Analysts say its well-positioned to leverage developments in the sector
Kgori Capital expects positive momentum in the sector
Imara recommends BUY
Navigating towards a greener future, Botswana Telecommunications Corporation Limited (BTCL) faces a landscape reshaped by digital advancements and regulatory shifts.
Despite challenges from over the top (OTT) applications like WhatsApp, which have reshuffled revenue streams, BTCL reported a 3% revenue growth in the 12 months ended 31 March 2024 , bolstered by robust demand for mobile data. Profit before tax surged by 34.68%, validating strategic cost optimisations.
However, the path to greener pastures is not without hurdles. BTC’s cost of sales increased by 7.26% to P637.3 million(FY 23: P594.2 million) underpinned by higher maintenance expenses due to copper cable theft and vandalism of network equipment, along with rising spectrum costs. BTC MD Anthony Masunga said the continued migration of its customers to fibre and wireless broadband technologies is helping to mitigate the effects of copper theft and helps strengthen BTCL’s position in providing high-quality services to the market.
Looking forward, Imara Capital’s analyst Kaone Ranko said BTCL is poised to benefit from ongoing infrastructure investments and increasing data demand.
“Although the counter’s market share remains lower than its competitors’, we remain optimistic on its long-term growth prospects backed by the increase in data traffic, usage of broadband services and the company’s endeavours to improve its network infrastructure.”
The company saw a 13.22% drop in mobile broadband subscribers, bringing its market share down by 193 basis points to 8.23% (March 21: 10.16%).
“Our objective of becoming the top digital services provider in Botswana remains steadfast for financial year 2025,” the MD said adding that “Our strategy aims to boost revenue by offering high-quality services at affordable prices, targeting specific customer groups across different areas, and leveraging cost savings to enhance profitability by financial year 2025”.
Ranko expects that BTC’s de-coppering strategy, replacing copper with fiber will enhance network performance, and has been efficacious in cushioning the downtrend in voice revenues.
Notwithstanding the slide in voice revenues, in terms of BTCL and its market share in the local telecommunications industry, the business increased mobile telephony subscribers by 16.90% year-on-year (y-o-y), with a market share rise of 144 basis points to 17.91% (March 21: 16.91%).
The company's mobile money business grew significantly (+60.91% y-o-y), albeit its market share remains relatively low in contrast to its competitors. BTCL's mobile money market share increased by 243 basis points to 8.56%, up from 6.12% in March 2021.
“To strengthen our mobile financial services ecosystem, a cornerstone of our digital strategy, we launched the SMEGA financial inclusion program,” Masunga said adding that this initiative aims to bridge the gap in access to financial services, providing financial inclusion regardless of location, age, or gender. “The program seeks to lower fund access costs, offer emergency liquidity, enable minimal-contact fund transfers, and drive regional economic growth.”
Ranko said the company also stands to benefit from the government’s initiative, through its Vision 2036 program, to drive economic development with Information and Communications Technology as one the major catalysts. “Furthermore, the anticipated uptake of 4G and 5G services, propelling digital marketing and retail channels, will drive demand for smartphones and other electronics, particularly in urban areas.”
According to Statista’s 2023 Botswana Economy and Society Report, eCommerce generated the highest digital revenues in Botswana in 2021 and accounted for 89.4% the total measure, signalling significant potential in the digital market. Despite this, eCommerce penetration in Botswana lags behind regional averages, as the country ranked 87th globally in internet penetration in 2021.
Ranko said addressing the gap compared to regional averages presents untapped growth opportunity for BTCL, especially through initiatives that expand internet access and improve service quality such as the company’s rolling out of fiber and agreements in place with the Universal Access and Service Fund for the upgrade of telecommunications base stations.
A key development in the sector is also the Data Protection Act. Although the market is still seeing how it will be rolled out Kgori Capital expects to see more onshoring of data centers. “A number of organisations house their data centers in South Africa, so we expect to see a move of data center capabilities and we do have a number of outfits that have data infrastructure available in the market,” Tshegofatso Tlhong, the Chief Investment Officer at Kgori Capital said during a webinar recently.
Specifically, she was referring to the telco companies. With regulation calling for data to be moved onshore, Kgori Capital expect some positive momentum for the telco sector.
Imara’s relative valuation for BTCL yields a target price of P1.32, representing a 29.41% potential upside for its share price. BTCL was trading at P1.02 as at July 12 2024. Market performance report by the Botswana Stock Exchange (BSE) shows that the share price appreciated by 22.9% during the first half of 2024, with growth tilted to the upside.
“We assign a BUY recommendation for the counter,” Ranko said adding that “the argument in relation to the counters price discovery still stands, as its shareholding is limited only to citizens of Botswana, hence its significantly discounted price relative to its peers”.
Commenting on liberalisation of its shares, Masunga said: “We have engaged for many years, but the government is neither saying yes or no.”
In 2022, Thapelo Tsheole, then CEO of the Botswana Stock Exchange (BSE), advocated for the removal of restrictions on the company's shares. Tsheole argued that limiting shares to only Batswana hindered share price growth due to restricted diversity of perspectives. "The share price will never grow without diverse views," Tsheole emphasized. He mentioned that the government responded, stating it was a cabinet decision and would be reviewed.
“When we say a market, we mean a place where diverse people with diverse views can actually come into play.”
The BSE strongly believes that one reason why BTC's share price remains stagnant is the lack of demand, regardless of profitability. Tsheole noted that the prevailing mindset persists regardless of profit levels. Generally, price reflect the market dynamics of industry the company operates on, the performance of the company and the confidence in management. A lot of BTC’s shares are in the arms of retail investors who are considered to be unseasoned when it comes to investing. Analysts observed that the share price is very volatile (large moves up and/or down over short spaces of time) because of the large retail component. The citizen requirement does contribute to the volatility, especially on the downside because some large investors even within the country are excluded from holding the share.
Accordingly, Tsheole suggested that restrictions should only be imposed at the IPO stage. Beyond the IPO and after several years, he argued, there is no justification for maintaining restrictions. In fact, he warned that prolonging restrictions could actually suppress the share price. Tsheole's primary concern was that the entry of another telecommunications company into the market while Batswana still hold BTCL shares would likely drive down the share price.
Analysts previously advised that allowing foreign participation could maintain price stability.
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