Letshego's BSE run slows, but analysts see 156% upside
Mbongeni Mguni | Friday May 15, 2020 12:57
Letshego, a homegrown microlender with branches in 11 African countries and a loan book of P9 billion, has taken its investors on a rollercoaster in recent months.
The 21-year-old group’s share price fell by 56% last year, the worst performer on the Botswana Stock Exchange’s (BSE) Domestic and Foreign platforms in 2019.
This year, however, Letshego gained 27% in the first quarter, buoyed by P1.1 billion in pretax profits and solid executive and board appointments, which eased investor concerns.
The microlender, which has been the BSE’s top gainer since early in January, recently began shedding value in line with a general slowdown on the local exchange.
Since April 1, Letshego has shed 4.7 percent easing its total gains in 2020 to 14.1%. The microlender’s year-to-date gains are still the highest of any counter on the BSE.
In a research note, Stockbrokers Botswana analysts said looking forward, Letshego’s fundamentals remained solid and supported a ‘BUY’ recommendation to potential investors.
Growth for Letshego would come from its financial inclusion strategy, which is supported by data showing opportunity gaps in Africa.
“These statistics and demographics give credence to Letshego’s pan-African financial inclusion strategy, presenting vast opportunities for the group to leverage off of,” Stockbrokers analysts said.
“Letshego has a strong business model exhibited by high net interest margins and lower cost/income ratios in comparison to traditional banks.
“The group has a broad geographical footprint of operations in 11 countries, providing diversification.
“Six of these countries have deposit taking licences.
“The quantum of deposits remain low, however, Letshego is making good inroads in rolling out its transactional solutions which present cross sell opportunities.”
Stockbrokers analysts also said while competition from commercial banks and other microlenders could ‘eat’ into Letshego’s market share, the group had revised its risk appetite and lending criteria, while also enhancing its collections and recoveries in 2019.
“However, as Letshego continues to diversify and grow its Micro and Small Enterprises and informal portfolios, deterioration in asset quality from increased credit risk will remain a prevalent threat,” Stockbrokers analysts said.
Letshego’s books for this year would be adversely affected by the coronavirus (COVID-19) lockdowns in its African branches, poor asset quality as debtors struggle to service loans and constraints around sources of funding.
“Letshego faces this stress event well capitalised with a capital adequacy ratio of 36% as at the end of December 2019.
“We expect profitability to come under pressure in 2020 on the back of muted advances and income growth, continued growth in costs and deterioration in asset quality.
“We anticipate growth in profitability in 2021 as economic growth turns positive or stronger across the group’s footprint.”