Equity Prices expected to rise further
Dividend yield nicely compares with long-term bond yields
Valuations appealing to asset managers
Domestic equities surpassed that of global equities
A Chartered Financial Analyst at a local asset management firm believes there is still room for a rally in the local equity market. Tshegofatso Tlhong, who is the Chief Investment Officer (CIO) at Kgori Capital expects prices to rise further before entering “overvalued territory.”
During a webinar, Tlhong explained that the current historic price-to-earnings (PE) ratio is now 10.11x, compared to the historical average of around 13.7x. According to the expert, the PE ratio indicates how much you are paying for P1 of a company’s earnings. Against this background, Tlhong believes that in terms of the valuation of the market relative to what it used to be, “we are still paying a little bit less per unit of earnings”.
She also drew a comparison between dividend yield and bond yields. According to her, the historic dividend yield stands at around 7.1%. Bond Auction results from May 25, 2024, reveal that the 11-year bond cleared at a 7.8% stop-out yield.
“You will see that on a historic basis, the dividend yield for the local equity market is still very high and nicely compared to what we are seeing in the bond market,” Tlhong said.
Figures shared by Ninety One, also an asset management firm have shown an increase in dividend per share (DPS) for Domestic Companies Index (DCI). DPS increased to 25 thebe per share in 2023, up from 17 thebe per share in 2018.
Ninety One Portfolio Manager, Alphonse Ndzinge observed a significant rebound of domestic equity earnings. According to Ndzinge, earnings rose from -1.1% in 2018 to 13.8% in 2022. The firm projects that the DCI earnings per share (EPS) will reach 33.5% in 2024 and 10.4% in 2025.
The general agreement is that domestic equities are the preferred local investment because the valuations in the local equities market are appealing and there is positive earnings momentum and sentiment. Botswana equities, along with their dividend and income returns, are at record highs, boosting optimism that investing in domestic equities could yield good returns.
The growth of domestic equities surpassed that of global equities. Over the 3-month period ended April 2024, global equities grew by 5.6%, and over the 12-month period ended April 2024, they grew by 12.5%, according to Ninety One. Botswana equities on the other hand increased by 4.8% over the three months ending in April 2024, and by 24.1% over the twelve months ending in April 2024. The firm said that the growth was driven by strong dividend distributions and favorable valuations.
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