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Anheuser-Busch InBev’s (AB InBev’s) merger with SABMiller will shake up the rankings of the JSE’s largest companies. AB InBev, which intends to list on 15 January ahead of the finalisation of the merger, will become South Africa’s biggest share, boosting the JSE’s value and providing South African investors with an opportunity to trade in one of the world’s biggest consumer companies.
But local investors are spoilt for choice as all of the top five companies in terms of market capitalisation – AB InBev, British American Tobacco (BAT), BHP Billiton, Naspers, and Compagnie Financière Richemont SA (Richemont), offer global exposure and all are ranked as buys by analysts.
Anheuser-Busch InBev
By far the most significant event of the JSE’s 2016 calendar is this month’s proposed listing of AB InBev, which will become the exchange’s largest share with a market cap of just over R3tr, adding more than a quarter of the JSE’s current R11.8tr total market cap.
The inward listing of the beverages giant, which follows its announcement that it will buy home-grown competitor SABMiller in a massive $106bn deal, will see it top the market value of the JSE’s current market cap leader BAT by some margin.
Not only does the listing significantly add to the JSE’s total value, but it also triggers changes in the investment activities of index trackers. At the same time, it makes the JSE even more reflective of global markets and less reliant on local economic factors. Already, most of the top five largest JSE-listed companies are essentially global in their operations and their investor base.
British American Tobacco
The global tobacco company is set to lose its position as the largest share on the JSE when AB InBev lists.
Considered by many investors as a defensive stock with significant geographical spread and an excellent rand hedge, BAT’s financial performance has been unremarkable as sales volumes continue their slow decline. In 2014 it sold 667bn cigarettes, manufactured in 44 factories in 41 countries. This was 1.4% less than in 2013.
In the nine months to September 2015 its revenue grew by 4.2% at constant exchange rates but dropped 6.5% at current exchange rates.
2014 revenue and earnings were down 8.4% and 3.9% respectively, with the latter reflecting currency fluctuations rather than a weak operational performance. On a constant currency basis, earnings were up 7.9% as the group increased its market share, while dividends were 4% higher. BAT appeals to South African investors for its steady performance and dividend flow. It also outperformed the JSE and London Stock Exchange last year.
BHP Billiton
Of the five largest shares on the JSE, global commodities group BHP Billiton, whose share was the worst performer among them, will likely find it hardest to attract investors in 2016.
The group, which lost 28% of its value over the past year, starts 2016 under the combined pressures of the commodities rout, a tailings dam disaster in Brazil, threats to its credit rating and indications that it may no longer appease shareholders with a policy of maintaining or increasing dividends.
The Financial Times reported in December last year that ?BHP Billiton is “stepping up its hunt for acquisitions or new projects” in copper and deepwater oil. It said it is moving closer to ending its policy of maintaining or increasing its dividend. “A cut in BHP’s annual payout, which cost the miner $6.6bn in its last financial year, could be announced in February,” the FT said.
Naspers*
Naspers, which costs R2 000 a share and trades at a P/E of close to 100, is the most expensive share among the JSE’s largest five companies.
This has not stopped investors from piling in – and they have been rewarded. The Naspers share price grew over 20% in the past year, and over 400% in the past five years.
Much of the gain has been attributed to the group’s investment in 34% of Chinese internet company Tencent, although it has diversified significantly into a number of countries and new business areas, including e-commerce.
Naspers, which is listed on the JSE with an American Depository Receipt (ADR) listing on the London Stock Exchange, operates in more than 130 countries with operations in e-commerce and other internet services, video entertainment and print media.
Compagnie Financière Richemont SA
Johann Rupert’s Richemont provides a unique investment for South African investors as it is a rand hedge stock in the rarified luxury goods market.
The share price, however, has been the second-worst performer of the top five JSE stocks by value over the past year, increasing only 5%.
This is partly due to management’s wary view of trading conditions for its brands, which include Cartier, Piaget and Montblanc, over the next few months.
Richemont’s most recent financials show that in the six months to September last year, sales grew 15% to €5.bn, or by 3% at constant exchange rates. Richemont said strong sales through its own boutiques were offset by mixed wholesale sales, which were particularly soft in the Asia Pacific region.
Operating profit increased by 6% and profit by 22% to end September.
*finweek is a publication of Media24, a subsidiary of Naspers.
This is an excerpt from an article that originally appeared in the 21 January 2016 edition of finweek. Buy and download the magazine here.
