Tuesday, September 29, 2020

Letshego struggles to gain influence beyond borders

The journey towards business consolidation and influence outside the country seems difficult and elusive with Letshego recording insignificant and uninspiring performance in African states.
A financial data released this week by Motswedi Securities (Pty) Ltd ÔÇô a reputable member of the Botswana stock exchange ÔÇô paints Letshego operations in Botswana exceptional while its subsidiaries in African states are relatively insignificant and gloomy.

Letshego ÔÇô the local market leader in consumer lending ÔÇô recorded a stunning and exceptional performance in Botswana with the group profit before tax standing at P217, 4 million for the financial year ending 31st January.

But its African operations are bleak with Africa subsidiaries contributing a paltry P16, 5 million to the group profitability- repeating another similar low turnout projection at P2, 2 million in 2006.
Motswedi research section headed by Garry Juma attributes Botswana’s immense performance to a solid book growth which saw the group loan book increase by 83 percent to P787, 9 million on the back of a 31 percent growth in interest income from loans and advances to customers.

“Botswana operations continue to be the major contributor to revenue and profitability with the loan book brand name Letshego has managed to create. Letshego Guard continues to grow and contribute towards the overall group profitability and currently has 43 000 as at 31st October 2006”, reads part of the report.

“Letshego Guard has established permanent legal representations in Francistown and Maun to further improve service delivery and turnaround time. This is a positive move as it enables the group to tap into new markets,” the report further observes.
Despite such considerable strides, the group attempts to make significant progress in its African expansion program with subsidiaries in Swaziland, Tanzania, Uganda, Mozambique and Zambia tends to nosedive with the group incurring heavy losses in these African states.

“Botswana operations continue to contribute significantly towards the groups profits, contributing P201 million, followed by Swaziland, P17, 8 million, and Tanzania P1, 5 million. Uganda and Zambia operations, however, made some losses of P230 million and P2, 6 million respectively and are expected to start contributing positively towards the groups earnings,” says Juma.
These losses would not in any way demoralize Letshego in the quest to fulfill its expansion opportunities.

The group is actively pursuing further expansion opportunities in other African territories such as Namibia, Angola, Malawi and Ghana.
“We believe the group expansion will go a long way in increasing Letshego market and share and revenue. There is need, however, for the group to revamp Zambia and Uganda subsidiaries so that they make a positive contribution towards the groups earnings,” he maintains.

Today, these African subsidiaries boast of a staff complement of 127 as compared to 59 in 2006 and branch infrastructure has increased from 8 to 15 branches.

Motswedi securities is confident Letshego would consolidate the group’s earnings base given the group established relationship with government officials, trade unions and participating employers.
“We expect the increase in civil service salaries and related allowances would generate further demand for Letshegi products.”

Not only has the group taken steps to reach and provide quality customer service through the establishment of new sales agents and telephone sales facilities, it has also taken steps to enter into agreements with players in the mining sector to offer their products.

The group also intends to expand their product offering from selected employee groups from the traditional payroll sourced loan repayments model to all formally employed individuals.
The report, however, warns Letshego of some intense competition from other lending institutions but added “we believe the group is well positioned to perform better than its competitors”.

“The continued rise in inflation will likely reduce the demand for Letshego loan products as borrowing costs will likely rise to keep pace with rising inflation. The group also needs to check on the cost to income so that it remains within the group’s target range of between 20 percent and 25 percent,” the report observes, adding that there is need for the group to keep a check on impairment cost by strengthening credit assessment procedures to ensure stricter management of the group’s credit exposure.

“On a year on year basis, Letshego is up by 1 percent and the stock currently on a rolling PER of 13.1x and offers a rolling net dividend yield of 21.3 percent. The counter has the potential to increase its earnings base,” concludes the statement, recommending investors to accumulate the stock.

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The Telegraph September 30

Digital edition of The Telegraph, September 30, 2020.