Market rally sparks concerns
“A lot of liquidity has come into the market”
Different sectors are driving its various phases
“We are seeing a cool-down in this rally,” Kgori
Botswana’s equity market has experienced a prolonged rally, prompting concerns about a potential bubble, according to a local investment firm.
Kgori Capital observed that it has been a considerable time since the market has experienced such positive sentiments driving this rally.
Botswana Stock Exchange (BSE) market reports that the Domestic Company Index (DCI) appreciated by 15.6% in 2023, compared to an increase of 10.2% in 2022.
From January 1 to April 30, 2024, the DCI appreciated by 2.4%, compared to a 3.8% increase during the same period in 2023.
Tshegofatso Tlhong, the Chief Investment Officer (CIO) at Kgori Capital noted “a lot of liquidity coming into the equity market”.
Pension funds have repatriated an estimated P8 billion over the past year. Ntsoaki Rampa, Investment Analyst at Allan Gray, previously cautioned about elevated valuations due to significant capital flow towards the same equities.
BSE market report for 2023 shows that of the 32 listed companies, including BBS registered on the Serala OTC Board, 21 were on positive territory, with the highest gainer being Chobe Holdings at 87.7% share price appreciation. Six companies registered a share price decline and the remaining five counters remained unchanged in share prices.
Tlhong explained that the momentum behind the rally is primarily due to different sectors driving its various phases. She ascribed the latest surge to the banking and financial services sectors, particularly in response to the interest rate cycle.
“Going forward we expect other sectors to start taking over in that rally.”
As price action moved very well, Tlhong observed “good earnings performances by different counters”.
Data tracked by Investor Mail shows that Botswana Telecommunication Corporation Limited (BTCL) has reported the highest growth in profit before tax. For the period ended 30 September 2023, the Company generated revenue of P717 million translating to a growth of 4% when compared with the same period in the prior year and P93 million in profit before tax which is a 268% increase year on year.
Top earners by margin include First National Bank Botswana (FNBB), the country’s most profitable bank in Botswana came to the market with profit before tax of P879 million for the half year ended 31 December 2023, reflecting a 28% growth year-on-year. Overall, the Bank which is the largest in market capitalisation delivered a Return on Equity (ROE) of 36.2%, which compares favourably to the 31,2% delivered for the first half of the prior year. FNBB is worth P11.9 billion trading at P4.69 as at 21st May 2024. In 2023, FNBB gained 22.9% according to BSE market report.
Botswana Insurance Holdings Limited (BIHL) which is the second largest in market capitalisation declared P1 billion as profit before tax in the 12 months ended 31 December 2023. BIHL rocked the market after a single record trade last year ending the year with a P3.0 billion turnover. While its record trade was not transactional, BIHL’s share price appreciated by 13% last year, now trading at P20.28 as at 21st May 2024. BIHL is currently worth P5.7 billion on the BSE.
“We have earning growth still outpacing price action so in the near term we still don’t see that there is a bubble forming,” Tlhong said adding that “we are seeing a cool-down in this rally but we still expect increased activity and there is still positive price momentum we expect”.
She also observed “quite a lot of dividends being declared over the last two years”.
Available market data indicates that Sechaba Holdings leads the domestic counters in terms of growth, reporting a 221.52% increase in 2023. The company declared a final dividend of 172.7 thebe per share and a special dividend of 251.7 thebe per share.
Engen follows with a final gross dividend of 193.0 thebe per share for the year ended December 31, 2023, representing a 172% growth from 70.90 thebe per share in 2022. Standard Chartered Bank Botswana ranks third, with a 50% growth, declaring a dividend of 103 thebe per share in 2023, up from 68.22 thebe per share in 2022.
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