Over a cen­tury old, JSE boasts solid track record

Finweek English Edition - - PRO PICK - BY SHAUN MURI­SON Mar­ket An­a­lyst at IG

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.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.