‘As goes January, so goes the year’

The old Wall Street adage “as goes January, so goes the year” was apt for the JSE in 2016. The JSE’s top 40 index began the first trading day of 2016 with a 2.9% drop and ended the first month of 2016 down 3.8%. Over the course of 2016, the top 40 index lost 4.14%.

While the price of iron ore rebounded 28% in 2016, the share prices of the JSE’s iron ore miners rocketed far more.

The share prices of Kumba Iron Ore and Assore nearly quadrupled, making them the best stocks to have bought at the end of 2015 and held over 2016.

For Kumba’s long-term investors, however, 2016’s rebound has only taken its share price back to June 2015 levels.

The R159 per share Kumba ended 2016 at is nearly a quarter of its R611 peak reached in February 2013.

For the JSE’s index of its 10 biggest resources groups, 2016’s 26% rise marked its first gain since 2010.

Over 2015 the resources 10 index lost 39%. That after it lost 17.8% in 2014.

Investors who bought the Satrix Resi exchange-traded fund that tracks the resources 10 index saw their investment halve from R56.48 in 2010 to R25.61 at the end of 2015.

The rebound in 2016 to R32.80 still leaves those investors 42% out of pocket over the past six years.

All but two of the 10 bestperforming constituents of the JSE’s all share index over 2016 were mining companies.

The exceptions were ArcelorMittal SA, which benefited from a 47% rise in international steel prices over the year, and Barloworld whose fortune is tied to the resources groups it sells equipment to.

Half of the JSE all share index’s 10 worst-performing constituents are real estate investment trusts focused on the UK.

Property groups were the biggest casualties when the shock Brexit vote was announced on June 24. On the Friday that the result was announced, Capital & Counties plunged 17.8%. It fell a further 13.6% the next Monday.

Besides investor fears about their future vacancy rates, the JSE’s offshore-focused property groups also suffered from the rand strengthening from R24.40 to the pound at the start of 2016 to under R17 a pound by the start of 2017.

The UK-focused property groups did not fare as badly as cement maker PPC.

It was the all share index’s worst performer over 2016 with a 64% decline.

PPC suffered the sharp decline because it was forced to hold an emergency rights offer at a steeply discounted price of R4 per share to redeem bonds after its credit rating was cut to junk.

Botswana-based grocery chain Choppies’s appearance at number three in the list of the JSE all share index’s worst performers in 2016 with a 50.78% crash is a reminder that it is generally unwise to subscribe for initial public offerings (IPO).

The old bromide that IPO usually stands for “it’s probably overpriced” was true for Choppies. The initial hype of its listing saw its share rocket to nearly R7 from R5.50, only to dive to a low of R2.60 before recovering to close 2016 at R3.15.

A victim of Brexit and 2016’s retail slump was Brait, which is heavily invested in the UK via chains New Look, Iceland Foods and Virgin Active.

Brait ended 2016 down 47.55%, placing it in fourth place in the list of last year’s disastrous stock picks.

Though a blind reading of all share index constituents over 2016 places Bidvest in fifth place on the worst list with a 44.78% decline, the reason is its separation from Bidcorp. Bidvest shareholders started 2016 with a share worth R328.21, and ended it with two shares worth a combined R426.40, so in fact they gained 30%.

Shareholders in packaging group Mpact suffered a nearly 40% decline in their investment over 2016. Mpact recently warned shareholders its results for the year to December scheduled for release in March would probably show a 30% decline in earnings.

Trencore, which owns 48.2% of shipping container leasing group Textainer, suffered from a stronger rand and the bankruptcy of a large customer, South Korea’s Hanjin, making it the all share index’s tenth-worst performer with a 36% decline.

One of the JSE’s Cinderellas for many years, Kumba Iron Ore, transformed into 2016’s best performing constituent of the all share index.

It started on a bleak note for Kumba in 2016 as it issued nearly 4,000 workers at its Sishen operation with Section 189 letters. A year ago, it looked inevitable that parent group Anglo American would dispose of its South African iron ore operations whose share price had been in free fall for three years. Over 2015, Kumba’s share price crashed 83%. That followed a 46% decline over 2014 and 22% drop in 2013.

In 2016, Kumba finally rebounded with a 286% share price appreciation.

The JSE all share index’s second best performing constituent in 2016 was another iron ore miner, Assore, which gained 282%. Assore similarly rebounded after three dismal years. Its share price declined 59% in 2015, 56% in 2014 and 16% in 2013.

Both have to some extent tracked the iron ore price, which in dollars appreciated 28% in 2016 after falling 39% in 2015, 47% in 2014 and 7% in 2013.

Kumba recently issued an upbeat trading statement saying its earnings for 2016 were likely to improve by more than 20%.

Electronics group Ellies managed to remain solvent despite delays in SA’s migration from analogue to digital television and its divorce from Megatron, its results released on Thursday showed. Ellies reported current assets of R641m as at October 31, higher than its current liabilities of R443m.

By placing Megatron into business rescue in August, Ellies freed itself from the “emphasis of matter” included in its year to end-April results, which warned shareholders the group’s going concern status depended on Standard Bank’s willingness to roll over Megatron’s debt.

Thursday’s interim results statement included a R20m provision for the expected residual amount still owed to Standard Bank after selling Megatron’s assets. Divesting itself of Megatron along with its infrastructure division contributed a R160.9m loss, taking Ellies net loss for the six months to end-October to R194m from R9m in the matching period.

“It should be noted that the deconsolidation of the remaining infrastructure segment companies will result in a profit, on loss of control, in excess of R100m,” the statement said. The group’s interim revenue fell 26% to R652m.

“The digital migration continues to stop and start as a result of the ongoing litigation between e.tv and the communications minister [Faith Muthambi],” the results statement said.

“We hope that once the dispute on encryption of the terrestrial signal is finalised, which is expected to be in February 2017, we would be able to start with the promotion of antennas to both government and retail, although we don’t expect there to be a large uptake in the beginning. These delays have seen our antenna and antenna accessories category virtually grind to a halt, leaving our local manufacturing of these products running at a loss.

“We will, however, maintain these production facilities, albeit with a lower staff complement, as the migration is essential for the ICT sector of SA. We have already invested in the intellectual property and machinery to produce the products needed.”