Stocks that love Cyril

There is no denying that there is a new sense of optimism around South Africa since Cyril Ramaphosa’s election as ANC president. Positive reports about local politics or the South African economy were very rare just two months ago, but they are now appearing around the world.

This sentiment has also been apparent on the JSE. Since December 13, the FTSE/JSE All Share Index has gained 7.41%, hitting a new all time high in the process.

What is notable is that the biggest gainers have not been the large multinational industrials that have dominated JSE returns for so long. In fact, AB InBev, British American Tobacco and Richemont are all amongst the market’s worst performers for this period due to the strengthening of the rand.

SA share price performance Dec 13 2017 to Jan 26 2018
Share	Performance
British American Tobacco	-9.79%
AB InBev	-9.06%
Richemont	-6.22%

Source: Profile Data

The positive story has rather been in the mid- and small-cap space. Since December 13, the FTSE/JSE Mid Cap Index has gained 12.04%. The FTSE/JSE Small Cap Index is 9.25% higher over the same period.

In both cases, this is more than double the return that these indices recorded for the whole of 2017.

These gains have also been widespread across a range of sectors. As the table below shows, companies ranging from information technology to retail to construction and financial services have all been lifted.

SA share price performance Dec 13 2017 to Jan 26 2018
Share	Performance
AdaptIT	49.42%
Mr Price	37.87%
Lewis	35.02%
PPC	33.70%
JSE	32.65%
RMB Holdings	29.11%
FirstRand	29.04%
Massmart	28.94%
Calgro M3	28.57%
The Foschini Group (TFG)	27.58%

Source: Profile Data

What these companies have in common is that they are geared towards a recovery in the South African economy. There has been a very clear and sharp change in investor sentiment towards these kinds of businesses.

A few names stand out:

AdaptIT

The biggest gainer is AdaptIT, and this represents a major turnaround. The IT company’s share price fell more than 60% between the start of 2017 and the beginning of the ANC conference due to an extremely difficult trading environment.

In an interview following the release of the company’s results in August, CEO, Sbu Shabalala, told Moneyweb that the company was seeing “very low, if any, growth” in South Africa.

The change in sentiment has therefore had an immediate impact on its perceived prospects. If local companies start spending again, AdaptIT will be a business that is in line to benefit.

Mr Price

The upswing in Mr Price’s share price actually began before December 13 last year. The retailer rerated sharply from the end of October when it started to become apparent that its turnaround strategy was starting to deliver results.

Since October 26, the counter has gained 66.92%.

It has however enjoyed further momentum from the growing optimism around the local economy. The outlook for consumer spending will continue to improve if the rand stays strong, inflation is depressed and confidence returns.

Mr Price is now trading at a new all time high, having passed the levels it reached in April 2015.

PPC

Investors in PPC have had a miserable time since the start of 2013. From R36 a share in March that year, the counter dropped as low as R3.76 in August 2017.

It has however now more than doubled off those levels to trade at R8.45.

This uptick also began prior to December, but confidence returning to the South African economy will definitely benefit companies like PPC. More positive sentiment means higher levels of investment and capital spending, and more demand for cement and related products.

JSE

The JSE’s share price had enjoyed a very strong run up to the middle of 2016, where it peaked at around R183 a share. However, it subsequently slipped as low as R123 and was at R141 per share just before the ANC conference.

Since then it has gained for six straight weeks, closing at a new high of R187.80 on January 26.

A reinvigoration of foreign interest in JSE-listed shares and bonds is good for activity on the exchange, and therefore positive for the JSE’s earnings. If this continues, shareholders will stand to benefit.

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