Investors advised to Buy BTCL stock
Business
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.
Business
ICT sector contributed P1.6 billion in Q4 2022
The latest figures by the government owned statistics entity, Statistics Botswana show that the Information and Communications Technology (ICT) sector in this country registered significant growth during the fourth quarter of 2022 (Q4 2022).
According to the figures the ICT sector made a contribution of 2.5 percent to the total Gross Domestic Product (GDP) at current prices, in Q4 2022.
The figures show that at constant prices, the ICT sector realized an annual growth rate of 4.6 percent and the sector contributed around P1.6 billion to the economy during the fourth quarter of 2022. “In Q4 2022, the contribution of ICT sector to the economy stood at 2.5 percent of total GDP at both current and constant prices. The ICT sector’s value added at current prices amounted to P1, 633.6 million while at constant prices it amounted to P1, 242.2 million. The sector registered an annual growth rate of 4.6 percent in constant prices,” according to the Botswana Information and Communication Technology recent update by Statistics Botswana. The statistics entity noted that the Postal and Courier Services sector’s value added amounted to P67.2 million in current prices, which constituted 0.1 percent of total GDP in Q4 2022.
Giving an update regarding the performance of other ICT sub sectors Statistics Botswana stated that fixed telephone line subscriptions decreased by 2.3 percent in Q4 2022, from 93,925 subscriptions recorded in Q3 2022 to 91,725. Mobile cellular telephone subscriptions however increased by 0.8 percent in Q4 2022, from 4,315,368 registered in Q3 2022 to 4,348,010. Comparing Q4 2022 to the same quarter of 2021, fixed telephone lines decreased by 30.8 percent while mobile cellular telephone subscriptions went up by 4.5 percent. Both pre-paid and post-paid mobile cellular telephone subscriptions increased in Q4 2022. Pre-paid mobile cellular telephone subscriptions rose by 0.8 percent from 4,149,143 in Q3 2022 to 4,181,783 while post-paid mobile cellular telephone subscriptions increased slightly in Q4 2022 from 166,225 registered in Q3 2022 to 166,227, according to Statistics Botswana.
Total internet subscriptions both mobile internet plus fixed internet subscriptions increased by 3.6 percent in Q4 2022, from 2,875,153 registered in Q3 2022 to 2,977,845. Mobile internet subscriptions went up, registering an increase of 4.5 percent from 2,721,946 subscriptions in Q3 2022 to 2,844,958 in Q4 2022. Meanwhile fixed internet subscriptions decreased by 13.3 percent (from 153,207 registered in Q3 2022 to 132,887 in Q4 2022).
Statistics Botswana stated that mobile money subscriptions have been increasing over the years. In Q4 2022, mobile money subscriptions went up by 1.3 percent, from 1,788.551 registered in Q3 2022 to 1,811,036. Mobile money is a technology that allows customers to receive, store and spend money using a mobile phone. To enjoy the benefits of mobile money, a customer has to register and open an account with a mobile money service provider. Existing mobile money services in Botswana include Smega by BTC, Orange Money by Orange Botswana, Myzaka by Mascom and Poso Money by Botswana Post.
The statistics entity stated that on-net fixed telephone domestic calls (Fixed to fixed telephone calls) traffic went down by 8.0 percent in Q4 2022, from 15.4 million minutes registered in Q3 2022 to 14.1 million and added that off net fixed telephone domestic calls (Fixed to mobile telephone calls) traffic decreased as well in Q4 2022. It went down by 0.6 percent from 23.9 million minutes in Q3 2022 to 23.7 million minutes.
With regard to mobile telephone domestic calls traffic, on-net mobile telephone traffic decreased by
0.8 percent in Q4 2022 while off-net mobile telephone traffic increased by 1.6 percent. While mobile to fixed telephone traffic decreased by 1.1 percent in Q4 2022. International outgoing fixed telephone calls traffic declined by 8.2 percent in Q4 2022, from 1.1 million minutes in Q3 2022 to 1.0 million.
The entity noted that outgoing international mobile telephone calls traffic increased slightly by 0.8 percent in Q4 2022, from 4.1 million minutes recorded in Q3 2022. On-net short message services (SMS) declined by 1.5 percent and off-net SMS traffic also went down by 0.5 percent in Q4 2022, according to figures from the statistics entity.
Business
State owned MDCB comes to Minergy’s rescue
Government owned mining investment firm Mineral Development Company Botswana(MDCB) has agreed to bail out embattled Minergy Coal, and clear its arrears with mining contractor – Jarcon, the Botswana Stock Exchange coal miner said in a circular to the market this week.
In the statement Minergy which operates Masama Coal Mine in Media, near Lentsweletau said it has signed a term sheet for funding offered by its main funder, the Minerals Development Company Botswana (Pty) Ltd.
The facility terms are subject to normal legal counsel review, satisfactory due diligence, final documentation, and the review, acceptance, and execution of the relevant financing agreements by the MDCB and the fulfilment of suspensive conditions.
The funding will be utilised to significantly repay the arrears of the Jarcon trade account as required by the Term Sheet. The statement said Minergy and Mineral Development Corporation intends to finalise and allow the disbursement of funds by no later than 30 June 2023.
The funding will allow Minergy to initially continue operations in a reduced sales environment with the associated reduced-cost initiatives implemented to stabilise the business ahead of ramping up to pre-shutdown levels.
In mid- March Minergy announced the halt of Mining operations at Masama due to what it termed a drastic decline in coal prices which resulted in a cash flow crisis.
It emerged that the infant coal miner owed it’s mining contractor, Jarcon over P80 million in arrears. Jarcon had reached a decision to tool down and let go of some of its employees citing cash flow shortfalls as it sought to demand clarity on outstanding payments from Minergy.
Minergy has previously received funding in hundreds of millions from Mineral Development Company (MDC), another Botswana Government 100 percent owned entity.
MDCB, which is housed under the Ministry of Minerals & Energy, is the wholly owner of Morupule Coal Mine. The relatively new minerals investment company also owns 15 percent of De Beers Group on behalf of Government.
Minergy ’s other state funders are Botswana Development Corporation (BDC), the state owned investment entity, 100 percent owned by Government of Botswana, housed under the Ministry of Trade & Industry.
Combined, BDC and MDC have previously pumped over P300 million debt funding to Minergy to bring Masama coal mine to production and later for expansion.
Minergy incurred a net loss during the year ended 30 June 2022 of P131 151 034 (2021: P106 903 609). As at 30 June 2022 the Group had accumulated losses of P376 420 873 (2021: P245 269 838) and its net liabilities exceeded its net assets by P180 279 583 (2021: net liabilities exceeded its net assets by P56 030 697).
This gave rise to a material uncertainty that casted significant doubt on the Group’s ability to continue as a going concern, and therefore, that it may be unable to realise its assets and discharge the normal course of business.
Significant progress towards stabilizing the business was made during the financial year in mitigating the going concern which included receipt of the final tranche of debt funding, completion of debt restructuring to stabilise the business and successful commissioning of Stage 4 of the Processing Plant (Rigid Screening and Stock Handling section) which allows it to now operate at nameplate capacity.
In addition to this, the ongoing war in Ukraine stimulated high coal prices from the end of the third quarter of FY22, as the energy market and the security of supply came under severe pressure. This led to extraordinary demand, allowing access to previously uncompetitive and uneconomical exports into the seaborne market during the fourth quarter.
Minergy successfully exported coal via Walvis Bay, with two 30 000-tonne vessels dispatched in May and June 2022 on a FOB basis. The Group also exported coal through Maputo via rail to the port, with two trains dispatched in June 2022 on a Free-On-Rail (“FOR”) basis. These events increased sales volume for the financial year by 40%, with record sales achieved in May 2022. These increased sales levels have been maintained post year end.
Business
G4S Botswana gross profit down P12 million
G4S Botswana Limited gross profit for the year ended 31 December 2022 declined by around P12 million, according to the company’s consolidated financial statements released by Botswana Stock Exchange (BSE) this week.
G4S Botswana gross profit declined by P12, 373 000.00 from P51, 289 000.00 recorded for the year ended December 2021 to P38, 916 000.00 for the year ended 31 December 2022.
G4s Botswana provides security services to among others, financial services industry and the services include cash transportation, counting and reconciling cash, sorting of notes for use in ATMs, counterfeit detection and removal, redistribution of cash to bank branches, ATMs and retail customers. The company also collects and processes cash notes within the retail environment.
In the recent financial statements, the BSE listed security services provider noted its revenues and profits were negatively affected by increase in fuel prices and cost of proving security services. “The significant decline in gross profit for the year was as a result of the abnormal price increases on fuel, as fuel expenses increased by 88% for the full year, compared to prior year adding significantly to total cost. Additionally due to the heightened security risk environment, the business invested in enhanced security upgrades to its infrastructure specifically in the cash service line. Investment in live monitoring of all cash vehicles further added to the cost of providing service putting further pressure to total costs.”
The company recently indicated that following the increased national security risks characterized by attacks on cash in transit vehicles, the company was forced to improve security of its vehicles, by adopting the latest technology.
According to the company’s management the significant miss in Gross Profit (GP) largely drives the decline in the profit before tax (PBT) year on year. “Added to the PBT decline is the increase in administrative expenses owing to the normalization of the alarm monitoring and response (AMR) teams wherein from September 2021 Management added back the full crew complement to the AMR response crew structure which had been reduced during 2020 – effectively experiencing the full cost of this change in the whole of 2022.
G4S Botswana management meanwhile noted that its revenue for the period increased by 6.45% driven primarily by good growth in the manned guarding service line and added that the top line growth was despite the contract losses experienced during the period under review primarily because of the new Citizen Economic Empowerment (CEE) legislation. “The Cash service line grew marginally by 4% while the Electronic Security Systems (ESS) remained largely unchanged as it continues to experience intense competition from new entrants particularly in the Alarm monitoring and response (AMR) space.”
G4S Botswana management noted that the company will continue to focus on growing revenue following encouraging increases in revenue quarter on quarter for both the third quarter and fourth quarter of 2022, indicating that revenue lost during the first half of 2022 is systematically being recovered. “We will continue driving the sale of integrated security solutions to ensure that we remain at the forefront of security capability in Botswana. The trading conditions remain challenging with significantly fewer opportunities than in prior years primarily due to CEE legislation. As a response, Management continues to drive its commercial strategy of focusing on industry-specific growth such as the retail growth strategy that has driven revenue growth. The infusion of technology into our service offering has also been successful as a revenue driver. Specific focus for the year is on cost management with driving efficiencies across the business and continued fuel management aimed at managing profitability.”
G4S management noted that the company will continue to focus on improving profitability. “Despite the reduced performance of the company, in lieu of stated reasons, the Board of Directors and Management are confident of the company’s going concern status and will continue to work hard towards improved profitability in the foreseeable future.”