In broad terms, the JSE is looking expensive. The All Share Index at a price-to-earnings (P/E) ratio of around 20 times is hardly a value investor’s dream.
It is however worth considering that the index is heavily influenced by a small number of stocks. Naspers trading on a P/E of 95 times, Richemont 34 times and British American Tobacco 21 times have a big impact on the way the overall market looks.
Dig a little deeper, though, and there are parts of the market looking extremely cheap. Particularly amongst small and micro caps there are some eye-catching valuations that may appeal to investors who don’t mind sniffing around the less liquid parts of the JSE.
Without looking too closely at their quality or underlying fundamentals, the following five companies are offering extremely attractive valuations – using price-to-earnings (P/E), price-to-book and dividend yield – that may be worth further inspection.
The speciality retailer is currently trading on a P/E of 3.1 times. This after it recorded a 184.7% increase in profit after tax for the year ended February 2017.
The company’s business model has its critics, and its performance can fluctuate dramatically, but bolder stock pickers might fancy their chances. Even after a 75% rise in its share price this year, Verimark is still trading below where it was in mid-2012.
Morningstar puts Verimark’s price-to-book at 0.533, and its current dividend yield is 15%, which is unmatched anywhere else in the market.
York Timber Holdings
Over the last five years, York’s share price has slipped from R4 per share to its current levels around R2.60 per share. However, in 2012 it delivered headline earnings per share of 42 cents, and last year its headline earnings per share came in at 73 cents.
The forestry and wood products company is currently trading on a price-to-earnings multiple of 3.5 times, and a price-to-book ratio of just 0.299 according to Morningstar. It is not currently paying a dividend, but it did show a healthy increase in cash generation last year.
At a market cap of just R74 million, the human resources (HR) services company is easily overlooked, but for the financial year to the end of March, Primeserv grew its revenue by 12%, earnings before before interest, tax, depreciation and amortisation (Ebitda) by 52% and headline earnings per share by 28%.
Morningstar puts its current P/E at 3.7 times, and price-to-book at 0.456. It also offers a dividend yield of 2.4%.
South Africa’s manufacturing sector might not be the most obvious place to look for investments, but BSI Steel could be attractive to deep value investors. The steel company is trading on a price-to-earnings multiple of just 5.8 times and a price-to-book of 0.658.
It is yet to release its most recent set of results, but last year BSI Steel showed a strong recovery to grow headline earnings by 152%. The share price has however continued to slide, and at just 35 cents per share, it is now offering a dividend yield of close to 6%.
Like Primeserv, Workforce operates in HR services, which is perhaps not the best place to find oneself in an economy shedding jobs. Yet, the AltX-listed company’s share price is up over 300% in the last three years.
What’s more is that despite this sharp growth, it is still trading on a P/E multiple of just 4.9 times. For the year ended December 31 2016 it grew revenue by 52%, Ebitda by 70% and headline earnings per share by 45%.
Morningstar has the company’s price-to-book at 0.982. Workforce does not however currently pay a dividend.
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