Since its all-time high reached in the first days of March, the JSE All Share Index is down 17%. To be fair, Russia had invaded Ukraine just a few days before that. Over the past six months (from April 11), the Alsi is down 13%.
Look deeper and within the Top 40, though, there are only three stocks that are meaningfully higher than they were six months ago. Two of these, Naspers (48%) and Prosus (29%) are up materially after the group(s) announced in June it would start to slowly sell down its 28.9% stake in Tencent and buy back their own shares.
This is the latest in a string of moves undertaken by Prosus management to narrow the discount between its market value and the value of its underlying assets. Tencent shares are down 25% over the last six months, and a massive 65% lower than the all-time high in February last year.
The only other Top 40 share up materially since April is Medi-Clinic, which is 38% higher because of a buyout offer from a major shareholder Remgro, who has joined with MSC in a consortium.
Save for British American Tobacco and Mondi, all other Top 40 stocks are lower than they were six months ago. A full 14 of these are down by 20% or more. Astute and – importantly – patient investors may find bargains amongst them.
The biggest loser
Leading the decline is Discovery whose share price is now 42% lower than it was in April. In early April, shares were trading at R180 – the highest they had been since March 2018. Fast forward a month to May 12, and shares had slumped to R138.16.
Half-year results had been released in February already, so this was not a reaction to a profit warning or something else in the numbers. But, at the end of April, Rand Merchant Investment Holdings (RMI) unbundled its holdings in Discovery (25%) and Momentum Metropolitan (26.8%) to shareholders.
This would go some way to explaining the sustained weakness (selling) in Discovery for at least the two weeks post the unbundling (April 25). The rand also blew out by 10% against the dollar in April after US Federal Reserve chair Jerome Powell said that a 50-basis point rate hike was on the table for May.
In September, Discovery’s shares fell 10% after it said it would withhold dividends “in light of the uncertain future impact of Covid-19 and the volatile global macro-economic environment”.
Investors are worried that Discovery keeps ploughing billions into new initiatives with scant evidence of paybacks. There have been additional concerns in parts of the market for years about the quality of Discovery’s cashflows, especially in the Life business.
And there remains additional uncertainty over a R1.5 billion capital raise which the group said had previously committed to.
Earlier this year it had to inject a further R1.5 billion in capital into Ping An Health in China. Market conditions for a rights issue aren’t exactly conducive, with shares at the lowest than they’ve been in five years aside from the first six months of 2020, impacted by the start of the Covid-19 pandemic.
Unsurprisingly, resource counters – particularly gold and platinum stocks – are down significantly in the last six months. Kumba Iron Ore shares are down 39% over the past six months, expected as global spot prices of the commodity are down around a third since April.
News of the strike at Transnet has caused additional weakness in the stock. Prices of mega platinum producers Anglo American Platinum and Impala Platinum are down by 28% and 22% since April, respectively.
Shares in gold and platinum producer Sibanye-Stillwater are 30% lower, while Gold Fields shares are down 29% and AngloGold Ashanti’s 23%. The spot price of bullion is down around 13%.
Anglo American, with its hefty exposure to iron ore and platinum, has seen its share price on the JSE decline by 29.5% over the last six months. South32, spun off from BHP in 2015, has seen its shares slip 21% since April.
MTN Group shares are 33% lower than six months ago. Much of this is due to the fact that it reached a five-year peak of just over R200 a share in March of this year. There has been steady weakness since, interrupted temporarily in August with a strong positive move on the back of its half-year results. Investors cheered better-than-expected repatriation of dollars from Nigeria.
Aspen Pharmacare shares have been stuck in a range around R150 since June, after a nearly 20% drop in April.
Even after jumps such as the 5% increase on the back of its annual results at the end of August, is down 30% since April.
Shares in Sanlam are 27% lower than at the start of April, with a decline of 19% in the first half of June. It updated the market on June 8 about trading in the four months to end-April, where it quantified the impact of the catastrophic floods in KwaZulu-Natal for the first time.
Capitec’s drop has mostly been since early September when its earnings guidance fell short of investor expectations. Until that point, shares were only down 9%. It said on 8 September that Heps for the six months to 31 August would be between 15% and 18% higher.
Following the release of its results last week, Capitec’s shares fell another 10% after it declared a softer-than-expected dividend. Its shares are down 24% over the last six months.
The share price of Vodacom is down 21% since early April, distorted by the fact that it hit a four-year high on April 1.