Wednesday, January 19, 2022

Cash flow trajectory likely to drive BTCL IPO price

There is every likely hood that the Botswana Telecommunications Corporations Limited (BTCL) could announce its Initial Public Offering price of shares based on its cash flow as compared to the value of the assets of the company.

The company’s assets value is unknown since its separation with BoFiNet from the mother company BTC.

Following the privatisation process, the newly established Botswana Fibre Network (BoFiNet) 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 the government, was established to be the whole telecommunication provider.

In a brief 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.

This week, minister responsible for Communications, Nonofo Molefhi told Sunday Standard that the value of BTCL is not yet known.

However, he indicated that the process of determining it is ongoing and that it will form part of the decision regarding the IPO.
With BTC’s decreased asset value, the company is faced with a key decision to make an Initial Public Offering (IPO) at a diminished share price or use cash flow which is favourable.

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 but it has since lost some of it to the newly established BoFiNet which include 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 with profit for the period 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 one the local brokers said.

An excited Molefhi on Tuesday announced that in the upcoming IPO, Government will be offering a total of 49 percent of the company’s shares of which 44 percent will be available for purchase by citizens and citizen companies. The remaining 5 percent will be retained for BTCL employees.

“I am pleased to announce, therefore, that work towards the much-anticipated BTCL IPO has reached advanced stages. The BTCL IPO has been scheduled for Friday 7th November 2014. Further information on the BTCL IPO will be shared through various platforms in due course, through my Ministry, as well as through the Public Enterprises Evaluation and Privatisation Agency (PEEPA) and BTCL.”

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