Finweek English Edition - - FRONT PAGE - By Jaco Visser

the JSE’s Al­ter­na­tive Ex­change, also known as the AltX, has proven to be an in­cu­ba­tor for many medium-sized com­pa­nies, which sub­se­quently mi­grated to the main board. It has also given in­vestors the choice of in­vest­ing in smaller, grow­ing com­pa­nies who, in re­turn, ben­e­fit­ted from the AltX’s less strict reg­u­la­tions and lower list­ing fees.

The FTSE/JSE AltX-15 i ndex, com­pris­ing the l argest and most l i quid com­pa­nies on the AltX, re­turned 17.3% to in­vestors over the 12 months through 6 June com­pared with the FTSE/JSE Top40’s re­turn of 4.54%, ac­cord­ing to INET BFA data. Over the past 12 months, the AltX’s top five per­form­ers – Ju­bilee Plat­inum, PSV Hold­ings, Sil­verBridge Hold­ings, Ac­cén­tu­ate Hold­ings and NVest Hold­ings – have re­turned be­tween 45% and 102.7% to share­hold­ers.

Of the 65 stocks listed on the AltX, 16 are sus­pended and a fur­ther three are not trad­ing.

One of the big­gest risks for in­vestors in­vest­ing in a small cap is the lack of share liq­uid­ity. That means that the stocks are not read­ily of­fered for sale or there is in­suf­fi­cient de­mand for them at any given time.This may dis­tort the price-find­ing mech­a­nism, which is es­sen­tial for a mar­ket, and es­pe­cially a stock mar­ket, to op­er­ate.

On the other hand, a ben­e­fit of in­vest­ing in these stocks is that the in­vestor buys into a grow­ing com­pany. Prospects for the in­vestor in­clude the pos­si­bil­ity of a buy­out at a pre­mium at a later stage. Usu­ally, but not al­ways, a com­pany’s man­age­ment holds a sig­nif­i­cant pro­por­tion of the stocks, giv­ing it a vested in­ter­est to suc­ceed and turn prof­its.

With the mar­ket cap­i­tal­i­sa­tions of AltX-listed com­pa­nies rang­ing from as small as R12m to as high as R7.1bn, in­vestors have a large va­ri­ety to choose from. In­vestors need to con­sider a num­ber of fac­tors when mak­ing the de­ci­sion to in­vest:

Do you want to buy and hold the share for a num­ber of years and thus over­come the lack of liq­uid­ity in a stock?

Is the stock aligned to your view and ex­pec­ta­tions of the lo­cal econ­omy?

Do you have the stamina to weather sig­nif­i­cant share price swings, which may oc­cur due to the low price of some of the stocks? Re­mem­ber that a 5c de­cline in the price of a stock worth 25c has a much harsher im­pact on an in­vest­ment than a 5c de­cline in a stock worth R3.

1 Ju­bilee Plat­inum Share price (9 June): 75c 12-month re­turn: 102.7% Mar­ket cap­i­tal­i­sa­tion: R675m Rev­enue: £49 000 (FY June 2015) Loss: £2.9m (FY June 2015) CEO: Leon Coet­zer

Ju­nior miner, Ju­bilee Plat­inum, with its head of­fice in Lon­don, runs two tailing plants in South Africa and is in the process of ac­quir­ing a min­ing li­cence on the eastern limb of the plat­inum-rich Bushveld Com­plex.

Fol­low­ing the fi­nan­cial cri­sis in 2008, and af­ter CEO Leon Coet­zer took over as head, Ju­bilee changed its busi­ness model from that of a tra­di­tional ex­plo­ration com­pany to one which utilised its en­gi­neers’ broad knowl­edge of pro­cess­ing. This led to the miner fo­cus­ing on ex­tract­ing plat­inum group met­als (PGMs) and gold from sur­face stocks, or rather tail­ings.

“Ju­bilee is a com­pany known for i ts strong met­al­lur­gi­cal knowl­edge,” says Coet­zer. “We built on that core skill and mar­ket it. We did pro­cess­ing con­sul­ta­tion work for a num­ber of com­pa­nies.”

This led to the com­pany es­tab­lish­ing its first tailing pro­cess­ing agree­ment at Mit­subishi-owned Her­nic Fer­rochrome, the world’s fourth-largest fer­rochrome pro­ducer. The deal, signed in Jan­uary 2015, will see Ju­bilee pro­cess­ing about 55 000 tons of tail­ings per month once the chrome and plat­inum ben­e­fi­ci­a­tion plants are com­pleted.

The chrome plant will likely be com­pleted by Au­gust and the plat­inum plant by De­cem­ber, says Coet­zer. When com­pleted, the ben­e­fi­ci­a­tion plant will be the largest of its kind in the world, he says.

“This is a highly tech­no­log­i­cally ad­vanced plant we’re build­ing and it is to the com­pany’s credit that Mit­subishi chose us to con­struct it,” says Coet­zer.

The first of the com­pany’s two tailing projects, at Dilokong Chrome Mine, which is owned by ASA Met­als, also con­sists of two plants, one to ben­e­fi­ci­ate chrome and the other plat­inum from the sur­face stock. The chrome plant at ASA was com­mis­sioned at the be­gin­ning of March and in May the com­pany gen­er­ated its first in­come from the plant, be­ing R6m from chrome, says Coet­zer. The pro­cess­ing of the plat­inum is now the next key fo­cus for the com­pany.

“We re­ceived fund­ing late last year to build the ben­e­fi­ci­a­tion plants at ASA and Her­nic si­mul­ta­ne­ously,” ex­plains Coet­zer. “The chrome plant at ASA is per­form­ing far above ex­pec­ta­tions, both from a pro­duc­tion through­put and fi­nan­cial point of view.”

Ju­bilee is also in dis­cus­sions with other min­ers to dou­ble its ca­pac­ity to ex­tract and ben­e­fi­ci­ate chrome and plat­inum at two fur­ther min­ers, says Coet­zer.

With the spot price of plat­inum at around $995 per ounce, Ju­bilee ben­e­fits from the low cost to ex­tract the me­tal from sur­face stock.

“The mar­gin on plat­inum ben­e­fi­ci­a­tion is very high,” ex­plains Coet­zer. “We work at a project break- even rate of $500 to $600 per ounce, de­pend­ing on the feed source.”

Around 65% of the cost of plat­inum pro­duc­tion is at­trib­ut­able to the ex­trac­tion, or phys­i­cal min­ing, of the me­tal, he says. When the ore is al­ready on the sur­face, the cost of pro­duc­tion de­clines sub­stan­tially.

In ad­di­tion, Ju­bilee holds a 63% in­ter­est in the Tjate plat­inum ex­plo­ration project on the eastern limb of the plat­inum-rich Bushveld Com­plex. The project, which is await­ing its min­ing li­cence from the depart­ment of min­eral re­sources, has the po­ten­tial to pro­duce 65m ounces of PGMs.

The com­pany, which counts for­mer Mpumalanga premier Mathews Phosa as one of its non-ex­ec­u­tive di­rec­tors to­day, gained the ex­plo­ration li­cence in 2004.

“Ju­bilee is a com­pany known for its strong met­al­lur­gi­cal knowl­edge. We built on that core skill and mar­ket it. We did pro­cess­ing con­sul­ta­tion work for a num­ber of com­pa­nies.”

2 PSV Hold­ings Share price (9 June): 40c 12-month re­turn: 90.5% Mar­ket cap­i­tal­i­sa­tion: R106m Rev­enue: R243m (FY Fe­bru­ary 2016) Loss: R40.5m (FY Fe­bru­ary 2016) CEO: Abie da Silva

PSV Hold­ings, a sup­plier of engi­neer­ing prod­ucts to in­dus­trial com­pa­nies in SA, turned around its prospects in a dif­fi­cult year, which saw the com­pany clos­ing its unit in the Demo­cratic Re­pub­lic of the Congo and sell­ing its busi­ness in Zam­bia.

In­vestors re­warded PSV with a strong in­crease in its share price over the past 12 months.

“We came through,” says Tony Dreisen­stock, chief fi­nan­cial of­fi­cer of PSV.

Sales i ncreased to R243m for the 12 months through 29 Fe­bru­ary, com­pared with R230m a year ear­lier, ac­cord­ing to the com­pany’s lat­est fi­nan­cial state­ments. The l oss from con­tin­ued oper­a­tions nar­rowed to R19.3m from R22.4m, while the loss from dis­con­tin­ued oper­a­tions – mainly the Con­golese and Zam­bian ones – widened to R21.2m from R4.5m.

PSV’s Con­golese oper­a­tions were hit by one of re­source gi­ant Glen­core’s mines be­ing moth­balled for 18 months. PSV had a lu­cra­tive con­tract with this op­er­a­tion, says Dreisen­stock.

In Zam­bia, a coun­try that re­lies heav­ily on min­ing for gov­ern­ment rev­enue and for­eign ex­change earn­ings, Glen­core also halted pro­duc­tion, as did other min­ing op­er­a­tors, ex­plains Dreisen­stock. PSV sold its stake in its busi­ness there as Zam­bia’s gov­ern­ment con­tin­ued to ex­tract more taxes from min­ers amid fal­ter­ing in­ter­na­tional com­mod­ity prices, he says.

With re­gard to its SA busi­ness, PSV op­ti­mised oper­a­tions at its head of­fice and stream­lined its spe­cialised ser­vices busi­ness, which is “very con­tract based”, ac­cord­ing to Dreisen­stock.

“We re­duced the head count by about 20%,” he says of the spe­cialised ser­vices busi­ness.

This unit con­sists of African Cryo­gen­ics and En­gi­neered Lin­ings. The com­pany ap­pointed new man­age­ment at the cryo­gen­ics busi­ness and re­tained the ex­per­tise of the for­mer man­agers on a con­sult­ing ba­sis, ac­cord­ing to PSV’s fi­nan­cial state­ments.

“It is now un­der con­trol,” says Dreisen­stock.

The lin­ings busi­ness is ex­pe­ri­enc­ing an “i mprove­ment” as i ndus­trial cus­tomers start to com­ply with en­vi­ron­men­tal waste man­age­ment leg­is­la­tions, which re­quire them to put new lin­ings into dis­posal equip­ment, he says.

The com­pany’s in­dus­trial sup­plies unit, Om­ni­rapid, re­ported solid cash flow and a good or­der book for last year, he says. The di­vi­sion is pricing i ts prod­ucts com­pet­i­tively and has a rep­u­ta­tion stretch­ing back 16 years, ac­cord­ing to him.

The com­pany’s in­dus­trial sup­plies unit, Om­ni­rapid, re­ported solid cash flow and a good or­der book for last year.

3 Sil­verBridge Hold­ings Share price (9 June): R2.99 12-month re­turn: 75.9% Mar­ket cap­i­tal­i­sa­tion: R106m Rev­enue: R80.9m (FY June 2015) Profit: R4.1m (FY June 2015) CEO: Jaco Swanepoel

Soft­ware de­vel­oper and fi­nan­cial ser­vices sup­plier Sil­verBridge Hold­ings is bank­ing on the growth of in­sur­ers in the rest of Africa and the ex­pan­sion of lo­cal niche in­surance providers to boost its fu­ture prof­its.

The com­pany, whose sub­sidiaries in­clude Ru­bix, Con­nect and Cir­rus, is also ven­tur­ing into cloud com­put­ing and off­site data stor­age for clients. Sil­verBridge’s Ex­ergy plat­form is used by fi­nan­cial ser­vices com­pa­nies, es­pe­cially in the in­surance in­dus­try, to man­age pol­icy con­tracts with clients, and in­cludes a web por­tal to ease con­tact with bro­kers, ad­min­is­tra­tors and clients.

The ease with which the sys­tem can be mod­i­fied and rolled out has boosted the com­pany’s out­look on the rest of the con­ti­nent.

“In­surance com­pa­nies in the rest of Africa don’t re­ally have these sys­tems,” says Jaco Swanepoel, CEO of Sil­verBridge. “They have op­tions from Europe or the US, which are ex­pen­sive. Some com­pa­nies use sys­tems from China or In­dia, but they don’t re­ally work here.”

Sil­verBridge’s fo­cus on the rest of the con­ti­nent is mainly on in­sur­ers in An­glo­phone coun­tries in East and West Africa, he says.

“We have good re­la­tion­ships with clients in the English-speak­ing coun­tries,” he says. “The de­mand for our prod­uct of­fer­ing is big.”

To cap­i­talise on this de­mand, the com­pany had to be more com­pet­i­tive in its pricing and pack­ag­ing its of­fer­ing to fit bud­gets of in­sur­ers in the rest of Africa, Swanepoel ex­plains.

“Our of­fer­ing had to be af­ford­able and able to be rolled out quickly,” he says.

The com­pany’s sales to the rest of Africa con­trib­uted 55% of to­tal rev­enue for the fi­nan­cial year end­ing 30 June 2015, com­pared with 39% for the pre­vi­ous year, ac­cord­ing to the com­pany’s f i nan­cial state­ments. Swanepoel says this fluc­tu­a­tion is as­crib­able to im­ple­men­ta­tions be­ing done or not.

Sil­verBridge’s aim is to in­crease the pro­por­tion of an­nu­ity-like in­come and it is a core strat­egy of all its busi­ness mod­els, he ex­plains.

In the mean­time, the com­pany has ven­tured into the cloud-com­put­ing space where cus­tomers store their data off­site rather than on bulky servers on their own sites.

“This unit beat our wildest ex­pec­ta­tions,” says Swanepoel. “If you don’t move in the di­rec­tion of cloud com­put­ing, you will ex­pe­ri­ence dif­fi­cul­ties in fu­ture.”

The de­mand for off-site data stor­age is huge, he says. Not only is it ben­e­fi­cial to clients who don’t need to buy ex­pen­sive hard­ware, it also eases the solv­ing of tech­ni­cal prob­lems, he ex­plains. Whereas highly trained tech­ni­cal staff are needed to re­cover data, for ex­am­ple when a sys­tem has crashed, it is eas­ier to re­cover it off the cloud, he says.

“There is quite some growth in this mar­ket in South Africa,” he states, adding that smaller com­pa­nies are lead­ing this growth.

“If you don’t move in the di­rec­tion of cloud com­put­ing, you will ex­pe­ri­ence dif­fi­cul­ties in fu­ture.”

With the SA gov­ern­ment plan­ning to in­vest around R700bn over the next 10 years in wa­ter in­fra­struc­ture, Ac­cén­tu­ate has been po­si­tion­ing it­self to ben­e­fit from pub­lic and pri­vate projects fo­cus­ing on wa­ter de­liv­ery.

4 Ac­cén­tu­ate Hold­ings Share price (9 June): 80c 12-month re­turn: 73.5% Mar­ket cap­i­tal­i­sa­tion: R105m Rev­enue: R318.6m (FY June 2015) Profit: R4.7m (FY June 2015) CEO: Fred Platt

South Africa’s only pro­ducer of vinyl floor­ing prod­ucts and an emerg­ing player in the wa­ter-treat­ment in­dus­try, Ac­cén­tu­ate re­turned 73.5% to in­vestors over the 12 months to 10 June.

The com­pany’s East Lon­don-based sub­sidiary, Floor­worX, man­u­fac­tures vinyl floor cov­er­ings and is a large player in the out­fit­ting of newly-built schools and hos­pi­tals. Founded in 1953, the com­pany im­ports high­end vinyl floor­ing prod­ucts to SA.

“The in­creased fo­cus on ed­u­ca­tion and health­care by Trea­sury cre­ates many op­por­tu­ni­ties for our com­pany,” ex­plains Fred Platt, CEO of Ac­cén­tu­ate. “The ques­tion, how­ever, is what gov­ern­ment’s ca­pac­ity is to de­liver in the cur­rent macroe­co­nomic en­vi­ron­ment.”

Nev­er­the­less, Floor­worX has seen an uptick in gov­ern­ment spend­ing lately, says Platt. On the other hand, the res­i­den­tial hous­ing mar­ket re­mains depressed, ac­cord­ing to him.

In the com­mer­cial sec­tor, the com­pany is see­ing a big push into lux­ury vinyl floor­ing, he says. Floor­worX adapted to this through sup­ply­ing cus­tomers with a large range of spe­cialised floor­ing prod­ucts.

Floor­worX’s sales, which con­trib­ute 78% of Ac­cén­tu­ate’s rev­enue be­fore in­ter­group elim­i­na­tions, rose 1.4% for the six months end­ing De­cem­ber 2015 com­pared with the same pe­riod a year ear­lier, ac­cord­ing to the com­pany’s fi­nan­cial state­ments. The unit re­turned a pre-tax profit of R7.35m in the six months, up from R5m a year ear­lier.

In ad­di­tion, Ac­cén­tu­ate’s Safic sub­sidiary, with its plant in Steeledale south of Jo­han­nes­burg, man­u­fac­tures ac­ces­sory prod­ucts to floor­ing, in­clud­ing ad­he­sives and floor screen­ing. Safic’s also makes me­tal-clean­ing and high-end heavy-duty de­ter­gents.

“This busi­ness has strug­gled,” says Platt. “The min­ing, me­tal and steel mar­kets have been chal­leng­ing re­cently. We are looking to put more vol­umes through this busi­ness this year.”

Safic posted flat sales of R39.2m for the six months end­ing De­cem­ber 2015, when com­pared with the same pe­riod a year ear­lier, and re­turned R498 000 in pre-tax profit com­pared with R117 000 a year ear­lier, ac­cord­ing to the com­pany’s fi­nan­cial state­ments.

In the mean­time, Platt ex­plains, the com­pany’s do­mes­tic joint ven­ture with Ion Ex­change In­dia, one of Asia’s top wa­ter-treat­ment providers, is gath­er­ing speed. Ac­cén­tu­tate plans to be­come one of the top lo­cal play­ers in the de­sign, con­struc­tion and main­te­nance of wa­tertreat­ment plants in the nearby fu­ture.

“Wa­ter is the single big­gest en­abler of eco­nomic growth,” says Platt. “And we are en­ter­ing into an in­cred­i­ble phase in our busi­ness.”

With the SA gov­ern­ment plan­ning to in­vest around R700bn over the next 10 years in wa­ter in­fra­struc­ture, Ac­cén­tu­ate has been po­si­tion­ing it­self to ben­e­fit from pub­lic and pri­vate projects fo­cus­ing on wa­ter de­liv­ery.

The com­pany has “strate­gi­cally cho­sen” pi­lot projects to test its ca­pa­bil­ity of de­liv­er­ing wa­ter-treat­ment so­lu­tions, Platt ex­plains.

“It has been a very slow process and de­lib­er­ately so,” he says, ex­plain­ing that the com­pany wanted to gain ex­pe­ri­ence in or­der to be ready when it starts to roll out its projects. “We want to be the lead­ers in pub­lic-pri­vate part­ner­ships on wa­ter.”

The com­pany is in the fi­nal stages of ty­ing up the first wa­ter-treat­ment projects, he ex­plains.

5 NVest Hold­ings Share price (9 June): R3 12-month re­turn: 45.22% Mar­ket cap­i­tal­i­sa­tion: R908m Rev­enue: R216.4m (FY Fe­bru­ary 2016) Profit: R59.4m (FY Fe­bru­ary 2016) CEO: Anthony God­win

Eastern Cape- based NVest Fi­nan­cial Hold­ings, with a 31-year his­tory in fi­nan­cial ser­vices in­clud­ing stock­broking, listed on the AltX last year.

The com­pany had a busy ac­quis­i­tive year, dur­ing which it in­creased its stake in NVest Prop­er­ties to 96% from 45%, which boosted rev­enue to R216.4m for the 12 months through 29 Fe­bru­ary com­pared with R114.6m a year ear­lier. The com­pany also ac­quired NFB Gaut­eng, a stock­bro­ker, in Septem­ber, and bought three fur­ther build­ings in East Lon­don in Novem­ber.

“Rev­enue grew strongly in all the ma­jor busi­ness units,” Anthony God­win, CEO, said in an e-mailed re­sponse to ques­tions. “How­ever , the ad­vi­sory busi­nesses in the Eastern Cape, namely NFB Pri­vate Wealth Man­age­ment to­gether with the stock­broking busi­ness NVest Se­cu­ri­ties, were the ma­jor con­trib­u­tors.”

NVest Prop­er­ties was ac­counted for as a sub­sidiary for the first time in Fe­bru­ary rather than as an as­so­ciate, ac­cord­ing to the com­pany’s fi­nan­cial state­ments.

NVest pro­vides wealth man­age­ment, stock­broking, in­surance bro­ker­ing and trust ser­vices to clients.

In the mean­time, the com­pany will con­tinue its ac­quis­i­tive path, ac­cord­ing to God­win.

“We are es­pe­cially looking at the Eastern Cape, Western Cape and Gaut­eng in terms of tar­gets,” he said. “Al­though the group al­ready had a broad foot­print, hav­ing been in busi­ness for 31 years, we have found, since our JSE list­ing, that the in­creased vis­i­bil­ity has re­sulted in our be­ing pre­sented with an in­creased num­ber of op­por­tu­ni­ties.”

Due to an in­creas­ingly reg­u­lated fi­nan­cial ser­vices mar­ket, a num­ber of smaller play­ers want to part­ner up with or sell to larger and es­tab­lished busi­nesses as they ex­pe­ri­ence higher com­pli­ance costs and reg­u­la­tory bur­dens, ex­plained God­win. “We do, how­ever, wish to high­light that we are tak­ing a cau­tious ap­proach to ac­qui­si­tions at this stage, given the volatile mar­kets and in or­der to en­sure that we select our tar­gets wisely,” he said.

The gro up’s move i nto prop­erty has landed it with a port­fo­lio worth R297.2m at the end of Fe­bru­ary. A large por­tion of this port­fo­lio is sit­u­ated out­side the Eastern Cape and the com­pany is “com­fort­able” to con­sider new ad­di­tions from any­where in the coun­try, ac­cord­ing to God­win.

“In the cur­rent rising-in­ter­est-rate en­vi­ron­ment, we have taken a cau­tious view on prop­erty, but will con­tinue to ex­pand when at­trac­tive op­por­tu­ni­ties present them­selves,” he said. “The fo­cus of this port­fo­lio is to have strong ten­ants with longer term leases, for ex­am­ple ten­ants such as Stan­dard Bank, Stein­build, Mass­mart and so on.”

“We have found, since our JSE list­ing, that the in­creased vis­i­bil­ity has re­sulted in our be­ing pre­sented with an in­creased num­ber of op­por­tu­ni­ties.”

Leon Coet­zer CEO of Ju­bilee Plat­inum

Abie da Silva CEO of PSV Hold­ings

Jaco Swanepoel CEO of Sil­verBridge Hold­ings

Fred Platt CEO of Ac­cén­tu­ate Hold­ings

Anthony God­win CEO of NVest Hold­ings

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