The five best performers on the Johannesburg Stock Exchange in the second quarter of the year were all relatively small cap stocks
Shirley Kemp
Major price moves in the June quarter (April to June) illustrate that companies with relatively small market values are the riskiest investments. Figures show that investors with large enough exposure either made a small fortune or had their fingers burnt during the period. Take Porthold, for instance, which gained 1 025% on the back of corporate activity; in contrast, specialist telecommunications company Sempres shed 97%.
Shawn Stockgit of Gryphon Asset Management maintains that the smaller companies will increasingly turn to corporate activity in order to unlock value, and that these may be the ones to look out for in future. There has been a lot of activity from several players in the past few months, but as we have seen from the recent stumblings of AdvTech, the road is often a bumpy one. Rumours of a management buyout at Wetherlys saw the share climb above 7% on Monday.
While interest in small cap stocks has clearly picked up in the last quarter, for the investor wanting less risk the alternative is to invest in larger, blue chip companies. They may not achieve the same returns but will be unlikely to make enormous losses either. But just to keep investors on their toes, and ensure that uncertainty reigns, IT giant DiData announced that its margins will be hit by competitive pricing pressures. DiData has plummeted almost 10% in the few hours after the announcement.
Of the top 20 performers in the second quarter, 11 stocks are still trading below R1 and a further seven are trading below R5, even after increases in excess of 60% for each of these stocks. It is certainly far easier to double your share price at these levels than when it is trading at a price of R121 a share, as is Anglo American.
We also note that none of the top five companies are in the same sector of the JSE pointing to more of an “across the board” improvement, as opposed to evidence of one specific sector coming into favour. Even if we include the top five performers over the past month, only one sector is repeated financial services.
Best performer, Portland Holdings, (Porthold) was in fact suspended on the Zimbabwe Stock Exchange (ZSE) at the beginning of March. As the company’s primary listing is in Zimbabwe, trading on the JSE was also suspended.
At the beginning of May PPC concluded an agreement with Anglo American Zimbabwe and Porthold in which it would acquire 48% of Porthold from Anglo Zimbabwe, along with the remainder of Porthold’s share capital. The acquisition would result in Porthold becoming a wholly owned subsidiary of PPC. Porthold’s shares were allowed to continue trading by the ZSE and the JSE after this announcement was made.
In mid-June the proposed acquisition by PPC was still subject to certain conditions including the formal approvals of various Zimbabwe regulatory authorities and since then the share price has levelled off.
Venture Capital company Magnum Holdings was the next best performer over the quarter, soaring 160%.
The company announced disappointing interim results at the end of May, incurring a headline loss per share of 1,5c. This was followed by an announcement stating that Magnum plans to restructure its business by moving away from the provision of hedge fund investments to customised structured products. The company is also changing its name to MGF Capital Limited and has applied for permission to buy back its own shares.
On June 28 Magnum announced the sale of its 50% interest in Prism equities.
Mail order company Homechoice’s share price increased 158% between April and June, with the only apparent activity coming from the directors. CEO Rick Garrett bought R4-million worth of shares in early May, but director Keith Warburton sold 30 000 shares a few weeks later.
Platinum producer Messina, which gained 135% in the second quarter, produced a lukewarm set of results in April, followed by the announcement of plans to proceed with a rights offer in order to raise enough capital to complete its Messina Platinum Mines PGM project in the Northern Province. In June Rand Merchant Bank approved additional debt financing of R345-million to complete the construction and start-up of the project.
Messina also announced that it had reached an agreement with a major international automotive company to supply floor-price protection for both platinum and palladium.
Financial services company Proper Group was the least energetic of the top five shares with respect to company activities, gaining 133% in three distinct steps through the quarter. The first step came immediately after the group announced good interim results for the six months to February, with both net income before tax and headline earnings beating the company’s own forecasts by substantial margins.
Five best performers
Second Quarter 2001
CompanySectorPrice at March 31Price at June 30 Change
1. PortholdBuilding and construction404501 025%
2. MagnumVenture capital513160%
3. HomechoiceRetail69178158%
4. MessinaPlatinum2 0004 700135%
5.ProperFinancial services60140133%
June 2001 only
CompanySectorPrice at March 31Price at June 30 Change
1. MetropolisDevelopment stage732357%
2. TisecFinancial services818125%
3. ShawcellTelecommunications3060100%
4. OmegaFurniture24100%
5. Ninian & LesterClothing and textiles6751 30093%