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16 January 2012 13:04

2012 the year of small caps?

Keith McLachlan looks at the small-cap sector leading indicator graph.

JOHANNESBURG - See my H1:11 post last year on this topic for a reference point: Small Cap Sector Liquidity.

I have updated my small-cap sector leading indicator graph and it clearly shows risk-off appetite during Q3/4 last year.

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08 December 2011 12:36

Small-cap shares to invest in, in 2012

Keith McLachlan looks at the shares that will do well and the trends.

2011 has been a volatile period in global markets as eurozone worries, international concerns and local complications all converged to heighten risk premiums. I have lost count of the number of times the world has ended this year, but it is fair to say that at least it has been an interesting year.

But, 2011 is almost done... So what can we expect in 2012?

Well, I think there will be two major trends in the coming year: merger and acquisition (M&A) activity increasing in key sectors and real inflationary pressures. There will also be the continuation of the 2010/2011 minor trend of shareholder-funded bailouts (ie, rights issues).

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28 November 2011 12:44

Sasfin: A long-term gem

Keith McLachlan uses the normalised earnings approach to discover hidden value.

JOHANNESBURG - One of the most powerful forces in the world is mean reversion, where long-term trends pull short-term volatility back towards themselves. While this sentence sounds like I am going to start talking about some esoteric "technical analysis" mumbo-jumbo, I am actually referring to the 'normalised profits" approach to valuing a business.

Normalised earnings (or 'through-the-cycle profits') hangs on the assumption that a business's earnings will have peaks and troughs, but in the long-term these balance out towards an average or normal level of profitability. More importantly, when profits are currently depressed, mean reversion will pull them up towards more normalised levels.

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11 October 2011 13:26

Blue Financial vs African Dawn

Which is the better equity-led turnaround investment?

JOHANNESBURG - Micro-lenders, African Dawn (ADW) and Blue Financial Services (JSE:BFS) (BFS), have been through a turbulent period seeing massive losses, management changes, private bailouts and, most recently, positive trading updates.

At the end of September, ADW released a trading update indicating that it’s expecting to report EPS of 1.71cps and headline earnings per share (heps) of 1.80cps. This compares favourably with the comparative period that reported large losses. ADW shares trade at around 10c, thus placing the share on a PE ratio of around...

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25 August 2011 15:27

IT shares risk/reward

Keith McLachlan provides a risk:reward matrix for the technology sector.

Below is the risk:reward matrix for the technology sector that I produced a while ago.

The "reward" in the below graph is the share's implied price return over a one year horizon based on my various target prices, while the "risk" is defined as the standard deviation of month-on-month percentage price change over 36 months (per Profile Media).

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