Sefalana Shares Look Cheap

Sefalana shares have plunged 34% since November 2016. But strengthening economic tailwinds, an increasingly diverse geographic footprint, and innovative marketing strategies have me thinking that the share’s a bargain for patient investors.

It has been a tough couple of years for Botswana’s consumer goods industry.

Citizens of the Southern African nation have been tightening their belts in response to a slowdown in mining activity and resulting job losses. Retailers’ profit margins have gone from thin to microscopic.

Continue reading “Sefalana Shares Look Cheap”

Botswana’s 5 Best Stocks of 2014

At first glance, it would appear that the quiet Botswana Stock Exchange (BSE) had a lackluster year. Its main index is down 1.0% in USD terms.

If you look closely at the performances of individual stocks, however, you will see that the market was weighed down by two large banks that are struggling to grow profits due to Botswana’s record low interest rates. Most other stocks have enjoyed solid price gains.

Here’s a countdown of the top five performers.

At first glance, it would appear that the Botswana Stock Exchange (BSE) had a lackluster year. Its main index is down 1.0% in USD terms.

If you look closely at the performances of individual stocks, however, you will see that the market was weighed down by just two companies – FNB Botswana and Barclays Botswana.

These two banks are among the BSE’s largest stocks and have dropped 15% and 41% respectively. They’re struggling to grow profits due to Botswana’s record low interest rates.

Most other stocks have enjoyed solid price gains. Here’s a countdown of the top five performers.

Botswana’s Best Stocks of 2014

5. Wilderness Holdings (WIL)
(Year-to-date USD Return: 18.3%)

With more than 60 safari camps spread across nine countries, Wilderness Holdings is an excellent play on Africa’s luxury tourism sector.

The company’s earnings increased 70% during the first half of its 2015 fiscal year thanks to higher occupancy rates and a stronger US dollar. Management succeeded in widening profit margins by packing guests’ itineraries full of company-owned activities and side trips. It also paid down a big chunk of its long-term debt.

Some customers have canceled reservations in the wake of West Africa’s Ebola outbreak, but the company expects this to be a temporary setback. It plans additional expansion in coming years.

4. G4S Botswana (G4S)
(Year-to-date USD Return: 21.3%)

G4S is one of Botswana’s leading security companies. It monitors thousands of alarms, vehicles, fences, and cameras and manages a large team of guards and incident response units.

The security business has been a good one in Botswana. G4S’s revenue grew nearly 7% during the first half of the year. But the main reason investors have been so enthusiastic is an ongoing restructuring exercise that saw the company’s administration expenses slashed by over 15%.

The cost-cutting helped the company post earnings growth of 129% and allowed management to more than double its dividend payout.

3. Sefalana Holding Company (SEFA)

Botswana's Best Stocks
Photo by Steve Jurvetson

(Year-to-date USD Return: 30.2%)

The first company to ever list on the Botswana Stock Exchange, Sefalana Holding Company is a wholesaler and retailer that operates 37 cash and carry stores and 21 large supermarkets across Botswana and Namibia.

Sefalana bought 12 Namibian cash and carry stores in July of this year. The company funded the deal through a rights offering, and management announced that it would make a significant contribution to both sales and profits. Look for the company to expand further into Namibia in coming years.

2. Chobe Holdings (CHO)
(Year-to-date USD Return: 32.9%)

An eco-tourism company, Chobe Holdings operates 11 lodges and camps in northern Botswana and Namibia.

The firm grew profits 19% during the first half of its 2015 fiscal year thanks to a big increase in occupancy rates. These results, plus an 18% dividend hike announced earlier in the year, sent shares soaring. Going forward, a newly modernized fleet of aircraft, which help ferry guests to and from the company’s lodges, should ease pressure on profit margins.

Like its competitor Wilderness Holdings, Chobe is seeing slackened bookings in response to the Ebola outbreak. In response, both companies are now offering no-penalty cancellations to all prospective customers should a case of Ebola be confirmed in Botswana.

1. Sechaba Brewery Holdings (SECH)
(Year-to-date USD Return: 40.9%)

Botswana’s largest brewer has managed to grow earnings at a modest pace  in spite of a 50% levy on alcoholic beverages mandated by the country’s teetotaler president, Ian Khama.

SABMiller owns a 16% stake in the holding company and a 40% stake in the breweries themselves. Thus, when Sechaba released a series of cautionary announcements hinting at potential changes to the ownership structure, rumors abounded that SABMiller was preparing a buyout offer. This speculation, not the company’s meager earnings growth, is what fueled the stock’s price rise.

On November 21, the company withdrew the cautionary, saying the company is no longer pursuing the “corporate changes.” This makes it tough to imagine that the company will appear in this countdown again next year.

What Do You Think?

Did any stocks on this list surprise you? Which shares do you believe will be among Botswana’s top performers in 2015? Let’s hear your thoughts in the comments!

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Botswana’s Best Stocks of 2013
How to Invest on the Botswana Stock Exchange



Botswana’s 5 Best Stocks of 2013

The Botswana Stock Exchange had a disappointing year. As of this writing, its Domestic Companies Index had increased just 5.0% in dollar terms (17.9% in local currency).

Botswana has been slow to recover from the big gem price crash of 2011. Diamonds account for roughly 30% of the southern African nation’s GDP.

But while the market as a whole may have been mediocre, several companies posted terrific performances.

Here’s a countdown of Botswana’s best stocks of 2013.

The Botswana Stock Exchange had a disappointing year. As of this writing, its Domestic Companies Index had increased just 5.0% in dollar terms (17.9% in local currency).

Botswana has been slow to recover from the big gem price crash of 2011. Diamonds account for roughly 30% of the southern African nation’s GDP.

But while the market as a whole may have been mediocre, several companies posted terrific performances.

Here’s a countdown of the top five performers on the Botswana Stock Exchange in 2013.

5. Engen Botswana
+16.4% (+30.7% local currency)

Talk about high-octane performance! This subsidiary of South Africa’s leading service station operator profited from new pricing, a weak rand, and an upward revision in the value of its fuel inventory on its way to recording 89% earnings growth during the first half of the year.

Management celebrated by raising the mid-year dividend 40%, which gives the stock a 5.3% yield.

Will shareholders be pumped by the company’s final results next year? Well, the company does spin off wads of cash, and it has no interest-bearing debt to speak of. It also recently opened two more filling stations in the north of the country. But margins may be squeezed by higher fuel prices.

4. FNB Botswana
+24.0% (+39.3% local currency)

FNB Botswana banked 23% earnings growth over the past 12 months. Falling diamond prices be darned! How did it manage such a solid result? Rock bottom interest rates helped. At 8.5% the bank rate is the lowest it’s been in 13 years. This enticed Botswana’s intrepid consumers to take on more debt – 32% more to be exact.

Yet, CEO Lorato Boakgomo-Nthokhwana and her team deployed most of their capital in more staid loans backed by property and other hard assets. In total, they increased the lending portfolio 23%.

The bank also managed to grow its customer deposits 13%, giving it a nice pile of inexpensive money to lend.

FNB Botswana shares can now be had for a shade more than 14x trailing earnings and offer a dividend yield of 3.8%.

3. Choppies
+37.2% (+54.1% local currency)

Choppies, which boasts a 30% share of Botswana’s grocery market, bagged a 19% profit increase in 2013. The upstart retailer’s expansion into South Africa remains a drag on profitability, but management has assured shareholders that the move will soon bear fruit. It opened four new stores in the Rainbow Nation over the past 12 months, bringing its total there to 17.

The balance sheet looks decent, showing a growing cash pile and that the company paid down a big chunk of its long-term debt.

Smart share shoppers will probably steer clear of Choppies, though. Because with a P/E ratio of 24.2, this stock doesn’t appear terribly cheap.

2. FSG Limited
+50.6% (+69.2% local currency)

FSG shareholders must think they’ve died and gone to heaven. Shares of the funeral service company have surged nearly 70% over the past year and it still trades at just 9.2x trailing earnings after reporting profit growth of 22%.

The company’s in the midst of an impressive round of geographic expansion which has taken it from its Gaborone home into the north of Botswana and beyond into Zambia. It currently generates more than 10% of its revenue in Zambia, and management believes it will become a major player there in coming years.

Home of the Botswana Stock Exchange
Photo by pmecologic

The company’s outstanding performance has turned heads. Botswana Insurance Holdings made a bid to purchase the company earlier this year, but CEO Mike Nikolic turned the offer down – a good indication that the company’s got a bright future.

1. Sefalana Holdings
+76.5% (+98.2% local currency)

It’s not often that you see an exclamation point in a financial report, but Sefalana management couldn’t resist describing their company’s 2013 performance as “Fantastic!”

It’s tough to quibble with them.

The retail, manufacturing, and property group posted a 35% earnings surge over 2012’s record-breaking results. The growth came on the back of strong retail sales and the acquisition of two big government contracts for the manufacture of subsidized baby food and sorghum meal.

Investors were certainly cheered by the news. The stock soared 98%, a figure that doesn’t factor in the sizable dividend.

And more happiness may be in store. With a P/E ratio of 10.5, Sefalana’s got a less demanding valuation than its rival, Choppies, and the company has alerted the market that some big news is in the offing.

Your turn

Are you a Botswana investor? Let’s hear your predictions of 2014’s best performers in the comments!

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A Simple System to Stalk Super African Stocks

The stock market can be a pretty confusing, intimidating place for new investors.

With all of its charts, ratios, and jargon, it’s clear why many people choose to either hire a professional to manage their stock portfolios or to ignore stocks altogether.

Are you one of these people?

If so, I’m glad you’re here, because, today, I’m going to show you a magic formula for picking great African stocks.

The stock market can be a pretty intimidating place for new investors.

With all of its charts, ratios, and jargon, it’s clear why many people choose to either hire a professional to manage their stock portfolios or to ignore stocks altogether.

Does this sound like you?

If so, I’m glad you’re here, because, today, I’m going to show you a magic (and simple) formula for picking great African stocks.

Beating the Market with a Magic Formula

I wish I could take credit for it, but the system was actually developed by a much smarter investor than me.

Joel Greenblatt, a hedge fund investor and professor at Columbia University, first explained it in his excellent book, “The Little Book That Still Beats the Market.” It’s a great, quick read for anyone with even a passing interest in stock investing.

The formula has posted stellar results. According to research conducted by the American Association of Individual Investors, U.S. stocks selected according to the formula have outperformed the S&P 500, by an average of 7.6% per year over the past 15 years. Not too shabby, eh?

So, how does it work?

Essentially, the formula identifies profitable companies that trade at cheap prices. And it does it by using two simple ratios — the price earnings (P/E) ratio and Return on Assets (ROA).

Step 1: Calculate the P/E Ratio

The price earnings ratio (P/E ratio) is arguably the most common ratio in finance. There’s a reason for that. It’s one of the most straightforward methods to identify attractively-priced stocks.

Photo by Yathin
Photo by Yathin

Here’s how you calculate it:

P/E Ratio = Share Price ÷ Earnings Per Share

So, how do we interpret this ratio?

Well, if we are considering buying a stock, we want the share price to be low and the earnings per share to be high, correct? Of course! Because we want the most profit for the cheapest price.

Therefore, we should be on the lookout for stocks with low P/E ratios.

The chart below shows companies that trade on the Botswana Stock Exchange with their current share price and earnings per share. I’ve ordered them according to their P/E ratios (lowest to highest).

[table id=176 /]

Therefore, based on the historic P/E ratio, FSG Limited appears to be cheap and Wilderness Holdings is expensive.

Step 2: Rank the Returns On Assets

Now, let’s look at the second part of Greenblatt’s magic formula — the return on assets (ROA).

Return on assets measures profitability. It tells us how much money a company earns per every dollar’s worth of assets that it owns.

Here’s the formula:

Return on Assets = Earnings ÷ ((Assets at beginning of period + Assets at end of period) ÷ 2)

We’re simply dividing earnings by the company’s average assets. Note that we use average assets because this figure can change significantly over the course of 12 months. [You can find all the data needed to complete this calculation in the company’s most recent financial statement.]

The management of a company with a high ROA is typically making better use of the assets entrusted to it than the management of a company with a low ROA.

Moreover, companies with high ROAs will typically re-invest a portion of their profits in similarly profitable assets, creating a virtuous cycle.

Let’s take a look at how the Botswanan companies measure up according to this ratio.

[table id=177 /]

It would appear that Sechaba Breweries generates more profit per dollar (or pula) of assets  than any of the other companies here. That suggests that it can reinvest in expansion more quickly and more profitably.

Step 3: Time for Some Magic!

We’ve arrived at the final step of the magic formula. We’ve seen that, all things equal, it’s better to spend less for a dollar of earnings than more. We’ve also seen that, all things equal, its better to invest in a more profitable company than a less profitable one. So, let’s get the best of both worlds by investing in profitable companies that trade at bargain prices. To do this we simply add the P/E score to the ROA score to create a composite score for value and profitability.

[table id=178 /]

There you have it. The magic formula points us to FSG Limited, Sechaba Breweries, and Chobe Holdings as potentially market-beating stock picks.

I’ve greatly simplified Greenblatt’s magic formula here. So, if you have any interest at all in screening for stocks, I highly recommend reading “The Little Book That Still Beats the Market (Little Books. Big Profits).” It’s an easy, entertaining read that distills all you really need to know about value investing.

Let Me Hear It

Do you think FSG, Sechaba, and Chobe will be among the Botswana Stock Exchange’s best performing stocks over the 12 months? Let us know why or why not in the comments!

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How to Invest on the Botswana Stock Exchange

As one of Africa’s most politically stable and economically successful countries, Botswana provides an excellent place for investors to make their first foray into the continent.

As one of Africa’s most politically stable and economically successful countries, Botswana provides an excellent place for investors to make their first foray into the continent.

The country was my first Sub-Saharan investment destination, and the experience was so positive that it prompted me to explore other African exchanges.

My broker patiently walked me through the process of buying shares, provided some helpful research, and, perhaps most importantly, instilled a sense of confidence that my transactions would be handled professionally.

Opening a Botswanan Brokerage Account

Here’s what to expect when opening an account and buying your first shares.

I maintain an account with Stockbrokers Botswana and have found them to be responsive to questions from small, retail investors. This article describes the process of opening an account and trading through them.

Photo by Columbus GV Team

Motswedi Securities, Capital Securities, and African Alliance also trade on the exchange, and the process of opening an account with them would be much the same. At press time, however, I had not received responses to my account opening queries from any of them.

Step 1: Complete and Return the Trading Account Application Form

The trading account application form requires that you disclose your passport or driver’s license number, your address, and banking details. It’s a pretty straight-forward form that you can complete, scan, and email back to the broker.

Step 2: Complete and Return the CSD Securities Account Opening Form

The Botswana Stock Exchange dematerialized all stock share certificates in 2009 and set up a Central Securities Depository (CSD) that records the ownership of securities in electronic accounts. This dramatically improved trading efficiency. The only drawback is that it added one additional form for new investors to complete. Complete the CSD Securities Account Opening Form and return it to your broker. You will then be assigned a CSD account number. This number will accompany every trade order you place, allowing the CSD to keep record of all your holdings in the country.

Step 3: Provide Two Certified Copies of Your Passport

One copy of your passport will be kept on file by your broker. The other will go to the CSD.

Step 4. Wire Funds to Your Brokerage Account

After opening your trading account, Stockbrokers Botswana will provide you with its bank details so that you can fund your account. The most efficient way to do this is via wire transfer. If you haven’t sent an international wire before, I suggest that you take your broker’s bank details to your local bank branch and ask them to walk you through the process. They’ll make sure that your funds arrive securely. Note that most US banks charge about $25 for outgoing international wires.

Step 5. Submit a Trade Order

You’ve done your research and found a stock among the Botswana Stock Exchange’s 23 domestic listings that you’d like to buy. What now?

If you have opened an account with Stockbrokers Botswana, you need only complete, scan, and email a Trading Mandate Form to their trading department.

Keep in mind that many listings on the Botswana Stock Exchange are nearly as illiquid as the Kalahari itself, so I advise specifying a limit price for all of your orders. This will help you avoid paying significantly more for your shares than you had intended to pay.

Your broker will then execute your trade and send you a contract note that specifies the buy or sell price, commissions, and fees.

Speaking of commissions and fees, here’s how much it will cost you to buy and sell stock on the Botswana Stock Exchange through Stockbrokers Botswana:

Transaction Value* Buying Selling
BWP1.00 – BWP50,000.00 (≈ US$6,700) 2.07% + BWP16.80 2.07% + BWP11.20
BWP50,001.00 – BWP100,000.00 (≈ US$13,400) 1.68% + BWP16.80 1.68% + BWP11.20
BWP100,001.00 – BWP500,000 (≈ US$67,000) 1.40% + BWP16.80 1.40% + BWP11.20

*Trades must be executed in lots of at least 100 shares.

Note that, like Zimbabwe, Botswana levies a 15% withholding tax on dividends. This is deducted by the issuing company before the dividend payment is made.

Investors can request that dividend payments be deposited directly into their trading accounts, thus avoiding the hassle of opening a local bank account.

Mission Accomplished

That’s it! Follow these steps and you’re a Botswana investor.

The process of opening a foreign brokerage account can be confusing. If you found this walk-thru to be clear as mud, please don’t be shy. Post your questions in the comments, and I’ll do my best to get answers for them.

Further Reading

How to Invest on the Zimbabwean Stock Exchange

How to Invest on the Nairobi Stock Exchange