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Hardly a year goes by without the Sustainable Growth table not causing some consternation.
The table should provide some reassurance about a company’s ability to support its growth plans.
The table, ultimately, should address the issue of a company’s future potential – making it a most intriguing set of rankings to mull.
As we pointed out last year, it wouldn’t be unreasonable to assume an investor would be happy holding the top 20 rankings in the Sustainable Growth rankings.
Not exactly
This year’ top 20 Sustainable Growth rankings – pretty much as witnessed in previous years – hosts a number of companies you might politely term “laggards”.
Other, less diplomatic, commentators might dismiss some of those counters with a loud “woof”.
It’s rather curious that in the Sustainable Growth rankings we find half a dozen struggling small cap counters: IFCA Technologies (ranked third), ICC (sixth), Faritec (ninth), John Daniel Holdings (11th), Intertrading (16th) and BioScience (18th) – where the term “growth” isn’t certainly applicable.
We also find debt-laden transport conglomerate Super Group ranked in fifth position.
Those readers who have followed recent events at Super Group will know it’s needed to push through a second rights issue – this time for R1bn – to ensure there’s sufficient capital to keep operations ticking over.
Readers, no doubt, would also be surprised to see top 100 rankings in the Sustainable Growth rankings for suspended counters such as Alliance, Best Cut and Kimberley Consolidated Mining (KCM).
Whether Best Cut (facing a liquidation claim) and KCM (which has only recently again started mining) are going concerns remains to be seen.
Alliance recently caused a stink for (grossly) overstating profits for its past two financial years.
Having highlighted those possible anomalies we should point out a number of seemingly “out-of-place” rankings from last year’s Sustainable Growth table have fared well of late.
Here we could mention Gijima Ast and Amalgamated Electronic – which both ranked high on last year’s Sustainable Growth table.
In any event, let’s look at BFA-McGregor’s definition of sustainable growth first.
There are four constituents:
After perusing the BFA-McGregor definitions it’s perhaps easier to see why so many anomalies slip through.
But such oddities shouldn’t distract from the usefulness of those rankings.
In terms of gauging “well set” companies perhaps we should further refine our search in pointing out so-called investment companies will probably tend to gather high up the rankings.
That’s understandable, as those companies hardly ever carry meaningful debt and retain a good deal of earnings from underlying investments.
The usual suspects
Not surprisingly then, readers will notice Remgro and Makalani ranking well in the table.
Empowerment investment group Hosken Consolidated Investments (HCI) ranks much lower down – understandable, since it carries a fair chunk of debt.
Our top ranking this year is human resources specialist Kelly.
The market hasn’t latched on to Kelly with any vigour since its listing in 2007.
But a number of market commentators wouldn’t quibble the ranking’s suggestion that Kelly has sound fundamentals for future growth.
Other noteworthy rankings – seemingly justified by recent financial statements – would be inspired pharmaceutical group Aspen, as well as underrated life assurance group Metropolitan Life.
In terms of spotting trends, it’s perhaps worth mentioning quite a number of junior miners that looked very much under the cosh during the recent global financial crisis showed up well.
Anooraq and Merafe would be two examples.
Small technology companies also showed up well, including UCS, Gijima Ast, EOH and Metrofile.
Dividend devotion
TeleMasters Holdings and ISA Holdings – two technology specialists that have shown a determination to pay dividends – were also reassuringly positioned.
Also heartening was the fact quite a number of AltX counters stood out well in this year’s rankings – something that may prompt readers to look past some bruised share prices to scan underlying fundamentals.
AltX counters that caught our eye were refrigeration and baking specialist Universal Industries, metals trader Insimbi and franchise group Taste Holdings.
Then there are the usual market favourites holding some comfortable rankings: Anglo, MTN, Steinhoff, SABMiller, Massmart, PSG, Richemont and BHP Billiton (among others).
As for hidden gems tucked away in the table, Finweek – for no finder’s fee – would recommend readers look at rankings number 50, 51, 73, 74 and 75.
- Finweek
To view the Sustainable Growth Rate Table, click here
The table should provide some reassurance about a company’s ability to support its growth plans.
The table, ultimately, should address the issue of a company’s future potential – making it a most intriguing set of rankings to mull.
As we pointed out last year, it wouldn’t be unreasonable to assume an investor would be happy holding the top 20 rankings in the Sustainable Growth rankings.
Not exactly
This year’ top 20 Sustainable Growth rankings – pretty much as witnessed in previous years – hosts a number of companies you might politely term “laggards”.
Other, less diplomatic, commentators might dismiss some of those counters with a loud “woof”.
It’s rather curious that in the Sustainable Growth rankings we find half a dozen struggling small cap counters: IFCA Technologies (ranked third), ICC (sixth), Faritec (ninth), John Daniel Holdings (11th), Intertrading (16th) and BioScience (18th) – where the term “growth” isn’t certainly applicable.
We also find debt-laden transport conglomerate Super Group ranked in fifth position.
Those readers who have followed recent events at Super Group will know it’s needed to push through a second rights issue – this time for R1bn – to ensure there’s sufficient capital to keep operations ticking over.
Readers, no doubt, would also be surprised to see top 100 rankings in the Sustainable Growth rankings for suspended counters such as Alliance, Best Cut and Kimberley Consolidated Mining (KCM).
Whether Best Cut (facing a liquidation claim) and KCM (which has only recently again started mining) are going concerns remains to be seen.
Alliance recently caused a stink for (grossly) overstating profits for its past two financial years.
Having highlighted those possible anomalies we should point out a number of seemingly “out-of-place” rankings from last year’s Sustainable Growth table have fared well of late.
Here we could mention Gijima Ast and Amalgamated Electronic – which both ranked high on last year’s Sustainable Growth table.
In any event, let’s look at BFA-McGregor’s definition of sustainable growth first.
There are four constituents:
- Retained earnings (profits not paid out in dividends/distributions).
- Return on assets (reflecting investment strategy and corporate decisions).
- Debt as a percentage of shareholders’ equity (which gives some insight into a company’s financing policy).
- Prevailing interest rates.
- The sustainable growth calculation takes the retention rate and multiplies it by the RoR on internal assets to gauge the growth potential in companies.
After perusing the BFA-McGregor definitions it’s perhaps easier to see why so many anomalies slip through.
But such oddities shouldn’t distract from the usefulness of those rankings.
In terms of gauging “well set” companies perhaps we should further refine our search in pointing out so-called investment companies will probably tend to gather high up the rankings.
That’s understandable, as those companies hardly ever carry meaningful debt and retain a good deal of earnings from underlying investments.
The usual suspects
Not surprisingly then, readers will notice Remgro and Makalani ranking well in the table.
Empowerment investment group Hosken Consolidated Investments (HCI) ranks much lower down – understandable, since it carries a fair chunk of debt.
Our top ranking this year is human resources specialist Kelly.
The market hasn’t latched on to Kelly with any vigour since its listing in 2007.
But a number of market commentators wouldn’t quibble the ranking’s suggestion that Kelly has sound fundamentals for future growth.
Other noteworthy rankings – seemingly justified by recent financial statements – would be inspired pharmaceutical group Aspen, as well as underrated life assurance group Metropolitan Life.
In terms of spotting trends, it’s perhaps worth mentioning quite a number of junior miners that looked very much under the cosh during the recent global financial crisis showed up well.
Anooraq and Merafe would be two examples.
Small technology companies also showed up well, including UCS, Gijima Ast, EOH and Metrofile.
Dividend devotion
TeleMasters Holdings and ISA Holdings – two technology specialists that have shown a determination to pay dividends – were also reassuringly positioned.
Also heartening was the fact quite a number of AltX counters stood out well in this year’s rankings – something that may prompt readers to look past some bruised share prices to scan underlying fundamentals.
AltX counters that caught our eye were refrigeration and baking specialist Universal Industries, metals trader Insimbi and franchise group Taste Holdings.
Then there are the usual market favourites holding some comfortable rankings: Anglo, MTN, Steinhoff, SABMiller, Massmart, PSG, Richemont and BHP Billiton (among others).
As for hidden gems tucked away in the table, Finweek – for no finder’s fee – would recommend readers look at rankings number 50, 51, 73, 74 and 75.
- Finweek
To view the Sustainable Growth Rate Table, click here
