Saturday, October 31, 2020

Govt backed LLR grows portfolio amid headwinds

The property investment company Letlole La Rona (LLR) has proven to be a defensive stock, raking in profits and boosting share price at a time when most listed corporates in Botswana are going the opposite direction.

On Friday, LLR released its financials for the year ended June 2020, which showed that profit before tax was up by 24 percent to P78.1 million. The improved profitability was on the back of the recovery from last year’s earnings which were depressed by a once-off book loss of P27 million upon the sale of the hospitality portfolio.

The Botswana Stock Exchange listed property company says its investment property portfolio remains resilient to the effects of the Covid-19 pandemic, with the properties achieving a 32 percent capital growth from the prior year’s fair value gain of P26.3 million. The investment property portfolio, with the addition of the new properties acquired during the year under review, now stand at P961 million. LLR’s property portfolio is diversified through 67 percent allocation to the industrial sector, 22 percent in retail, 6 percent in office buildings and 6.2 percent residential.

However, while the company’s property investments have shown resilience, LLR remains weary of uncertainties thrusted by Covid-19 outbreak, which have affected tenants.

“Notwithstanding the above, our tenants have experienced business interruptions due to COVID-19 lockdowns, this has resulted in tenants falling behind on rentals. LLR recognises and appreciates the cashflow challenges which businesses are going through due to the effects of the lockdowns and accorded tenants rental deferrals for a period of three months from April 2020, with the view of recovering the deferred amounts in future. These concessions to tenants are on a case by case and month-by-month basis,” noted Boitumelo Mogopa, LLR’s chairperson, in a commentary accompanying the financial results.

In February this year, the company  acquired a portfolio of 6 prime industrial properties for P174.4 million from Western Industrial Estate, a subsidiary of Botswana Development Corporation (BDC), which is also a major shareholder in LLR. The acquisition was wholly funded by cash reserves from the sale of its entire hospitality and leisure portfolio to Cresta Marakanelo Limited, purchased for P235 million by Cresta Marakanelo Limited , another company listed on the BSE in which BDC holds 27 percent shareholding.

Late last year, BDC, the wholly owned government investment agency, reduced its stake in LLR from 65.8 percent to 42 percent after disposing 66.5 million shares to property investor Grit Real Estate Income, with the London Stock Exchange (LSE) listed firm upping its stake in LLR from 6.25 percent to 30 percent, making it now the second main shareholder. The acquisition of BDC’s stake in LLR by Grit was settled through share consideration, in which Grit paid for LLR shares by issuing 9.8 million shares to BDC, which is equivalent to P150 million, resulting in BDC holding a 3.1 percent shareholding in Grit.

Meanwhile. The resilience is not only conspicuous in profitability, but also reflected through capital gains at the stock exchange, with share price appreciating  despite the stock market being bearish over the past 12 months. LLR has seen its share price rising significantly from its opening value of P1.85 per linked unit to P2.33 thebe as at 30 June 2020, representing gains of 25.6 percent during the company’s financial year ended 2020.

The Domestic Company Index (DCI),  which tracks share price performance of the 24 listed companies on the domestic counter, declined by 2.22 percent  in the third quarter, adding to another 4.1 percent decline in the second quarter, which had widened from the 1.54 percent in in the first quarter of the year. In the year to date, the DCI is down by 6.54 percent.

Still, the LLR stock has remained resilient through the quarters, and currently part of the only two listed stocks on the domestic counter that have gained in value since the year began. The share price has appreciated by 1.78 percent to trade at P2.29 per share, second to retailer Sefalana whose share price has risen 3.68 percent, making it the stock market’s top performer.

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