Tuesday, January 19, 2021

Earnings to be used as yardstick for jaded market – analysts

Financial analysts warned the markets last week that earnings will be the driving force this year in companies that are to brighten their investors’ faces in the face of sagging indices on the stock market.

The call comes at a time when indices on the Botswana Stock Exchange (BSE) are falling at dramatic levels ÔÇô mainly pulled down by the banking sector ÔÇô which has been undergoing a serious correction in the last six-to-eight months.

“All what we are seeing now is more of a correction on the banking stocks. What will determine the way forward are the earnings and guidance from management,” an analyst at Investec Asset Management, Alphonse Ndzinge, said Friday.

The banking sector which accounts for nearly 70 percent of the market capitalization saw its stocks being punished for driving prices out of the roof for the past three years. So far, among the banks only First National Bank of Botswana (FNBB) has released its half year results to December 2007, and it is expected that Barclays Bank of Botswana ÔÇöthe largest commercial bank in the countryÔÇöwill release its results in the coming weeks and then followed by Standard Chartered Bank of Botswana. Their results will serve as an indicator of where the market will be headed to in the second half of the year.

However, since October last year the banking stock share prices have been falling dramatically pulling down the domestic company index with them. The DCI has sagged by nearly three percent to 8187.38 points on year-to- date basis by Friday close, while the Foreign Companies Index and All Companies Index have remained flat at 2165.64 and 2337.66 points, respectively.
The move has left the mid cap and smaller caps as the pillars of the Botswana Stock Exchange (BSE) as some of the companies such as Sefalana Holdings have managed to rise in the midst of the carnage.

“ I think there is some value in some of the smaller and mid cap companies, such as Sefalana which has managed to withstand the correction,” an analyst at Capital Securities , Leutlwetse Tumelo, said Friday.

“I think going forward the issue of valuation has to be expressed even in the smaller mid cap companies,” Ndzinge said, adding that he expects an uptake in the second half of the year.
On Friday, Sefalana Holdings, which has become the darling of the BSE, traded 100,200 shares at 480 thebe leaving the jaded DCI at 8187.38 points.

“The pricing has to be right and that brings us to the question of earning and guidance from the management otherwise you would see material correction in the market,” Ndzinge emphasized.

The slide in the indices has not been helped by the votality in the mining stocks which have absorbed the contagion in the global markets. All mining stocks on the BSE have their primary listings in some international markets that have been facing a tsunami of loss of confidence ranging from a number of factors, such as a spike in international crude oil prices and the credit crisis that has hit the world’s biggest consumer market, the United States of America.

“The mining sector is highly volatile and there has been some massive sell-off between the beginning of January and mid January; however, some of the stocks have rebounded,” Tumelo said.

Both analysts agreed that the recent announcements by African Copper Plc and DiamonEX that they are to start production at the beginning of the second quarter of this year will instill confidence in the local market. African Copper, DiamonEx and Discovery Metals are counted as stocks that will add appetite in the market.

“The thing is that investors will now take a different view towards African Copper and DiamonEx because they know that they are no longer dealing with speculation,” Ndzinge said.

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