FIFI PETERS: Well, for most of us the markets have felt extremely volatile this year. Results from the JSE show that market swings haven’t been as bad as they were at the onset of the pandemic in 2020. This has, however, led to a drop in revenues for Africa’s largest exchange, with its first-half profits also falling.
JSE CEO Dr Leila Fourie joins the show to review the numbers. Leila, thanks so much for your time. It doesn’t feel like there was reduced volatility this year with the swings that we’ve continued to see. From hitting records, the JSE (has been) dialling back on those gains, but your numbers don’t lie and your numbers are down. So does this mean that the boost that the pandemic gave to you last year is largely out of the system?
LEILA FOURIE: Fifi look, the JSE All Share index is up over 16% year to date, so we’ve seen tremendous growth and we certainly have seen volatility. But when we compare this to last year this time, that volatility was of an order of magnitude unprecedented.
Although our market revenues are down by 8% in the equity market – and that’s a reflection of the market value because we are very correlated with the market value – when we compare ourselves to 2019, we’re up 15% on both trading volumes and values. So if you were tightening your seat belt this year, you were correct because we are volatile. It’s all a game of relativity. We’re just not quite at the edge of the extreme, as we were last year this time.
FIFI PETERS: Yes. It has been nauseating at times, even with that seat belt on, Leila. But just in terms of the way forward now and what your rate of profit growth looks like and where the growth comes from, can you fill us in on that detail?
LEILA FOURIE: Well, the JSE has very strong cash conversion, and that is inherent in the strength of the business. We have a healthy balance sheet which is reflective of how resilient the business is, particularly through a crisis.
So we are building a platform for growth and, despite everything that’s going on, we are very clear about the transformation that we need in the organisation. We are moving forward with our revenue diversification, and also understanding how the organisation is going to look.
So we invested R200 million year to date in growth initiatives; R43 million of that was in capex.
We invested R74 million in Globacap, which is a London-based fintech invested in a distributed ledger technology. And we invested R75 million buying out minorities in the Link Market Services business that we bought last year. In addition, we also acquired the Investec Share Plan Services. So we are focused on growth areas.
Sustainability is another one, and we have a very targeted and very specific plan to grow the business.
FIFI PETERS: What we have seen lately is a number of big deals being announced – Imperial’s pending buyout by DP World, and Standard Bank’s buyout of Liberty, among other things. But what will result if these deals cross the finish line is the targeted companies being de-listed from the JSE. Is this potentially another revenue drain for you in future and, if so, what are your plans to plug the gaps?
LEILA FOURIE: Well if you look at our market cap, [it] has consistently grown over the years and the purpose of the exchange ultimately is to create an opportunity for capital formation, and then to grow investors savings.
All of these deals that you’ve mentioned are going to unlock shareholder value, so shareholders will certainly walk away a lot more enriched and prosperous than they were when they first invested.
Once that happens, we look for new companies – and South Africa is an important growth node. We’re an entrepreneurial business. De Beers has come and gone, yet the exchange continued to grow. We had a number of companies moving their domicile – the ‘London Five’ (Anglo American, BHP Billiton, SABMiller, Old Mutual and Investec) in the sort of late nineties and early two thousands. And yet the exchange continues to grow.
So we certainly can and will see companies being taken out. South Africa is undervalued relative to its NAV, and there is a bit of a country overhang. However, the policy certainty and the growth initiatives that are being put forward by government – most recently around state-owned enterprises and corruption and energy transformation – do create a lot more certainty and they improve the business confidence. And so that will create an attractiveness factor that will crowd in more companies wanting to list.
We’re also looking at launching a private marketplace which will be designed for the SME and the infrastructure markets. Those are very important growth nodes for our country and very important capital-formation growth nodes.
FIFI PETERS: It sounds like it’s a new venture, taking on the newly established stock exchanges head-on. Is this a direct competitor?
LEILA FOURIE: Our SME initiative is very much of a national agenda initiative, and we will look to collaborate and work with any parties that are in market. We see ourselves as a distribution network. We’ve also got very, very long and well-established credentials in overseeing markets, in providing resilient and secure and safe marketplaces, and we really just want to leverage that and we would be very happy to work with all parties. And yes, it is a competitive and growing space and competition is a good thing because it creates growth and innovation.
FIFI PETERS: Okay. Leila, thank you so much. We’ll leave it there. I think we will speak a lot more about that SME initiative and the uptake that it receives. But we’ll leave it there. Thanks so much for your time this evening. That’s JSE CEO, Dr Leila Fourie.