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Gold shares are still dominating the list of strongest shares in the midst of the volatility currently characterising the JSE and other financial markets.
But the pressure on the market is evidenced by the fact that the percentage of the top 100 shares on the JSE – measured by market capitalisation – that currently lie above their 200-day exponential moving averages (EMA) is gradually diminishing. Whereas it was about 77% in May, it’s now 51%.
There is a belief that when times are tough it separates the wheat from the chaff, and it’s interesting to note which shares – apart from gold – are currently the strongest. Blue Label Telecoms*, Clicks and Aspen are the most obvious, while Tiger Brands, South Africa’s largest food group, also catches the eye.
Tiger Brands has been suffering owing to its failure in Nigeria, which has hurt profits. It now seems to be far more positive, especially since getting rid of Dangote Flour Mills in Nigeria and the appointment of a new CEO in Lawrence MacDougall.
According to André Parker, chairman of Tiger Brands, expectations for MacDougall are high.
It’s a given that the group will have to expand outside SA’s borders in order to maintain growth momentum, but it will avoid burning its fingers as it did in Nigeria.
Parker admits that the company had not done its homework as well as it should have before it invested in Nigeria. For example, new production appeared on the scene in that country that had not been properly taken into account.
The previous CEO, Peter Matlare, supported by his board of directors, wanted the group to operate in Nigeria as it did in SA in order to build brands.
This was not successful, although extraneous factors such as the sharp drop in the oil price also played a role.
The group is aiming to eventually earn about 30% of its revenue from outside SA’s borders and the experience and know-how that MacDougall brings to the group will hopefully play a major role in this.
He not only has extensive multinational experience in especially sales and brand building, but he is also likely to introduce new processes and systems at Tiger Brands. This could increase the efficiency of the group’s operations in SA.
An advantage for him is that he and his management will not have to devote time to the problems encountered in Nigeria. Another advantage is that Tiger Brands is already exporting a wide variety of products successfully to other African states on which he can build.
The fact that the market is taking a fresh look at the group is evident from the fact that its share price has risen by more than one-third since January, which translates into a high price-to-earnings ratio of more than 19.
Among the weakest shares, Lonmin has been replaced by PPC, while Investec plc and Richemont are also under pressure. They have, apparently, been affected by the Brexit mania.
Among the shares that have broken through, it is especially Super Group and RCL that look interesting. Backed by solid turnover, they rose by more than 10% and 11% respectively in one day.
*The writer owns shares in Blue Label Telecoms.
This article originally appeared in the 21 July edition of finweek. Buy and download the magazine here.
