Is it 1997 all over again? Well, not quite ...

Financial Mail - Investors Monthly - - Editor’s Note -

UNI­VER­SI­TIES MIGHT be in chaos and Julius Malema's du­bi­ously named Eco­nomic Free­dom Fight­ers might be mak­ing all the po­lit­i­cal mileage you’d ex­pect, yet the mood on the coun­try’s stock mar­ket re­mains as chip­per and ebul­lient as ever.

In his cover story, Marc Hasen­fuss ar­gues that based on the un­seemly frenzy to nab stock in as­set man­age­ment com­pa­nies, it's be­gin­ning to look a lot like 1997 all over again.

Hasen­fuss, be­sides hav­ing lived through the wild list­ing boom of 1997 (re­mem­ber such ut­ter bombs as Whet­stone, Mouldmed or Re­f­corp?), is among the very best in­vest­ment writ­ers ever to put pen to pa­per in this coun­try, not prone to over­drama­tis­ing things.

But the suc­cess of re­cent list­ings sug­gests it must be the eas­i­est thing in the world to list a com­pany and walk away with mil­lions. In re­cent months, we’ve had Chop­pies, NVest, Rhodes Food, and even a smat­ter­ing of new spe­cial pur­pose ac­qui­si­tion groups like Cap­i­tal Ap­pre­ci­a­tion Group.

But, as Hasen­fuss writes, there was no clearer illustration of the fact that there's a lot of cap­i­tal look­ing for a home than what hap­pened when as­set man­ager Syg­nia listed in mid-Oc­to­ber.

First, the pri­vate place­ment of shares was over­sub­scribed by 20 times, which meant some peo­ple got less than 4% of what they asked for. Then, Syg­nia’s stock rock­eted from its place­ment price of R8,40 to nearly R16. Ir­ra­tional ex­u­ber­ance? It cer­tainly looks that way, given that even the place­ment price of R8,40 was still on a price-to-earn­ings ra­tio of nearly 15 — not ex­actly ridicu­lously cheap.

Ex­u­ber­ant it may be, but ir­ra­tional it cer­tainly isn’t.

This is be­cause there is a fun­da­men­tal dis­tinc­tion from the gid­dy­ing ex­cesses of 1997. For one thing, not ev­ery glitzy new list­ing is shoot­ing the lights out.

Sure, Syg­nia may be do­ing so, but that is more a func­tion of the pe­cu­liarly static en­vi­ron­ment of 2015 and the fact that com­pa­nies with real growth prospects are van­ish­ingly scarce. That’s why they trade on such a huge premium.

It’s the same at Naspers, trad­ing on an im­mense PE ra­tio of 109. And yet, as Maarten Mit­tner re­ports in this edi­tion, it has the allure of growth that still has al­most ev­ery an­a­lyst un­der the sun punt­ing Naspers as a “buy”.

Magda Wierzy­cka’s Syg­nia also seems to have this growth X-fac­tor, as does an­other as­set man­ager which has gained more than 100% this year, Pe­ter Ar­mitage’s An­chor Cap­i­tal.

So, yes, peo­ple may be over­pay­ing for some shares this time around.

But at least they're over­pay­ing for bet­ter com­pa­nies than they did in 1997.

ROB ROSE fol­low Rob on Twit­ter @ro­brose

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