Refer to important terms of use, disclaimers and disclosures on back page. Botswana Investment Companion

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1 Refer to important terms of use, disclaimers and disclosures on back page. Botswana Investment Companion Country, market and company profiles African Alliance Pan-African Securities Research 14 September

2 Key Contacts Pan-Africa Patrick O Flaherty Randolph Oosthuizen Rob Brownlee (Johannesburg) Group CEO Group Head of Research Pan-African Trading Desk oflahertyp@africanalliance.com oosthuizenr@africanalliance.com brownleer@africanalliance.com +27 () () () East Africa Ewart Salins (Nairobi) Lucas Otieno (Nairobi) Irene Muigai (Nairobi) Kenneth Kitariko (Kampala) Regional CEO - East Africa Kenya Institutional Sales - East Africa Uganda, Rwanda salinse@africanalliance.com otienol@africanalliance.com muigaii@africanalliance.com kitarikok@africanalliance.co.ug Southern Africa Kabelo Mohohlo (Gaborone) Armstrong Kamphoni (Blantyre) Mark Spath (Windhoek) Nozipho Zwane (Mbabane) Botswana Malawi Namibia Swaziland mohohlok@africanalliance.bw kamphonia@africanalliance.co.mw mark@ijg.net zwanen@africanalliance.sz Mataka Nkhoma (Lusaka) Zambia nkhomam@africanalliance.com West Africa Winston Nelson (Accra) Ghana nelsonw@africanalliance.com African Alliance Pan-African Securities Research 14 September

3 Table of Contents Country Section pg# Botswana Economic profile 1 Market profile 2 Financial sector Barclays 3 First National Bank (FNB) 5 Letshego 7 Stanchart Botswana 9 Industrial sector Sechaba 11 African Alliance Pan-African Securities Research 14 September

4 Summary African shares under coverage, ranked by valuation Share Fair Est. price / earnings ratio (x) Est. dividend yield (%) Mkt Cap Price* Value Diff. Share 1yr 1yr 2yr 1yr 1yr 2yr Name Country Sector (USD m) (LC) (LC) (%) Rec. trailing fwd fwd trailing fwd fwd Lafarge WAPCO Nigeria Cement BUY Access Bank Nigeria Banks BUY Cal Bank Ghana Banks BUY Zenith Bank Nigeria Banks 2, BUY First City Monument Bank Nigeria Banks BUY StanChart Zambia Zambia Banks BUY EA Portland Cement Kenya Cement BUY Lafarge Zambia Zambia Cement 272 6,63 8, BUY Diamond Bank Nigeria Banks BUY KCB Kenya Banks BUY Safaricom Kenya Telecoms 2, BUY Sonatel SN Brvm Telecoms 2,6 134, 154, BUY Guinness Nigeria Nigeria Breweries 1, BUY Ghana Commercial Ghana Banks BUY Stanchart Ghana Ghana Banks BUY First Bank Of Nig. Nigeria Banks 2, HOLD Co-Op Bank Kenya Banks BUY ZANACO Zambia Banks HOLD Letshego Botswana Banks BUY UBA Nigeria Banks 1, HOLD Ecobank Ghana Ghana Banks HOLD Stanchart Kenya Kenya Banks HOLD Guaranty Trust Bank Nigeria Banks 2, HOLD Equity Bank Kenya Banks 1, HOLD Nigerian Breweries Nigeria Breweries 3, HOLD Stanbic IBTC Bank Nigeria Banks 1, HOLD Sechaba Botswana Breweries HOLD Stanchart Botswana Botswana Banks HOLD Guinness Ghana Ghana Breweries SELL Athi River Mining Kenya Cement HOLD Barclays Kenya Kenya Banks 1, SELL EABL Kenya Breweries 1, SELL Ashaka Cement Nigeria Cement SELL Celtel Zambia Telecoms SUSP** Bamburi Cement Kenya Cement SELL Barclays Botswana Botswana Banks SELL FNB Botswana Botswana Banks SELL Stanbic Uganda Uganda Banks SELL Benue Cement co Nigeria Cement 1, SELL *Share prices as of September ; ** Share currently suspended pending offer African Alliance Pan-African Securities Research 14 September

5 Botswana Economic Indicators National accounts * Nominal GDP (USD bn) Nominal GDP % growth (USD) Real GDP % growth (LC) Per capita GDP (USD) 5,985 6,473 7,4 7,552 6,47 7,32 7,35 7,622 Per capita GDP % growth (USD) Prices * Consumer inflation (%) Consumer inflation (ex- food) (%) ** Exchange Rates *** BWP/USD (annual average) BWP/USD (period end) Interest rates ** 9 day BoBC rate (%, ave) Bank rate (%, ave) Prime lending rate (%, ave) Long bond yield (%, ave) External sector (% of GDP) * Current account balance Public sector debt Public sector external debt Sources: * IMF; ** Bank of Botswana; *** Bloomberg Comments F 11F 12F Economic activity in Botswana is expected to recover and grow at a faster pace during the next few years than in 9. According to the IMF, Population (m) * the economy contracted by 6.% in 9, with the mining sector being % growth the worst impacted (contracted by.9%). Botswana is widely recognised as a well-functioning and stable democracy. President Ian Khama came to power in Apr-8 and remains committed to economic policy continuity, with a strong emphasis on addressing social issues. However, the cost implications of expanding social programs are unclear at a time of severe budget constraints, and the th National Development Plan (9-16) will test the government's ability to deliver. Inflation fell to 7% in Jul-, but upside risks remain until the second half of 11. According to the Bank of Botswana, inflation will continue to remain above the target range of 3-6% owing to increases in VAT, electricity tariffs and fuel prices. However, lower price pressures and the need to support growth have prompted the Bank to cut the policy rate by 5bp in 9. Botswana's budget deficit at 15.1% of GDP for 9/ is well above the moderate 5% deficit in 8/9 and a historic record of large surpluses. The Bank of Botswana expects the deficit to decline to about 7% of GDP in fiscal 11/12, before returning to balance in 12/13. Botswana faces a challenge to diversify its economy away from its overreliance on diamonds for foreign exchange and tax revenues. Sources: IMF; Bank of Botswana; Bloomberg However, the diversification strategy is threatened by an energy crisis 5% 4% 3% % % % Sector contribution as % of GDP Exchange rate vs USD the country stands to lose over 7% of its current electricity supply when South Africa halts energy exports to Botswana by 13. In World Bank s Doing business report, Botswana ranks 45 out of 183 countries, third highest ranking in Africa after Mauritius (17) and South Africa (34). The current valuations in Botswana are high. Our preferred pick is Letshego. Mining Government Tourism Fin Serv Construciton Trans & Comm Manufacturing Other A S O N D J F M A M J J African Alliance Pan-African Securities Research p1 14 September

6 Botswana Selected stocks data Mkt Cap Price Multiples Local Return (%) USD Return (%) Country summary Name BWP m P/E DY P/B YTD 12m YTD 12m BOTSWANA DCI BWP USD FNB Botswana 6, Market Cap (bn) Barclays Botswana 5, Avg monthly value traded (m) Stanchart Botswana 4, Letshego 3, Current levels BIHL Botswana 2, Index 7,451 Sechaba 1, BWP / USD 6.8 Wilderness 1, Engen Botswana Performance (%) Furnmart month.5.3 Turnstar months Sefalana months Primetime YTD Sefcash Cresta Market Multiples* Weighted Average Chobe P/E (x) FSG P/B (x) ABCH Botswana D/Y (%) Imara Botswana G4S RDCP Olympia Capital (Botswana) Note: Price multiples as of latest financial year end * Shares under coverage Index performance; Market Capitalisation Breakdown 8, 25 BSEDCI Index 7,5 15 Mkt Cap (BWP bn) 7, 6,5 5 6, S O N D J F M A M J J A S BANK INSU CONS HOTL L BREW PROP P OILG INVE L BUIL TELE E Contact Kabelo Mohohlo mohohlok@africanalliance.co.bw African Alliance Pan-African Securities Research p2 14 September

7 BARCLAYS BOTSWANA (BWP 6.95) - SELL Valuation and target price BWP Current 1 yr fwd 1yr fwd Barclays offers a strong retail franchise (52 branches and 98 ATMs), and held 31% and 26% of industry loans and deposits respectively in FY9. Share price at Sep 6.95 Expected capital gain (%) -8.7 EPS and loans grew by 24.8% and 15.8% compound over three years. Fair value 5.84 Expected dividend yield (%) 3.9 Deposit growth however, lagged behind at % CAGR. Target price 6.34 Expected total return (%) -4.8 Rolling est. EPS Cost of equity (%) 13.3 Growth was underpinned by an aggressive retail expansion which began Rolling est. P/E (x) Difference (% points) in 5, raising consumer credit to 87% of total loans in FY9. Reflecting Note: Valuation is derived using a 5 year dividend discount model with a terminal growth rate of 8% the higher risk of the loan book, impairments have risen to 3.7% of loans in FY9 (FY6:.3%), while NPLs were 6% (highest in the sector). The expansion has also grown relative costs (CIR of 47%). BWP Dec-7A Dec-8A Dec-9A Dec-F Dec-11F Dec-12F Historical Forecast EPS Growth (%) P/E ratio (x) n/a n/a PEG ratio (x) n/a n/a n/a DPS Growth (%) Dividend yield (%) n/a n/a Dividend cover (x) NAV per share Price / NAV (x) n/a n/a TNAV per share Price / TNAV (x) n/a n/a year average ROaE and ROaA have been 54% and 3.9% respectively. The NIM has increased from 5.% in FY6 to 8.4% in FY9, due to higher spreads on unsecured consumer lending. Barclays was able to maintain higher margins relative to peers by charging g fixed rates (6% of book) on consumer loans, which has been beneficial in the declining interest rate environment. Despite strong capitalization (21%), high liquidity (48%) and low L/D (61%), scope to grow risk assets may be limited due to high consumer credit exposure and lacklustre employment prospects in Botswana. We project 11% and 7% growth in loans in FY and FY11 respectively, largely driven by commercial lending. EPS growth will be subdued in FY (forecast at 8%). Selected financial i ratios Share information Average Bloomberg BCBB BG Year end Dec-7A Dec-8A Dec-9A Dec-F Dec-11F Dec-12F Historical Forecast Reuters BARC.BT ROaE (%) BOTSWANA: BANKS ROaA (%) month high / low 7.12 / 5.8 Equity / assets (%) Market cap BWP 5.9bn / USD.9bn Loans / deposits (%) Ave 12 monthly value traded BWP 4.2m / USD 619.7k Liquid assets / deposits (%) Ave 12 monthly volume traded (m).6 NPL's / gross loans (%) Shares in issue (m) 852 NPL cover ratio (%) Estimated free float (%) 32 Net interest margin (%) NIR / total income (%) Analyst Odirile Okaile Cost t/i income (%) Impairment / gross loans (%) okaileo@africanalliance.com African Alliance Pan-African Securities Research p3 14 September

8 BARCLAYS BOTSWANA (BWP 6.95) - SELL Income statement (BWP ) Year end Dec-7A Dec-8A Dec-9A Dec-F Dec-11F Dec-12F Historical Forecast Net interest income 555, ,881 1,24, ,631 1,99,584 1,7,852 Growth (%) Net interest margin (%) Non-interest revenue 267,71 367, ,91 341, , ,514 Growth (%) Total operating income 822,877 1,155,597 1,347,468 1,34,85 1,464,863 1,62,33 Growth (%) Opex -432,83-551, ,74-568, , ,235 Growth (%) Impairments -94,92-6,669-4,19-214,1-231, ,99 % of ave gross loans Profit before tax 295, ,292 61, ,915 67,483 7,995 Price vs Index (re-based) Price Index (Rebased) Growth (%) Return on average assets & equity (%) Tax -54, , , , , ,847 Effective tax (%) Minorities Attributable profit 24, , , , ,65 537,148 Growth (%) Weighted shares in issue (m) FYE shares in issue (m) Balance a sheet (BWP ) Sep 9 Nov 9 Jan Mar May Jul Sep 7 ROaA ROaE Dec-7A Dec-8A Dec-9A Dec-F Dec-11F Dec-12F Year end Dec-7A Dec-8A Dec-9A Dec-F Dec-11F Dec-12F Historical Forecast Asset and net loan growth (%) Cash & equivalents 553,53 663,99 639, , ,85 698,724 Investment securities 4,129,477 4,83,465 3,766,768 4,68,9 4,434,239 4,877,663 Due from (to) banks -12, ,847 5,453,482 3,858 8,35 Net Loans 3,897, ,228,998 5,829,413 6,55,477 7,164,913 7,927,633 Growth (%) Fixed assets 13,76 138, ,526 4,566 96,233 87,76 Total assets,73,813 13,869,939 11,798,48 12,86,343 14,17,774 15,419,551 Growth (%) Non-bank deposits 8,745,9 11,761,48 9,59,57,179,546,886,335 12,71,763 Growth (%) Debt 952, , , ,48 94, ,359 Equity 548, , ,982 1,162,895 1,41,41 1,67,569 Source: Company data, African Alliance estimates 4 Growth in Assets (%) Growth in Loans (%) Dec-7A Dec-8A Dec-9A Dec-F Dec-11F Dec-12F African Alliance Pan-African Securities Research p4 14 September

9 FNB BOTSWANA (BWP 2.6) - SELL Valuation and target price BWP Current 1 yr fwd 1yr fwd FNBB has a network of branches and ATMs, and held 27% and 28% of industry loans and deposits respectively in 1H. Share price at Sep 2.6 Expected capital gain (%) Fair value 2.8 Expected dividend yield (%) 4.3 We consider FNBB to be sector leader in risk management and asset Target price 2.25 Expected total return (%) -9.4 quality. NPLs and impairments of 2.6% and.8% of loans respectively Rolling est. EPS.18. Cost of equity (%) 13.3 (FY) remain the lowest in the sector, largely attributed to a low Rolling est. P/E (x) Difference (% points) consumer credit exposure (29% versus a range of 75%-8% for peers). Note: Valuation is derived using a 5 year dividend discount model with a terminal growth rate of 8% However, impairments could rise above 1% of loans in the medium term as FNBB aims to grow risk assets in the consumer market. BWP Jun-8A Jun-9A Jun-A Jun-11F Jun-12F Jun-13F Historical Forecast EPS Growth (%) P/E ratio (x) n/a n/a PEG ratio (x) n/a n/a n/a DPS Growth (%) Dividend yield (%) n/a n/a Dividend cover (x) NAV per share Price / NAV (x) n/a n/a TNAV per share Price / TNAV (x) n/a n/a Historic performance has been largely dominated by treasury activity (45% of PBT in FY). A low exposure to consumer credit and a strong balance sheet - CAR of 17.4%, low L/D (56.3%) and high liquidity (5.3%) - gives FNBB the advantage to increase its consumer credit market share (estimated at %). We expect FNBB to outperform the sector in FY11 (15% and 13% loan and EPS growth), driven by solid growth in retail credit and lower impairments. FNBB continues to grow its retail footprint, with two new branches and 11 ATMs added in FY. A further ATMs will be added in FY11. Despite this, cost efficiency at 4% is still the best in the industry, with management projecting to maintain it at FY levels going forward. Selected financial i ratios Share information Average Bloomberg FNBB BG Year end Jun-8A Jun-9A Jun-A Jun-11F Jun-12F Jun-13F Historical Forecast Reuters FNBB.BT ROaE (%) BOTSWANA: BANKS ROaA (%) month high / low 2.95 / 2.41 Equity / assets (%) Market cap BWP 6.7bn / USD 1.bn Loans / deposits (%) Ave 12 monthly value traded BWP 5.7m / USD 843.9k Liquid assets / deposits (%) Ave 12 monthly volume traded (m) 2.1 NPL's / gross loans (%) Shares in issue (m) 2,564 NPL cover ratio (%) Estimated free float (%) 31 Net interest margin (%) NIR / total income (%) Analyst Odirile Okaile Cost t/i income (%) Impairment / gross loans (%) okaileo@africanalliance.com African Alliance Pan-African Securities Research p5 14 September

10 FNB BOTSWANA (BWP 2.6) - SELL Income statement (BWP ) Year end Jun-8A Jun-9A Jun-A Jun-11F Jun-12F Jun-13F Historical Forecast Net interest income 4, , ,64 566,549 68, ,811 Growth (%) Net interest margin (%) Non-interest revenue 347,666 37, ,57 47,87 432, ,669 Growth (%) Total operating income 747, ,54 951,952 1,84,191 1,223,589 1,334,95 Growth (%) Opex -285, ,86-35, , , ,98 Growth (%) Impairments -,84-4,752-43,4-6,872-73,892-89,448 % of ave gross loans Profit before tax 442, ,48 531, ,451 7,95 77,548 Price vs Index (re-based) Price Index (Rebased) Growth (%) Return on average assets & equity (%) Tax -68, ,76-95, ,29-142,19-154,1 Effective tax (%) Minorities Attributable profit 374,25 46,7 436,5 493, ,76 616,438 Growth (%) Weighted shares in issue (m) 2,564 2,564 2,564 2,564 2,564 2,564 FYE shares in issue (m) 2,564 2,564 2,564 2,564 2,564 2,564 Balance a sheet (BWP ) Sep 9 Nov 9 Jan Mar May Jul Sep 6 ROaA ROaE Jun-8A Jun-9A Jun-A Jun-11F Jun-12F Jun-13F Year end Jun-8A Jun-9A Jun-A Jun-11F Jun-12F Jun-13F Historical Forecast Asset and net loan growth (%) Cash & equivalents 1,796,13 1,185,914 1,1,491 1,213,56 1,225,641 1,237,897 Investment securities 5,333,932 6,62,71 4,946,59 5,44,98 5,297,229 5,826,952 Due from (to) banks -142,3-13,851-4, -13,456-14,81-16,134 Net Loans 3,969,496 4,643,241 5,83,9 9 6,655, ,639,475 8,786,52 Growth (%) Fixed assets 8, ,61 187,36 165, , ,149 Total assets 11,482,162 12,449,487 12,232,572 13,455,829 14,81,412 16,133,539 Growth (%) Non-bank deposits 9,763,624,552,699,34,632 11,18,24 11,917,385 13,12,778 Growth (%) Debt 424, ,612 7, , ,81 329,821 Equity 724, ,124 1,158,559 1,385,89 1,657,514 1,943,152 Source: Company data, African Alliance estimates 4 Growth in Assets (%) Growth in Loans (%) 3 - Jun-8A Jun-9A Jun-A Jun-11F Jun-12F Jun-13F African Alliance Pan-African Securities Research p6 14 September

11 LETSHEGO (BWP 1.85) - BUY Valuation and target price BWP Current 1 yr fwd 1yr fwd Botswana, Letshego s primary profit generator, is on budget to grow loans 15-% in FY11. However, growth may still come below Share price at Sep 1.85 Expected capital gain (%) -. management s guidance due to a bloated Botswana public sector which Fair value 2. Expected dividend yield (%) 31.1 is Letshego s key market. Further, lending spreads may be somewhat Target price 1.67 Expected total return (%) 21.1 impacted should current proposed microlending regulations be enacted. Rolling est. EPS.26.3 Cost of equity (%) 12.3 The medium term outlook for Botswana is one of low growth unless the Rolling est. P/E (x) Difference (% points) 8.8 private sector can be penetrated (unlikely). BWP Jan-8A Jan-9A Jan-A Jan-11F Jan-12F Jan-13F Historical Forecast EPS Growth (%) P/E ratio (x) n/a n/a PEG ratio (x) n/a n/a n/a DPS Growth (%) Dividend yield (%) n/a n/a Dividend cover (x) NAV per share Price / NAV (x) n/a n/a TNAV per share Price / TNAV (x) n/a n/a Swaziland s loan book has declined further since FY and could lead to a substantial decline in Swaziland s profit contribution. Tananzia is and will not perform to potential until the bottleneck arising from new regulation requiring employee supervisors to sign off loans is resolved. Branches were reduced from from 7 satellite branches to 17 during FY. The only real growth engine at this stage is Namibia, which has the capacity to grow loans in excess of our estimated 35% in FY11. Further, volume growth in Namibia will be aided by access to a broader funding base attained from being part of a larger group. Letshego this week issued a trading update indicating that 1H11 PBT will grow by 4%. We estimate an implied 27% y/y EPS growth in 1H11, which places it in line with our FY11 EPS estimate of BWP.26. A low debt-to-equity (.3x compared to 2x considered sustainable by financiers), positions Letshego to leverage its balance sheet to fund loan growth. Selected financial i ratios Share information Average Bloomberg LETSHEGOBG Year end Jan-8A Jan-9A Jan-A Jan-11F Jan-12F Jan-13F Historical Forecast Reuters LETS.BT ROaE (%) BOTSWANA: BANKS ROaA (%) month high / low 2.5 /.93 Equity / assets (%) Market cap BWP 3.4bn / USD.5bn Loans / deposits (%) Ave 12 monthly value traded BWP 22.9m / USD 3.4m Liquid assets / deposits (%) Ave 12 monthly volume traded (m) 14. NPL's / gross loans (%) Shares in issue (m) 1,792 NPL cover ratio (%) Estimated free float (%) 52 Net interest margin (%) NIR / total income (%) Analyst Odirile Okaile Cost t/i income (%) Impairment / gross loans (%) okaileo@africanalliance.com Note: Letshego does not collect deposits, hence certain ratios do not apply African Alliance Pan-African Securities Research p7 14 September

12 LETSHEGO (BWP 1.85) - BUY Income statement (BWP ) Year end Jan-8A Jan-9A Jan-A Jan-11F Jan-12F Jan-13F Historical Forecast Net interest income 243, , ,91 752, ,734 1,47,888 Growth (%) Net interest margin (%) Non-interest revenue 7,443 92, , ,56 176,249 2,567 Growth (%) Total operating income 314, ,563 66,612 9,31 1,64,983 1,25,455 Growth (%) Opex -81,7 -, , , ,817-5,64 Growth (%) Impairments -15,666-29,421-5,191-58,16-72,564-72,73 % of ave gross loans Profit before tax 217, ,69 462, , ,61 972,112 Price vs Index (re-based) Price Index (Rebased) Growth (%) Return on average assets & equity (%) Tax -48,481-69, ,6-163,69-195, ,37 Effective tax (%) Minorities Attributable profit 165, ,332 37,16 55,56 66, ,78 Growth (%) Weighted shares in issue (m) 1,511 1,515 1,824 1,824 1,982 1,982 FYE shares in issue (m) 1,511 1,515 1,792 1,824 1,982 1,982 Balance a sheet (BWP ) Sep 9 Nov 9 Jan Mar May Jul Sep 5 ROaA ROaE Jan-8A Jan-9A Jan-A Jan-11F Jan-12F Jan-13F Year end Jan-8A Jan-9A Jan-A Jan-11F Jan-12F Jan-13F Historical Forecast Asset and net loan growth (%) Cash & equivalents 9,1 5,165 4, ,98 137,89 82,734 Investment securities Due from (to) banks Net Loans 787,926 1,342,557 1,682, ,81,493 2,573, ,6,151 Growth (%) Fixed assets 4,384 7,152 6,6 7,512,85 12,751 Total assets 811,919 1,41,21 1,915,421 2,317,659 2,781,191 3,337,43 Growth (%) Non-bank deposits Growth (%) Debt 36, , , , ,68 126,886 Equity 461, ,48 1,369,316 2,11,3 2,478,4 3,35,418 Source: Company data, African Alliance estimates Growth in Assets (%) Growth in Loans (%) Jan-8A Jan-9A Jan-A Jan-11F Jan-12F Jan-13F African Alliance Pan-African Securities Research p8 14 September

13 STANCHART BOTSWANA (BWP 14.) - HOLD Valuation and target price BWP Current 1 yr fwd 1yr fwd Stanchart has the smallest network compared to peers (13 branches and 42 ATMs), and held 18% and % of industry loans and deposits Share price at Sep 14. Expected capital gain (%) 5.7 respectively in FY9. Stanchart is conservative, growing loans by only Fair value Expected dividend yield (%) 5.4 8% compound over 3 years versus 25% and 16% for Barclays and FNBB Target price 14.8 Expected total return (%) 11.2 respectively. Rolling est. EPS.84.9 Cost of equity (%) 13.3 Rolling est. P/E (x) Difference (% points) -2.1 A high consumer credit exposure (7% loans), has driven impairments Note: Valuation is derived using a 5 year dividend discount model with a terminal growth rate of 8% up to 2.3% of loans (FY8: 1.5%). NPLs also averaged 4.3% owing to retrenchments in FY8 and FY9, and some corporate failures in the transport and mining sectors. BWP Dec-7A Dec-8A Dec-9A Dec-F Dec-11F Dec-12F Historical Forecast EPS Growth (%) P/E ratio (x) n/a n/a PEG ratio (x) n/a n/a n/a DPS Growth (%) Dividend yield (%) n/a n/a Dividend cover (x) NAV per share Price / NAV (x) n/a n/a TNAV per share Price / TNAV (x) n/a n/a Despite strong liquidity (57%) and a low L/D ratio (47%), we do not foresee management aggressively improving risk assets in the medium term and believe that Stanchart will lose market share in the medium term. Further, a low CAR (17%) coupled with a high dividend payout ratio (8%) and a low reinvestment in the business, will limit further growth in risk assets. We estimate FY EPS and loan growth of 3% and 6% respectively, on volumes from the commercial and SMME segments. Deposit growth of 4% is also expected to underperform the sector. Stanchart is the most expensive bank in our universe, on a PE of 18.1x and a PB of 11.5x. However, its dividend yield has historically been one of the highest in the sector. Selected financial i ratios Share information Average Bloomberg SCBB BG Year end Dec-7A Dec-8A Dec-9A Dec-F Dec-11F Dec-12F Historical Forecast Reuters STD.BT ROaE (%) BOTSWANA: BANKS ROaA (%) month high / low 17.5 / 14. Equity / assets (%) Market cap BWP 4.bn / USD.6bn Loans / deposits (%) Ave 12 monthly value traded BWP 1.5m / USD 215.6k Liquid assets / deposits (%) Ave 12 monthly volume traded (m).1 NPL's / gross loans (%) Shares in issue (m) 288 NPL cover ratio (%) Estimated free float (%) 25 Net interest margin (%) NIR / total income (%) Analyst Odirile Okaile Cost t/i income (%) Impairment / gross loans (%) okaileo@africanalliance.com African Alliance Pan-African Securities Research p9 14 September

14 STANCHART BOTSWANA (BWP 14.) - HOLD Income statement (BWP ) Year end Dec-7A Dec-8A Dec-9A Dec-F Dec-11F Dec-12F Historical Forecast Net interest income 449, ,58 496,862 53, , ,77 Growth (%) Net interest margin (%) Non-interest revenue 183,63 195,96 243,598 25,68 256, ,546 Growth (%) Total operating income 633, ,468 74,46 781, , ,252 Growth (%) Opex -255, ,6-379, ,65-43, ,986 Growth (%) Impairments -74,943-47,784-75,44-76,997-75,534-69,24 % of ave gross loans Profit before tax 33,58 37, ,353 35, , ,27 Price vs Index (re-based) Price Index (Rebased) Growth (%) Return on average assets & equity (%) Tax -63,69-78,2-5,45-61,143-72,49-87,636 Effective tax (%) Minorities Attributable profit 239, , ,38 244, , ,391 Growth (%) Weighted shares in issue (m) FYE shares in issue (m) Balance a sheet (BWP ) Sep 9 Nov 9 Jan Mar May Jul Sep ROaA ROaE 4 Dec-7A Dec-8A Dec-9A Dec-F Dec-11F Dec-12F Year end Dec-7A Dec-8A Dec-9A Dec-F Dec-11F Dec-12F Historical Forecast Asset and net loan growth (%) Cash & equivalents 385, , ,38 442,4 464, ,99 Investment securities 3,858,68 4,387,856 3,277,364 3,65, 4,1,661 4,61,911 Due from (to) banks 181,4 793,9 774, , , ,264 Net Loans 3,9,169 3,121,911 3,487,961 3,696,139 3,967,92 4,317, Growth (%) Fixed assets 32,678 33,674 3,461 33,359 36,57 4,111 Total assets 7,838,182 9,68,976 8,325,94 8,98,756 9,621,456,583,62 Growth (%) Non-bank deposits 6,76,762 7,977,77 7,262,7 7,57,221 8,161,311 8,941,55 Growth (%) Debt 315,6 243, , , ,51 246,766 Equity 294, , ,488 49, , ,919 Source: Company data, African Alliance estimates Growth in Assets (%) Growth in Loans (%) Dec-7A Dec-8A Dec-9A Dec-F Dec-11F Dec-12F African Alliance Pan-African Securities Research p 14 September

15 SECHABA (BWP.3) - HOLD Valuation and target price BWP Current 1 yr fwd 1yr fwd Sechaba's FY results showed a 24.4% y/y decline in EPS to BWP.92. A continued decline in the top line and rising operating costs, Share price at Sep.3 Expected capital gain (%) 7.1 culminating in eroding margins, continued to be the highlights in the Fair value.46 Expected dividend yield (%) 9.3 company s performance. Turnover declined 15.8% y/y to BWP 1.2bn as Target price 11.3 Expected total return (%) 16.4 a 2% and 22% increase in soft drinks and still beverages respectively Rolling est. EPS Cost of equity (%) 14.7 was negated by a 34.5% decline in alcoholic beverages sales volumes. Rolling est. P/E (x).9.1 Difference (% points) 1.8 Cost efficiencies achieved on inputs translated into an 18.6% reduction Note: Valuation was derived using a 5-yr free cash flow model with a terminal growth rate of 5% in cost of sales and the GP margin firmed bp to 41%. Operating profit however plunged 24.6% on the back of a 135.1% 1% increase in selling and distribution costs, as the company increased its marketing efforts to counter the effects of the alcohol levy. BWP Mar-8A Mar-9A Mar-A Mar-11F Mar-12F Mar-13F Historical Forecast The 3% alcohol levy and a banning the sale of alcohol in residential EPS areas have seen clear beer sales and sorghum sales declining 26.2% and 7.8% yy y/y respectively. A continued threat of an increase in the Growth (%) P/E ratio (x) n/a n/a PEG ratio (x) n/a n/a n/a DPS Growth (%) Dividend yield (%) n/a n/a Dividend cover (x) NAV per share Price / NAV (x) n/a n/a TNAV per share Price / TNAV (x) n/a n/a alcohol levy remains, exacerbated by the recent increase in VAT to 12%. Consumer drinking patterns have changed, with customers switching to cheaper, high alcohol content beverages; volumes are expected to be under pressure in FY11. In the current scenario we expect slow recovery in volumes and limited growth prospects. However a generous dividend yield is expected to support the share price, especially given the low yields from other financial assets in Botswana. Selected financial i ratios Share information Average Bloomberg SCHB BG Year end Mar-8A Mar-9A Mar-A Mar-11F Mar-12F Mar-13F Historical Forecast Reuters SECH.BT ROaE (%) BOTSWANA: INDUSTRIALS ROaA (%) month high / low / 9.93 Debt / Equity (%) Market cap BWP 1.4bn / USD.2bn EBITDA margin (%) Ave 12 monthly value traded BWP.m / USD 1.5m Operating profit margin (%) Ave 12 monthly volume traded (m).9 Net margin (%) Shares in issue (m) 133 Sales (khl) 2,327 2,4 2,125 2,134 2,15 2,171 Estimated free float (%) 58 Growth (%) Beer consumption (lpc) Analyst Maciek Szymanski EV / EBITDA n/a n/a szymanskim@africanalliance.com Sales: ' hectolitres; beer consumption in litres per capita. Source: Canadean African Alliance Pan-African Securities Research p11 14 September

16 SECHABA (BWP.3) - HOLD Income statement (BWP ) Price vs Index (re-based) Year end Mar-8A Mar-9A Mar-A Mar-11F Mar-12F Mar-13F Historical Forecast 16 Revenue 1,283,88 1,49,353 1,186,473 1,27,16 1,341,334 1,421, Growth (%) Pi Price Index (Rebased) EBITDA 318, , ,53 287,228 3,29 328, Growth (%) EBITDA margin (%) D&A 11 Operating profit 318, , ,53 287,228 3,29 328,674 Growth (%) Operating profit margin (%) Net interest -,182-14,14 -,39-6, 8 Exceptional items Sep 9 Nov 9 Jan Mar May Jul Sep Profit before tax 38,87 347, , ,228 3,29 328,674 Growth (%) Return on average assets & equity (%) Tax -52,58-59, -44,585-47,767-52,66-55,826 Effective tax (%) Minorities -112,13-126,8-96,54-2,3-112, ,328 Attributable profit 144, , , , ,8 153,519 Growth (%) Weighted SISS (m) FYE SISS (m) ROaA ROaE Balance a sheet (BWP ) -4 Mar-8A Mar-9A Mar-A Mar-11F Mar-12F Mar-13F Year end Mar-8A Mar-9A Mar-A Mar-11F Mar-12F Mar-13F Historical Forecast EBITDA margin and EPS growth (%) Non-current assets 298,74 355, ,43 398,43 398,43 398,43 Current assets (ex-cash) 181, ,93 192, , ,8 4,721 Cash and cash equivalents 71,657 23,291 45,486 Total assets 552, , , , , ,124 Growth (%) Non-current liabilities 69,559 7,691 11,747 11,747 11,747 11,747 Current liabilities 274,913 25, ,942 36,847 32, ,969 Equity 149, , , ,46 194,597 5,343 Total equity and liabilities 552, , , , ,511 63,124 Borrowings 19,82 87,197 68,487 47,792 94,152 77,912 Growth (%) Source: Company data, African Alliance estimates 4 EBITDA Margin (%) EPS Growth (%) Mar-8A Mar-9A Mar-A Mar-11F Mar-12F Mar-13F African Alliance Pan-African Securities Research p12 14 September

17 African Alliance Botswana Securities African Alliance Securities Ghana African Alliance Kenya Securities African Alliance House 2nd Floor, Heritage Towers 1st Floor, Transnational House Fairgrounds Office Park 6th Avenue, Ridge Ambassadorial Enclave Mama Ngina Street t Gaborone, Botswana Accra, Ghana Nairobi, Kenya Telephone: Telephone: Telephone: African Alliance Securities IJG Securities* African Alliance Swaziland Securities 4th Floor, Livingstone Towers 1st Floor, Heritage Square 2nd Floor, Nedbank Centre Glyn Jones Road Robert Mugabe Avenue Cnr Sishayi and Sozisa Roads Blantyre, Malawi Windhoek, Namibia Mbabane, Swaziland Telephone: Telephone: Telephone: * Associate company African Alliance Uganda African Alliance Securities Zambia African Alliance Stockbroking Holdings 1st Floor, Worker s House The Colosseum, Block A Ground Floor 1st Floor, Ebene Heights 1 Pilkington Road Bwinjimfumu Road 32 Ebene Cybercity Kampala, Uganda Lusaka, Zambia Ebene, Mauritius Telephone: Telephone: Telephone: African Alliance South Africa Securities 4th Floor, 23 Melrose Boulevard Melrose Arch 2196 Johannesburg, South Africa Telephone: This document is confidential and issued for the information of internal and external clients of the operating subsidiaries of African Alliance Ltd ( African Alliance Group ). It is subject to copyright and may not be reproduced in whole or in part without written permission from the author. The information, opinions and recommendations contained herein are and must be construed solely as statements of opinion and not statements of fact. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such recommendation or information is given or made by the African Alliance Group in any form or manner whatsoever. Each recommendation or opinion must be weighed solely as one factor in any investment or other decision made by or on behalf of any user of the information contained herein and such user must accordingly make its own study and evaluation of each strategy / security that it may consider purchasing, holding or selling and should appoint its own investment or financial or other advisors to assist the user in reaching any decision. The African Alliance Group will not accept responsibility of whatsoever nature in respect of any statement, opinion, recommendation or information contained in this document. The African Alliance Group is an investment banking group, and provides a full range of investment banking services. It and its affiliate companies conduct investment banking business that relates to companies covered in its research, including market making, proprietary trading, fund management and providing investment services. The African Alliance Group is owned and controlled by African Alliance Limited (incorporated in the Isle of Man number 79171C) which acts as a group holding company and does not have any operations or regulatory approvals. The African Alliance Group has a policy in place to avoid or manage conflicts of interest that may arise due to its diverse activities. Our traders or other professional staff may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research African Alliance Pan-African Securities Research 14 September