Publications
Partners
Johannesburg - The gloom gripping South Africa’s economy isn’t showing in equities.
Companies have this year brought the most initial public offerings to the Johannesburg Stock Exchange (JSE) since 2007, with the value of deals rising to the highest since 2010, according to data compiled by Bloomberg.
The sales have been helped by a resurgent October following a third quarter in which there were no IPOs at all, emulating other emerging markets after a rout in global equities and commodities.
More South African offerings are in the works, with the country’s benchmark equity gauge within 5% of the record it reached in April, when shares were trading at all-time high valuations.
Stocks have recorded gains as domestic companies expand elsewhere in Africa or Europe to tap revenue streams outside of South Africa, where a power shortage, a slump in raw material prices and labour strikes contributed to an economic contraction in the second quarter.
“The market is at a very high level, and our valuation multiples are very extended, which means that you can list your company at quite an attractive valuation,” Patrice Rassou, who helps oversee equities among the R405bn in assets at Sanlam’s investment-management unit in Cape Town, said by phone.
With borrowing costs set to rise if the US and South Africa increase interest rates, companies also want to “reduce their dependence on fixed income or other forms of financing,” he said.
Mergers and acquisitions boost
South African companies have raised a record amount of capital this year, boosted by mergers and acquisitions and rights offers, according to data provided by the JSE, which operates Africa’s largest stock market.
Companies issued shares worth R175bn in the nine months through September, compared with R125bn a year ago, the JSE data show.
As part of those capital raisings, there have been 13 South African IPOs announced this year worth a combined R9.93bn, the highest value since the 2010 peak, and compared with four in 2014 valued at R4.96bn. Six are earmarked for October.
Across emerging markets, the value of announced IPOs dropped 96% to R672bn this year, even as the number of deals increased to 913 from 745 for all of 2014. Sales in the third quarter tumbled to R131bn from 229 transactions, compared with R378bn from 452 deals in the previous three months.
The FTSE/JSE Africa All Share Index jumped to a record on April 24, pushing the South African benchmark to trade at 17 times estimated earnings, the highest ever. The gauge is up more than 6% this year, even after tumbling to an eight-month low in August during the global selloff spurred by concern that China’s economy is slowing.
“It’s a brave move to still go ahead in the current environment,” Grant Cullens, CEO of African Alliance Asset Management, which has R16.2bn in funds, said by phone from Johannesburg. “They could be proved to be very fortuitous and get away with it. Equally, they may find that they’ll end up trading at a huge discount or a discount for some time to come.”
Business confidence in Africa’s most industrialised economy slumped to its lowest in 22 years in September, while manufacturing has contracted for six out of the eight months measured this year.
The International Monetary Fund last week cut its forecast for South Africa’s growth in 2015 to 1.4% from a previous estimate of 2%.
All IPOs started this year make gains
Still, all six of the IPOs that started trading this year have made gains, with NVest Financial Holdings, a consultancy and private-wealth management company, more than doubling in value since it listed at the end of May.
“We have a good pipeline of potential listings,” Donna Oosthuyse, director of capital markets at the Johannesburg-based exchange, said in an e-mailed response to questions. “Market sentiment and the company’s ability to raise capital will ultimately have an influence on their listing date.”
Waco International Holdings, which rents out products from scaffolding to portable sanitation, plans to raise as much as R3.5bn in the JSE’s biggest share sale this year to facilitate the partial exit of private equity investors.
Sygnia, a Cape Town-based money manager with R140bn in assets, will start trading on Wednesday along with International Hotel Group, while Balwin Properties, a residential-housing developer, lists a day later.
Dis-Chem Pharmacies said last month it hired advisers to help with a planned share sale next year. Capital Appreciation, a company set up to make acquisitions, plans to trade in the specialty finance sector of the JSE’s main board on Friday.
“There’s never a good or bad time to list,” Patrick Mathidi, a money manager at Momentum Asset Management that oversees the equivalent of R337bn, said by phone from Johannesburg. “If a company has got a good story to tell, good prospects for growth, then there’s always a market for it.”
