Market Insights: Local Commentary – Equity
The DCI was down 1.2% for the quarter on a total return basis as negative sentiment continued to push stocks lower. On a total return basis, the largest losers for the quarter were BTCL (-13.5%),Choppies (-13.0%) and Turnstar (-11.1%).
Looking at company results, for the Full Year (FY) 2020, Sefalana achieved marginally lower earnings relative to the previous year despite a 10.0% increase in revenues as the implementation of IFRS 16 increased finance costs. Although liquor sales traditionally contributed a significant portion of earnings, the Group was able to pivot well during the periods of liquor sale restrictions to maintain profitability. CA Sales revenue for the interim period increased 18.5% driven by new principal acquisition across markets. Earnings, however, came in 45.7% lower due to goodwill write-off and forex losses from the substantial Rand depreciation.
Choppies released results for Half Year (HY) 2019, FY19 and HY20 simultaneously on the 24th of July 2020. As at HY20, the company recorded a loss of P139mn and had P317mn in negative equity. The auditor issued Disclaimed and Qualified Audit Opinions for the HY19 and FY19 Statement of Financial Position. Later in the quarter, the Group released FY20 financials which showed a total comprehensive loss of P387mn and a negative equity value of P467mn. Botswana and Zimbabwe are the only profitable geographies in the Group. Suspension on the trading of Choppies shares has been lifted on the Botswana Stock Exchange while the Johannesburg Stock Exchange (JSE) suspension remains in place.
BTCL FY20 results showed a 34.4% decline in profitability as data revenue growth could not compensate for the accelerated decline in voice revenue. Margin pressure and the slow monetisation of infrastructure investments detracted from the Company’s performance.
The banking sector results showed that credit impairments increased due to the prevailing economic environment, and cost of funding declined because of capital being released from the Bank of Botswana (BoB) interventions. BancABC interim profit increased 8.6% driven by 3.6% growth in the loan book and a 15.3% decline in the cost of funding. StanChart interim earnings more than tripled to P90mn and this performance was largely attributable to a P48mn impairment recovery from an intercompany transaction. FNBB net interest margins for FY20 expanded on the back of stable asset yields and a 13.6% reduction in the cost of funding. Non-interest income also grew by 11.0% off a high base. Despite this, earnings for the year declined 5.0% due to a 59.1% increase in credit impairments. Absa Bank Botswana interim profits reduced by 69.6% as costs grew at a much higher rate than revenue and credit impairments ticked up considerably compared to the recovery realised in the comparable period.
Letshego interim earnings reduced 23.5% as net interest margins compressed and non- funded income declined on reduced activity. The Group’s effective tax also increased to 42.4%, putting further pressure on earnings. In addition, under a new Management Team and Strategy, the Group will continue to pursue the goal of becoming a deposit- taking micro-lending institution across all the geographies where it operates. BIHL operating profit for the interim period increased by 5.6% as a reduction in claims and benefits paid compensated for the decline in premium income. Furthermore, earnings increased 49.4% on the back of associate performance. FAR FY20 results showed a reduction in rental revenues of 8.6% due to market adjustment to lease renewals and a property disposal in Durban. There was a 14.8% reduction in earnings per share (EPS) as earnings declined 11.2% and dilution from scrip dividend issuances came through. LLR FY20 profit from continuing operations were also marginally lower, declining 4.2% on the back of lower rental revenue since the disposal of their hospitality holdings to Cresta. The Company’s investment drive continues with the acquisition of six industrial properties during the period. During the quarter, the Company terminated the CEO’s appointment with immediate effect, based on the recommendations of an independent panel following disciplinary hearings conducted. The former CEO’s conduct is also under criminal investigation.
The hospitality sector is one of the hardest hit as a result of COVID-19 mitigation restrictions. Cresta incurred a loss of P34mn for the interim period as negligible occupancies and interest expense on acquired properties hit the bottom line hard. Cash balances remain healthy at P61mn and the Group is confident that they will be able to ride out the current environment. Sechaba associate trading was heavily impacted by measures to curb the spread of COVID-19 in the country. Share of associate profits reduced by 58% and EPS came in 52.1% lower at 31.9t. Engen interim earnings came down 74.0% to P16.0mn due to a decline in business during the lockdown and travel restrictions; as well as a substantial decline in inventory values. G4S earnings proved resilient during the interim period; registering growth of 4.4% attributable to improved margins. Also, revenues remain under pressure as the business faces regulatory headwinds in certain market segments.
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