Johann van Zyl
Foreigners large net buyers
The stock market was a much better place to be in at the end of last year than it was a year earlier.
At that stage, the JSE and the world’s other well-known bourses were still licking their wounds following one of the worst falling markets in the 123 years of the JSE’s existence.
After a bull run lasting more than four years, it was obviously demoralising to see billions of rand of market capitalisation disappearing almost overnight in 2008.
Companies with plans of listing had second thoughts, and ultimately the negative mood was reflected clearly by the mere 23 new JSE listings during the year, compared with the optimistically excessive 62 in 2007, and even the 37 in 2006.
In the end, 20 companies delisted, which still meant a net increase of three and a total number of 425 listed companies in December 2008.
And then, the recession
Last year, things naturally didn’t go too well either.
The listing crop of 10 was even poorer than 2008’s 23, and the 25 delistings for 2009 were even five more than 2008’s 20.
However, investors were very excited about telecommunications giant Vodacom’s listing in May last year, because they had been waiting for this for a long time, and the company’s approximately 1.49bn shares at 5200c each were a massive injection into the market.
Mining group Platmin, which placed 445m shares at 620c, Trustco Group with 707m shares at 72c, and Fortress Income Fund A and B were some of the other major listings.
Ububele Holdings, which made its appearance on the AltX in November, was in fact a reverse listing in the Milkworx shell.
It’s quite interesting to see how some of these newcomers have fared since their listings.
- Vodacom stood at 5500c at the end of February, which means that it added about 6.7% of value since listing.
- Platmin was trading at 1110c in February, showing growth of 79% since listing in July.
- Fortress A stood at 980c, about 8.9% better than when it listed in October, and Fortress B fared excellently by trading at 190c – an improvement of 90% on its issue price of 100c.
- However, asset management group Efficient fell back from 1236c to 560c, and Trustco, still the only company on the JSE’s Africa exchange, fell from 72c to 53c.
- Investors are still not interested in Ububele – like its predecessor Milkworx a year ago, it’s trading at an average of 2c per share.
If one looks at the list of 25 companies that left the market during the past year, it’s apparent that several are gone through schemes of arrangement, six failed to comply with their listing requirements, two (Pals and Halogen) were liquidated, and others are no longer there for various other reasons.
The total number of companies listed at the end of last year has fallen to 410 from the previous year’s 425, while the total number of listed securities is down from 992 in 2008 to 966.
In 2007, they reached a high of 1174.
Better market caps
As far as market capitalisation is concerned, the statistics are miles better than they were at the end of 2008, because of the worldwide fall in share prices.
At the end of last year, it was R5 929,1bn, compared with R4 541,9bn a year earlier, when the combined market capitalisation of all sectors had fallen to a level somewhere between 2005 and 2006.
This R5 929,1bn compares with R3 586bn in 2005, R5 042bn in 2006 and is even more than 2007’s R5 696,8bn before the market downturn.
The JSE’s liquidity of 47.9% last year was slightly lower than in the previous year, which is to be expected, because in stormy years like 2008 there’s obviously a lot of market activity.
Whereas liquidity (measured on a daily basis, not at the end of the month) was about 36% in 2005, it grew to 42% and 45% in subsequent years, reaching 53% in 2008.
The JSE’s turnover for last year was R2 796bn, a hefty R467bn lower than in the previous year.
In a bad year, companies of course think twice before acquiring new capital through rights issues, their prospectus, or by obtaining new assets through other means.
However, last year this climbed to R107bn, a solid 39.5% more than the previous year’s R76.7bn. But the figure is still well short of 2007’s R124.9bn.
Sectors that acquired considerably more capital last year than in the previous one, include consumer goods (R28.4bn as against 2008’s modest R2.5bn), healthcare (R4.8bn versus only R75m), telecommunications (R19.9bn versus R45m) and financial (R26.4bn compared with R22.9bn in 2008).
Foreign trading on the JSE in 2009 was a lot different from 2008: though purchasing by foreigners dropped back by about R62bn to R524.5bn, they were very unwilling to get rid of their shares, selling to the value of only R449bn during the year, while sales in 2008 totalled R641.4bn.
This means that net buying by foreigners last year totalled R75,4bn, compared with net sales of R54.4bn in the previous year.
On fluctuating markets, of course, it remains an art to keep investment losses as low as possible when prices fall and make the gap as large as possible when prices rise.
One of the valuable aids is the beta value of shares, which indicates the sensitivity of a share price on the JSE when the market moves in one direction or the other.
As is well known, a share with a beta of, for example, 1.4 moves an average of 14% for every 10% that the market moves: when the market falls, such a share will fall more than the market average, while it will grow faster than the market average in a bull market.
On the other hand, a share with a beta of less than one will do better during bear markets and worse that the market average in good times.
Research on this is usually based on company-performance periods of five years and is published quarterly.
Though it’s obviously not guaranteed that a company will respond exactly according to its beta, this nevertheless offers a handy guideline (and perhaps a little less stress) in bear markets and a good chance of doing better than the market average in times of prosperity.
No discussion of the JSE would be complete without reference to the success or failure of its alternative exchange, the AltX.
In the latest Profile’s Stock Exchange Handbook (October 2009-January 2010), the JSE itself says how this exchange is faring and why it’s such an important addition for companies: The AltX offers a powerful platform for small and medium companies to realise their dreams of becoming listed entities.
In the longer term, this exchange has the potential of housing more companies than the main board.
In February this year, there were already 76 listed companies on the AltX, with a combined market capitalisation of more than R13bn.
The figure doesn’t look like much in the face of well-known groups such as Uranium One (about R10,9bn), Northam (R17,6bn), Murray & Roberts (R14bn), Aveng (R14bn) and Distell (R13,3bn), but already there are examples of companies that have reached a level of maturity justifying a shift to the main board.
Pharmaceutical group Cipla Medpro (formerly known as Enaleni), Mazor, Sanyati and Esorfranki are four that have already moved to the main board.
CIC Holdings, with a current market capitalisation of about R390m, is another one, and its performance to date is impressive: in February last year, when it was still part of the AltX, its share price was around 74c.
It’s currently more than twice that at 155c.
The growth in the market’s sustainability index, the SRI, also merits mention.
In the past year, the number of participating companies grew to the highest number ever, and SRI index head Corli le Roux recently said more and more companies are expected to join in as fund managers and other investors place an increasing premium on good sustainability performances.
At the time of the announcement of the SRI index results on 30 November last year, it was clear that companies are increasingly seeing the importance of sustainability.
The fact that more and more are joining confirms this, and several groups, like Anglo American, Steinhoff, Netcare and Absa, made this clear in announcing their involvement.
During the announcement of the index results, Professor Mervyn King emphasised that sustainability was the moral and economic imperative of the 21st century and that companies could consequently not separate good management, strategy and sustainability.
“It’s reckless to to act without taking the parallel urgencies of finances, climatic change and ecosystem biodiversity into account, and the new Companies Act gives the authorities the power to stop reckless behaviour,” he warned.
The JSE highlighted the following points of progress in its report on the index:
The era of responsible investment is with us, and the JSE is an essential part of it.
- Of the 109 companies assessed so far, 67 were accepted into the index;
- 11 companies were accepted into the SRI for the first time last year;
- Last year, the index already included 34 of SA’s Top 40 companies;
- The mining sector is the most strongly represented in the index, with the financial sector and general industries also well represented.