Analyzing FNBB for investing

Good morning 😃🌞☀️, let’s get into it

Today let’s dive deep into a guide I’ve been making on companies in the Botswana Stock Exchange since late April, it was actually for me, but now will like to share it with you.

I will be examining different companies to see if they are best suited for dividend or value investing(buy and hold for long periods of time and sell at a higher price in the future).

It will be a series I delve into FNBB, Sefalana, Sechaba Holdings, BIHL group etc, using 10 key points:

1. Understanding the business model

2. Management capability

3. Historical free cashflow growth

4. End market assessment (Botswana and Africa)

5. Main risks

6. Balance sheet Health

7. Capital allocation strategy

8. Past and projected growth

9. Dividend sustainability

10. Valuation and assessment

11. Conclusion whether it’s suited for dividend or value investing

First National Bank Botswana (FNBB) Investment Case

1. Understanding the Business Model

First National Bank Botswana is a full-service commercial bank (a subsidiary of South Africa’s FirstRand Group) serving retail, commercial and corporate clients.  It is the largest bank in Botswana by assets and customers . The bank delivers banking services through a broad network of branches, ATMs/ADTs and digital channels (online banking, mobile app, Cellphone Banking) .  It also pioneered CashPlus agency banking to reach underserved rural areas.  Its business mix includes corporate lending, consumer credit, mortgages, and transaction banking.  FNB Botswana emphasizes technology and digital innovation (per management’s “solutionist” strategy) to enhance customer service.  In short, FNBB is Botswana’s market‐leading universal bank with a diversified deposit‐funded lending franchise, strong brand, and linkage to the FirstRand platform .

2. Management Capability

The bank’s leadership is experienced and well‐connected.  CEO Steven Bogatsu (a FirstRand executive) and his team have guided the bank through technology upgrades and digital expansion.  FNBB’s management has won external recognition: for example, FNB Botswana was named Best Bank in Botswana by Euromoney in 2023-24 (its 4th consecutive win) .  In interviews, management emphasizes a customer‐centric, innovative culture (“solutionist” approach) and prudent risk management.  The board comprises seasoned bankers and industry figures (including FirstRand affiliates), ensuring deep industry expertise.  Overall, governance appears robust and focused on sustainable growth.

3. Historical Free Cash Flow Growth

FNBB has generated steadily rising cash flows.  Net income has grown from P0.695 billion in 2020 to P1.116 billion in 2023 (FY2023 after-tax profit of P1.116 bn vs P0.927 bn in FY2022).  Operating cash flow was P1.95 billion in FY2023 (up from a net use of P0.946 bn in FY2022) , reflecting strong deposit inflows funding loan growth.  Capital expenditures are small (~P86 m in FY2023), so free cash flow (CFO minus capex) has been substantial.  In FY2023 the bank paid out P0.712 bn in dividends, comfortably covered by cash from operations.  In sum, FNBB’s free‐cash‐flow generation has trended upward with earnings – enabling expansion and rising shareholder payouts .

4. End-Market Assessment (Botswana and Africa)

FNBB operates in the Botswana banking sector, which is relatively mature and well-capitalized.  Botswana’s economy is small (~GDP $18 bn), diamond-dependent, and projected to grow only ~1% in 2024 (due to weak diamond prices) before rebounding to ~5% annually thereafter .  Inflation is low (~3–6%), and fiscal/monetary policies are prudent.  The financial sector is “sound, stable and resilient” by IMF assessment .  According to the Bank of Botswana, banks maintain strong capital buffers (CAR ~22% vs 12.5% requirement) and profitability .  Technology adoption (mobile/internet banking) is high in Botswana, with FNBB a leader in digital channels.  Regionally, sub‐Saharan African banking is expanding: overall bank lending growth averaged ~23% in 2023 , driven by rising incomes and inclusion efforts.  However, most African markets remain underbanked, and competition from fintech/mobile money is increasing.  FNBB benefits from Botswana’s relative stability and from synergies with FirstRand’s regional expertise, but growth is ultimately tied to the local economy’s modest expansion and credit demand.

5. Main Risks

Key risks include: Competition – FNBB faces challengers like Stanbic (Standard Bank), Absa, Access Bank and others, as well as non-bank fintechs that could erode margins or deposit share.  Concentration – Botswana banking is top-heavy (the four largest banks hold ~74% of assets ), so systemic risk is high and FNBB’s fortunes move with industry cycles.  Credit Risk – Although NPLs are relatively low, household and public-sector debt could stress loans if growth stalls .  Macroeconomic Risk – The economy’s heavy reliance on diamonds makes credit growth volatile; IMF notes Botswana’s slowdown to ~1% GDP growth in 2024 due to diamond slump .  Regulatory Risk – Banks are subject to capital/liquidity requirements and IFRS 9 provisioning.  So far FNBB meets these comfortably, but regulatory changes (e.g. higher capital rules) could raise costs.  Liquidity/Forex Risk – Botswana’s Pula is relatively stable, but regional funding markets could tighten.  Operational Risk – As FNBB emphasizes digital channels, it must manage cybersecurity and tech implementation risk. Overall, the sector’s strong fundamentals mitigate many risks, but concentration and economic slowdown remain notable concerns.

6. Balance Sheet Health

FNBB’s balance sheet is strong.  The bank is primarily deposit-funded: customer deposits rose 9% in FY2023 to P23.33 bn , and deposits exceed loans (loans/P deposits ≈70% ).  Liquidity is ample – management maintains buffers of high-quality liquid assets , and the loan-to-deposit ratio has remained ~70% (indicating conservative lending).  FNBB carries minimal long-term debt (in FY2023 it repaid P0.237 bn of borrowings ).  Capital adequacy is high: as of June 2023 the regulatory CAR was ~20.5% pre-dividend (post-dividend ~18.1%) , well above the 12.5% minimum.  Tier‐1 capital was ~15.2% of risk assets .  In short, FNBB is well-capitalized (CAR ~18–21%), liquid and low-leverage – factors which support lending growth and a stable credit rating.

7. Capital Allocation Strategy

FNBB has rewarded shareholders generously.  The bank pays regular cash dividends and has no share buybacks.  In FY2023 it paid a total of 32 thebe/share (split 12 interim + 20 final) , and in FY2024 it increased total DPS to 43 thebe (16 interim + 27 final) – roughly a 34% jump.  Dividend cover was about 1.4× in FY2023 , which is moderate but supported by strong earnings.  FNBB’s payout ratio (~73%) is high for a bank, but the ample CAR gives confidence the dividends are sustainable.  Retained earnings are modest (due to high payouts), so most earnings flow out as dividends.  Capital is also reinvested in growth and technology; for example, FNBB continually upgrades digital platforms and branch infrastructure.  There is no history of buybacks, and none are announced.  Overall, management’s capital allocation is conservative (high capital ratios, slow asset growth) with a focus on steady dividend returns.

8. Past and Projected Growth

Historically, FNBB has grown earnings consistently.  Profit before tax rose from P1.20 bn in FY2022 to P1.42 bn in FY2023 (+18%) , and FY2024 preliminary results show ~P1.80 bn (+27% more) .  Net advances (loans) grew about 12–13% in FY2024 (gross loans P19.4 bn vs P17.3 bn) , driven by retail and corporate lending.  Deposits and fee income have also expanded.  Return on equity has improved (from ~32% to 35% in FY2024 ), indicating high earnings leverage. Looking forward, growth will depend on Botswana’s economy and competition.  The IMF forecasts GDP rebounding to ~5% annually in 2025–26 , which should support bank lending.  FNBB’s 2025 strategy emphasizes digital services and SME expansion, which could capture market share.  If macro conditions normalize, mid‐teens growth in earnings could continue (cushioned by rising net interest income and fees).  (Regulatory stress tests by the central bank assume only moderate credit deterioration even in adverse shocks.) Overall, FNBB has posted double-digit growth through the pandemic recovery and is positioned to capitalize on any broader economic upturn .

9. Dividend Sustainability

FNBB’s dividend history is robust.  The bank has paid uninterrupted dividends since listing, doubling the per-share payout over five years (from 16 thebe in 2019 to 32 thebe in FY2023 ).  The payout has been fully covered by earnings: FY2023 DPS of 32t vs EPS ~43.9t (cover ~1.4×) .  With FY2024 EPS ~55t (given PBT growth) and DPS 43t, the cover is similar.  FNBB’s high CAR (~18% post-dividend) and ample cash flow imply it can maintain or even raise dividends.  The current yield (~8–9%) is very high for a bank, reflecting both the strong payout and cheap stock price.  In summary, given FNBB’s profitability, capital strength and consistent earnings growth, its current dividend level appears sustainable over the long term .

10. Valuation and Value Assessment

FNBB trades at attractively low multiples.  As of April 2025 the share price is about P5.16 .  This implies a trailing P/E of only ~9× (Investing.com reports P/E ~8.9×) .  The price/book is ~3.1× (book ≈P1.69 per share) .  The dividend yield is very high (~8.7%).  In context, FNBB’s ROE is 35–36% , well above the P/E would suggest.  Peer comparisons: FirstRand Namibia trades at P/E ≈8–9× and ROE ~26% (FNB Namibia) – FNBB’s P/E is similarly low but its ROE is higher.  Botswana banks generally command higher multiples than larger African peers, yet FNBB’s valuation is modest in absolute terms.  Given the bank’s high profitability, strong capital and growth track record, the current stock price appears to understate its intrinsic value.  In short, FNBB looks inexpensive (especially on a yield basis) relative to its fundamentals .

Conclusion – Value Investing Perspective:  FNBB exhibits many hallmarks of a value-investment opportunity.  It is the dominant franchise in its market (stable source of revenue and deposits) , run by capable management , with a conservative balance sheet (high CAR, low leverage) and excellent profitability (35%+ ROE) .  The bank has a history of growing earnings and dividends (despite Botswana’s modest economic growth), and converts profits into cash effectively .  Crucially, the stock’s valuation is undemanding: P/E around 9–10× and dividend yield ~9% .  Risks (country size, sector concentration, economic cyclicality) are offset by the bank’s strong capital and dominant market share.  Therefore, FNBB appears to offer a margin of safety: it is likely undervalued relative to its cash-generating power and growth prospects.  For a value-oriented investor seeking high, reliable yield and upside from a turnaround in Botswana’s economy, FNBB’s current price seems attractive.

Sources: FNBB 2023–24 financial reports and investor materials ; Bank of Botswana financial-stability report ; IMF Botswana economic outlook ; industry reports and news releases .  (All figures are in Botswana pula.)