Sunday, September 27, 2020

Barclays’ share price spikes ahead of split announcement

Barclays Bank of Botswana, the largest company on the stock exchange, lifted the market Thursday as its share price jumped 37 percent in a single trade to reach a record high of 41,00 as speculation for a share split intensified.

The bank’s market capitalization moved up from P 5 billion to P 6.9 billion on Thursday before its price eased to 38,00 thebe at Friday late trade.
The Thursday move was triggered by a single trade of 10,000 shares, which pulled the Botswana Stock Exchange’s (BSE’s) market capitalization to P 23.5 billion against P 20 billion at the end of last month.
However, on Friday afternoon, the company stated that it “will undertake a share split” but whose details are still to be approved by the BSE. Shareholders will be informed in due course.
“It looks like there is a strong demand for the blue chip companies, especially for the banking sector,” said Alphonse Ndzinge, an analyst at Investec Asset Management Botswana, before Barclays’ announcement.

Analysts across the board cheered Barclays’ late Friday announcement saying that the move was long overdue and would improve the stock’s tradability. However, they were divided on the ratio as some guessed that it would be five-to-one, while others pointed out that 10-to-one split would be more reasonable.

The Bank of Botswana’s decision to restrict the trading of BoBcs to the banking sector, the foreign currency trading spread ÔÇö among the commercial banksÔÇöand improving inflationary outlook, coupled with the hope of improved corporate lending, are being attributed to rally in the banking sector share price.

The move has pushed up the banking sector’s average price earning ratios to about 22 times against the market average of 16 times. Barclays remained at the top at PE of 26 times following its Thursday trade.

“I think the liquidity is tight and Barclays’ valuation are now stretched. And it makes it difficult for retail investors to get in. One will need P38, 00 to enter the market,” Ndzinge added.

The move by Barclays also means that the banking sector PE has moved up by 50 percent from 14.5 times ÔÇô nearly five years ago ÔÇô to 22 times.
The entire banking sector released strong results for both mid and year’s end recently. These results were largely attributed to their treasury departments.

“It is most likely that the recent cautionary notices that have been in the press, have led to the sharp upward spike in the price. In terms of banking sector earnings, it is likely that they will continue to be strong going forward,” Tapologo Motshubi, an analyst at Allan Gray Botswana said.

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Sunday Standard September 27 – 3 October

Digital copy of Sunday Standard issue of September 27 - 3 October, 2020.