2020 has kicked off with no shortage of excitement, with global geo-political tension front-of-mind for many investors. While there has not been a lot to shout about in the last few years for small-cap investors on the JSE, there might be some light at the end of the tunnel.
The below graph tracks the performance of the Satrix 40 (Black) against the Ashburton Mid-Cap ETF (Orange). Many of the locally-focused mid-caps have lagged their larger peers who have been able to enjoy stronger offshore revenue, but the tail-end of 2019 saw a solid recovery in the mid-cap sector.
Below are some of the small and mid-cap shares we are currently tracking (in alphabetical order).
2019 was an eventful year for shareholders in newly-listed 4Sight Holdings which went through some very visible shareholder and management conflicts that ultimately saw the share suspended. A new board, some interesting assets and the highly-rated Herman Singh as chairperson suggests that this one might be worth watching. Not for the faint-hearted but interesting none-the-less.
African Rainbow Capital Investments:
ARCInvest generates a lot of debate around its diverse portfolio of businesses. Some argue the interests are too diverse, while others argue that it will be a big winner when some of its underlying businesses begin to see the fruits of an improved economy. It’s major investment in TymeBank (Which has now secured 1 million+ customers) is capturing the imagination. Up 4.5% in the last 30 days, there has been regular director buying and the counter trades at more than 50% discount to NAV.
We are in two minds about this stock which has recently hit new 52-week highs after rising 38% in the last 3 months. Theoretically, Balwin is trading on a forward PE of just 2.4 times earnings and has the potential to re-instate a 7% dividend yield but cash-flow could be the deciding factor here.
SA based technology stocks are not exactly favoured by investors at the best of times but Capital Appreciation continues to offer an interesting portfolio. A consistent dividend payer since it listed, a discount to NAV and some insider buying at the end of 2019 means this could be one to put at the back of your mind.
There are not a lot of places that you can pick up an 11% dividend yield but low-key technology group Cognition is currently offering shareholders a very attractive yield and continues to be cash-flow positive with over R120m of cash in the bank at the end of June 2019. An interesting acquisition of Private Property, combined with some other smaller businesses, make this one worth tracking.
Down 57% in the last 6 months, CSG is the epitome of an unloved small-cap on the JSE. CSG runs facility management, security and staffing services operations and currently sits with a market-capitalisation of just under R125m. Reporting for the 6 months to end September, the company lost R27m off just under R1bn in revenue – a significant part of that was driven by a R40m loss in its security business. With a significant revenue base, some good anchor shareholders and an improvement in cash-flow could be worth watching.
We have long been a fan of the Gemfields story – primarily driven by the share buyback and discount to Net Asset Value story. The company is up 18% in the last 6 months, has expanded its share buy-back programme, onerous export duties on its Kagem operations have been cut and its just had an extension on its license in the area. The Kagem operations have also pioneered a fascinating traceability system using Blockchain – technology which could represent significant Intellectual Property (IP) down the line. The share is currently at R1.90 versus a last reported Net Asset Value of R6.05.
Sustainable energy supply is going to be one of South Africa’s key investment themes over the next few years and Hulisani is one of the few players available to retail investors. A lack of liquidity means that investors are going to battle to get hold of shares but with a number of its investments starting to contribute to the earnings base, this is one worth putting at the back of your head.
Imperial offers investors a global business at a South African price. A forward PE of 8.4 and a handy 4.3% dividend yield is not bad. An interesting development at the tail-end of 2019 was that UK-Based M&G Investment Management now holds 10.5% of the issued share capital, suggesting the share is now on the radar of international investors.
Down 58% in the last 6 months, ISA has had a tough old time of it but investors shouldn’t forget that this is a really interesting business playing in the IT security space (a market which is hard to ignore). On historic numbers, ISA is trading on a PE of 4 times earnings and a remarkable 24% dividend yield (showing it can generate cash!). CEO Clifford Katz is a good manager and while they’ve suffered a few bumps and bruises in 2019 (including a downgrade of vendor rating by Check Point Software),
It has been a long time since the JSE has fallen onto our radar but after dropping 30% last year and now trading at a 52-week low, it might be worth a nibble. A forward PE of 10, a dividend yield of 5.66% and interestingly trading flat over 5 years, the JSE is a natural winner if confidence returns to the economy. CEO Leila Fourie also seems to have breathed some new energy into the organization.
Down 50% in 2019, KAP has suffered from the general de-industrialisation of South Africa courtesy of some questionable government policies. What KAP does have that is worth considering is that it is incredibly cash-generative and trades on an undemanding forward PE of 5.75 offering a 5% dividend yield.
There are plenty of reasons to be cynical about this financial services group, but one factor you can’t deny is that Purple is now a very significant player in the retail client market in South Africa. The company reports 243 000 users on its “EasyEquities” platform. Losses have been reduced sharply (for the 12-month period to the end of August) and the share has slowly started to tick-up. Where to next?
Without a doubt, one of the few stories which has captured the imagination of informed investors looking for something a little “different”. Up 53% in the last 3 months, dual-listed Renergen has proven popular in Australia where analyst coverage is far greater – in contrast the South African market has been slow to buy into this fascinating alternative energy player.
Probably one of the most interesting shares on the JSE at the moment, Santova provides access to a tech-savvy, global logistics business … trading on a 2.6 times earnings multiple and almost half it’s Net Asset Value (NAV). The concern remains that it’s too attractive to keep listed and management decides a de-listing is in order.