- Letshego takes 4th spot
- RDC knocks down Turnstar
According to market data by Imara Capital, the bank’s share price appreciated by 13.64 percent year-on-year to P 2.50 compared to P2.20 it ended the year 2020 with.
Imara indicates that as at December 31 2021, FNBB’s weighting on total domestic market capitalisation improved to 17.07 percent compared to 15.71 percent in the prior year. On a year-to-date, FNBB’s share price has appreciated by 2.8 percent and the counter is currently valued at P6.537 billion.
The bank, by far the most profitable and innovative, recently cautioned that overall profit before tax for the interim period ended 31 December 2021 will be higher than that reported in the previous corresponding period by between 35 percent and 40 percent, which in number terms is an increase of between P147 million and P168 million. The profit before tax for the corresponding period ended 31 December 2020 was P419 million. The bank’s board says it recognises that the December 2020 results were significantly lower than the current reporting period primarily due to the provisioning for expected credit losses related to the economic impact of COVID-19.
Market Analyst at Stockbrokers Botswana, Malebogo Keleapere, says FNBB felt competitive pressures on the retail segment of the bank as retail advances experienced a sharp decline of 7 percent while the Botswana retail market increased by 9 percent. This has been on the back of a mix of enhanced competition and the bank’s selective retail exposure approach.
Although FNBB has been maintaining a cautious lending risk appetite, Keleapere sees the bank remaining stable in the ensuing year with an increased self-help services focus across its digital platforms. “Monetary policies are expected to maintain a dovish stance, which means pressure will be felt on the bank’s top line growth as low policy rates affect profitability,” she says with an expectation that FNBB will be aggressive with its digitalisation advancement in order to further enhance innovation as competition tightens in the banking digitalisation space. “Focus will remain sharp on improving the non-interest revenue base,” she says.
As a result of the interest cuts in 2020, Imara Analysts Kaone Ranko and Mogoriso Badisang have observed that Net Interest Margins of banks were compressed across the board with banks reporting lower net interest incomes levels, most notably Access Bank registering the largest decline (-15.41 percent) followed by StanChart (-13.69 percent), FNBB (-12.78 percent) and Absa (-7.72 percent). “The only bank that posted an increase in earnings was Absa and this was largely attributable to a significant release in provisions,” they wrote, noting similar trends of decreasing provisions reported across the remaining banks. “However, despite the lower provisions FNBB (-1.53 percent) and StanChart (-34.83 percent) still posted lower earnings,” say the analysts.
Absa maintained its spot as the third most capitalised on the stock market’s domestic counters, currently valued at P3.954 billion. This is despite its share price declining by over 13 percent in the past year. Having depreciated by 13.75 percent, Ranko and Mogorosi previously noted that Absa’s price of P4.64 puts its Price-to-Earnings Ratio (PER) and Price to Book Value (PBV) ratios at 9.44x and 1.67x respectively.
In comparison to its regional lending peer’s respective averages of 10.18x and 1.44x, the two say the bank trades at a higher PBV while its PER is below the average. “The bank’s premium above the average PBV is somewhat justified, given its outperformance on Return On Equity of 17.73 percent vs. the peer average of 9.14 percent,” they say. In general, they are confident of the bank’s ability to maintain its strong fundamentals on the back of its strong brand name, parent company leveraging opportunities and advancements in digital solutions. During the six months ending June 30 2021, Absa interim were resilient owing to positive performance in its impairments line and yielding cost control metrics translating to a 125 percent increase in profit before tax.
In the financial sector, Botswana Insurance Holdings Limited (BIHL) is the second most valuable counter. Its share price was flat in the past year, maintaining market capitalisation of P4.9 billion. The counter remained resilient in the face of the COVID-19 pandemic despite the fact that 29 percent of claims and benefits paid out to clients were for COVID-related claims, resulting in unprecedented mortality rates. “The life insurance segment experienced a squeeze in operating profit margins on the backdrop of the aforementioned mortality rate,” observes Keleapere, although noting a 67 percent increase in new business as an increased uptake of both individual and group life products was observed.
Another key takeaway was the performance of the asset management arm with 10 percent higher profit due to the Zambia business performing 12 percent better than the previous year. Keleapere says efforts have been made to enhance the group’s digital platforms while synergies of the associate companies are expected to remain key in enhancing the group’s profitability. Letshego has also made significant strides to become the fourth largest counter and grow its weighting from 4.33 percent to 8.06 percent, as indicated by Imara. The counter is valued at P3.3 billion, trading at P1.66 a share. Imara’s relative valuation yields a target price of P2.07 – representing an upside potential of 44.41 percent.
“Although the interest rate environment is currently dovish across sub-Saharan Africa, we expect the counter to continue to register high margins, asset yields and fundamentals, due to it being a microlender and thus having favourable repayment rates while managing its cost of funds through funding and maturity diversification,” Ranko and Badisang argue. Keleapere also notes: “We expect the upward trajectory to be maintained as the group’s profit before tax for the second half of 2021 is expected to surpass that of the first half of 2021.”
In the property sphere, RDCP was a new entrant to the top 10 rankings after growing its market capitalisation through listing additional shares via rights offer, occupying the ninth spot and displacing Turnstar from the top 10 as at December 2021, according to Imara. RDCP issued 88,362,039 new linked units out of accumulated Net Asset Value contained in accumulated profits of the company. Unitholders received one Bonus Issue Linked Unit for every four Linked Units held at a value of P2.14 per Bonus Issue Linked Unit. RDCP is currently trading at P2.25.
In the meantime, Turnstar share price was experiencing turbulence which the company said was influenced by then grey listing status of Botswana. A substantial drop in the share price was attributable to overseas funds exiting Botswana. Further, the group is currently mired in scandals with regard to management and shady deals that Keleapere says may dampen investors’ appetite for the counter. The group’s share price declined by more than 20 percent last year and 2 percent on a year-to-date. Turnstar is currently valued at P1.1 billion.