Letshego’s share price is recovering from the steep decline experienced when international investors were pulling out of riskier investments and housing funds in what was deemed safe. Analysts are seeing the price going up now, as risk appetite has increased and willing shareholders seizing the opportunity to sell at a higher price. This has helped the share price rise P1.23 a share.
Tshegofatso Tlhong, the Portfolio Manager at Kgori Capital, says the share price performance reflects what investors (both buyers and sellers) deem a fair price to exchange ownership of the share at any given point. She says the trend in the price is telling of the positive sentiment around the current and future performance of the company.
A Research Analyst at Stockbrokers Botswana adds that the upward momentum on the share price is technically and fundamentally justified, based on the resilient to excellent set of financial results that Letshego keeps delivering. The analyst, Malebogo Keleapere, maintains a target price of P2.10 on the counter. “The outlook is positive for the counter, buoyed by the well experienced management team driving the growth of Letshego and the smooth delivery and acceptance of their digital transformation strategy as evidenced by the 28 percent increase in profit after tax,” she told The Business Weekly & Review.
The main driver of the share appreciation is the positive sentiment that investors have on the delivery of Letshego’s growth strategy by the management, consistent dividend payments, with the rollout of the LetsGo App Mall transactional volumes expected to increase.
Previously, there were arguments that Letshego’s share price does not reflect the fundamentals of the group based on a lower share price. This was especially pronounced by Botswana Insurance Holdings Limited (BIHL), evidenced by increasing its stake in the lender to show support to leadership changes and confidence on the outlook. To be precise, the insurer’s Chief Executive Officer (CEO) Catherine Lesetedi was adamant that the share price did not reflect the true value of Letshego.
“Every investor has their own fair value of a stock given its fundamentals, their expectations and the return they require on their capital. Therefore, there is always a seller and a buyer in every transaction. Their views are different and therefore their position is different,” Tlhong says. She previously explained that valuation is subjective. By then she was particularly referring to a debate on whether Far Property was overvalued or undervalued. “So one person may say it is overvalued while another says it is undervalued”. But no one that thinks it is overvalued should essentially own the stock,” she told this publication.
Imara Capital Securities, in its rating, had recommended a SELL for Far. A sell is given if an analyst is bearish about the stock and the rating implies a stock should be sold. Research Analyst, Kaone Kebonang previously explained to this publication that Imara assigns a SELL recommendation to counters that have significant downside potential. By this, she said, she means counters which are overvalued and are trading at prices significantly above their intrinsic values per share: that is, the perceived or calculated value of a company, including tangible and intangible factors, derived through use of fundamental analysis.
According to the expert, Imara takes into consideration anything that can affect the counter’s value, including macroeconomic factors (e.g. the economy and industry conditions), and microeconomic factors (e.g. financial conditions and company management), and derive a quantitative underlying value per share. If the company’s market price per share is significantly above that of its intrinsic value, a SELL recommendation is assigned.
While Imara implies that the counter of overvalued, its founder Ramachandran had differed. He told this publication that Far is the most undervalued property in Botswana given its property valuations.
On Letshego, Imara Capital analysts indicated last year that Letshego’s share price had fallen by 79.37 percent over the past five years to 2020 (08 Sept 2015: P 3.15). In a report published in 2020, analysts Kebonang and Mogorosi Badisang pointed out that “our” relative valuation yielded a target price of P 1.89 – representing an upside potential. The experts therefore assigned a BUY recommendation.
“Letshego is undervalued,” Keleapere reiterated. “As mentioned above, we maintain a P2.10 target price for this counter – hence a view that there is still an upside potential for Letshego’s share price,” she said, adding that the fundamentals suggest a price higher than the current share price. The expert’s view is that Letshego has proved resilient in the face of difficulties occasioned by the COVID-19 pandemic on the trading environment by delivering resilient and excellent result over the past financial year, a positive insight that the team knows how to sail through difficult waters while creating wealth for its shareholders as indicated by the 7.3 thebe per share gross dividend that was declared on 12 August 2021 to be paid on the 16 November 2021.
Letshego continues to be the most liquid counter on the domestic bourse and tends to dominate volumes traded year-on-year. The company led counters, accounting for 17.6 percent of total equity turnover between January and September. Should this not help better price discovery? “In other markets that would be the case, but in our bourse the share price adjusts gradually to match the fundamentals as investors do not take advantage of information in a timely manner,” Keleapere observed.
“More market participants, equipped with timely information, take advantage of it as released so that the share price reflects fully all information available to the public about a counter.”
While Tlhong agrees with Keleapere that liquidity of a counter does help in price discovery, she quickly explains that investor sentiment is reflected in the trend that the price goes in. Over the last few years, the trend has been downward as the strategy changed and the transitory journey began, she reflects. “The current trend we are now seeing could be a signal that investors are now becoming more comfortable with where the company is in its journey and the results thereof,” she observed. Tlhong argues that outperformance in earnings and dividends beyond what is already priced into the share price by investors will drive price performance going forward.
A fortnight ago, Access Bank completed the transfer of shares from BancABC. This triggered the biggest single transaction ever to be traded in the entire history of the Botswana Stock Exchange (BSE). At over P1 billion, or P1,070,845,563.06 to be exact, this translated to just over US$95 million (or just under £70 million). The Daily Market Report issued by the BSE showed that the highest and lowest traded price for that day was P1.89. This is compared to market price of P1.98 which implied that the transaction was traded at a discount.
Analysts who spoke to this publication after the trade explained that trading price in Botswana is a poor indicator of value given the illiquidity of the market. Clearly there was a fundamental valuation at consideration which may have equated to a discount to price, they argued.
