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Johannesburg - After a strong run in equity markets over the last year, most asset managers say it is difficult to find pockets of genuine value.
One age-old way of trying to identify mispriced stocks is to find companies trading on low price to earnings (PE) multiples and to try to establish if the market is simply focusing its attention somewhere else, or whether there is a reason these stocks are trading below their peers.
The theory is that if they are trading on low single-digit multiples, it implies the market has not priced in potential future growth relative to a sector or peers.
The JSE's average PE multiple is around 13 times earnings at the moment.
Fin24.com takes a look at some stocks trading far below this average to assess whether they offer potential value.
Paladin Capital [JSE:PLD]
The investment vehicle of PSG Group [JSE:PSG] trades on a PE multiple of 4.8 times historical earnings. Listed in September 2009, the company has seen its share price rise from 160c to trade around 215c a share.
When the company reported its full-year earnings for the year to end-February 2010, it had a net asset value of 175c a share and an intrinsic or mark-to-market value of 203c a share when adding together its investment portfolio.
If this valuation is fair, it would imply that the market is not pricing in much in the way of future earnings from the company. In contrast, Paladin's parent PSG trades at a PE multiple of around 11 times earnings.
Mvelaphanda Group [JSE:MCG]
Another investment group not getting much love from the market is empowerment group Mvelaphanda (Mvela). Recently tipped by Standard Securities as a "buy", the share trades on an unexciting 4.3 times earnings despite unlocking a significant amount of value in the Life Healthcare Group Holdings [JSE:LHC] transaction.
Brimstone Investment Corporation [JSE:BRT], which was also involved in the Life Healthcare transaction and shares some similarities in portfolio make-up to Mvela, is trading at around nine times earnings. Mvela also advised the market on Wednesday it was anticipating finalising an exclusive facilities management services agreement - a move which management says will have a "significant impact" on its unbundling intrinsic net asset value of 670c.
Cadiz Holdings [JSE:CDZ]
Despite the share price of this financial services firm rising nearly 20% since April, the company is still trading at a PE multiple of around 7.5 times earnings. The company has been tipped by stockbrokerage Imara SP Reid as an "add" to the portfolio.
Relative to its peers such as Coronation Fund Managers [JSE:CML] (9.5 times), Peregrine Holdings [JSE:PGR] (8.5) and soon-to-be-acquired Barnard Jacobs Mellet Holdings [JSE:BJM] (17), Cadiz is trading at a discount.
Reinet Investments [JSE:REI]
To date the stock has been little more than a proxy for its holding in British American Tobacco. But trading at a PE multiple of under three times earnings and signs that the Rupert family is now giving this vehicle freedom to flex its muscles in the US may provide an option for those who seek to back jockeys with established track records.
Sasfin Holdings [JSE:SFN]
This niche market banking group is another company which has continued to fly below the radar of many investors. Despite the announcement of a potential tie-up with foreign banking group Mercantile, the group continues to trade on a PE of under eight.
Throw in the fact that shareholders get a dividend of about 5% and maybe investors are missing a trick here. Sasfin trades at a discount to other niche banking offerings, such as African Bank Investments [JSE:ABL] (13) and Capitec Bank Holdings [JSE:CPI] (22).
- Fin24.com
One age-old way of trying to identify mispriced stocks is to find companies trading on low price to earnings (PE) multiples and to try to establish if the market is simply focusing its attention somewhere else, or whether there is a reason these stocks are trading below their peers.
The theory is that if they are trading on low single-digit multiples, it implies the market has not priced in potential future growth relative to a sector or peers.
The JSE's average PE multiple is around 13 times earnings at the moment.
Fin24.com takes a look at some stocks trading far below this average to assess whether they offer potential value.
Paladin Capital [JSE:PLD]
The investment vehicle of PSG Group [JSE:PSG] trades on a PE multiple of 4.8 times historical earnings. Listed in September 2009, the company has seen its share price rise from 160c to trade around 215c a share.
When the company reported its full-year earnings for the year to end-February 2010, it had a net asset value of 175c a share and an intrinsic or mark-to-market value of 203c a share when adding together its investment portfolio.
If this valuation is fair, it would imply that the market is not pricing in much in the way of future earnings from the company. In contrast, Paladin's parent PSG trades at a PE multiple of around 11 times earnings.
Mvelaphanda Group [JSE:MCG]
Another investment group not getting much love from the market is empowerment group Mvelaphanda (Mvela). Recently tipped by Standard Securities as a "buy", the share trades on an unexciting 4.3 times earnings despite unlocking a significant amount of value in the Life Healthcare Group Holdings [JSE:LHC] transaction.
Brimstone Investment Corporation [JSE:BRT], which was also involved in the Life Healthcare transaction and shares some similarities in portfolio make-up to Mvela, is trading at around nine times earnings. Mvela also advised the market on Wednesday it was anticipating finalising an exclusive facilities management services agreement - a move which management says will have a "significant impact" on its unbundling intrinsic net asset value of 670c.
Cadiz Holdings [JSE:CDZ]
Despite the share price of this financial services firm rising nearly 20% since April, the company is still trading at a PE multiple of around 7.5 times earnings. The company has been tipped by stockbrokerage Imara SP Reid as an "add" to the portfolio.
Relative to its peers such as Coronation Fund Managers [JSE:CML] (9.5 times), Peregrine Holdings [JSE:PGR] (8.5) and soon-to-be-acquired Barnard Jacobs Mellet Holdings [JSE:BJM] (17), Cadiz is trading at a discount.
Reinet Investments [JSE:REI]
To date the stock has been little more than a proxy for its holding in British American Tobacco. But trading at a PE multiple of under three times earnings and signs that the Rupert family is now giving this vehicle freedom to flex its muscles in the US may provide an option for those who seek to back jockeys with established track records.
Sasfin Holdings [JSE:SFN]
This niche market banking group is another company which has continued to fly below the radar of many investors. Despite the announcement of a potential tie-up with foreign banking group Mercantile, the group continues to trade on a PE of under eight.
Throw in the fact that shareholders get a dividend of about 5% and maybe investors are missing a trick here. Sasfin trades at a discount to other niche banking offerings, such as African Bank Investments [JSE:ABL] (13) and Capitec Bank Holdings [JSE:CPI] (22).
- Fin24.com
