By close of market on Wednesday, the DCI was up 15% in the year to date, led by counters such as Chobe Holdings (+88.6%), Standard Chartered Bank Botswana (+77.7%), Seedco (30%), Absa Botswana (22.1%) and First National Bank Botswana (21.7%).
The last time the DCI performed at similar levels was in 2013, when it ended the year up 17.8%, before sliding for several years including an 11.3% drop in 2018, followed by an 8.3 percent fall during the COVID-19 year of 2020.
The DCI, which comprises the cream of locally listed companies, is a general indicator of the performance of local enterprises and the returns available to investors. The companies represented by the platform represent a cross-section of the sectors of the economy.
Stockbrokers Botswana’s latest data indicates that of the 23 companies listed on the DCI, just four have recorded net reductions in their share prices this year, with Choppies anchoring the list having shed 26.2% as at Wednesday.
Kgori Capital investment analyst, Godfrey Matale told BusinessWeek that the performance of the DCI this year was driven by several factors, including the fact that it started the year from a low base and was cheap as measured by the Price Earnings (PE) ratio. The PE ratio, which refers to a stock’s price relative to its earnings, stood at 8.1x relative to the 20-year historic PE of 13.6x, representing a 40% upside potential.
“In part the 2023 rally is a market correction, or a repricing of the positive outlook investors held on the earnings of listed companies, finally being priced into share prices,” he said. “In addition, robust corporate earnings of listed counters drove an increased appetite for stocks, with earnings per share seeing a supernormal growth +43.9% to date in 2023.”
Matale said the strong performance of listed counters was underpinned by rallies in banking profits due to high-interest rates, tourism sector recovery as international travel restrictions eased, and property firms’ revival as consumers returned to malls, sustaining the bullish outlook on the DCI.
He added that improved market liquidity contributed a lot to the DCI’s performance as daily traded turnover rose +300.5% year on year to 18.6 million compared to 4.6 million compared to 2022. This, he said, bodes well for the ‘elusive price discovery’ of the DCI helping narrow the divergence of share prices to investors’ fair value. “Another helping factor to the DCI’s growth was the composition of the growth as this rally has been led by big market cap stocks names in tourism (Chobe), banking (FNBB and ABSA), consumer staples (Sefalana) and properties (New Africa Properties),” Matale said. “As a consequence of their overweight position in the DCI, this growth has uplifted the rest of the market with it.”
The investment analyst said the DCI has been undervalued for some time, mainly owing to the ‘notorious lack of liquidity’ a situation that has been impairing much-needed price discovery as investors struggled to reflect their most recent views on stocks.
“To illustrate, the DCI as of the third quarter of 2023 had a PE of 8.9x versus a 20-year historic average of PE 11.8x, translating to a -33% sharp discount/undervaluation and this is after factoring in the rally we had seen up until the third quarter. “However, 2023 was different, helped by structural issues such as improved liquidity conditions rising 300.5% versus 2022 when measured by average daily turnover, with average daily turnover this year being higher than the last three years combined. “This is indeed a major reason which led the DCI getting into correction territory allowing P/E compression and share price to better reflect fair values of earnings outlook albeit still with some room to grow to date,” Matale said.
