THE TOP 200: Winners and losers
Each year the Finweek team joins forces with financial data provider McGregor BFA and produces its annual Top 200 feature. This year we have taken things up a notch with coverage in both the magazine as well as online on Finweek.com, where we look at some
One of t he biggest challenges encountered when putting together “best company” -type surveys is that they typically lump together historic and current data. For this reason we have decided to focus on very specific data points and give investors insights into what analysts believe the prospects for these various businesses are in the coming years.
On pages 16 to 19, we look at the McGregor BFA Composite Weighted Financial Ratio Index. This ratio is a ranking that takes into account various aspects including gearing, total asset turnover, return on equity, operating margins and the current ratio. (See page 18 for definition.)
As they say, lies and damn statistics are often very difficult to separate, and one of the regular criticisms of this index is that it can easily be thrown out by corporate action or restructuring, which then see companies like Decillion topping the list in 2011/12.
We have approached it differently this year by giving you the full ranking and then highlighting certain shares. A closer look suggests that investors will be able to spot trends and use the index as a leading indicator. For example, one could look at Tiger
Brands, which appears to be stagnating from a rating perspective. This is ref lected in the most recent set of financial results, which confirms that margins are under pressure and the share is seeking a growth catalyst.
Similar arguments could be made for the banking groups, which are not showing any real underlying growth.
In contrast, you could look at a business like Famous Brands and see five years of consistent growth in the rankings. This helps you see through the “noise” of the market to find businesses that are genuinely growing. Insurers Sanlam, Liberty and Old
Mutual are three counters that stand out. They all seem to offer long-term growth potential. Our recommendation is to use this table to look for trends and then do some further research to identify counters that might be good additions to your portfolio.
Another good exercise to do is to look for companies where there have been significant drop-offs in the ratio between 2008 and 2012, but the share price hasn’t reacted accordingly. Take for instance Sasfin, which has fallen 33% in the McGregor index, yet the share price hasn’t re-rated significantly compared to other banking groups.
For reader convenience we have put a “Share Watch” note at the top of each of the data section, indicating which shares have caught our eye. Visit www.finweek.com for further details on why we like these counters.