ABSA Bank of Botswana for value or dividend investing

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Let’s look at Absa Bank of Botswana Limited over the 10 factors we used to see if it’s good for either dividend or value investing

Overview: Absa Bank Botswana Limited (BSE: ABBL) is a leading commercial bank (formerly Barclays Botswana) offering retail, SME, corporate and investment banking services in Botswana.  It earns net interest spread (loans vs deposits) and fee income.  In FY2023 Absa earned P2.115 billion total income (up 14% YoY) of which ~P1.400 b (66%) was net interest income and P476.9 million (23%) net fees and commissions .  Profit before tax was P831 million in 2023, rising 27% to P1,058 million in 2024 .  Key lines from 2023 accounts: loans P16.568 b, customer deposits P18.700 b .  (By comparison, peer FNBB had P16.3 b loans on P23.3 b deposits , Stanbic ~P628 m PBT on ~P22.7 b deposits .)

1. Business Model

Absa Botswana operates a full-service banking platform under the Absa (Barclays) brand.  Its model is two-sided: it attracts deposits from individuals and corporates and earns interest by lending to retail and business customers; it also generates fees from payments, cards, trade finance, wealth management, insurance brokerage and advisory.  In FY2023 Absa’s net interest margin was solid, with NII of P1.400 b vs interest expense P431 m (implying a healthy net spread), and it earned P476.9 m in non‑interest fees .  Absa segments its operations into Retail & Business Banking, Corporate & Investment Banking, and an Islamic banking unit (which together contributed P830 m PBT in 2023 ).  The bank is leveraging digital channels and a broad branch/ATM network to grow volumes.  Its Absa/African lineage provides expertise and product support.  Compared to FNBB and Stanbic Botswana, Absa’s business mix is similar – all focus on Botswana’s domestic lending and transaction banking – but Absa has the advantage of the Absa Group’s regional footprint.

2. Management Capability

Absa’s executive team has deep local banking experience and continuity.  MD Keabetswe Pheko-Moshagane has >15 years in finance/IT, rising from Core Banking head to COO to MD .  She’s an award-winning CEO (ranked among Africa’s top women CEOs) and is focused on transformation and efficiency.  The CFO role saw new hire Kudakwashe Mukushi in 2025 (22+ years finance experience) , suggesting strong financial stewardship going forward.  The Board and management have emphasized cost discipline: after a one-off restructuring charge in 2023, Absa’s cost-to-income ratio improved to 58% (from 53%) .  By 2024 this fell further to ~49.7% , showing effective expense control.  Management is also investing in digital banking and human capital (boosting staff costs) to support future growth.  Overall, leadership appears competent: earnings and efficiency trends are positive, with no evident governance red flags.

3. Historical Free Cash Flow Growth

Banks generate cash flow differently than industrial firms, but Absa’s operating cash flow turned strongly positive in 2023.  After modest (restated) cash flow in 2022, Absa’s net cash from operating activities jumped to ~P1.964 b in FY2023 .  This was driven by a large P1.695 b inflow of customer deposits and controlled loan growth (loans +1%).  Major cash sources were interest received (P2.024 b) and new deposits, while cash uses included rising loans and loan-loss reserves.  Capital expenditure was modest (P54.7 m) , so free cash flow (CFO minus capex) was ~P1.91 b in 2023.  On a per-share basis, Absa generated robust internal funds, improving its liquidity.  (FNBB also showed strong cash generation; in contrast, Stanbic Botswana used more cash after paying large dividends .)  Long-term FCF growth for banks depends on loan growth and margin – Absa’s positive 2023 CFO suggests a solid starting point, though 2022 was unusually low due to restatements.

4. End Market Assessment

Botswana Economy: Botswana is a stable, upper-middle-income, diamond-driven economy (pop ~2.8m).  GDP growth has moderated from post-COVID highs: the IMF forecasts ~3.8% GDP growth in 2023 (down from 5.8% in 2022), rebounding above 4% by 2025 .  Inflation is low (3.5% in Dec 2023 ) and the central bank rate is just 2.4%.  Notably, diamond sector risks (volatility in prices/demand) can drag on growth.  Overall, the economy is stable with prudent macro policies, but limited by mineral dependency.  Banking Sector: Botswana’s banking system is healthy and well-regulated.  A 2023 IMF FSAP found Botswana’s financial sector “broadly sound, stable, and resilient” .  The recent introduction of a deposit insurance scheme and ongoing regulatory strengthening (risk-based supervision) further safeguard depositors.  Bank credit to GDP is moderate (~35% GDP), leaving room for growth as the economy recovers.  Regional Context:  Across Sub-Saharan Africa, banking has faced high inflation and interest rates, but has also seen digital expansion and underpenetration.  Many African banks (including FNBB and Stanbic) are leveraging parent-group technology to grow.  Absa is well-positioned to capture domestic growth, but must navigate regional headwinds (inflationary pressures and competition).  Overall, the end-market is supportive long-term, though growth may be slow near-term.

5. Risks

Competition: Absa competes with FNBB (a South African-owned bank) and Stanbic Bank Botswana, as well as local players (e.g. Botswana Post Bank and microfinance).  FNBB is larger (loans P16.3 b, deposits P23.3 b in FY2023 ) and has historically led in market share, while Stanbic (PBT ~P628 m in 2023 ) often competes for high-end corporates.  Competition may pressure margins and loan pricing.  Regulatory: Absa is well-capitalized (CAR 18.6% vs 12.5% min ) and meets liquidity norms (liquid assets ~18% of deposits) .  New regulations (e.g. IFRS9 credit provisioning) add conservatism; deposit insurance protects depositors but also puts stress on banks to maintain buffers.  Macroeconomic: A slowdown in diamond exports or weaker global demand could hurt credit growth.  Exchange-rate risk is muted (Pula pegged to a basket of SDR/ZAR).  Still, regional volatility (e.g. South African policy changes) could spill over.  Operational/Technical: Like all banks, Absa faces cyber-security and fintech disruption risks.  An ineffective digital strategy could cede ground to agile fintech entrants.  Absa’s heavy branch network also means it must manage costs.  In summary, key risks include intense local banking competition, commodity-driven economic cyclicality, and evolving regulatory standards.

6. Balance Sheet Health

Absa’s balance sheet is solid.  Total assets were P24.605 b at end-2023 (up 8% YoY) .  Loans (P16.568 b) are well collateralized, and customer deposits (P18.700 b) provide stable funding .  The loan/deposit ratio (~89%) is higher than FNBB (~70%) and Stanbic (~69%) ; this signals efficient use of deposits but also means less liquid buffer.  Absa holds P3.036 b equity , giving a high CAR of 18.6% (well above the 12.5% regulatory floor).  Liquidity is strong: Absa’s liquid asset ratio (liquidity coverage) was ~18% in 2023 (vs 10% min).  Asset quality appears good – Absa’s provisioning was modest (ECL charge P76.5 m in 2023, after releasing COVID reserves ).  Although Absa’s reported NPL ratio isn’t in the summary, peers FNBB and Stanbic had NPLs ~5% and 3.5% respectively , suggesting Absa’s credit costs are likely low.  Finally, debt levels are minimal: Absa’s only external borrowings were subordinated debt (P625.5 m) and debt securities (P625.6 m) .  Overall, Absa’s balance sheet is conservatively financed, liquid, and well-capitalized, supporting resilience.

7. Capital Allocation Strategy

Absa has prioritized dividends as its main capital return.  The Board declared a final 2023 dividend of 44 thebe per share (~P375 m) , for a full-year pay-out of P498 m on P658 m PAT (≈75% payout).  This follows previous years of gradually rising dividends.  The pay-out policy appears steady: in FY2022 Absa paid P339 m (26t/share), and in FY2023 P465 m (44t/share) .  There are no share buybacks.  Retentions are therefore modest: equity grew only 6% YoY (to P3.036 b) .  The strategy seems to be a high payout to attract income investors, while still maintaining CAR well above requirements.  Management has not announced any capex plans beyond normal technology upgrades.  The bank’s reinvestment is thus mainly in digital platforms and risk systems (see one-off 2023 cost of P91 m).  Overall, the capital allocation is shareholder-friendly (high dividends) with disciplined reinvestment in the core franchise.  Compared to peers: FNBB paid 32t in 2023 (payout ~60%), Stanbic Botswana paid P310 m (~not publicly disclosed DPS) , so Absa’s yield has been competitive given its high margin.

8. Past and Projected Growth

In FY2023 Absa delivered robust growth: operating income +14% and (adjusted) PBT +7% .  Loan book grew only ~1% in 2023 (a deliberate risk-shift to preserve margins), but deposits grew 10% , showing funding strength.  Non-interest income was relatively flat (driven by fees up 6%) .  For FY2024 Absa guided or reported continued growth: total income +7.9% and PBT +27% vs 2023 .  The strong 2024 ramp was partly due to declining costs and improved margins.  Analysts expect Botswana credit to grow modestly (low single digits) unless diamond exports pick up sharply.  Absa’s medium-term growth will mirror the economy (~4% GDP growth) with potential outperformance if it gains market share or expands non-interest lines.  The bank’s new digital initiatives (mobile banking, online lending) could spur a pickup in retail volume.  However, growth is likely to remain steady rather than explosive.  For context, FNBB grew loans ~8% in FY2023 while maintaining 32% ROE; Stanbic grew at ~2% on some portfolios .  Absa’s trajectory appears similar to the peer group – moderate top-line growth, improving efficiencies, and strong return on equity (18-20%) underpinned by high leverage.

9. Dividend and Capital Return Sustainability

Absa’s dividend policy (≈75% payout) is aggressive but currently sustainable given earnings and capital.  At end-2023 Absa still held P1.147 b cash at central bank and P0.753 b in cash , implying liquidity cushions.  Equity of P3.036 b gives a large buffer to absorb losses.  Even after the 2023 dividend, CAR remained 18.6% .  As long as profitability remains (ROE ~20%), the bank can afford the dividends.  However, if credit costs rise or loan growth slows, Absa may need to retain more.  Note FNBB and Stanbic also payout ~50–60% of profits, suggesting industry-wide high yields are expected by investors.  Given Absa’s consistent earnings and strong capital, its dividend appears secure short-term.  The bank’s history of raising dividends annually (as seen in FY2021-23) is a positive signal.  If earnings continue to grow, future dividends can be maintained or increased; conversely, a prolonged credit downturn would likely force cuts.

10. Current Valuation and Value Proposition

As of late April 2025 Absa’s share price is about BWP7.11 .  With FY2023 EPS ~0.733 BWP (73.3 thebe) , this implies a trailing P/E ≈9.7x – quite low for a bank.  (FNBB’s P/E is ~8.8x , Stanbic’s is similar.)  Absa is trading near its 52-week high, reflecting recent earnings momentum .  Price-to-book is also low: equity per share ~BWP177.5 (P3.036 b equity / 17.108 m shares), so P/B ~0.04? (This looks anomalously low, likely due to share-count/par, but effectively P/B <1).  In any case, Absa appears inexpensive relative to growth, profitability, and peers.  Its dividend yield (~9.5% forward, given ~66t/year on 7.11 price) is also attractive.  For a value investor, Absa offers solid returns (ROE ~20%) at a cheap valuation, assuming the Botswana banking market remains stable.  Potential upside catalysts could be continued efficiency gains, higher GDP growth, or market share gains from fintech.

Conclusion (Value Investing Suitability): Absa Bank Botswana scores well on quality and safety: a defensible franchise (regulated banking), strong capital, good profitability, and solid management.  The shares trade at a low multiple with a high yield. The main risks (local competition, commodity cycles) are noted but seem manageable given Absa’s balance sheet strength . Overall, Absa appears well-suited for a value investor seeking income and stability in the Botswana financial sector. Its dividend history and conservative footing suggest it can sustain distributions. We assess Absa as undervalued relative to its peers and intrinsic fundamentals, offering a margin of safety combined with upside from ongoing growth in the Botswana economy.

Sources: Absa FY2023 results and reports ; FNBB FY2023 results ; Stanbic Botswana FY2023 reports ; IMF/Bank of Botswana macro outlook . All data cited are from official financial disclosures or credible financial reports.