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Choppies chaos crashes BSE Domestic Company Index

Publishing Date : 18 February, 2019

Author : REARABILWE RAMAPHANE

Failure by Choppies Enterprise Limited a fast expanding pan-African retail giant to submit and publish audited financial results on time has crashed the Botswana Stock Exchange (BSE) Domestic Company Index (DCI) figures, resulting in 11.4 percent decline for the year 2018.


On the 28th September 2018; Choppies lost 76.3 percent of its value when the share price plummeted from P1.69 to P0.40 in a single day. On that day, its market capitalisation slumped from P2.2 Billion to P521.5 Million. The DCI is indicia that shows aggregate changes in market value on the basis of share prices. For the year 2018 DCI declined by 11.4 percent compared to a decline of 5.8 percent in 2017.


 Eight companies compared to 12 in 2017 registered positive price changes while 14 compared to 11 in the prior year registered negative price movements and four compared to 1 in 2017 closed the year with share prices back to their 2017 levels. A market status report for the period January –December 31st 2018 released by BSE this week reiterates that the impact of Choppies Enterprise Limited, arising from its failure to submit audited financials on time, on the decline in the total domestic market capitalisation and subsequently the DCI cannot be ignored.


“Due to this, Choppies contributed 41.2 percent to the decline in the DCI. In other words Choppies contributed negative 4.7 percentage points to the negative 11.4 percent decline in the DCI in 2018,” reads the report. Equity markets figures for the year 2018 depicts turnover levels drop of 25 percent when compared to that of 2017. The Exchange attributes this experience mainly to three events that occurred in the year and also in the prior year.


 These are the introduction of the minimum brokerage commission of 60 basis points (0.60 percent) in April 2016, the reallocation of investment mandates in 2018 by some of the largest pension funds in the country following termination of investment management contracts at two of the largest local asset managers and lastly the decline in share prices.


“Given the dominance of institutional investors both local and international in our market, the increase in transaction costs was definitely a sensitive issue particularly coinciding with a slowdown in corporate earnings as it effectively eroded their returns. Perhaps the suspension of Choppies could be an additional factor, given its liquidity in the market,” states the report.  Prior to its suspension from trading Choppies was the 4th most traded company on the BSE.


A further assessment of equity market Statistics indicates that majority of the listed companies recorded reduced earnings resulting in share price declines, but to the delight of the investors they maintained attractive dividend payouts closing the year at total dividend yield of 5.5 percent versus 5.1 percent in 2017.

BSE registers record high tradability and liquidity during 2018

On a positive note BSE closed the year 2018 on record high overall tradability and liquidity of listed instruments. A total turnover of P4.4 billion was recorded in 2018 compared to P3.2 billion in 2017. This information is also contained in the BSE market status report. The stock exchange discharged impressive performance on the capital market by raising a total of P3.2 billion locally in the bond market compared to P2.3 billion in 2017, mirroring an improvement of 39.1percent.


On the equity market, P296.8 million was raised as BancABC was the only company that undertook a public offer in 2018 compared to P575 million raised through public offers in 2017. Seed Co listed by introduction. For the Bond Market BSE trades it’s Index Series (BBIS) under a series of four bond indices being Composite Bond Index (BBI), Government Bond Index (GovI), Corporate Bond Index (CorpI) and Composite Fixed Rate Bond Index (BBIFixed).


In 2018, the BSE Bond Index Series (BBIS) appreciated by 3.2 percent whereas the GovI and CorpI registered returns of 3.5 percent and 3.3 percent respectively. The BBIFixed returned 2.6 percent since its introduction in April 2018. Inflation averaged 3.2% in 2018; meaning that listed bonds provided purchasing power protection, save for the fixed rate bonds. 10 Inflation in the year predominantly remained within the objective range of 3 percent-6 percent whereas interest rates were held constant throughout the year.


The value of bonds traded increased over four times from P535.6 million in 2017 to P2, 222.7 million in 2018. Government bonds continued to dominate liquidity of the market accounting for 97.9 percent of total turnover. The BSE registered a record number of new bond listings as 10 new bonds came on board compared to 8 in 2017. “This cushioned the impact of the 4 bond delisting in the year.


Even though Government bonds accounted for the majority of trading activity corporate bonds dominated in terms of the quantity of bonds listed, a phenomenon that in most African markets is the reverse,” explains the market status report. At sector level, the profile of the bond market at the end of 2018 was such that Government bonds accounted for 63.8 percent of market capitalization, Quasi-Government (1.3 percent), Parastatals (7.9 percent), Corporate (25.3 percent) and Supranational (1.7 percent).

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