The 10 Best-Performing South African Stocks of 2012 (So Far)

Construction stocks dominate this list of the Johannesburg Stock Exchange’s top performers thanks in part to President Zuma’s announcement of “massive” infrastructure development. Share prices in the sector are at their highest level in three years as investors anticipate a turnaround.

But hard hats are not required in order to read further.

Companies from a range of other industries bulldozed their way into the top ten, too.

Construction stocks dominate this list of the Johannesburg Stock Exchange’s top performers thanks in part to President Zuma’s announcement of “massive” infrastructure development. Share prices in the sector are at their highest level in three years as investors anticipate a turnaround.

But hard hats are not required in order to read further.

Companies from a range of other industries bulldozed their way into the top ten, too. All of them have gained more than 30% in US dollar terms since the beginning of the year.

Let’s count them down.

10. Clover Industries +33.8%

Clover, South Africa’s largest dairy company, milked its product line for all it was worth during the first half of FY2012. Earnings grew 16% on the back of a 7% sales increase. But what has investors happily chewing their cud is management’s decision to pay out a mid-year dividend. The stock now yields 2.7%.

9. Imperial Holdings +35.0%

Imperial gobbles up companies like I gobble up Skittles. The conglomerate owns trucking companies, South Africa’s largest auto-dealer network, construction equipment distributors, and insurance companies. But it’s hungry for more. Sometimes such acquisitiveness can create ugly balance sheets, but investors have been encouraged that debt levels have been reasonably well maintained.

Photo by Andrew Ashton
8. Super Group +35.2%

Super Group lived up to its name over the first half of FY2012 – boosting earnings by 63%. The company operates three divisions: supply chain, fleet management, and auto dealerships. It’s made a promising foray into African logistics and jettisoned some under-performing assets. Management has thus far declined to offer a dividend, but cash is beginning to pile up on its balance sheet.

7. Group 5 +35.7%

This construction and engineering firm has helped to build many high-profile South African infrastructure projects. Now it wants to cement a reputation as a continent-wide player. The company generated 26% of its revenue outside South Africa in the first half of FY2012, and management wants to grow that to 40%. A healthy pipeline of new projects has added to investors’ bullish outlook.

6. Hudaco +36.4%

Shares of this stolid machinery parts distributor rocketed to a 22-year high in January after the company announced a 29% earnings increase. Management also jacked up its dividend 26%. The stock continues to yield 5.5% even after the big appreciation in the share price this year.

5. Pinnacle Technology Holdings +37.6%

Pinnacle Technology owns the licenses to distribute some very popular computer and networking brands, including Dell, Samsung, HP, and IBM. It also assembles its own line of PCs. This product mix proved popular with customers during the first half of FY2012. Sales soared 32% over the previous year. The company is on the prowl to add more product lines to its stable and is particularly keen on expanding north of its South African home. It has set up shop in Botswana and Namibia, and plans to enter two more countries soon.[table id=4 /]

4. RMI Holdings +37.9%

A relative newcomer to the Johannesburg Stock Exchange, RMI Holdings debuted on the market in March 2011 after being spun off from financial services group, RMB Holdings. RMI owns stakes in a range of South African insurance companies. Recently, the most profitable investment in its portfolio has been OUTsurance, a property and casualty insurer. OUTsurance’s earnings grew 54% during the first half of FY2012.

3. Invicta Holdings +37.9%

Like Hudaco, Invicta is a big player in ball-bearings, spare parts, and sealants. (Hey, this is a list of South Africa’s top-performing stocks, not necessarily its sexiest ones.) Much of what they sell goes to the farming and mining sectors. Both sectors are in a bit of a boom. In November, Invicta reported a 23% earnings bump for the first half of its 2012 fiscal year.

2. Barloworld +42.2%

A large conglomerate, Barloworld’s primary earnings drivers are the sale of heavy equipment and vehicle sales and rentals. After a rather dismal 2010, the company reported a 120% surge in profit and more than doubled its dividend payout. In November, a coal-mining operation in northern Mozambique ordered 10 ginormous Caterpillar dump trucks from the company. The trucks’ price? $400 million. No wonder the company trades at more than 22x trailing earnings.

1. Bell Equipment +69.2%

Bell makes all the stuff that my four-year-old nephew dreams about – big yellow bulldozers, dump trucks, diggers, and backhoes. The construction and excavation equipment maker posted a 49% increase in sales during 2011 thanks to new markets in Russia and Mozambique. It’s one of the cheapest companies on this list in terms of trailing earnings multiple (P/E Ratio: 9.1), but it doesn’t pay a dividend.

So, that’s how it all panned out. What companies will be in this list come July? Let us know your picks in the comments!

[Disclosure: I do not own any stocks mentioned in the above article, and I don’t intend to purchase any in the next 72 hours.]

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How to Invest in South African Stocks — from Main Street, USA

Setting up African brokerage accounts isn’t a whole lot of fun. In fact, it can be downright tedious.

So I try to avoid the process as much as possible and content myself with the ever-expanding universe of South African stocks available in the form of ADRs, ETFs, and OTC listings.

But the vast majority of South African stocks don’t trade anywhere outside of the Johannesburg Stock Exchange (JSE). Some of these companies trade at bargain prices and conduct business across the continent – making them compelling opportunities.

Lazy investors like me can now trade these stocks without opening a foreign brokerage account. Three US-based discount brokers – Everbank, Fidelity, and Schwab – offer their customers direct access to the South African stock market.

Presently, none of these brokers offer online trading on the JSE, but the process of buying and selling shares is straightforward. You simply call them up, and place your trade through a live, human broker. If the JSE is open, your trade will take place in real time. If it isn’t, the order will be executed first thing on the next trading day.

Photo by Keso

Here are the details of each broker’s offering:

  • Evertrade offers the most accessible fee structure of the trio. They charge a commission of $35 per trade plus any South African taxes and settlement fees. No minimum trade amount is required.
  • Schwab charges either $100 per trade or 0.5% of the total trade amount – whichever is more. On top of this, they collect a 1.55% “mark-up fee,” which covers local taxes and pass-thru charges from their South African broker partner. Their minimum trade amount is $5000. A trade of that size will set you back a total of $127.50 in the form of commissions and fees.
  • Fidelity’s commission is $32.95 plus a $50 settlement charge. Their South African partner also charges a .71% mark-up fee to cover currency conversion and local taxes. Note, too, that Fidelity requires a hefty minimum trade amount of $50,000. So, Fidelity customers should expect to shell out at least $437.95 worth of commissions and fees per trade.

As you can see, commissions of this size will add up in a hurry. So, unless you plan to buy and hold a small number of South African stocks, it probably makes more sense to open an account with a South African broker – a process that we’ll cover in a future post.

Do you trade South African stocks through any of these brokers? Or do you have an account with a South African broker? I’d love to hear what your experience has been with them. Tell us about them here in the comments or drop me a line in the contact form.

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In The Pink: South African Stocks On The OTC Market

If you’re like me, the mere mention of the term “Pink Sheets” induces skepticism. There’s good reason for this. The Pink Sheets are essentially unregulated. Trade volumes are thin. And financial information can be skimpy.

But while buying stock on the over-the-counter market is certainly not for the faint of heart, there are several good reasons for US-based Africa-investors to give the Pink Sheets a look.

1. They offer a wider universe of African stocks

ADRs for nearly 50 South African stocks trade on the Pink Sheets. Most don’t trade in significant volume, but a few boast average daily volumes in excess of 1000 shares.

Here’s a list of the most liquid South African ADRs on the Pink Sheets:

Anglo Platinum Ltd (AGPPY.PK)

Impala Platinum Holdings Ltd (IMPUY.PK)

Kumba Iron Ore Ltd (KIROY.PK)

Massmart Holdings Ltd (MMRTY.PK)

MTN Group Ltd (MTNOY.PK)

Murray & Roberts Holdings Ltd (MURZY.PK)

Naspers Ltd (NPSNY.PK)

Nedbank Group Ltd (NDBKY.PK)

Pretoria Portland Cement Company Ltd (PPCYY.PK)

Sanlam Ltd (SLLDY.PK)

Shoprite Holdings Ltd (SRHGY.PK)

Standard Bank Group Ltd (SBGOY.PK)

Telkom S.A. Ltd (TLKGY.PK)

Tiger Brands Ltd (TBLMY.PK)

There are some very interesting companies here, and many of them possess continent-wide reach.

2. Pink Sheet listings can be traded through most US-discount brokers

If you’re interested in only the very largest stocks on the Johannesburg Stock Exchange, there’s no need to go through the hassle of opening a South African brokerage account. Trading Pink Sheet stocks is nearly as convenient as buying and selling stock on the main board. Orders can be placed online and commissions are typically the same.

3. No currency exchange costs

In order to purchase shares of South African stock, you would normally be obliged to change dollars into rand. Depending on the amount exchanged, the spread between the bid and ask price can be significant. In fact, one US-based discount broker that does allow its customers to trade on the Johannesburg Stock Exchange charges a 1% fee on the total amount of currency converted. That’s nothing to sneeze at. Pink Sheet stocks trade in US Dollars, allowing investors to avoid such costs.

Of course, you should carefully consider your bid and offer prices before making a trade on an illiquid stock. Use limit orders to avoid an unpleasant surprise when reviewing your trade confirmation. You should also ensure that you can easily locate and interpret financial information pertinent to your investment.

If you’re comfortable with these caveats, a Pink Sheet ADR might be a worthy addition to your portfolio.

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Invest in South Africa the Easy Way

South Africa gets a bit less attention today than it did in the heady days leading up to the World Cup. But investors would do well not to let the country fall off their radar.

Why? No other country is as widely engaged in the Sub-Saharan economy than South Africa. The country’s economic growth has slowed since the end of the soccer-fueled construction boom, but it’s still chugging along at a 3.2% clip. Its currency, the Rand, has been on a tear the past couple years, appreciating 35% versus the greenback since the start of 2009.

Still not convinced? The smart cookies that manage the Harvard endowment sure seem to be. Their portfolio’s fourth largest holding is the subject of this post.

So, what’s the easiest way for a Yankee to participate in this market? The iShares MSCI South Africa Index (NYSE: EZA).

EZA is an exchange-traded fund comprised of 46 stocks listed on the Johannesburg Stock Exchange. It has performed quite well in 2010, posting a 20.7% return compared to the S&P500’s tepid 3.3%.

Like the other two Africa-focused ETFs (NYSE: AFK and NYSE: GAF), EZA’s holdings are skewed toward the mining sector (24.7% weight), and gold and platinum mining in particular. That’s something to consider if your portfolio is already overweight on commodities, or if you have concerns about the social and environmental impacts of mining. Anglogold Ashanti (NYSE: AU) (6.6%) and Impala Platinum (JNB: IMP) (5.3%) rank among the fund’s ten largest holdings.

The ETF’s largest holding, however, is MTN Group (JNB: MTN), and with an 11.0% weight, its fortunes have a significant impact on the entire fund’s performance. The company is South Africa’s leading cellular provider, but it also operates (or has substantial ownership in) wireless companies throughout Africa and the Middle East. It presently trades at a trailing P/E ratio of 15.9, and it grew adjusted earnings by more than 20% during the first half of the year.

It’s worth noting that the fund also holds shares of one of MTN’s biggest competitors, Vodacom Group (JNB: VOD). All told, EZA’s exposure to the telecom sector amounts to 12.9% of the total portfolio.

Other EZA holdings of note include energy giant Sasol (NYSE: SSL), Naspers (JNB: NPN), a South African media conglomerate, and the large Standard Bank Group (JNB: SBK). These three holdings are weighted 9.6%, 7.5% and 6.5% respectively. Take a look at the entire portfolio here.

EZA trades near its all-time high at the moment, but with a price at 12 times its aggregate trailing earnings, it doesn’t strike me as overly expensive. As with most investments, building a position gradually through dollar-cost averaging makes very good sense here.

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