive): i. voluntary retrenchment and/or voluntary separation arrangements; ii. Voluntary early retirement packages; iii. Unreasonable refusals to be redeployed; iv. Resignations or retirements in the ordinary course of business; v. retrenchments lawfully effected for operational requirements unrelated to the Merger; and vi. Terminations in the ordinary course of business, including but not limited to, dismissals as a result of misconduct or poor performance,” said CCA.

CCA also orders that Foschini informs it about all the details of 126 Jet employees within thirty (30) days of the merger approval date. CCA should also know information of when Foschini is implementing the merger, within 30 days of the approval date.

Other conditions include Foschini sharing a copy of the conditions of approval to all employees of the Jet or their respective representatives within ten (10) days of the approval date.

“Should vacancies arise in the target, the merged enterprise shall consider previous employment at one of the non-transferring Jet stores to be a positive factor to be taken into account in the consideration of offering potential employment,” said CCA.

According to CCA, in cases of any job losses, for the Authority to assess whether the retrenchments or redundancies are merger specific, at least three months before (to the extent that this deadline can be practically achieved and in terms of the prevailing and legally required employment practices) any retrenchments or redundancies are to take place, inform the Authority of:  i. The intended retrenchments; ii. The reasons for the retrenchments; iii. The number and categories of employees affected; iv. The expected date of the retrenchments.

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