Over a century old, JSE boasts solid track record
The JSE came into existence following the South African gold rush almost 130 years ago. In the early 1990s the stock exchange upgraded to an electronic trading system. In the 2000s it launched the AltX and YieldX exchanges and acquired the South African Futures Exchange (SAFEX) as well as the Bond Exchange of South Africa (BESA).
The JSE now remains South Africa’s only full-service and licensed securities exchange facilitating transactions in the equities, bond/interest rate, f inancial, commodity and currency derivatives markets. This makes for a Warren Buffett-style monopoly investment case, especially when we consider the extensive barriers to entry for competitors and in turn the inherent pricing power of the operator, which manages the largest equity exchange in Africa, in terms of value traded.
As the provider of both primary and secondary markets as well as the technology services to facilitate trades, the JSE also operates as the regulator thereof and sells market data. The cash equity operations make up the bulk of the group’s revenue. This consists of fees relating to the equity market, the primary market, membership, backoffice services and post-trade services and amounts to almost 70% of group revenue. Excluding the contribution from membership fees, all the divisions have seen a good growth in revenue. Strong annuity growth in 2014 was largely as a result of 24 listings in the most recent f inancial year, showing an improving interest in the capital markets at present.
The JSE ( Ltd, not the exchange as a whole) has historically produced a healthy return on equity at around 28%. Headline earnings growth remains in double-digit territory (14% in the 2014 financial year), while a decent yield in
Back-office services (BDA)
Commodity derivatives fees
Currency derivatives fees
Equity derivatives fees
Equity market fees
Funds under management
Interest market fees terms of dividend of around 3.3% has been returned to investors in the past. This makes a total return of 13% to 15% a feasible expectation going forward based on historical performance. Trading on a forward price-to-earnings (P/ E) multiple of 15.5 times, the JSE trades at a marginal discount to the average P/E multiple of the Alsi’s constituents, as well as a number of its major US, European and Asian peers.
The JSE remains relevant in the functioning of our domestic economy, providing both local and foreign access not only to local capital markets, but also serves as a gateway into the African continent. The regulator, which is highly regarded in terms of global securities regulation, has had a solid track record since its listing, suggesting a strong addition to an investment portfolio with a long-term time horizon.