At the end of October 2005, Naspers was trading at around R95 per share. It had only been included in the Top 40 two years earlier, and made up less than 1% of the index.
By early September this year, before Prosus was unbundled, the company’s stock had climbed to be worth over R3 500 per share. Naspers had grown into easily the largest counter on the JSE, accounting for more than a fifth of the entire value of the Top 40.
This remarkable growth has been the most prominent story on the JSE of the past 15 years. Naspers has become the most influential counter on the local stock exchange, and has altered the nature of the market.
Not the only one
Yet the media giant is not the best performing stock in the FTSE/JSE All Share Index over this period. In fact, the gain it has seen isn’t even half of that of the top performer over the past 14 years.
As the following graphic from Corion Capital illustrates, Capitec far surpasses Naspers as an investment over this period. This takes into account dividends, and adjusts for the value of Prosus after the unbundling.
Capitec has grown its share price from around R21.50 to more than R1 400 since 2005.
This makes it easily the best local investment you could have made over this period. By comparison, R1 million invested in the FTSE/JSE All Share Index would have grown to R5.05 million.
The recently listed bank would not, however, have been an obvious place to look for this kind of growth. In 2005, Capitec was still almost entirely a microlender with grand, and unlikely, ambitions of transforming itself to take on the entrenched and sophisticated incumbents in the retail banking sector. There were not many people who expected it to succeed in this effort, and it’s unlikely that anyone anticipated that it would flourish to the extent that it has.
That it has done so has been through a combination of good fortune and astute management. The collapse of African Bank in 2014 left Capitec without a major competitor in the unsecured lending industry – a situation on which it has capitalised. This followed the global financial crisis in which regulation forced more middle-income earners into the unsecured space.
At the same time, it has offered simple, low-cost banking products that appeal to a large part of the population that the big banks had underappreciated for decades. This allowed it to attract and grow a market outside of traditional banking customers.
Capitec’s growth has also propelled that of its parent company, PSG Group. The investment holding company founded by Jannie Mouton is the fourth-best performing share on the JSE since 2005.
PSG Group’s 30% stake in Capitec now makes up around 70% of its net asset value.
Similarly, the rise of Naspers might seem obvious in hindsight, but there was little reason to suspect in 2005 that the company’s investment in a young Chinese internet firm was going to be the most lucrative acquisition that any South African company had ever made. Fourteen years ago, only 8.5% of the Chinese population had access to the internet.
The growth in Chinese internet usage and of the services provided by companies like Tencent has however been nothing short of phenomenal. As a result, the $32 million that Naspers paid for its major stake in Tencent in 2001 is now worth well over $100 billion.
Of the top three performers over this period, however, perhaps the most unlikely is Clicks. In 2005, the business did not appear to have much to recommend it. At around R820 per share, the stock was also trading around 25% below where it had been five years earlier.
However, when David Kneale took over as CEO in 2006 he instigated a turnaround that has made the company one of the most reliable performers in the local market. It focused its offering, developed a leading loyalty programme, and established the largest pharmacy chain in South Africa. None of those outcomes appeared likely 14 years ago.
What this suggests is that if there is any lesson for investors in looking back at how these companies have performed over the past decade and a half, it is that there is nothing obvious in predicting which companies might deliver similar returns over the next 14 or 15 years.
Almost by definition, these kinds of returns come from the places where they are not at all expected. Because if the market is expecting a company to do well, that’s already in the price.
It is only where growth is unanticipated that it produces results of this magnitude.
Patrick Cairns owns shares in PSG Group.