Financial Mail - Investors Monthly
Is it 1997 all over again? Well, not quite ...
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.