I don’t give revenue growth enough respect.
If you’re anything like me, the top line of the income statement is something you take a quick glance at as you scan the page for earnings — the bottom line.
After all, it’s earnings that count, right?
There’s some truth to that statement. But determining a company’s true earnings involves making lots of judgement calls. The figure is easily manipulated.
That’s less true of revenue. A company with steadily growing revenue is probably capturing market share. It may or may not be terribly profitable (think Twitter or Amazon), but it’s becoming a force to be reckoned with, and, sooner or later, investors take notice.
Think about some of the world’s best-performing stocks. Apple, Disney, Starbucks. These companies didn’t excite the market by reducing their expenses. They did it by selling a great product to more and more people.
The Fastest-Growing Companies on the JSE
With that in mind, I thought it would be interesting to take a look at the Johannesburg Stock Exchange’s fastest-growing companies.
The nine companies listed below have all grown revenue at an average rate of 25% or more over the past five years.
But we’re not talking about “one-year wonders” here. These companies haven’t just grown quickly, they’ve done it consistently. Each one has increased its revenue by at least 10% each year.
Let’s count them down.
9. PSG Konsult (KST)
Annualized 5-Yr Revenue Growth: 25.4%
Price Change (YTD): 0.4%
An intense marketing effort is building this wealth manager into one of South Africa’s most recognizable financial brands. PSG styles itself as a one-stop shop for clients in search of everything from stockbroking to health insurance. Consumers have responded exceedingly well, which has rapidly grown the company’s assets under management.
PSG plans to continue to invest heavily in advertising in the year ahead. It will also build up its stable of unit trusts. The stock market, however, remains a bit circumspect. The company’s share price is down 7.6% since the shares listed on the JSE in June of last year.
8. Onelogix (OLG)
Annualized 5-Yr Revenue Growth: 26.0%
Price Change (5-Yr): 719.7%
Once a conglomerate that owned everything from magazine distribution to copy shops, Onelogix has sharpened its focus on the transport of vehicles and other freight across Southern Africa. The company has been consistently profitable and highly acquisitive, which helps to explain its eye-popping revenue growth.
Acquisitions remain key to Onelogix’s growth strategy. It recently sold off some non-core holdings and purchased a refrigerated trucking company. With the stock price up some 41% over the past year, investors appear generally bullish on the company’s prospects.
7. Aspen Pharmacare (APN)
Annualized 5-Yr Revenue Growth: 28.5%
Price Change (5-Yr): 380.5%
The revenue growth at this generic drug manufacturer is all the more remarkable considering it didn’t enjoy the benefit of expanding off of a small base. Through years of shrewd acquisitions, CEO Stephen Saad has built his Durban-based company into a $10 billion enterprise with a presence in 47 countries across the globe.
Aspen management hopes that its new portfolio of anti-coagulant drugs will be just what the doctor ordered to extend its +25% revenue growth streak. Judging by its trailing P/E ratio of 34, the market believes they’re making all the right moves.
6. Taste Holdings (TAS)
Annualized 5-Yr Revenue Growth: 33.7%
Price Change (5-Yr): 695.4%
Who knew that pizza, fish & chips, and diamond rings was a recipe for toothsome sales growth? CEO Carlo Gonzaga has cobbled together an assortment of fast food restaurants and jewelry shops that consistently posts huge revenue increases. It’s rumored that he eats his own cooking, too, having personally visited nearly all the restaurants in Taste’s rapidly expanding footprint.
Looking forward, the jewel in the company’s crown is the rights to establish Domino’s Pizza’s presence in Southern Africa. Management will rely on the expansion of this franchise and acquisitions funded by its R200 million cash pile to feed future sales growth.
5. Coronation Fund Managers (CML)
Annualized 5-Yr Revenue Growth: 41.5%
Price Change (5-Yr): 973.8%
When it comes to asset management, nothing breeds success like success, and Coronation has had success in spades. The firm’s patient portfolio managers, backed by top-notch researchers and analysts, boast impressive track records across the board and now oversee some $52 billion worth of client assets.
As Coronation grows, it will be tougher to produce consistent earnings growth north of 40%. But even in tough market environments (and perhaps especially in tough markets), investors want a proven hand to manage their wealth. I expect the company’s growth to be as strong as its enviable reputation.
4. EOH Holdings (EOH)
Annualized 5-Yr Revenue Growth: 42.3%
Price Change (5-Yr): 1278.7%
Perhaps surprisingly, EOH is the lone information technology firm on this list. The company, which was the best performing stock on the JSE in 2013, sells enterprise level software and hardware and provides lots of smart people with the know-how to get it up and running. With a roster of technology partners that includes Microsoft, Oracle, SAP, HP, and Cisco, EOH doesn’t need to do much to convince Africa’s leading businesses that it can provide whatever tech solutions they need.
A serial acquirer, it has made three major purchases in the past six months. Yet, organic growth still accounts for the majority of the company’s ballooning sales figures. In coming years, expect EOH to consolidate its African presence, which already extends to an impressive 22 countries.
3. Capitec Bank Holdings (CPI)
Annualized 5-Yr Revenue Growth: 43.6%
Price Change (5-Yr): 439.9%
The straight-laced world of banking is hardly the place you’d expect to find a company with one of the JSE’s most blistering growth rates. But by offering accessible and affordable banking services to low-income South Africans, Stellenbosch-based Capitec has, in its short 14-year history, expanded to a size that now rivals the likes of Nedbank and Firstrand.
The bank opened 39 new branches and installed 500 new ATMs over the past year, which has helped it to add roughly 100,000 new customers every month. Over the next few years, management believes enhanced mobile and internet banking platforms will help to maintain the steep growth trajectory.
2. Curro Holdings (COH)
Annualized 5-Yr Revenue Growth: 83.6%
Price Change (3-Yr): 323.6%
South Africa’s education system ranks among the world’s worst, which makes it fertile ground for private schools. Established in a church building in 1998 with just 28 students, Curro now operates 42 schools for pupils whose age ranges from three months to 18-years.
The company’s meteoric growth surprised even its own managers, and it is now five years ahead of the ambitious targets laid out in its 2011 IPO prospectus. But don’t expect it to rest on its laurels. The company has proposed its fifth rights issue in as many years which should leave it flush with cash to meet its new goal — 80 schools by 2020. With a triple-digit PE ratio, the market evidently loves its odds of success.
1. Keaton Energy Holdings (KEH)
Annualized 5-Yr Revenue Growth: 202.4%
Price Change (5-Yr): -71.3%
The JSE’s fastest-growing company derives its income, perhaps ironically, from digging in the dirt. Founded in 2007, Keaton operates two coal mines that fuel power plants owned by the troubled national electric utility, Eskom, and provide anthracite for export to locales as distant as Brazil.
Unfortunately for Keaton shareholders, razor thin profit margins have prevented the share price from mirroring the company’s triple-digit revenue growth rate. The stock is down 34% over the past 12 months. Management hopes that a recently acquired third colliery will boost profitability when it goes into production next year.
It’s Your Turn
Did any of the companies on this list surprise you? Were there any surprising omissions? What companies do you think will grow sales at a 25% pace over the next five years? Let’s hear your thoughts in the comments!
Disclosure: I have a beneficial interest in shares of Onelogix and Taste Holdings.