Resilient set to fall out of Top 40

• Result would be rebalancing by tracker funds and a reduction in the weight of the stock in the South African listed property index

One of the highestreturning property stocks of the past decade, Resilient is set to fall out of the JSE Top 40 at the end of February, having lost nearly half its value this year. It could be joined by its associate, Fortress.

One of the highest-returning property stocks of the past decade, Resilient is set to fall out of the JSE top 40 at the end of February, having lost nearly half its value this year. It could be joined by its associate, Fortress.

This will result in a rebalancing by tracker funds and the weight of Resilient within the South African listed property (SAPY) index will be reduced.

Once these processes are complete, the bleeding of the Resilient group of companies’ share prices should stop, according to Len van Niekerk, a senior property analyst at Nedbank CIB.

Resilient, Fortress, Nepi Rockcastle and Greenbay Properties are part of the Resilient group of companies.

In mid-January, they were rumoured to be the target of short-seller Viceroy Research but the US group instead released a report on Capitec at the end of that month.

Nevertheless, some hedge funds and short-term investors have shorted the shares of the group’s members. Last Friday, a 50-page report by 36One Asset Management, which was leaked to the market, placed more strain on the share prices.

Thursday was another heavy day for the group. Resilient’s share price was down 11.72% to R84.70, and down 43.93% on a year-to-date basis.

Van Niekerk said some longterm holders of the stocks had begun to decrease their investments. “While short selling may have had a negative impact, we believe that long positions are being reduced,” he said. Resilient still offered value. “Buyers in volume are likely to remain on the sideline until we see some price stability.

“At that point investors will again start looking at the underlying value in the business, which we believe is now significant,” Van Niekerk said.

The stock has a forward income yield of 7.4% and is forecast by Nedbank to produce dividend growth of about 12% to 13% a year over the next three years. Assuming no change in the current rating of the stock, investors could get an annual return of around 20%, he said.

The cut-off date for the top 40 index calculation is Monday.

“Fortress is on the cusp and may also be excluded from the top 40,” said Van Niekerk.

Stanlib portfolio manager Ahmed Motara said some investors who anticipate that Resilient could leave the top 40 would potentially already start to sell down their positions.

He said fundamentals should start returning to Resilient and the SAPY once the noise around Resilient potentially exiting the top 40 calms down.

Motara said sentiment is often negative for stocks at such potential index exit times, as it is perceived to be negative for future stock trading volumes.

“Such an exit from the top 40, if it happens, is, however, not relevant for long-term investors, given there is no material relationship with the particular stock fundamentals.

“The long-term investor’s portfolio and the long-term decision to buy the stock will be driven by fundamentals off the back of asset quality and management credibility,” he said.

Resilient’s proportion of the SAPY has fallen in recent weeks, with Growthpoint and Redefine now accounting for about 36% of the SAPY.

BUYERS IN VOLUME ARE LIKELY TO REMAIN ON THE SIDELINE UNTIL WE SEE SOME PRICE STABILITY