There is every likely hood that Botswana Telecommunications Corporations Limited (BTCL)’s share price during its Initial Public Offering (IPO) will be based on its cash flow rather than the value of its assets.
BTCL is expected to make a historic listing at the Botswana Stock Exchange (BSE) in two weeks time, at least according to the last communiqu├® from government. However, despite the anticipated listing, the corporation’s asset value is unknown, especially because it has separated with BoFiNet from the mother company BTC. Following the privatisation process, Botswana Fibre Network (BoFiNet), now led by Mabua Mabua acquired over P1.4 billion in assets from the BTC, an equivalent of over 50 percent of BTC’s asset value. BoFiNet, wholly owned by government, was established to manage the national telecommunications backbone and be the whole telecommunication provider.
In a previous interview with Sunday Standard, a financial analyst at Motswedi Securities, Garry Juma, indicated that as brokers when they value securities of a company they look at a number of factors including its assets, cash flow, management as well as profitability of the company.
“We look at a number of things before determining the IPO, and key amongst the list is profitability. We also assess the company’s cash flow, whether it is steady enough to finance the activities of a company. Even the company’s ability to borrow is key to potential investors,” Juma said.
Generally, investors want the company to provide regular cash flow and distributions to shareholders. Without this, they will sell the stock and the price will fall. Three weeks ago, minister responsible for Communications, Tshenolo Mabeo could not tag a value on the BTCL shares. With BTC’s decreased asset value, the company is faced with a key decision to make as the date of the IPO draws nearer’ whether to base the share price on its asset value or cash flow.
Cash flow was also the ‘number’ that investment bankers for international ICT companies such as Twitter and Facebook used widely to sell their shares to the public. Available figures show that by the financial year ending 31 March 2012, BTC assets were valued at over P2.3 billion. However, most of these assets have since been moved to BoFiNet, among them the Dense Wavelength Division Multiplexing (DWDM) designed to use the national fibre networks (EASSY and WACS).
BTC’s cash flow has been favourable before the privatisation process with its revenues for the year ending March 2012 growing significantly to P1.1 billion while profit for the period was pegged at P234 million. The company’s Chief Executive, Paul Taylor, said in one of the previous press briefings that he was convinced that post privatisation, BTCL has the potential to be as profitable.
The big question that remains to be asked is whether BTCL’s IPO price will break the record of the Botswana Stock Exchange.
At the same time, BTCL sponsoring brokers are likely to consider the fact that in general, capital markets do not respond well to high IPO prices.
“Investors usually accept prices that are lower than a company’s owners would anticipate. Consequently, stock prices after an IPO can rise, and indicate that the company could have raised more money. But too high an offer price, and possibly flawed investor expectations, can result in a precipitous stock price fall,” an analyst from a local broker said.
From the onset, the government announced that in the upcoming IPO, a total of 49 percent of the company’s shares will be on offer, of which 44 percent will be available for purchase by citizens and citizen companies. The remaining five percent will be retained for BTCL employees.