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What are the Best JSE Top 40 Shares to Watch in 2021?

In this article we look at price targets, broker ratings and which of the JSE’s Top 40 Index Share constituents are suggesting investor value in 2021.

The following table looks at South Africa’s Jse Top 40 Cash Index constituents, their long term broker ratings and price targets, as well as whether these targets are at a discount or premium to current share price valuations.

The long term (12 months +) broker ratings and price targets for these shares are a median of estimates sourced from Refinitiv Data (formerly Thomson Reuters). The ‘current’ share prices are derived at the time of writing, 17 February 2021.

Companies Reinet Investments and Investec Plc have been omitted from the list due to ratings and price targets not being available at the time of writing. The index constituent data is as of the last Jse Top 40 rebalancing which came into effect on the 21st of December 2020. The next index constituent rebalancing will come into effect in the latter part of March 2021.

Company LT Broker Rating No. of Brokers LT Target Price Share Price Discount/Premium to Target
Absa Bank Limited Buy 10 132.5 129.31 -2.41%
Anglo American PLC (SA) Buy 7 550 583.03 6.01%
Anglo American Platinum Ltd Hold 8 1643 1758.19 7.01%
AngloGold Ashanti Ltd (SA) Hold 11 450 322.63 -28.30%
Aspen Insurance Holdings Ltd Buy 6 150.5 143.97 -4.34
BHP Billiton PLC (SA) Buy 7 460 469.21 2.00%
Bid Corp Ltd Buy 6 310 284.50 -8.23%
British American Tobacco PLC (SA) Strong Buy 2 770 532.77 -30.21%
Bidvest Group Ltd Buy 8 185 175.01 -5.40%
Cie Financiere Richemont SA (CH) Buy 27 90 97.56 -2.71%
Clicks Group Ltd Sell 7 256.67 250.26 -2.50%
Capitec Bank Holdings Ltd Hold 9 1300 1384.29 6.48%
Discovery Ltd Hold 3 150 143.85 -4.10%
Exxaro Resources Ltd Buy 8 177.5 178.33 0.47
FirstRand Ltd Buy 11 55 51.32 -6.69%
Goldfields Money Limited Buy 11 180 132.31 -26.49%
Growthpoint Properties Ltd Buy 7 14.5 13.81 -4.76%
Harmony Gold Mining Co Ltd Buy 8 82 56.61 -30,96%
Impala Platinum Holdings Ltd Buy 8 264 232.10 -12.08%
Investec PLC (SA) Buy 2 42.15 41.42 -1.73%
MultiChoice Group Ltd Buy 6 144 128.87 -10.51%
Mondi Ltd (SA) Buy 3 361 379.8 5.21
Mr Price Group Ltd Hold 11 187.3 184.88 -1.29%
MTN Group Ltd Buy 11 90 72.94 -18.96%
Nedbank Group Ltd Buy 11 150 135.29 -9.81%
Northam Platinum Ltd Hold 7 225 211.62 -5.95%
Naspers Ltd Buy 11 4960 3,786 -23.67%
NEPI Rockcastle PLC Buy 5 102 90.25 -11.52%
Old Mutual Ltd Buy 3 15.5 14.11 -8.97
Prosus NV Buy 4 2250 1,883.00 -16.31
Remgro Ltd Buy 2 116.5 106.00 -9.01%
Standard Bank Group Ltd Hold 11 140 136.93 -2.96%
Shoprite Holdings Ltd Hold 12 150 14.50 -3.67
Sanlam Ltd Buy 3 75 62.10 -17.20
Sasol Ltd Buy 10 190 203.74 7.23%
Sibanye Gold Ltd Buy 9 6928 65.41 -5.5
Spar Group Ltd Buy 11 225 194.57 -13.52
Truworths International Ltd Hold 11 47 48.36 2.89%
Vodacom Group Ltd Buy 11 140 126.15 -9.89%
Woolworths Holdings Ltd Hold 11 50 46.03 -7.94%

Gold mining share prices trade at largest discount to median price targets

Last year saw gold the second best performing major asset class after US tech counters (reflected on the Nasdaq100). However since the highs in August 2020, the price of the precious yellow metal has been drifting lower slowly as a risk on market environment follows hopes of vaccine efficacy and a return to global economic growth. The drift in gold prices over the last over the last six months accompanied with a resilient rand over the same period, would have bode negatively for local exporters of gold. Locally listed gold miners do however tend to exaggerate gains in the ZAR gold price on the way up as well as exaggerate losses on the way down.

The waning gold price over the last 6 months has seen locally listed miners AngloGold Ashanti, Harmony Gold and Gold Fields out of favour and broadening their respective discounts to a median of analyst forecasts. These counters do however now trade at the largest discount to these targets amongst the Jse Top 40 Index constituents. It should be noted that although the gold price has been under short to medium term pressure, at around $1800/oz it does still trade significantly above these producers all-in sustaining costs (AISC). In latest reports seen Anglo Gold ASIC was at around $1300/oz, Harmony’s AISC $1341/oz and Gold Fields’ AISC was at $987/oz.

Naspers share price discount the largest outside of the gold sector

Naspers continues to be a firm favourite amongst analyst and investors from both a retail and institutional background. The groups more than 70% holding in Prosus NV shares and in turn a 30% holding in China’s tech giant Tencent, accounts for roughly 90% of the company’s valuation at present. The remainder of the Naspers current valuation looks to account for the online classified, payments and food delivery businesses.

While Naspers trades at a discount of 24% to its long term median price target, the company trades at roughly a 50% discount to its Net Asset Value (NAV) as well. It is common for investment holding companies to trade at a discount to NAV, and there are two layers of investment holdings to discount for i.e. Prosus and Tencent. However many would argue that the current pricing trades too far from it valuation currently.

Nedbank share price at the deepest discount amongst banks, Capitec share price at a premium

Recent accusations of Nedbank’s involvement in local state capture, has seen the share price underperforming recent gains seen in sector peers Firstrand, Capitec and the Standard Bank Group. The Nedbank Group has however fervently denied these accusations claiming no wrong doing in the matter. The short term underperformance now sees Nedbank trading at the widest discount amongst the banks to the median of analyst long term estimates. Firstrand and ABSA while currently carrying consensus ‘buy’ ratings trade closer to a median fair value than Nedbank does.

Locally listed bank earnings remain benchmarked to local GDP which has been found wanting for a long time. In upcoming results investors and traders will want to keep an eye on both commercial and retail non-performing loans which have been on the rise and impacted further by the current pandemic and restrictions. Capitec, which carries a ‘hold’ rating and currently trades ahead of its long term price target, is the least diversified of the banks in terms of income streams and proportionately, the most exposed to the health of the retail client.

Industrial resource share prices running ahead of estimates

The BHP Group & Anglo American PLC

Major diversified miners, The BHP Group and Anglo American Plc while still maintaining ‘Buy’ recommendations, currently trade at premiums to their longer term price targets. Gains in underlying commodities such as iron ore and copper have been earnings accretive for these businesses. Should these base metals continue to gain or maintain current levels, we could see these companies longer term price targets rerate higher. However, for the time being base metal prices are looking overbought, and a short term correction could be more conducive for longer term gains.

Anglo American Platinum (Amplats)

Anglo American Plc subsidiary Anglo American Platinum (Amplats) has seen its share price rise along with Platinum Group Metals (PGMs). As the global economy looks towards a post Covid economic recovery, the metal has gained with the perception of increasing industrial demand from the automotive sector. Adding to the positive sentiment is talks of further reducing carbon emissions. PGMs are used by the automotive sector in catalytic converters to reduce pollutants. Amplats currently has a consensus hold recommendation by brokers, but trades roughly 7% above the median of long term price estimates.

Sasol Ltd

The turnaround strategy being implemented by Sasol with the aim of returning profitability and reducing the groups debt burden could be enough for the company to avoid a right issue in 2021. While the company embarks on Joint Ventures (JV’s) and asset disposals to strengthen its balance sheet, the sudden rise in oil prices would also have supported earnings. Oil markets are currently digesting the prospect of improving global demand against an extension of supply curbs from OPEC+. Sasol, while maintaining a consensus buy rating by brokers, has seen its share price exceeding long term targets in the near term.

Exxaro Resources

While Exxaro will have benefitted from improved economic sentiment and gains in commodity prices, the share price now having moved past a consensus of long term estimates could suggest the estimates are low due to concerns at Eskom. Eskom is one of Exxaro’s largest customers and ongoing stability and liquidity issues within the State Owned power utility remain a threat to the Exxaro business.

In Summary

  • Gold miners currently trade at large discounts to median estimates although weary of recent weakness in the underlying commodity’s price
  • Naspers appears to offer the largest discount to its median estimates while trading significantly below its current NAV as well
  • Nedbank appears ‘cheaper’ than its sector peers, but largely due to recent corruption allegations
  • Diversifed resource counters BHP Group and Anglo American Plc remain in investor favour but appear overbought in the near term
  • Sasol remains a ‘buy’ in terms of consensus broker ratings, although trades ahead of the median target price
  • Exxaro estimates may be stifled due to risks at Eskom
  • Amplats has seen talk of reducing carbon emissions pushing the price of Platinum Group Metals

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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