Lo­cal stocks not too dear

Finweek English Edition - - Economic trends & analysis - GARTH THE­UNIS­SEN

THE AV­ER­AGE price:earn­ings ra­tio of the JSE all-share in­dex is now 16,2 – a rea­son­able click above its 20-year p:e av­er­age of 13,8. That’s largely why many arm­chair an­a­lysts say South African shares are cur­rently over­priced.

Yet when you plot the ex­pected p:e ra­tios of the com­pa­nies in Morgan Stan­ley Cap­i­tal In­ter­na­tional’s (MSCI) SA in­dex along­side their ex­pected earn­ings growth for 2007, and then com­pare that with the same vari­ables for other emerg­ing mar­kets, SA shares hardly look over­val­ued.

Per­haps that’s why emerg­ing mar­ket gu­rus such as Mark Mo­bius la­belled the 51,3% pre­mium paid for Ed­con by US private eq­uity firm Bain Cap­i­tal LLC as “too low” while SA share­hold­ers felt it was more than gen­er­ous.

Could it be that for­eign­ers are us­ing a more ac­cu­rate val­u­a­tion model than our home­grown an­a­lysts?


Source: Mer­rill Lynch

Pre­mium was too low.

Mark Mo­bius

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