Six of the best on the JSE

02 July 2013 - 02:52 By David Shapiro
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Periodically, I like to review the JSE league table - a tabulation of the exchange's top capitalised companies, calculated by multiplying the number of shares in issue by the ruling share price.

Unsurprisingly, the greater the share price gains over time the higher the company's position on the log. There are countless forces that determine a share price, but commonly growth in earnings and dividends are the most persuasive.

The top four companies are all foreign listed: British American Tobacco (market capitalisation R1.05-trillion), SAB Miller (R810-billion), BHP Billiton (R559-billion) and Richemont (R457-billion).

Other than SAB Miller, 20% of whose revenue is generated in South Africa, the other three companies have limited exposure to the domestic economy.

BHP Billiton has built its fortunes on shipping minerals - predominantly iron ore - to China while the other three organisations attribute their growth to targeting emerging middle-class consumers in developing nations.

Locally listed MTN (R317-billion) and Naspers N (R284-billion), which occupy the next two spots in the table, also credit their success to expanding their reach outside our borders. MTN operates in a number of countries in Africa and the Middle East while media giant Naspers is one of the fastest rising e-commerce groups globally. The combined market capitalisation of these six companies makes up nearly 50% of the JSE's total worth.

If you had bought a portfolio comprising these six shares, your return over the past four years (the start of the recovery from the recent financial crisis) would have totalled an astonishing 170% compared with a 75% increase in the JSE all share index.

BHP Billiton climbed 46%, British American Tobacco 134%, SAB Miller 195%, Richemont 413%, Naspers N 205% and MTN 40%.

If the top six companies as a group grew at 170% over four years and the broader All share index was up a mere 75%, it infers that the balance of the 150-odd shares that make up the index fell 20%, primarily the outcome of major declines in resource companies which customarily populated the top positions on the leader board.

One of these companies is Anglo American. For decades the diversified mining group ruled the JSE like royalty but has now slumped to seventh spot, its share price falling 12% over the past four years. And still the miner faces daunting challenges.

With the super-cycle in commodities, driven by China's insatiable appetite for raw materials, drawing to an end, Anglo's new management team has been compelled to reassess a number of its longer-term projects. On Friday the company announced it had appointed consultants to help it dispose of its share in Minas-Rio, a costly and problematic iron ore project in Brazil that was originally heralded as a major money-spinner.

But its problems run deeper than weakening resource prices. Warring labour unions, unreasonable wage demands and out-of-control cost increases on its platinum mines continue to destroy shareholder value.

Anglo American Platinum, the world's largest producer and one of Anglo's most important investments, has halved its value in the past four years. Kumba Iron Ore (up 146%), snatched by Anglo shortly after the producer was unbundled by steel manufacturer Iscor in 2001 and now the 12th-biggest company on the JSE, is double the worth of Anglo American Platinum.

It's not only the platinum miners that have plunged in significance but the country's gold miners as well. Once noble lords that attracted investor interest from the four corners of the earth, the combined value of our three leading players (AngloGold Ashanti, Gold Fields and Harmony) is smaller than Shoprite, whose 205% gain over our measured period has inflated the grocery retailer's market cap to R100-billion and elevated it to number 15 position on the table.

Breathing down Anglo's neck is Sasol. The oil producer is one spot behind the former mining giant, but Sasol's technology and foreign growth ambitions seem destined to hoist it into the JSE's top rankings soon.

Sasol is only one of a few local enterprises that are on the march and well positioned to replace our dethroned miners as the country's most valuable companies. Rising star is the pharmaceutical group Aspen, whose dynamic CEO Stephen Saad has put in place a global strategy that has pushed the share price up 250% in four years, increasing the company's value to R90-billion.

Nor can we overlook health care group Discovery, a relative minnow at R46-billion (number 32). But Discovery's energetic and brainy management team continues to produce praiseworthy profit growth that should continue to lift the business's rating and net worth.

Naturally, the time will come when demand for commodities picks up. But, for the next few years at least, it will pay to remain with the winners, especially those companies with the management talent to grow small companies into big ones and not vice versa.

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