Sunday, October 1, 2023

An Investor’s dip into the local stock market

The current low interest environment in the banking sector, as reflected by ill-favoured rate of return to depositors on money that they have parked in bank coffers, is said to be good enough to motivate investors to explore the equity market as an alternative playing field to getting returns on money. 


The equity market is a juncture where investors interact over the buying and selling of shares of companies that are listed in the stock exchange. The stock market gives companies access to capital should the need arise and also gives investors the opportunity to have a stake of ownership in a listed company. With the stock market arising as an option to providing returns on money, it might be interesting to give investors a bird’s eye view into Botswana Stock Exchange (BSE), so as to determine, in broad terms, what one can get out of it.  


Sunday Standard picked on the brain of Motswedi Securities financial analyst Tlotlo Ramalepa to give the BSE overall market performance and a breakdown of sectoral performance of the market so as to give investors an idea of where it might be worth to take their money. Ramalepa boasts that the local stock market has been trailing a robust rise in prices that is hard to miss, referring to it as a ‘huge bull run’ with the domestic market showing off the illustrious performance as reflected by major gains from some of the local shares. 


In terms of comparing company shares within the same sector or industry, Ramalepa highlighted the use of Price-to-Earnings (P/E) ratio which assesses the value of stocks. For example, when deciding which stock to buy among a selected few that all have good prospects, one can use the P/E ratio as a deciding factor of the best one to pick. A higher P/E means that earnings are smaller relative to the price of the share which might mean that the company is generating less relative to how much investors are willing to pay for the stock. A lower P/E ratio means the stock is undervalued which might indicate that it is attractive as it reflects the potential to grow. It also means its earnings are quite high relative to its price. For example BIHL and Letshego which are currently trading at P/E of 7.8x and 10.1x respectively, indicates that BIHL is relatively cheaper to Letshego. Ramalepa however advises that a sense of alertness is needed as to why a stock is relatively cheaper than others. He added that some shares reflect potential for growth, such as property and retail shares which could generate more investor wealth in the long term.         


With specific regard to the equity market BSE has 35 listed companies spanning over nine different sectors. Ramalepa focused his analysis on four sectors namely the banking sector, tourism sector, retail sector and the property sector and painted a picture of how each is faring in terms of the investor activity taking place within it. Investor activity in this case refers to the buying and selling of shares. 

Retail Sector:        

“We have seen a huge rally within the retail industry as a response to their robust expansionary plans outside the country. However growth could abate going forward as our retailers face other giants which has secured stable market shares within Africa. We have also seen extension of branded goods, curbing their costs of sales and thus adding to their gross profit margins. However we remain cautious about the sector as we anticipate growth to slow down reflecting the intense competition outside Botswana.”

Banking Sector: 

“The banking space has been operating under a rugged environment, experiencing a slack on margins due to the lower bank rate. With the recent economic indicators showing sluggish economic growth, we are likely to see more pressure and subdued growth from the banks as rates could remain lower in the midterm. However, banks have been trying to be innovative, coming up with products which have driven their non-interest incomes. For example FNBB managed to grow its non-interest income by more than 100% in a space of 5 years.”

Property Sector: 

“Property stocks have been some of the most favoured in the market due to the relatively stronger dividend yields contributing to investor returns. The office property sector has been characterized by huge competition as there has been a shift to the new CBD area, posing upward pressure on vacancies within other office spaces and constraining rentals on some of those property counters exposed to that sector.  Their exposure however is mainly on retail as most of them have over 50% of their portfolio within that space. The emergence of new malls in Gaborone has led to some struggling in terms of hiking rentals which is weighing on their profitability. Our “house view” is still positive on the property space in the long term as we expect stability of cash flows and our confidence about the sustainability of their dividend payments.” 

Tourism sector: 

“The tourism sector posted the major performance during the year thus far, buoyed by the resilience of the global economy, mainly the US which has made significant growth in the labour market. We expect positive growth from this sector going forward, at the back of a stronger dollar and also given that the European Central Bank initiated quantitative easing program early this year in order to boost the economy, which also plays a major role in the growth of our tourism sector.” 


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