| Can you score in 2010?

At the time of writing (late February) it feels very much like 2010 could be the “year of investing dangerously”.

Notwithstanding the hype around the Soccer World Cup, there are jitters around the market driven by local political issues (the pesky mine nationalisation issue and Eskom’s dangerous price hike mandate) as well as global concerns around Euroland (Greece and Spain).

After the almost inevitable 30% rebound in the All-Share index (ALSI) in 2009 (following a painful 2008), there now seems a distinct lack of consensus on the direction of the market in year ahead.

While resources (and we are talking about the big stocks like Anglo Platinum, BHP Billiton and Anglo American) drove the market in 2009, there appears to be some misgivings as to whether commodities will indeed provide the impetus for the ALSI.

In fact, at the time of going to press one well-known asset manager had played open cards as regards the composition of its flagship portfolio – which contained no holdings in any of the big dual listed mining conglomerates.

Perhaps we will then see BAT, or even SABMiller, displacing BHP Billiton as the biggest company (by market value) on the JSE in 2010?

Indeed many of our Top 200 tables will reflect the tougher economic conditions. Companies are – broadly speaking – more tightly geared, margins are under pressure and cash flows crimped.

However, there are companies that have performed across a number of measures in the Top 200 survey.

Hopefully our statistics and accompanying copy will help readers detect these consistencies – which, hopefully, could aid a successful investment decision.

Two companies that seemed to stand out in this year’s survey were pharmaceutical group Aspen and base metals miner Assore.

These two quality second liners would probably not be the first port of call for retail investors, but it seems quite a few influential professional investors hold big chunks of these two companies.

If Finweek were to go out on a bit of a limb as regards potential pointers in the Top 200 for 2010, we would humbly suggest punters keep a close eye on building materials specialist Mazor, junior miner Anooraq, human resources specialist Kelly and industrial suppliers group Howden.

Looking at our 2009 rankings – and especially the rankings that fall out of the Top 200 (which Finweek’s writers see, but readers don’t) – its almost certain that the incidences of companies seeking to raise new capital through rights issues will increase in 2010.

This year’s survey will show there are sizeable interest bills eroding the operating profits of a fair number of small- to medium-cap companies.

With margins still under pressure and cash flow often under pressure (particularly those companies that are victims of tardy state settlement) many companies will struggle to crawl out of the debt ditch.

Presumably the only way to ease balance sheet strain without resorting to a rights issue is by selling off assets – something that’s already evident among a number of recently listed small cap counters.

Our Top 200 tables may also reinforce the notion that 2010 could be the year of consolidation.

Readers paying careful attention to sector patterns in our slew of tables will no doubt notice that certain companies in a certain sector (whether it be food production or retailing) look a good deal stronger that their corporate compatriots.

By strong we mean that certain companies – despite the prevailing squeeze in trading generally – still have a large cash pile, low gearing and (most important) a willingness to expand operational horizons.

One sector that Finweek feels is overdue for consolidation is the broader infrastructure/construction/building supplies/low-cost housing development sector – which, readers will remember, was the mustering point for the 2006/07 listings boom.

The Top 20 will show that, in some instances, there are stark contrasts in the fundamental fortunes of companies with fairly similar operational profiles.

Here one only needs to compare robust Afrimat with brittle WG Wearne or vibrant Top-Fix Holdings with wonky SA French.

It can only be a matter of time before stronger players look to advance on more vulnerable contenders, and a good starting point would probably be the brick manufacturers.

Another trend that our Top 200 suggests might be reinforced in 2010 is the increasing number of buyout offers to minority shareholders and delistings from the JSE.

The Top 200’s strenuous number crunching does alert investors to some surprising situations in that companies which have been battered mercilessly by the market actually hold fairly solid rankings across any number of ratios and measures.

Now don’t be surprised if some of these “stronger” companies use the prevailing market distaste for small- to medium-cap companies as an opportunity to launch a buyout offer.

Naturally these buyout offers may come at a considerable premium to the prevailing market price – but the offer may still markedly discount underlying value and longer term prospects.

Clearly one more reason to keep the Top 200 survey on the coffee table.

 – Finweek



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