- Industrial property to grow at a slower rate
- Letlole should consider other accretive expansion options – analysts
The two analysts, Mogorosi Badisang and Kaone Ranko caution that Letlole La Rona will have to consider other accretive expansion options such as increasing its exposure towards retail or looking for opportunities outside of the country to further accelerate growth. The company, headed by Chief Executive Officer (CEO) Kamogelo Mowaneng is the market darling and leading player of the industrial space. Overtime the industrial property has been one of the most resilient of the yielding property sectors.
Badisang and Ranko observed that Letlole’s large exposure to industrial properties positioned it well during the pandemic’s tumultuous stages, shielding the company from economic downturns at the time. “Due to prior restricted cross boarder movement in Botswana, demand for industrial properties increased as warehousing and logistics were required for stockpiling and local distribution of products,” they note. Lending credence to this, Stockbrokers Botswana analyst Malebogo Keleapere says: “its industrial exposure of 66 percent proved to be a windbreaker against tempestuous headwinds affecting most property counters”. She expounds: the six industrial properties purchased at the end of 2020 bore fruit in 2021, contributing significantly to revenue.
Property experts who spoke to this publication also made similar observations that general supply has been low hence the outlook is that supply will continue to grow at a lower rate. The strategy for Letlole was that the six properties it bought were already existing. This did not affect supply unlike building new stock. “Letlole did not have new stock, e-commerce increases demand for warehousing and leases for industrial are very long term, up to 10 years, so they are not affected by short term issues,” a property consultant told this publication.
Previously Letlole emphasised that its tenants were renewing leases in numbers. Nonetheless, the company had already started diversifying to other sectors, with ambitions to expand outside Botswana. Mowaneng says the company concluded the acquisition of a 32.79 percent stake in JTTM Properties (Pty) Ltd, a company which owns a commuter mall in the heart of the Gaborone bus/taxi terminus. “Rail Park Mall is one of the best performing assets in Gaborone and to date, it has contributed positively to the performance of the Company,” she writes in the group’s results for the half year ended December 2021.
The purchase consideration of P152 million was financed through a bank loan and as part of the financing, a short-term overdraft facility amounting to P50 million was obtained which has since, on the 14th of January 2022, been replaced by a long term loan, thus resulting in a positive current ratio, Mowaneng says. “The company will continue to pursue value accretive assets both locally and regionally.” The company is still trading under caution as negotiations between the Company and one of the parties in respect of the other potential transaction are still ongoing.
During the six months to December 2021, Letlole’s revenue for the period has grown by 8 percent from the prior years’ P50.1 million to P54.2 million. Due to tight cost control measures that have been implemented, Mowaneng revealed that the operating profit has increased by P9.0 million (30 percent) to P38.9 million (2020: P29.8 million). Profit before tax soared 60 percent (P19.7 million) from the prior year to close at P52.4 million (2020: P32.8 million). Mowaneng explains that this was due to addition of the 32.79 percent investment in one of the prime retail malls in Gaborone, Railpark Mall, in December 2021. She indicates that this resulted in a net asset value gain of P4.5million from day 1 of the conclusion of the transaction, proving to be value accretive.
Acquisition will further enhance profitability, supports Keleapere who notes that “the bottom line that was suppressed by low revaluation gains is expected to normalise as the economy comes back to normality”. Imara Capital indicates that the counter’s share price rose by 13.54 percent year-on-year to P2.60. Currently trading at a respective Price to book value (PBV) and Price-to-earnings ratio (PER) of 0.92x and 13.28x, Badisang and Ranko view that the counter is relatively under-priced given its domestic peer averages of 1.02x and 26.86x. “In terms of efficiency, the counter outperformed both the local and regional peer Return on Assets (ROE) and Return on Equity (ROE) averages, registering a respective ROA and ROE of 4.84 percent and 6.96 percent,” they write. “This compares to the domestic averages of 4.42 percent and 6.22 percent as well as the regional averages of 3.11 percent and 4.63 percent.”
The counter closed the year as one of the top ten gainers for the year having gained 11.35 percent to trade at P2.55. On a year-to-date basis it has accelerated by 1.96 percent and trades at P2.60. “Management issues of Letlole seem to be resolved, as such; we expect appetite for the stock to increase,” Keleapere says. Imara valuation yields a target price of P2.93 representing an upside potential of 12.69 percent.