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 Fin­, where we look at some

Finweek English Edition - - NEWS - BY MARC ASH­TON

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.fin­ for fur­ther de­tails on why we like th­ese counters.

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