Flurry of new listings breaks the JSE mould

Diverse nature of businesses heading to market adds to the surprise, writes Marc Hasenfuss

THE JSE is seeing a surprising flurry of new listings activity. Certainly there is no talk of a listings boom yet, but a good number of newcomers are attracting serious attention from investors. It’s logical the subsequent appreciation in market value could spur other companies to head for the JSE.

New listings booms are usually associated with exuberant market sentiment, allowing — as jaundiced watchers will argue — “people in the know” to sell shares to “people not in the know”.

Although the JSE Indices might, statistically speaking, tell a story of a robust market, the truth is that sentiment has been jittery as whispers around an inevitable market correction grow increasingly audible.

That has seemingly not deterred companies from hitching their wagons to the JSE platform. Vunani Securities analyst Anthony Clark reckons the reason for the listings flurry is twofold.

“It’s not your classic listings boom, but it’s been necessitated by companies needing to reengineer financial structures — especially those with private equity backers — to repay debt or to find fresh capital for expansion. Then you have the ‘lookey-likey’ property companies that simply jumped on the bandwagon.”

Momentum Asset Management portfolio manager Shawn Stockigt said newly listed small- to medium-sized companies had shown an ability to take advantage of strong earnings multiples by issuing paper to acquire new assets or operations.

A fund manager, who asked not to be named, noted that in some instances newly listed firms were accorded ratings on par with well-established companies in a certain sector.

“You can get companies trading on earnings multiples of 25 to 30 times. In other words, the owners of these firms can get so much more for the business by listing rather than selling the business.”

Investors who still believe in roughly 10-year cycles for new listing booms will be a bit thrown out by developments.

Recent history has seen new listings booms in the late ’80s, late ’90s and late noughties. The last two booms were driven by an identifiable theme — technology and financial services in the ’90s and infrastructure-aligned plays in the noughties.

Going by the cyclical calendar, the JSE should be due a listings boom only in 2017. But property companies got the party started early, and the past two years have seen more than a dozen new contenders — taking advantage of a yield-friendly environment — rushing on to the market.

In recent months the real estate rush has been increasingly complemented by significant new nonproperty listings. Catalogue retailer HomeChoice, vehicle tracking specialist asset manager Anchor Capital and Rhodes Foods were new listings that achieved substantial interest. Several firms were also spun out from existing listings — most notably Quantum Foods (from Pioneers Foods), Montauk (from HCI) and Deneb Investments (from Seardel).

The new listings count in 2014 was two dozen, but it seems that number could be surpassed. This year alone, the JSE has seen seven new listings — and only two of these (Lodestone and New Frontier Properties) are property.

The balance is a mixed bag: printing group Novis, asset manager NVest, mining group 32 South (unbundled from BHP Billiton), Zambezi Platinum and retailer Choppies Enterprises. This confirms — perhaps reassuringly — that there is no thematic element to the market advance.

Indications point to there being plenty more new listings on the boil. There is already confirmation of a new residential property listing as well as a second energyfocused SPAC (special purpose acquisition company), with packaging group Bowler Metcalf also signalling a willingness to push for the listing of soft-drink bottling associate SoftBev.

Tsogo Sun recently indicated it was looking at separately listing its sprawling leisure and commercial property portfolio as a REIT (real estate investment trust).

There are persistent rumours about private education listings, a possible initial public offer from healthcare retailer Dischem as well as more asset managers coming to the market, with Sygnia and Investec Asset Management mentioned most frequently.

Restaurant conglomerate Eclectic Brands proposed listing but decided to refine its corporate recipe further.

Gym group Virgin Active was flexed for the JSE listing before being bought out by Brait, while retirement home specialist Pembury has also hinted at listing.

There could be any number of unbundlings from existing companies in the short to medium term — including the splitting of technology group Ellies.

A listing of power management group Energy Partners out of PSG Private Equity is on the cards as well as agribusiness investor Zeder backing a listing of farmers’ retailer Kaap Agri.

Recent reports have quoted corporate law firm Baker & McKenzie suggesting 30 firms are preparing to list on African bourses this year. Baker & McKenzie identified the real estate, financial and energy sectors as potential areas for new listings activity.

The owners of these firms can get so much more for the business by listing rather than selling the business