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The good, the bad and the ugly on the JSE

How the largest 90 shares performed during the last 12 months.

The Johannesburg Stock Exchange (JSE) has not had much to show for over the last 12 months, with the Top 40 index posting a loss of 4.8% between mid-August 2018 and the 15th of this month. The loss would have been a lot worse if not for the outstanding performance of about 10 large index stocks.

Heavyweights such as Naspers, AB InBev, BHP Billiton and Anglo American did their bit to stem losses, but other big index stocks such as Sasol, Shoprite, British American Tobacco, Glencore and most of the banks countered with larger declines in their share prices to produce the rather disappointing number for the Top 40 over the last 12 months.

The astounding performance of mining shares saved the day. Impala Platinum gained 358% from just below R16 to more than R72 last week and AngloPlat increased 106% over the 12-month period.

Eight of the 10 best performers on the JSE over the past year were mining companies, including the five biggest gold mining companies whose share prices increased by between 100% and 190%. Half the contestants of the prettiest 20 came from the mining sector.

The 20 best performers

Share Aug 2018 Aug 2019 Change
Implats 15.91 72.60 356%
AngloGold 109.40 311.02 184%
Sibanye Gold 7.52 19.65 161%
Gold Fields 37.29 80.93 117%
AngloPlat 390.31 804.42 106%
Harmony 22.94 45.30 98%
Telkom 49.06 83.70 71%
Northam 34.20 57.45 68%
Kumba 262.59 404.13 54%
Nepi Rockcastle 90.53 125.75 39%
ARM 111.28 152.23 37%
Tsogo Sun 9.87 13.50 37%
Royal Bafokeng Plat 22.50 30.73 37%
Transaction Capital 17.00 22.40 32%
AB InBev 1 131.28 1 431.07 27%
Capitec 902.27 1 124.23 25%
Redefine 6.95 8.28 19%
Growthpoint 19.68 22.89 16%
AVI 71.74 83.15 16%
Tiger Brands 186.63 213.50 14%

Source: Compiled from JSE price data

A look at the 90 largest shares that most investors will watch – and a few with interesting stories – shows that nearly two thirds declined over the past year. Only 39 of the 90 shares could beat the rather mediocre performance of the JSE Top 40. And 51 fared worse.

Read: How the JSE has changed in 10 years

The worst of the bunch was not Steinhoff, although the company is still in the news with its 90%-plus fall from its record highs mentioned frequently. But that was a long time ago.

The new ugly

The new ugly is Tongaat Hulett, which also surprised the market with accounting and accountant problems. Its share price declined by 84% during the 12 months, from around R83 to only R13.

Read: Cheap may also be nasty

The decline was even worse if one takes a closer look at the share over a longer period rather than just the dates used in our calculations. Tongaat started to decline at the beginning at 2017 from a high of nearly R130.

Aspen’s troubles also started earlier than the date used to start the 12-month analysis. Aspen dropped 74% from R260 during the last 12 months, but its downward trend started long before that. With hindsight, and a graph and pencil, the downward trend started when the share price dropped from its all-time high of R439 at the beginning of 2015.

Fortunes don’t always change overnight

Similarly, the huge decline of nearly 70% from R25 a year ago to the current R8 in the price of Ayo shares over the last 12 months does not tell the whole story of the controversial IT company’s fall. The share fell 82% from its R45 high of January 2018.

The same argument holds true for most of the other shares in the list that showed large declines in their prices over the past year. The fortunes of Brait, Astral, Sappi and Sasol did not change overnight – the large falls in their share prices during the last 12 months were the continuation of earlier weakness and troubles.

The 20 worst performers

Share Aug 2018 Aug 2019 Change
Tongaat Hulett 82.56 13.21 -84%
Aspen 259.58 68.27 -74%
Ayo 25.00 8.00 -68%
EOH 43.73 15.00 -66%
Brait 37.59 13.42 -64%
Massmart 110.61 45.02 -59%
Sappi 94.22 42.68 -55%
Sasol 512.25 278.15 -46%
Astral Foods 288.98 158.65 -45%
Netcare 27.36 15.13 -45%
Arcelor Mittal 4.03 2.24 -44%
Nampak 15.30 8.75 -43%
Steinhoff 2.04 1.18 -42%
Imperial 79.38 47.23 -41%
RCL Foods 17.01 10.97 -36%
Mediclinic 85.31 55.54 -35%
Discovery 161.32 105.99 -34%
Shoprite 212.54 139.85 -34%
City Lodge 146.62 97.50 -34%
Kap Industrial 7.40 4.93 -33%

Source: Complied from JSE price data

Any analysis starting and ending with a particular date, whether spanning a year, three years or five years, will be open to criticism. This includes the lists of the best and worst performers that market commentators like to compile at the end of every year. Share prices simply do not follow the calendar like humans do.

A similar list of share performances since the start of the year would show Massmart to be the worst with its drop of 55%, followed by Netcare and Discovery, which both lost around 35% since the JSE reopened for trading after the New Year weekend.

The best on this particular list are still the platinum companies, with AB InBev next after posting a return of more than 57%.

Recovery stocks

It would take much more analysis to determine whether a share had just started a severe down trend when any list shows a price 25% lower than a year ago. For instance, British American Tobacco is 25% lower than a year ago (R563 compared to R756) and more than 40% down from its high of nearly R1 000 per share in 2016, but is probably recovering.

Pick n Pay is also generally seen as a recovery stock, as is Adcock Ingram. Many an investor hopes that PPC is on the list as well.

Sun International’s management is trying to convince investors that the company is in recovery mode, while investors are waiting for the right moment to pile into Sasol for a strong recovery similar to that of platinum counters over the last few years.

On the other hand, it looks like investors are not betting that the strong run in commodity shares will continue and most fell back from recent highs despite the weak rand and strong commodity prices. The reason for this is probably the start to wage negotiations that will probably turn out to be very challenging this year, given the good results lying at the centre of the negotiating table.

Recovery indicators

A look at profit forecasts and comparing the historic price-earnings ratio (PE) to the forward PE will probably give a better indication of which shares offer recovery potential – if the forecasts are fairly accurate and investors act rationally.

Forecasts collected by Bloomberg from analysts at stockbrokers and asset managers show that investors are expecting strong earnings growth at several companies that have had a bit of bad luck recently.

Figures suggest that investors are happy to buy MTN at the current R104 per share on a PE of a high 34 times, which translates to a low forward PE of 14 times a year. The figures also show that investors expect continued profit growth from gold and platinum mines, notwithstanding the recent slight drop in share prices.

A few shares stand out when looking at the forward PE.

Consensus forecasts put Aspen on a forward PE of a low 4.5, which shows the extent to which the share dropped in shareholders’ estimation.

Bank shares also look cheap when comparing their forward PE ratios with their ratings over the last few years, probably due to the uncertainties about changes to legislation, the general economic outlook, and SA’s troublesome debt ratings.

Banks are all on forward PE ratios of less than 10, except for Capitec. Capitec’s share price reflects a forward PE of close to 20 times as investors are apparently still seeing strong growth for the next few years. In contrast, Absa’s share price represents a forward PE of less than 7 times based on Bloomberg consensus estimates.

Most interesting is that the few analysts who still bother to follow the building and construction sector are seeing an upturn in the prospects of the construction companies that survived the difficulties in the sector during the last few years.

However, any significant upturn in share prices overall would require at least a bit of economic growth, certainty in government policy and improved investor confidence.

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Some of these share movements are a bit suspect. Take Growthpoint, says its done 16% – go look at the share chart, it’s moved between R19 and R28 up and down for the past 5 years. So if you just move the analysis by one month the return is negative. There’s an element of complete randomness to that table.

Mostly sideways moves. It used to be that the when the Rand weakened the JSE would strengthen and vise versa. Don’t really see this any more.

sideways is fine when inflation is 0… problematic at inflation of 5%+. Developed markets can keep their money in savings at 0, or earn equity risk returns. Feel we’ve always been shortchanged in that we need to earn equity returns in order to beat inflation. Savings would keep pace with inflation, but because of tax we have -ve real return vs developed markets.

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