Botswana Equity Markets: Where do Opportunities Lie

GABORONE (Capital Markets in Africa) – The year 2017 is going to be a mixed bag on the Botswana Stock Exchange. The banking sector is likely to grow at a smaller pace mainly due to the tight economic situation mirrored by the low-interest rate environment (Bank rate 5.5%). Impairments are also likely to rise mainly led by the closure of some mines in the country. Already Stanchart and FNBB have issued cautionary statements as they expect an increase in impairments mainly due to the closure of BCL Mine and its subsidiary Tati Nickel Mine. The mines used to employ over 5500 direct jobs and their closure is bad news for Botswana’s economy at large which depends on the mining sector. Barclays Bank Botswana seems to have survived this thanks to the fact that some of its facilities extended to the mine are guaranteed by the government of Botswana. The bank’s shares are currently in high demand on the Botswana Stock Exchange (BSE).

Micro Lending Sector
The outlook for the micro-lending space is exciting, with Letshego recently acquiring a 100% stake in Ghanaian financial services company AFB, which reported net profits of P10.9million during H1 2016. To date, Letshego now has a presence in eleven countries across Southern, East and West Africa and this is helping diversify its income away from the Botswana market which is almost reaching saturation.

FMCG Sector
The outlook for the FMCG sector is exciting with plenty of opportunities for growth. Choppies aggressive expansion outside Botswana has enabled the retail giant to have a presence in eight countries in Africa within eight years. The recent acquisition of Ukwala Stores in Kenya has given Choppies access to the lucrative Kenyan Market. The share price is down and is trading near its 52 week low of BWP2.27 per share. However, should the retail giant turnaround the fortunes from its loss-making South Africa operations, demand for its shares will pick up once again. Not to be outdone, Sefalana is also expanding outside Botswana and now has a presence in Namibia and recently Lesotho after acquiring TFS Cash and Carry. 

Sefalana has also acquired a 25% stake in a large consortium in South Africa which already has existing retail and wholesale store network across South Africa, giving the retail giant access to the lucrative but more competitive South African market. Sefalana’s strategy of getting a stake in an existing network of retail and wholesale outlets will protect it from some execution and penetration risks normally associated with greenfield expansions. This is because the consortium already has an established customer base, market share and is familiar with local market dynamics.

Property Sector
The sector is stable with average dividends yields of 5.8% which is above the market average yield of 4.6%. Vacancy levels remain low especially in the industrial space boosted by the growth of the local logistics and manufacturing businesses’. In contrast, the office space is saturated with an oversupply of office space brought about by the expansion of new office buildings within the Gaborone CBD area. We expect rentals in the office space to remain under pressure with the possibility of existing tenants even negotiating for lower rentals upon the renewal of their leases. 

As a result of the near saturation of the local property market, more local property companies are expanding their horizons beyond Botswana’s borders seeking growth and income diversification. In this regard, Turnstar one of BSE listed property company acquired the Mlimani City Mall in Tanzania in 2012. The mall is the first and currently the only indoor fully air-conditioned shopping mall in Dar Es Salaam and is home to fifty-four retail outlets including powerful brands such as Game, Apple i-store and LG. Primetime, another BSE listed property company has just entered the Zambian market and intends to develop a shopping centre in Chirundu and another mall in the capital city, Lusaka. 

Other companies where we expect growth this year include recently listed telecoms giant BTCL which is just up 7% above its IPO price of BWP1. We also see growth in tourism and hospitality companies such as Chobe and Wilderness which are currently benefiting from an increase in tourist arrivals especially from overseas markets partly helped by the recovery of the US and to some extent the Euro zone – the major source markets.

This article is featured in the March 2017 edition of INTO AFRICA Magazine, Africa’s Lions: Trust in Fundamentals and written by Martin M. Makgatlhe, Chief Executive Officer, Motswedi Securities, Botswana.