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Astral is still the strongest counter among the JSE’s top 100 shares, as measured by market cap, and this once again illustrates the remarkable returns that can be made from a turnaround success story.
Since its current run began in September last year, the share has risen by more than 100%. And the end is not in sight.
In the six months to end March, its headline earnings per share (HEPS) increased by 455%, while the interim dividend was increased to R10 (2017-period: R1.80). The outlook is positive.
Like other shares in the poultry sector, the share suffered heavily in 2016 and part of 2017 owing to factors beyond its control, such as record maize prices due to the drought and a flood of imported chicken products.
The group’s HEPS dropped sharply by 54% in the six months to March 2017, but the picture changed dramatically, among other things, owing to decreases in feed prices thanks to good rains, which led to a record harvest and higher broiler prices.
Something that could help local producers of poultry products are indications that listeria is present in imports from the US and Brazil.
This could put the public off buying imported products. And government could of course also step in.
Value investors reckon there is one core requirement to be successful with turnaround shares: major companies that experience temporary setbacks should clearly have the potential to recover strongly.
For example, in the case of Astral: good rains and the subsequent predictions of a record maize harvest confirmed that maize prices would drop, which benefitted feed prices directly.
A second rule is that one should stay away from companies that are cheap owing to dishonesty or ones that are terminally ill. Steinhoff is a case in point.
There are always turnaround situations in some form or other on the JSE. One that has caught the attention lately is Implats, which at the time of writing, was trading at about R18.
The last time the share was at this level was in 1999. Early in the preceding year – that is 20 years ago – it at one stage stood at R4.31.
It reached its high of R368 in March 2008 in the midst of a record platinum price of almost $2 200.
When the platinum price started to drop, Implats followed and within seven months it sacrificed 76% of its price and declined to R86.55.
It is generally accepted that this high-risk share does have the potential to recover dramatically.
It goes hand in hand with an increase in the platinum price, currently standing at about $900, which has for some time made many of SA’s mines unprofitable.
John Biccard, the well-known manager of Investec’s value fund, some time ago made a case for Implats rising to R150 should circumstances change.
An interesting characteristic of the top 10 shares in the table of the strongest shares is that they represent such a variety of sectors, from Clicks, which is currently one of the most popular shares on the JSE, despite a high price-to-earnings multiple of 36, to PPC.
This cement group was trading at a mere 344c in August last year when things were at their darkest. Since then it has risen strongly by about 160% to now being the third strongest share.
It’s significant that several value unit trusts bought it when it was at its lowest.
Conspicuous among the weakest shares is Sibanye-Stillwater which, owing to its intended takeover of the loss-making Lonmin, is becoming such a heavyweight in the area of platinum group metals.
Fortress B and Resilient also find themselves among the weakest top 10, which once again confirms how risky investments on the stock exchange can be despite the excellent property investments they own.
Among the shares that have broken through, Naspers** and Vodacom seem to be the most interesting.
Lucas de Lange is a former editor of finweek and an author of two books on investment.
This article originally appeared in the 24 May edition of finweek. Buy and download the magazine here, or sign up for our weekly newsletter here.
