Ciaran Ryan
3 minute read
17 Oct 2015
8:00 am

The cash kings on the JSE

Ciaran Ryan

Local companies are sitting on a cash hoard of R522 billion, so it makes sense to track down those facing a building dividend offset pressure in the hope of cashing in, come results time.

Picture: Gallo Images

Bear in mind, local firms have also invested R80 billion abroad last year, and another R60 billion on a rolling, cumulative basis up to the second quarter.

Moneyweb compiled a list showing which local companies have generated cash the fastest over the last five years. To make the list, companies also had to have shown an average growth in headline earnings per share of 20% over five years. The list therefore reflects those companies best able to grow cash and profits. Many of these companies are already richly priced, but could present buying opportunities if there is a pull-back in price.

Several companies have been excluded from the list because they are thinly traded or their figures are skewed by extraordinary cash windfalls.

Discovery has shown remarkable product innovation, and year results to June 2015 show momentum is firmly on track, with a 67% increase in HEPS. On a price to embedded value basis, Discovery is pricey: 1,7 times embedded value, versus 1,2 for Old Mutual, and 0,9 for both Liberty and MMI.

Andrew Dittberner, portfolio manager at Cannon Asset Managers, believes Clientele Life offers better value at 1,3 times.

Cashbuild has done extraordinarily well with a near doubling in share price since January. Year results to June show a 34% increase in earnings to shareholders. It is secure in rural and urban lower to middle income markets. A PE near 20 is well priced.

Finbond’s tailored credit and insurance solutions have propelled its share price from 12c to 400c since 2013 and at a PE of 40 investors are anticipating great things.

AltX market darling Ansys’s unique technologies, like asset monitoring systems for railways and mining, now reach into the telecommunications sector. With a PE at 19, it is priced for growth but still has room to improve.

Howden faces earnings and management fee unhappiness as it sits on a huge cash pile and counts Eskom as one of its biggest clients. At a PE of 7, there is potential for recovery.

Software group EOH’s share price has quadrupled since 2013 to R153 on acquisitions, producing a eye-watering PE of 26 it will have to keep on making acquisitions to justify the valuation.

Datatec is another cash machine with operations in more than 70 countries and revenue of US$6,4 billion (R83,8 billion). This great rand hedge’s services focus shields it from typical hardware retailers’ margin pressure. Earning warnings from Angola have pushed its share from R77 to R60 recently, presenting a buying opportunity.

Sabvest is too-thinly traded to be of much interest. Mine closures and a slowing economy have knocked Bell Equipment from R28 to R8 since 2013, but it expects improvement from cost reductions and operations streamlining. Its net current assets, less inventory, exceed its market cap – what legendary investor Benjamin Graham calls a “net-net”. Take note value investors.

PSG is a financial services phenomenon through its holding in Capitec (retail banking), PSG Konsult (wealth management) and Curro (private school education). But at a PE of 28 it is expensive. There is still growth, but the easy yards are done. Half of earnings from Peregrine’s robust business model are annuity-based, the dividend yield of 4,2% is attractive, and there is scope for growth.

Dittberner values the stock at R40 on a two-years forward view. Firstrand is banking’s shining light with a price to net asset value of 3X, about twice its major competitors. Mr Price’s share plunged from R28 to R20. The share is still trading at a frothy 22.