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Smaller companies provide bonanza
Smaller companies provide bonanza

Smaller companies provide bonanza


Business Day - Jan 11th 2012, 09:40

Small caps starred on the JSE last year, with the AltX 15 showing the best performance of indices with more than one share, with a total return for the year of 42,6%.  

Auto — whose sole constituent is Metair — was first with a total return of 67%. It was followed by a 64% total return of the technology hardware and equipment index, whose only constituent is Pinnacle Technology. Third was development capital, which contains Indequity, with a 63% total return.

The JSE’s best-performing share last year was small-cap construction company Calgro M3, whose share price rocketed more than sixfold from 50c to R3,24. Calgro M3 is a member of AltX 15 rather than the construction index — the JSE’s second-worst performer behind platinum last year.

The JSE’s food and drug retailer index came fifth behind AltX 15 with a total return of 27%, beating general retailers, which was among 2010’s strongest sectors. General retailers still managed a 20% total return, against the all share index’s total return of a meagre 2,6%.

Woolworths was the star performer in the retail sector, starting the year at R26,94 and ending 44,8% higher at R39.

SA’s biggest supermarket chain, Shoprite, followed in second place, closing 36,7% higher.

Food manufacturers made up the bulk of the rest of the top performers, with AVI, Tiger Brands and fishing company Oceana following closely on Shoprite’s heels. Afgri and Ceramic Industries were at the bottom of the sector, down 31% and 27,8% respectively.

Cadiz Asset Management portfolio manager Warren Buys says retailers attracted decent yields over the past year. "Food inflation ticking up has no doubt helped the food retailers. However, retail shares are quite expensive and it seems somehow they are only perceived to be a more attractive option."

The JSE’s worst-performing sector was platinum, whose total return loss was 26%.

Construction was the next worst performer, losing more than 24%. The construction market is expected to recover only in the next 18 months and is pretty much dependent on how the general economy performs.

Imara SP Reid analyst Stephen Meintjes says Finance Minister Pravin Gordhan’s budget speech will be instructive for the construction sector.

"Despite the declared plans by the government, money has not been available for projects. I guess the market will adopt a seeing-is-believing attitude on government’s infrastructure plans," Mr Meintjies says.

Construction companies that are able to tough it out until 2013 and survive the tough trading conditions are positioning themselves for a renewed focus in mining infrastructure projects, especially in Africa.

"The private sector, especially mining, continues to provide a lot of work for construction companies. Although the residential property market is expected to recover, it is not going to be spectacular," he said.

Local companies have realised the market is oversaturated, with heightened competition for the few tenders available. This has put pressure on margins and revenue

Mr Meintjies says a lot of construction companies in SA have moved to the rest of Africa and big players in the sector now have the advantage of exposure on the continent.

Africa plays an important part in building South African revenue. Many major construction companies in SA are already operating abroad, including Aveng , Murray & Roberts , Group Five and WBHO .

Last year was, on the whole, dismal for listed construction companies, though.

Despite the tough conditions, Basil Read was a star performer with its stock rising 15,6%.

The worst performer was Raubex , with its share price plunging 42,8%. Group Five’s share price dropped 37,8%, Murray & Roberts was off 36,2% and Esorfranki lost 33,3%.

Platinum shares took a serious knock last year. On the JSE, platinum shares were the worst-performing sector, losing about 26%, according to I-Net Bridge.

Eastern Platinum suffered the sharpest decline, of 61%, followed by Jubilee , which fell 49%, and Acquarius, which fell 47%.

The best-performing platinum miner was Royal Bafoken, whose decline was 17,6%.

According to Reuters, in local currency terms, SA was the best performer among the Brics emerging market economies, whose other members are Brazil, Russia, India and China.

But in dollar terms, the top 40 index fell more than 19% last year, roughly in line with Shanghai, Hong Kong and Russia. It outperformed Brazil and India. 

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