No sharp spike of BTCL share price seen

Brian Benza | Friday February 5, 2016 14:22

 

Shares usually have a higher chance of rising post listing if the IPO offer price is significantly below the underlying valuation of the company’s shares, which is based on profit and assets growth forecasts as well as goodwill.  In a market commentary, analysts at consultancy firm, Econsult say that although the calculation show a value of about P1.26, the limited marketability of the shares as well as government control marks the share price further down.

“Valuing BTCL at the median price/earnings ratio on the BSE would give a valuation of around P1.26 per share.   But a discount must be applied to this valuation, given continued government control and limited marketability of the shares. “Hence the underlying valuation of the BTCL shares is probably not far from the IPO price. 

This suggests that buyers should not expect a large capital appreciation. 

“Owners of BTCL shares should also note that the limited range of eligible buyers may impact on their ability to sell their shares in future,” said the analysts. BTCL has said that since the IPO opened three weeks ago, at least 1,000 applications for the shares are received everyday.

Forecasts in the IPO prospectus indicate post-tax profits of just over P110 million in 2017 and 2018, or earnings of just under 11 thebe per share.

The IPO in which both the government and BTCL are selling 462 million shares will close on March 4 following which the company will list on the Botswana Stock Exchange (BSE) on April 8. Post listing the trading of shares will be restricted to citizens only. Government has promised to act as a market maker for BTCL shares, through its shareholding subsidiary Botswana Privatisation Asset Holdings (BPAH), and provide market liquidity.

“So far there are no details as to how the market maker mechanism will operate or how prices will be determined.  Large-scale purchases by BPAH to support the market would of course run counter to the intention of the privatisation.

“No doubt most of the institutions acting on behalf of pension funds will buy shares, and this may underpin the market.  But given the uncertainties over the issue, they are likely to be cautious,” read the commentary. With a post-IPO market capitalisation of just over P1 billion, analysts say BTCL will be a relatively small company, representing around two percent of the total capitalisation of domestic stocks on the Botswana Stock Exchange.

The 462 million shares on offer comprise 212 million shares being sold by government and 250 million being issued and sold by BTCL. In preparation for the privatisation, BTCL effected an 800 for one share split to create 800 million total shares, which are wholly owned by the government.

BTCL’s issue of a further 250 million shares will take the company’s new total shares in issue to 1.050 billion shares. Post the listing, the government will retain 51 percent of the 1.05 billion shares while the workers will hold five percent with the remaining 44 percent expected to be in public hands. 

An employee share trust has been established, which will hold 52,500,000 shares (5 percent) as on the day of listing of the company on the BSE.