Tuesday, October 20, 2020

FNBB embarks on a share split to improve retail participation

First National Bank of Botswana (FNBB), the second largest bank on the Botswana Stock Exchange, warned the market about its intended share split, which is aimed at helping the retail investors to find the feet on the financial market ladder.

The bank is proposing an Extraordinary General Meeting to be held on June 13 this year to discuss the future of its share price, which has ballooned beyond an average individual’s pocket.
Analysts praised the move saying that it will increase the individual participation but in the long term would not affect the valuations of the companies.

“We are expecting to see a retail rush following the share split, but my worry is, looking at the past share split, it will not increase the liquidity in the market in the long term,” an analyst at Investec Asset Management, Alphonse Ndzinge, said.
The decision to come up with a proposed share split came at a time when its share price hit P 32 per share by close of business on Wednesday before the Bank Holiday mid-last week.

“The last share splits dating from 1997 haven’t increased liquidity but they managed to increase retail investors’ participation,” Ndzinge said.
His comments come at time when retail participation in share purchase is said to be at its all time high, as brokers pointed out that as for last year it was up by more than 300 percent- most of them being first time buyers. The trend has harmed insurance companies which, on the other hand, experienced mass cancellation of insurance plans as buyers caught on the market rally.

The FNBB will be the second listed institution this year to embark on a share split following a similar decision by Barclays Bank of Botswana earlier in the year. The move is powered by high real on equity which, according to the latest London-based African Investor magazine, puts the Botswana’s ROE as high as 58 percent.

“There are a number of issues driving the share price,” Ndzinge said, adding that among them are valuations and returns.

His comments were supported by Leutlwetse Tumelo, of Capital Securities, who said the less sophisticated investors are going to rush the share price up immediately after the split but that would be expected to stabilize after some time.

“ Experience has shown and it is still happening. There will be increase in demand from individual investors while institutional investors will look at the stock from a more technical side, such as valuations. This will lead to a situation whereby after some time the price will stabilize,” he said.
The decision by FNBB to embark on a share split comes after comments by the Botswana Insurance Fund Management’s Chief Investment Officer, Thomas Labuschage, earlier this month. Labuschage warned that banking had become expensive and the counter’s share price was not supported by valuations.

He said he expected a smooth landing going forward which would be addressed through various means among them some share splits.

“I am not expecting a dramatic market correction what I think would happen is that they would come with some measure to address this problem including share split,” Labuschage said.

His statement was backed by FNBB head of Credit and Risk , Richard Wright, who told the Botswana Financial Services Sector conference that the bank was on the verge of embarking on a share split.
At the time of going to press, it was not yet clear if the share split would be structured in terms of ratio. However, the thinking was it would probably be one-for-ten if not one-for-five.

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