Monday, October 26, 2020

BTCL Shares, to buy or not to buy?

SUNDAY STANDARD’s TLOTLO LEMMENYANE asks If Batswana must buy into the Botswana Telecommunications Corporation Limited (BTCL) shares out of an emotional attachment to a home grown company that is said to “belong to us all” or because their good sense tells them that it’s an offer worth grabbing?

Batswana have been and continue to hackle their minds in deciding whether this is something that they will look back on and wish they had been part of or something that they will be grateful that they weren’t swayed into. The short end of the story is, Batswana have many questions jolting through their minds about BTCL’s initial public offering (IPO) but the most trivial one is whether or not they should buy into the offer.   

“We strongly recommend investors to BUY the stock during the IPO and also subsequent to listing as BTCL provides significant growth potential to investors,” urges a local brokering firm, Motswedi Securities in its IPO research note. As a broking firm Motswedi acts as an agent that buys and sells shares on the Botswana Stock Exchange (BSE) on behalf of investors, a service from which it earns a commission. The impelling note succinctly gives BTCL’s background, explains its business model and gives reasons why Batswana should invest in the corporation among other things. In an interview with Sunday Standard Garry Juma, an analyst with Motswedi Securities cited BTCL’s Price-to-Earnings (P/E) ratio at 5.5 which he highlighted was much lower than the market average P/E of 14.7. Price-to-Earnings (P/E) is a ratio used to assess the value of stocks particularly when deciding if the stock is worth buying. 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. “At 5.5 it means that there is more scope for the share price to rise much faster,” expounded Juma. The research note, cites based on a conservative valuation method, the broking firm’s target price of P1.80 which simply means that at a listing price of P1.00 per share, as indicated in the prospectus, the BTCL stock has an 80 percent potential to rise. While a lower P/E reflects potential for growth, Juma highlighted that it could also indicate unexciting company financials. In the case of BTCL he emphasized however that the corporation is a profitable venture, as proven by its financials over a five year period between 2011 and 2015. Juma used the fact that BTCL does not owe anyone anything as a measure of its profitability citing that “any additional cash generated its either they will plough it back or they will pay a very good dividend.” The research note highlights that BTCL has been able to increase its revenue from P1 billion in 2011 to P1.47 billion in 2015, while profit after tax has risen from P177 million in 2011 to a high of P273.6 million in 2013 before falling to P146.8 million in 2015.  

On whether the proceeds from the IPO will be enough to support BTCL’s growth strategy Juma expressed confidence in the adequacy of the proceeds to support the corporation’s growth adding that even it if it were necessary to acquire additional funds, any bank would not find it difficult to extend financing to BTCL because of its healthy financial position. Regarding the strategic plan, Juma expressed that “on paper they are good, they are in line with expectations but what is important is to deliver.” Moreover, Juma pointed to BTCL’s unique market position as an operator of both the traditional fixed line and its mobile network, BeMobile, as a competitive advantage that does not need the corporation to struggle to remain on top of the game adding that it’s a matter of doing the best and simply making sure that people are happy.    

Sunday Standard also garnered expert analysis on the BTCL IPO from Kwabena Antwi, an investment analyst at Afena Capital. Antwi urged investors to look closely at the BTCL’s growth prospects so as to determine where future revenue will be generated and also assess the feasibility of the specified plans anticipated to support such growth. This, he said, will give investors an idea of whether the shares are worth buying. In interpreting the growth strategy, Antwi opined that it is credible as it takes advantage of its competitive strength as the only combined fixed and mobile network operator in Botswana.

According to Antwi the profitability of BTCL is clearly indicated by its financial information which shows that since 2012 the corporation has been making a profit adding that management forecasts also point to future profitability. “The only exception is the 2016 financial year where a loss of P128million is forecasted. The cause of the loss is an impairment charge of P306 million against property plant and equipment which management believe is non-recurring charge,” Antwi highlighted.  

Regarding the IPO proceeds Antwi indicated that “it is difficult to assess whether the money to be raised from the Initial Public Offering (IPO) will be enough to support its growth strategy until more details of what exactly the funds will be used for are given.” Similar to Juma’s view, Antwi has confidence that BTCL will not struggle to raise funds either through the bond market or bank loans should the IPO funds be insufficient to support its growth plans because it currently does not have debt.

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