JSE Top 40 Index: Movers and Shakers in 2019
In this article we look at recent changes and weightings in constituents of the Jse’s Top 40 Index, the best and worst performing shares year to date, as well as medium term forecast on the South Africa 40 Cash Index.
Top 40 Index constituents, weightings and changes
The Jse Top 40 Index has been rebalanced as of the 19th of September 2019.
Impala Platinum and Sibanye are new entrants in the Top 40 Index and have replaced Aspen Pharmacare and Sappi Ltd. Other recent changes include a single listing of Mondi Plc (previously Mondi Ltd and Mondi Plc both formed part of the index), as well as the inward listing of Prosus, which was recently unbundled from investment holding company Naspers.
A summary of the TOP 40 constituents and their respective weightings on the index is as follows:
|Company||JSE 40 Index Weighting|
|Anglo American PLC||7.45%|
|Ango American Platinum||0.90%|
|British American Tobacco||2.62%|
|Rand Merchant Bank||1.01%|
|The Foschini Group||0.64%|
Top ten JSE 40 Index constituents
Traders of the South Africa 40 Index will want to amend their watchlist to the below top 10 securities, whose combined weighting in the JSE Top 40 Index amounts to over 60% thereof.
|Company||JSE 40 Index Weighting|
|Anglo Amercan Plc||7.45%|
|British American Tobacco||2.62%|
JSE Top 40 Winners (year to date)
Platinum Group Metals (PGMs) shares:
A higher basket price for Platinum Group Metals (PGMs) has bode well for earnings from local miners thereof (Impala Platinum, Anglo American Platinum & Sibanye Stillwater). Platinum, palladium and rhodium prices have continued to soar this year gaining roughly 20%, 35% and 110% respectively.
Impala Platinum shares:
Impala Platinum has been the favoured PGM counter gaining nearly 150% year to date, in turn earning its inclusion in the blue chip (Top40) index once again. The gains follow a much-improved set of results for FY19 and show the cyclical nature of earnings relative to commodity prices. The group has managed to achieve strong free cash flow generation to return the company to a net cash position at year-end. Gross profit margins have moved to 14.1% from 3.2% in FY18, while headline earnings per share were realised at 423c from a headline loss in the previous year of 171c per share.
Sibanye-Stillwater has now, after 18months, concluded its takeover of Lonmin Plc, to become the world’s second largest platinum producer (behind Norilsk Nickel). The groups global operations include South Africa, Zimbabwe and the US. The share price has gained around 75% for the year thus far, despite the group reporting a headline loss of R1.3bn in the six months to June 2019. A five-month strike, within its South African gold mining operations has more than eroded the earnings gained in the group’s PGM operations over the period.
Sibanye, since its acquisition of US based palladium producer Stillwater, remains highly leveraged with net debt roughly 2.5 times the size of adjusted EBITDA (Earnings Before Interest Tax Depreciation and Amortisation). The group is however forecasting a strong second half of the year (EBITDA of R2.1bn) in lieu of more stable operations and higher precious metal prices.
To sum up:
Traders will want to keep abreast of wage negotiations within the platinum sector currently underway, in lieu of the potential to disrupt production at least in the very near term.
Jse Top 40 Decliners (year to date)
The list of major decliners on the Jse Top 40 Index (year to date) has largely comprised of retail and financial counters, whose fortunes are directly linked to the state of the South African economy. High unemployment levels (29%) and weak economic growth (forecast at 0.6% in 2019) see’s the local consumer constrained with greatly reduced levels of disposable income and in turn a weakened spending ability, factors which are not conducive for growth within a retail environment.
Mr Prince shares:
Mr Price, generally considered to cater for the lower to middle income group, has seen its share price fall more than 30% this year, as earnings find pressure from weak apparel sales. Apparel, a high margin source of earnings for the group, is said to have been negatively impacted by an ‘imbalance in the shape of the assortment’ which was cause for excess inventory being carried over into the winter season, as well as markdowns which have weakened gross margins.
The group does however remain extremely cash generative with more than 83% of sales (22 weeks to August 2019) being derived in cash. Of the major retailers listed in South Africa, MR Price does still boast the most favourable (low) levels of debt relative to equity (less than 5%). Woolworths Holdings (which trades in positive territory for the year) finds its self at the opposite end of the scale with debt levels now exceeding group equity.
While the retail sector is expected to see earnings constrained in the medium term, traders may consider a market neutral strategy within the sector, by perhaps aggregating gains and losses from a pair trade with a long position on Mr Price and a short position on Woolworths holdings.
Sasol is the second worst performing industrial counter on the Jse Top 40 Index. While a subdued oil price for most of the year would have negatively impacted the group, the company’s North American Lake Charles Chemical Plant (LCCP) looks to be the biggest headwind at present.
Sasol has written down the value of its North American assets by R18.1bn and continues to battle cost escalations, project delays and now ‘control weakness’, currently being investigated by the group. The investigation has seen Sasol twice delay the release of its financial results which are still not available to the public.
The South Africa 40 Cash Index – weekly chart
The above chart of the South Africa 40 Cash Index shows the price to be relatively rangebound in 2019. The range is considered between levels 47000 (support) and 53200 (resistance).
The price of the index is currently moving towards the 47000-support level of this range. Traders might consider this level (47000) to be a point where the index is oversold and consider a medium term buy/long opportunity. Indicators which fall under the oscillator category, such as the stochastic and the RSI, are believed to produce more reliable signals when used in a rangebound price environment (as is currently the case). Traders might therefore prefer to use an oscillator to confirm a long/buy opportunity at support, should the price continue to retrace to that point.
Should the index instead move to close below the 44100 level, the rangebound environment would need to be reassessed as a new long term downtrend may instead be manifesting.
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