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BIHL braces for P110m hit as associate firms struggle

Letshego Headquarters. PIC: MORERI SEJAKGOMO
Botswana Insurance Holdings Limited (BIHL) expects to suffer a drop of up to P110 million for the half-year ended June 30, due to fair value reviews of investments in associate companies.

BIHL’s biggest stakes in other firms include 50% in Botswana Insurance Company, 36% in the Funeral Services Group (FSG), 25.1% in Malawi’s Nico Holdings Limited and about 26.2% in Letshego Holdings Limited.

Group executives previously told BusinessWeek that every six months, BIHL evaluates all its investments on the basis of a Discounted Cash Flow, which essentially attempts to measure the future returns on the different equity stakes. Recently, the group told shareholders that its interim results, due to be released on September 2, would carry a drop in pretax profits of between P78 million and P110 million when compared to the corresponding prior period. For the half-year ended June 30, 2018, BIHL posted pretax profits of P314 million.

“The reason for the lower earnings during the current period is due to a fair value adjustment in respect of the group’s investments in associates.

“The board is pleased to note, however, that the core earnings from the significant subsidiaries in the group remained strong despite a difficult trading environment,” the group said.

Analysts told BusinessWeek that while BIHL had not specified which subsidiaries had contributed to the lower profits, Letshego and the FSG were likely candidates.

Letshego, the country’s leading microlender, dented BIHL’s books last year after the biannual review of the financial group’s investments resulted in a lower valuation of the Letshego stake.

Letshego, a pan-African micro-lender active in 11 countries, is the largest non-bank financier in the country and Botswana Stock Exchange’s (BSE) fourth largest domestic stock by market capitalisation. However, BIHL’s fair value assessment was adverse. “The Letshego impairment was on the basis of growth assumptions and our own valuation assumptions of the investment,” BIHL’s chief financial officer, Kudakwashe Mukushi told BusinessWeek at BIHL presentation for the 2018 annual results.

“The valuation of our investment comprises many assumptions and what we have seen in the past two years in terms of the group’s performance and growth of the bottom line was part of the

reason we revised our valuation assumptions. “Letshego’s operating results are better actually, but we are looking at those assumptions and the impairment.”

Letshego, which is due to release its results on or about the same time as BIHL next month, has undergone a turbulent period in the last year with strategy difference reportedly driving the exodus of five top executives, including the group managing director, group financial officer and a CEO who only spent six months on the job.

The troubles have not gone unnoticed by shareholders, with several directors scraping through to reappointment at the recent annual general meeting. Since the beginning of the year, the microlender has lost nearly 20% of its value on the BSE. FSG, meanwhile, was recently in the news for alleged misappropriation of funds by executives. The group, however, enjoys a stranglehold on the local market with about 65% control, as well as other operations in the region.

Responding to BusinessWeek enquiries, Stockbrokers Botswana research analyst, Thatayaone Motsomi said there could be increasing cause for concern amongst BIHL investors.

“The prior two financial years indeed involved consecutive write-downs in fair value of investments in associates due to Letshego.

“Given the limited information in the cautionary statement we will have to wait and see for the results to be released to determine which associate(s) underpinned this year’s write down. “In the scenario that it is once again Letshego driving the write downs, investors would be concerned, more especially investors exposed to Letshego through direct holding in the microlender’s shares,” he said. Motsomi said it was not possible to predict what BIHL would do in terms of its exposure to the affected associates.

“I believe any potential revisions in BIHL’s strategic investments in associates will be determined by the group’s views of the long term fundamentals of these investments,” he said.

“If the group is comfortable with the long term fundamentals they will likely maintain their holdings as is.”




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