When you buy shares in a bank, it’s like buying a cow. You hope it grows in value, but what really matters is how much milk (or cash) it gives you every year. But not all cows are created equal—some give you more milk for less money. So, which bank offers the best deal for you? Let’s break it down with Absa and FNBB.
If you bought a dairy cow for P10,000 and every year, that cow gives you milk worth P1,000, you would be pretty happy, yeah?
Think of buying shares like buying a dairy cow. You don’t just hope the cow grows in value—you want milk every day. In monetary terms, the milk is called a dividend.
So, if your cow gives you P1,000 worth of milk every year, and you bought it for P10,000, you’re getting a 10% return every year. In finance, that’s called a dividend yield.
The dividend yield is simply the milk (P1,000) divided by what you paid for the cow (P10,000), which gives you:
- Dividend Yield = 10% (P1,000 ÷ P10,000)
In other words, you’re getting 10% of your money back in cash every year in cash just because you own the cow.
In investing, this is a simple way to see how much you can milk your cow, which is sort of like interest on your money.
If you wanted to buy shares of a bank on the Botswana Stock Exchange (BSE), two names stand out:
- Absa Bank Botswana and
- First National Bank Botswana (FNBB).
The question is, which one gives you more value for your money? Imara Capital Securities, a local licensed broker, said both are worth buying.
If you buy shares of Absa Bank Limited and First National Bank Botswana for P10,000 in each bank:
1. ABSA – a share costs P7.11 (as at May 2, 2025)
- With P10,000, you get about 1,406 shares (P10,000 ÷ P7.11)
2. FNBB – a share costs P5.20 (as at May 2, 2025)
- With P10,000, you get about 1,923 shares (P10,000 ÷ P5.20)
You own more shares of FNBB because the share price is lower compared to Absa. How much cash do you earn each year just for owning the shares?
Warren Buffett once said:
“Price is what you pay, value is what you get.”
Let’s use the dairy cow and milk analogy to see how much cash income you’d earn from each bank.
*Yields change based on the stock price, which always changes, and dividends declared. So brokers use dividends declared over the last 12 months. The formula is dividend (last 12 months)/price.
ABSA – Dividend Yield: 9.70% (according to Imara Capital)
ABSA pays you 9.70% of your investment in cash every year, as calculated by Imara Capital Securities as at 02 May 2025.
If you invest P10,000 in buying Absa shares, you expect to receive P970 per year.
FNBB – Dividend Yield: 7.85% (according to Imara Capital)
On the other hand, FNBB pays you 7.85% of your P10,000 investment annually. This means that you get P785 per year.
Based on the current dividend yields as measured by Imara Capital Securities, ABSA gives you more cash income (P970) every year, while FNBB gives you P785 per year.
But What If the Cow Stops Giving Milk? (Risks)
Ofcourse, it’s possible that your P10,000 cow won’t always produce milk without fail. Things like drought or poor grazing conditions can reduce how much milk you get.
In the world of investing, banks are like cows, they pay you dividends (milk) based on how well they’re doing. But their ability to pay can be affected by a kind of financial drought.
Banks make money mainly by lending to people and businesses. If fewer people are borrowing, or if interest rates are low, the bank earns less, and that means less milk (dividends) for you, the investor.
How Do Banks Make Money? (Earnings Explained)
As an investor, it’s important to keep an eye on how well the bank is doing.
You want to see:
- Growth in lending: Are more people taking loans from the bank?
- Ability to collect: Is the bank getting that money back?
These two main things, growth and collection, determine how much profit the bank makes, and in turn, how much it can afford to pay you in dividends.
*This week, Absa increased its lending rate—good news for its earnings.
Since lending is where Absa makes most of its money, a higher lending rate means it can charge more interest on loans, which could boost profits and possibly lead to more milk (dividends) for investors.
FNBB has a stronger earnings potential than Absa because it makes nearly half of its earnings from transactional banking charges. Absa’s earnings from lending are nearly 3 times more than from transaction fees.
Look Beyond Share Price
One share of Absa costs P7.11 compared to FNBB’s at P5.20 as at 02 May 2025, according to the BSE.
Now, the price tag alone doesn’t tell you if you’re getting a good cow. What matters is how much milk you get for what you paid.
According to Imara Capital Securities’ assessment, Absa’s cow might be undervalued—that is, it could be producing more milk than what the market is giving it credit for.
A key measure used to determine this is called the Price to Earnings ratio (PER). It tells you how much people are willing to pay for a company’s profit.
Imagine this:
- Your cow earns P1000 every year (that’s its “earnings”).
- If someone is willing to buy it for P10,000, the PER is 10 (because 10,000 ÷ 1,000 = 10).
You’re paying 10 times the cow’s yearly milk earnings.
Which one is fairly cheap?
Imara Capital measures Absa’s PER at 7.13 times, as at the end of April. The other way of looking at it is that, if you buy a share of Absa, you’re paying about P7 for every P1 of its milk (profit) it produces. For FNBB, Imara measures PER at 8.79 times. Meaning, you’re paying P9 for every P1 of its milk (profit).
A high PER means people are willing to pay more for each Pula the company earns. Technically, FNBB seems the more expensive cow even though the share price tells a different story (P5.20 compared to Absa’s P7.11 as at 03 May 2025). But it also means there is an expectation that FNBB will grow a lot in the future. A low PER might mean the company might be cheap, which in this case is Absa.
Let’s break it down again
At first glance, FNBB’s share price looks cheaper at P5.20, compared to Absa’s P7.11.But don’t be fooled by the sticker price. It’s about how much milk you get for the money.
- Absa: P7 for every P1 of profit: more milk for your money.
- FNBB: P9 for every P1 of profit: less milk, but the cow has other strengths.
So, Why Are People Willing To Pay More For FNBB’s Cow?
Because it’s a stronger, seems more reliable milker. FNBB doesn’t just rely on the grass (interest rates) to produce milk. It also earns from transactional fees, like banking charges, that keep flowing even in tough seasons. That makes FNBB’s milk output more stable.
Absa, on the other hand, depends more on interest income, so if the financial weather changes (like falling rates), its milk supply can dry up faster.
That means Absa is more exposed to interest rate swings while FNBB is better shielded from those ups and downs.
Remember that Absa is one of the banks to increase its lending rate last week to earn more interest.
Now You Want The Cow To Grow In Value
Getting milk (dividends) every year is great, but what if the cow itself becomes more valuable over time?
That’s what happens when a company’s share price goes up. It means the market is willing to pay more for the same cow you bought earlier. So, if you decide to sell it later, you can walk away with both milk and a profit on the sale.
Absa’s Cow Is Gaining Weight
ABSA’s share price has gone up a little this year, by about 2.75% between 31 December 2024 (P6.92) to 2 May 2025 (P7.11 – current price), according to data by the Botswana Stock Exchange (BSE).
Imara believes the share price could go even higher, from the current price (P7.11) to about P8.28. Based on this, Imara recommended a BUY for ABSA shares.
FNBB’s Cow Looks Strong Too
As at 2 May 2025, a share of FNBB cost P5.20 on the Botswana Stock Exchange (BSE).
Imara Capital believes the share price could rise to about P6.20, which is about 20% higher than it is now. Because of this, and FNBB’s strong performance, Imara recommends a BUY for the stock.
