AltX has performed spectacularly in the past year with a return of 107%. The AltX index has performed much better than the Fledglings and Small Cap indices, which are up 42,8% and 46,4% respectively for the past 12 months. All the small cap guys have beaten the pants off the JSE Top 40, which is up 23,4%.
The success of AltX must have brought a sigh of relief to the man in charge, Noah Greenhill, after it launched very unspectacularly in October 2003 without a single listing. The first listings took place only at the end of January 2004. Yet it has certainly exceeded expectations, reaching a market cap of R20-billion and more than 50 listings so far, eight listings in August alone, with 34 shares making up the Altx index.
Market commentators agree that the quality of listings has been far superior to the rats and mice that listed on the JSE’s venture capital market sector in the late 1990s.
“There have been some great companies, definitely better quality than the venture capital markets,” says Louis Bekker, portfolio manager at BJM Private Client Services. Bekker says AltX has been the biggest source of small caps for their investors. “We have seen companies double on the day of listing, which is not something you see on the JSE main board and has contributed significantly to returns.”
Yet it is not easy to get in on the listing. Unlike the listing environment in the late Nineties, all of these listings have been done via private placements and not a public offering. This means that unless you or your stockbroker is part of the inner circle, you would not have been able to get shares prior to listing.
It is important to remember that beyond the hype and great returns, this is a risky sector. Many are small companies that still need to prove their track record. One just has to look at the dismal performance of Santova Logistics, which would have decimated a R10 000 investment to just R764,33.
Bekker says smaller companies carry higher investment risk and are not well covered by analysts. “Homework is critical and you have to be an astute investor and understand the risk. But it has a place in a diversified portfolio and can give great upside.”
There can be an advantage to not being on everyone’s radar, which creates opportunities for investors who are prepared to do some work and pick up some undervalued companies. Bekker uses Safic as an example of a share, which fell from R1 to 82c before flying to R1,85 simply because the industry did not understand the business initially.
Favourite picks
Louis Bekker’s favourite shares at the moment are Safic and Placecol Holdings.
Placecol, which listed recently, is in the cosmetic industry and has been ignored by the investment industry, hence is sitting on a price-to-earnings ratio of less than five.
If there are no more shocks to the economy, Bekker believes there will be some good returns from this new listing.
Safic, which supplies products to the construction industry, is set to benefit from infrastructure spend and, unlike other construction-related stocks, is on an undemanding valuation.
BoE Private Clients’s Barbara Price-Hughes’s favourite Altx shares include Myriad and ACTowers.