The Botswana Telecommunications Corporation Limited (BTCL) managing director has blamed the falling price of the company’s stock on the irrationality of retail investors.
BTCL which is listed on The Botswana Stock Exchange Limited (BSEL) has been having a rough year, with about 38 percent of value wiped since beginning of the year, making it the third worst performing stock on the main domestic counter. However, the only listed telecommunications stock at P1.14 is trading at 14 percent premium from its listing price of P1.
At the recent company’s annual general meeting, Anthony Masunga, BTCL managing director, made it clear that the share price fluctuation – which for the past months has been on the downward, can be traced to retail investors (individual investors). Masunga was responding to one of the shareholders who wanted to know why it appeared that the stock seemed to be more volatile that its peers on the BSEL.
Masunga started off by explaining that share price is driven by issues of demand and supply. Then he let it rip, saying that the stock volatility can be attributed to “the dominance of retail investors on the BTC shareholders base” and that most retail investors were first time buyers with limited understanding of how the stock market works.
“For example, some tended to sell when they have immediate short term cash needs, no matter the prevailing price share price for paying costs such as school fees and they will take whatever price they can get,” charged Masunga. “Some retail investors tend to panic when the share price declines and want to exit before the price declines further, not seeing this as an opportunity to buy more shares.”
Furthermore, BTCL’s talisman said there is limited participation by institutional investors for a number of reasons such as foreign shareholder restriction. “This led to poor liquidity which has led to poor price discovery, Masunga said, also explaining that institutional investors tend to take a long position on investments hence providing stability to stock price movements.
There is supporting evidence to Masunga’s assertions when one considers the company’s shareholding architecture and more importantly the company’s fundamentals which appear to be strong. BTCL has a monopoly on fixed lines, in addition to its other profitable ventures such mobile network provider and also as an internet service provider. Moreover, BTCL has only reported a once off loss since listing ÔÇô a loss which was not due to operations but rather an impairment exercise.
Since then, BTCL has recorded healthy profits before tax; P274.5 million in 2017 before easing to P263 million this year. The telecoms company with P2.4 billion in assets has zero debts and a strong cash position of P450 million, allowing BTCL to pay handsome dividends in comparison of other listed companies. In 2016, despite the loss, BTCL paid dividend of 0.5t, followed by 11.09t in 2017 and this year the company declared dividend of 13.43t, its largest to date. The company has a dividend policy of 50 to 65 percent of earnings, providing assurance that the higher the profits, the higher the dividend payouts.
Furthermore, the drop in the share price could perhaps be part of the wider market rout: Of all the twenty four listed companies on the domestic main counter, only eight companies managed positive year to date returns, even then, the returns have been small in size.
Of course none of this matter to most individual investors who got involved in the stock market through BTC IPO in 2016 which was preceded by a nationwide awareness campaign and ended with a record breaking number of domestic investors. The BTCL IPO ushered in more than 50, 000 citizen investors, prior to that there were only 28, 122 registered Central Securities Depository Accounts (CSD).