AFKI Market Journal: 10 Best South African Stocks of 2013

AFKI Market Journal: 10 Best South African Stocks of 2013

It was a disappointing year for South Africa investors. After accounting for a gut-churning 19.2 percent drop in the value of the rand, the Johannesburg Stock Exchange’s All Share Index dropped 9.3% in US dollar terms.

But that doesn’t mean there weren’t some standout individual performances. Dozens of stocks posted gains of 50 percent or more.

Let’s count down the market’s top 10 performers.

10. Trematon Capital Investments (TMT)
+80.3% (Local Currency: +122.9%)

We kick things off with this little holding company that owns a motley array of businesses. It’s active in resorts, casinos, real estate, fabricated steel, and even the local Burger King licensee.

In aggregate, these enterprises turned out to be quite profitable in 2013. Earnings per share came close to tripling. That eye-catching growth plus a 25-percent boost to the dividend put the share price on a steady upward trajectory.

9. EOH Holdings (EOH)
+82.6% (Local Currency: +125.8%)

A large IT consultancy and one of the JSE’s best performers over the past five years, EOH has put together an impressive record of growth. Earnings have quintupled since 2009.

Acquisitions accounted for much of this growth, however, and some analysts believe management will find it increasingly difficult to produce performance that justifies its 27-times earnings multiple.

8. Poynting Holdings (POY)
+91.3% (Local Currency: +136.6%)

Poynting is in the antenna business – cellular, TV and military antennas. Management got the attention of investors when it announced that it intended to grow revenue more than tenfold within the next five years on the back of a series of acquisitions. The ambition impressed at least a few big investors. A South African private equity firm snatched up a 28-percent stake in the company during the year.

7. Efficient Group (EFG)
+100.6% (Local Currency: +148.0%)

The value of this little Pretoria-based asset manager doubled in 2013, presumably in response to its return to profitability from a big loss in 2012. The share is extremely illiquid, however, and most of the trades that did occur appear to have been made by insiders.

6. Austro Group (ASO)
+126.1% (Local Currency: +179.6%)

Austro bills itself as South Africa’s largest distributor of premium woodworking tools. It also derives substantial revenue from the sale of power generators. The company has lots of cash on its balance sheet and is scarfing up stakes in smaller industrial hardware businesses. The stock market took notice when a former casino executive bought a 9-percent stake in the company midway through the year.

5. Wescoal Holdings (WSL)
+127.1% (Local Currency: +180.8%)

As its name implies, this company mines coal. Earnings popped 65 percent during the first half of its 2014 fiscal year thanks to a new colliery that it opened in June. Output from the new facility increased total production by nearly 40 percent.

More good news could be in the offing. Wescoal is looking to acquire additional mines and more substantial export rights.

4. AdaptIT Holdings (ADI)
+190.5% (Local Currency: +259.2%)

An acquisitive IT smallcap, Durban-based AdaptIT specializes in providing software and technology solutions to the manufacturing and education sectors. Sales grew 36 percent during the first half of the year and 40 percent of that is annuity income. What’s more? The company has no long-term debt. The confluence of factors proved irresistible to investors, and the share price nearly tripled in dollar terms.

3. MICROmega Holdings (MMG)
+191.9% (Local Currency: +261.0%)

For most of 2013, this pint-sized conglomerate did very little to bring attention to itself. The mid-year earnings report saw revenue flat-lining and profit falling. Apart from the increasing profitability of its occupational health and safety consultancy, there was very little for management to brag about. Then, in August, MICROMega’s chairman and largest shareholder settled a 13-year tax dispute with the South African Revenue Service for 700 million rand. This proved to be the issue that tethered the company’s share price. When the settlement was announced, the stock soared nearly 500 percent before coming a bit closer back to earth.

2. M & S Holdings (MSA)
+249.2% (Local Currency: +331.8%)

This little outsourcing business places skilled industrial workers in South Africa’s mining and manufacturing sectors. Its stock made big waves on the exchange when it sold off its scaffolding business and more-than doubled its tangible net asset value. It also paid its first-ever dividend as market watchers speculated that it may be a takeover target.

1. Finbond Group (FGL)
+654.8% (Local Currency: +709.76%)

The JSE’s top performer by a long shot, this micro-lender increased its mid-year profits 49 percent thanks to a strategy that sees it extend very small loans ($150 on average) with very short tenures (no more than six months). It’s proven extremely popular. The loan book increased 68 percent and repayment rates are much higher than those seen by its larger competitors.

Your Turn

Which South African stocks will lead the pack in 2014? Let’s hear your picks in the comments!

Ryan Hoover is an investment analyst with Africa Capital Group and the founder of InvestingInAfrica.net. Contact him at ryan@investinginafrica.net.