Delistings point to a climate of taking companies private
Exodus from JSE by mid-caps set to continue
PSG Asset Management expects the exodus from the JSE by companies with medium market capitalisation (midcap) to continue.
Mid-cap are companies those valued at between R1-billion and R10-billion, and their shares are ideal for the long-term investor who is happy to wait and watch their investment grow over time.
Justin Floor, a fund manager at PSG Asset Management, said the hidden value on the JSE was being recognised by private equity investors, particularly foreign companies and even some locally listed companies.
“First, we are at a very favourable point in the cycle for taking companies private. Sentiment and confidence in South African mid-cap counters are still low, and as a result prices and valuations are probably too pessimistic.
“Second, these buyers are seeking the same attributes that we target through our own investment process: companies with competitive advantages, that are well managed and well capitalised. And the price needs to make sense (or offer a margin of safety),” he said.
The local bourse has seen several delistings over the past three years. Twenty-five companies delisted from the JSE in 2021, while 20 delisted in 2020 and 24 in 2019.
Former JSE darlings such as Liberty, Imperial and Distell recently left the JSE.
Liberty’s delisting was on the back of its majority shareholder buying out minorities, while Dubai-based DP World’s acquisition of Imperial to the latter delisting its securities on the domestic exchange.
PSG Asset Management’s parent company PSG two weeks ago announced that it intended to delist from JSE.
The group said it intended to unbundle its stakes in PSG Konsult, Curro, Kaap Agri, CA&S and of Stadio, whereafter it would repurchase all PSG Group shares held by its shareholders – other than select shareholders including management, the founders and their immediate family members.
The move follows PSG’S unbundling of Capitec in 2020
Floor said the current trend of companies delisting from the JSE was not over in the company’s opinion and it expected more delistings in the future if prevailing pricing continued.
“The risk of selling too early and at too low a price is something we worry about, and we strive to achieve a fair and an appropriate investment outcome when we sell. The smaller companies that we own on behalf of our clients are a valuable component of our current portfolios and the return profile they can generate is difficult to replicate in large asset management firms. We aim to continue to fully exploit this opportunity as best we can,” he said.
The strength of the JSE is in its top 40 listed companies made up of the likes of Naspers, Absa, Firstrand, BHP Billiton, British American Tobacco, Sasol, MTN, Exxarro and Sanlam.
The companies in the top 40 are worth more than R16-trillion combined.
Twenty-five companies delisted from the JSE in 2021