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THE JSE Limited [JSE:JSE], operator of the local interest rate and equity exchanges, may have its detractors for its apparent limited expansion horizon, but there are few financial sector companies with the same likely growth rates in the next couple of years.
A price to earnings (PE) multiple of 17 times earnings, a dividend yield of 2.3% and some obvious questions about growth prospects for the company have left some investors wondering whether it is worth jumping on the bus - especially as the share has in the last 18 months doubled from R40 to above R80.
The short answer is that JSE Limited still offers good value despite the demanding PE multiple, and is best explained by drawing an analogy with the game Monopoly.
In the board game the strategy is simple: buy up the prime real estate and wait for the participants to mindlessly head around the board and land on your property. Every time they land on your square, they pay out - no mess, no fuss.
For the JSE it is a similar story. It has bought out the prime real estate in the form of the Bond Exchange of South Africa and effectively manages the interest rate, futures and equity markets across the country.
The major moves here have only happened in the last two years, and the benefits of scale and improved technology are likely to continue providing scalability across these platforms.
You are paying the same price you paid in January 2008 for a company which has effectively eliminated its only real domestic competitor.
Cherry-picking the best
The naysayers will argue that the Africa board has been a flop and the Alt-X, despite its bluster, has not been a success story. These factors might indicate management has reached its limitations.
However, just like Monopoly it's not necessarily a case of being the smartest, but rather one of cherry-picking the best real estate.
The reality is that the JSE doesn't need to rush headlong into Africa.
It can take its time picking the best potential listings, because it is still competing with exchanges which trade for a couple of hours a day and whose average daily turnover is pushed through in the first five minutes of the domestic bourse.
There is a delicious irony in investors arguing that the Africa expansion strategy hasn't paid off for the JSE, and simultaneously arguing the case for the likes of Nedbank Group [JSE:NED], Standard Bank Group [JSE:SBK] and FirstRand [JSE:FSR] in Africa.
In many cases, more people have traded shares in the Africa board-listed companies than have walked through the branches of these banks in Africa.
The signs are there that the JSE has plenty of room to grow. The domestic bond market is booming, corporate debt issuances are on the up and appetite is slowly returning for the single stock futures and small cap shares.
Most importantly, there is only one credible player in the game in Africa at the moment - and that is the JSE. With growth prospects north of 20% for the next three years being factored in, the PE multiple looks attractive.
- Fin24
A price to earnings (PE) multiple of 17 times earnings, a dividend yield of 2.3% and some obvious questions about growth prospects for the company have left some investors wondering whether it is worth jumping on the bus - especially as the share has in the last 18 months doubled from R40 to above R80.
The short answer is that JSE Limited still offers good value despite the demanding PE multiple, and is best explained by drawing an analogy with the game Monopoly.
In the board game the strategy is simple: buy up the prime real estate and wait for the participants to mindlessly head around the board and land on your property. Every time they land on your square, they pay out - no mess, no fuss.
For the JSE it is a similar story. It has bought out the prime real estate in the form of the Bond Exchange of South Africa and effectively manages the interest rate, futures and equity markets across the country.
The major moves here have only happened in the last two years, and the benefits of scale and improved technology are likely to continue providing scalability across these platforms.
You are paying the same price you paid in January 2008 for a company which has effectively eliminated its only real domestic competitor.
Cherry-picking the best
The naysayers will argue that the Africa board has been a flop and the Alt-X, despite its bluster, has not been a success story. These factors might indicate management has reached its limitations.
However, just like Monopoly it's not necessarily a case of being the smartest, but rather one of cherry-picking the best real estate.
The reality is that the JSE doesn't need to rush headlong into Africa.
It can take its time picking the best potential listings, because it is still competing with exchanges which trade for a couple of hours a day and whose average daily turnover is pushed through in the first five minutes of the domestic bourse.
There is a delicious irony in investors arguing that the Africa expansion strategy hasn't paid off for the JSE, and simultaneously arguing the case for the likes of Nedbank Group [JSE:NED], Standard Bank Group [JSE:SBK] and FirstRand [JSE:FSR] in Africa.
In many cases, more people have traded shares in the Africa board-listed companies than have walked through the branches of these banks in Africa.
The signs are there that the JSE has plenty of room to grow. The domestic bond market is booming, corporate debt issuances are on the up and appetite is slowly returning for the single stock futures and small cap shares.
Most importantly, there is only one credible player in the game in Africa at the moment - and that is the JSE. With growth prospects north of 20% for the next three years being factored in, the PE multiple looks attractive.
- Fin24
