Companies for all seasons?

It's difficult to better describe the McGregor-BFA financial ratio index (Bfin Ratio) than in cricketing terms, because the table largely reflects the companies on the JSE that can be considered “all-rounders”.

In cricketing parlance, an “all-rounder” is a (valuable) player than can both bat and bowl with considerable prowess on a consistent basis on all playing surfaces/conditions.
 
In our search for companies that can best emulate the exploits of Jacques Kallis or Andrew Flinthoff, McGregor-BFA measured company performance across a range of performance criteria.

The index, compiled over five years, takes in the following:

•    Return on equity.
•    Operating profit margins.
•    The current ratio.
•    Total asset turnover.
•    Debt to equity (gearing).

While the multi-measure methodology should cut out the anomalies, there are still a number of rather surprising listings in the top 30 rankings.

Without meaning to denigrate the companies it must be said exploration company Miranda, direct retailer Verimark and marginal gold miner DRDGold wouldn’t fit the description of a dependable all-rounder.

In fact, most of the top 10 rankings – save, maybe, for Harmony Gold and Pikwik (the holding company for Pick n Pay, which ranks much further down in 136th position) – wouldn’t be considered appropriate fodder for windows and orphans.

While electronic screen display company Stella Vista, small real estate group Orion and technology pennystock Beget may have their moments, those aren’t currently offering compelling performance stories.

Interestingly, Pikwik, DRDGold, Verimark and Harmony all featured in the Bfin top 20 rankings in last year’s survey.

In the case of Verimark – which recently contemplated a delisting – we trust the consistent ranking bodes well for its long-awaited turnaround.

Our top three rankings for 2008/2009 – namely, Quantum Property Group (formerly Anbeeco), exploration company Thabex and energy management group Zaptronix, as well as African Rainbow Minerals (ARM), empowerment group Brimstone and building supplies specialist Buildmax – enjoyed mixed fortunes in this year’s survey.

Brimstone, which has ironically seen a powerful run in its share price of late, has slipped out of the Top 200.

Zaptronix also slipped off the table, along with Quantum (which seemed to fare better as a cash shell before it began developing a luxury hotel in central Cape Town).

Exploration group Thabex, which certainly won’t instil too much confidence with its latest financial figures, still managed to cling to 34th spot.

Buildmax (31st) was still in the top quartile of the rankings, but ARM (92nd) slipped to mid-table levels.

Two companies that did surprise with their respective rankings this year were information storage specialist Metrofile (the only listed remnant of the old MGX group) and AltX-listed junior miner Pan African Resources.

It might be easy to dismiss both ranking as another two anomalies, but a closer look at recent developments at both companies suggests their top 10n finishes are perhaps not entirely unwarranted.

In fact, we were surprised – when canvassing market watchers about the rankings – more than a few professional investors spouted rather optimistically about both Metrofile and PanAf.

Troubled micro-lender African Dawn also shows up well (just outside the top 20) – a ranking that obviously doesn’t take into consideration the corporate drama that’s unfolded at the company in recent months.

Ironically, cash shell companies – Wooltru and New CPS – also fared well in the rankings, even though their future prospects depend less on their financial statements but rather on exercises to bring new operating into the respective companies.

The top 50 rankings reassuringly do show up some of the better quality companies on the JSE – including Gold Fields, Remgro, Richemont and Steinhoff International.

The top second liners also feature well: namely, Hosken Consolidated Investments, ABIL, Kagiso Media, Equestra, Adcock-Ingram and Datatec.

As regards sectoral clusters, there seems to be a surfeit of junior mining companies ranked high in this year’s survey.

Those include WitsGold, Petmin, Assore (which has been prominent throughout this year’s survey) and platinum mining group Jubilee.

Mvelaphanda Resources was ranked 24th, seemingly the best of the mining houses.

BHP Billiton was well back at 161st, while heavyweights Impala Platinum and Sasol were placed 190th and 87th respectively.

But a 46th placed ranking for fluorspar miner Sallies, which last year mothballed both its mines because they were no longer viable, is difficult to fathom.

Real estate counters were also fairly prominent, with Redefine (which was last year involved in some strenuous bulking up activity), Hospitality A, Pangbourne Property and Acucap catching the eye.

AltX-listed Oasis Property Fund was also among the top rankings.

A good number of recently listed companies also stood out in the rankings: Erbacon (48th), Stefstocks (50th), Keaton (65th), TWP (66th), ProTech (70th), O-Line (72nd), Insimbi 97th) and Chemspec (88th).

Hopefully, they can maintain that over the longer term…

 - Finweek

To view the McGregor BFA Weighted Index, click here
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