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Home » News » Business »  Mixed bag for services sector

Mixed bag for services sector

Publishing Date : 07 August, 2017

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A modest Gross Domestic Product (GDP), low inflation, below average household demand, levies and many other factors are squeezing the services sector. Motswedi Securities Q2 Economic Bulletin highlights the path for various sectors.

Retail, FMCG and Beverages


Bostwana’s GDP growth forecast is more conservative than the Finance and Economic Development Minister’s 4.1% for 2017, and we believe that this will continue to have a negative effect on the sector. Neighbouring countries are also experiencing hardships of their own, killing off hopes that foreign based subsidiaries of the sector will help smoothen results. Inflation and household demand are also relatively low, putting pressure on retail margins.


Furnmart has really taken a hit, dropping 7.7% loser for the quarter and extending year to date losses to -14.1%, however we expect this to slow down as the company resumed paying dividends, following their interim results. Operating conditions and increased competition will cap immediate benefits as the company realigns itself, following the disposal of its Zambian operations, which were dragging it down.


Sechaba is still battling a growingly hostile alcohol levy system, which was revised last year, and now sees the only local brewer with no natural competitive advantage as, customs duties were included in manufacturing costs for the calculation of the levy. This has had a significant impact on the margins of the company as it had to absorb the cost, versus passing it on to consumers as the price hike would see competitors capture the market share. The termination of the Coca-Cola bottling agreement will is also have a great impact on the company’s bottom line, however the price reaction has been milder than we had anticipated.


Sefalana prices lifted in correction after following the dilutive effect of their rights offer last year, andan overly bearish run, as demand failed to pick up in the 1st quarter. Choppies appears to have finally found equilibrium, however we remain cautious ahead of their full year results.

Property and Real Estate

It’s an interesting time for the sector, with borrowing costs at record lows, however opportunities in the property sector are few and far in between, the retail segment is heavily saturated in the urban centres, pushing developers to the fringes as they seek returns. High populated semi-urban villages with purchasing power or near enough to the citizen for a commute seem to be the ideal target development areas.


Residential properties are struggling on the high end of the market amid a sluggish economy, while there are few barriers to entry on the lower end allowing for multiple entrants and competition. The issue of new retail trading licences for foreign clothing stores without local shareholding has yet to be resolved, further limiting expansion prospects, in a market that is highly tangled upon South African outlets. Commercial/office space has also seen a huge number of developments, and the market has since become rent takers.

Tourism and Hospitality

The $30 tourist levy was effected beginning of June, and would have had very little impact on the expected sector results. Although the levy may been seen as trivial, or even negligible for high-end safari enthusiasts it has the potential to disrupt tourist activity, particularly in the lower segment, were a majority of locals are trying to edge out a niche, with frugal backpackers, opting to avoid the country where possible.


The larger listed entities may not be severely affected in the long run, but the disruptions this may initially cause, may have short term impact. Chobe continues to rally, supported by demand as some sound financials. The stock is up 4.1% for the quarter, and leads yearly gains in the sector having appreciated by 8.6%. The company recently announced that they are in the final stages ofacquiring Dinaka Safaris in the CKGR, in a bit to grow their desert safari experience.


Wilderness Safaris has been flat for the year, up 1.5%, of which 1% was accrued in the quarter under review. Cresta closed unchanged, with the company yet to replace the former CEO, who resigned late last year. The company will begin building a 70 room hotel in Ghanzi, during the year, which should begin feeding into the bottom line hopefully by 2019.


Other Services

We are all aware of BTCL rise to glory, quickly reversing losses into profit, within a year of listing. But most importantly, it is worth noting that the telecommunications company managed to grow all its three revenue streams, including fixed line telephony, which is on the decline around the globe. We are impressed by the company’s resilience and sustainable revenue, however there is room for some cost cutting and improvement in service delivery. Expectations are high for Engen as oil continues to struggle below $50 a barrel, which should keep inventory prices low for the petroleum product distributor.


The company closed the quarter with yet another special distribution of 40.7 thebe to shareholders, the benefits of which should trickle into some capital gains, as the stock continues to attract dividend seekers. The only listed mining company on the domestic board, Minergy, listed on the BSE late in April, and aspires to be a mid-tier Southern African coal mining and energy company. The company hopes to turn profitable late in 2019, but has already seen share prices lift by 5 thebe on listing.

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