Analyst issues �strong buy� recommendation for BTCL

Mbongeni Mguni | Friday January 15, 2016 14:25

The BTCL IPO launch on December 21 PIC: KAGISO ONKATSWITSE

According to a research note issued yesterday, Motswedi Securities analysts estimate that the current offer price of P1 represents an 80 percent discount on the upside potential of the shares.

“We strongly recommend investors to buy the stock during the IPO and also subsequent to listing as BTCL provides significant growth potential to investors,” the researchers said.

According to Motswedi’s estimates, the price of BTCL shares is significantly below potential and thus provides room for growth.

“We are targeting a price of 180 thebe for the stock, using a conservative valuation method. This gives an 80 percent upside potential against the IPO price of 100 thebe per share,” the researchers said.

Motswedi noted that BTCL’s strengths were underpinned by its track record of profits, a sound track record of paying solid dividends, its wider footprint in telecommunications as well as its partnership with Vodafone for the deployment of certain services and products.

“(In addition) the existence of BTCL’s copper access network means BTCL is the only operator with capacity and capability to offer ADSL services.

“This affords BTCL a market opportunity to offer voice and ADSL services through the copper network to its clients.”

With the advent of new technologies such as Ethernet over Copper, BTCL will in future be able to offer improved broadband internet speeds over its copper network, the researchers noted.

Risks associated with the share offer include increased competition in the telecommunications sector within the country as a result of market liberalisation.

“This has led in some instances to BTCL losing some of its key clients to competitors.”

In addition, Motswedi Securities researchers noted that BTCL’s business is high volume with “profitability very sensitive to variation in margins”.

This is because, BoFiNet determines the margins available to network operators and in some cases BTCL may not be able to pass on to the retailer any margin compression enforced by BoFiNet and this will eat on margins and profitability, the researchers noted.