Top 10 biggest companies in South Africa

In this article we identify the 10 largest companies (in terms of market capitalisation) on the JSE in South Africa and look at their businesses, broker ratings and share price targets.

The top 10 biggest companies in South Africa by market capitalisation

Vodacom Group Ltd (R213 bn)

Standard Bank Group Ltd (R306 bn)

FirstRand Limited (R367 bn)

Anglo American Plc (R530 bn)

Compagnie Financiere Richemont SA (R610 bn)

Glencore Plc (R676 bn)

The BHP Group Plc (R730 bn)

British American Tobacco Plc (R1245 bn)

Naspers Limited (R1519 bn)

Anheuser Busch Inbev (R2117 bn)

South Africa is the most developed economy in Africa and the second largest economy on the continent (after Nigeria). The businesses listed and traded on the Johannesburg Stock Exchange (JSE), while domiciled in South Africa provide opportunities for traders to access into the African content as well as the global marketplace.

In this article we identify the 10 largest companies (in terms of market capitalisation) in South Africa and look at their businesses, broker ratings and share price targets. The make up of these top 10 shares does not directly correlate to the top ten weightings of the JSE Top40 Index .

Market capitalisation values for the below companies are taken as of the 15th of July 2019.

Vodacom Group Ltd (VOD) - Market Capitalisation – R213bn

Vodacom is the largest South African telecommunications provider and a leading African provider, specialising in communication services which include mobile voice, messaging and data.

The company is still largely dependent on the South African consumer with 69.9% of Earnings Before Interest Tax and Depreciation (EBITDA) derived from domestic operations. Local regulatory changes and a move to lower data costs has seen domestic earnings flat to marginally lower as of late. The lower data costs are however expected to have a future ‘elasticity’, meaning that usage volumes are expected to increase as a result.

The group is managing to achieve double digit growth from its international operations which now account for nearly 16% of EBITDA. The Groups interest in Kenya’s leading telecommunications provider Safaricom, returns the other 14% of group EBITDA. The business is highly cash generative and has a historical dividend yield of nearly 7%.

Traders looking for a high yielding stock with exposure to the South African telecommunications industry as well as a growing footprint into Africa might consider Vodacom a viable option.

A Thomson Reuters poll of 11 brokers (as of the 15th of July 2019) arrive at an average long-term rating of ‘Hold’ for Vodacom.

A median target amongst analysts for the share price of AB-Inbev is R1482.5 for the local listing, EUR86.6 for the Belgium listing and $96.46 for the US listing.

The South African inward listing of AB-Inbev means that traders will need to access the European or US listings offered by IG to trade this product.

Standard Bank Group Ltd (SBK)

Market Capitalisation – R306bn

Standard Bank Group Ltd is a leading African financial services group originated in South Africa. Standard Bank is South Africa’s largest banking group by assets and operates in 20 countries in sub-Saharan Africa.

FY18 results for the group have highlighted a tough operating environment having impacted the Corporate and Investment Business (CIB) which contracted marginally over the period (2%). Standard Bank does however see growth opportunities across Africa for the CIB division. The last quarter of FY18 showed some earnings momentum being realised, which the group expects to continue going forward.

A slightly larger contributor to group earnings is the Personal and Business Banking (PBB) division. The PBB business has managed to achieve double growth (10%) in the last financial year. The most significant headline earnings growth was realised by the group’s African (+400%) and International (60%) operations which are now starting to become more meaningful contributors to group earnings.

The group trades on a relatively conservative P/E multiple of 11, while having a good historical dividend yield of 5%.

Traders looking for high yielding opportunities in the banking sector, with a fast-growing exposure into the rest of Africa might consider Standard Bank a viable option.

A Thomson Reuters poll of 12 brokers (as of the 15th of July 2019) arrive at an average long-term rating of ‘Buy’ for Standard Bank

A median target amongst analysts for the share price of Standard Bank is R209.14

FirstRand Limited (FSR)

Market Capitalisation – R367bn

FirstRand Limited , is the holding company of FirstRand Bank, the largest financial services provider (in terms of market capitalisation) in South Africa.

While group earnings have been largely weighted to the South African market where the company services 8.2 million clients, Firstrand is looking to organically grow its presence into the rest of Africa. The company is considered the domestic leader when it comes to digital and data platforms and capabilities.

Interim results for FY19 period saw the rate of normalised earnings growth slowing to 7%. Earnings have historically been led by lending and transactional franchises, which are expected to be pressured by competition and regulation. In turn Firstrand is constantly looking for avenues to further diversify its revenue streams.

The company trades on a historical P/E multiple of 13.5 and dividend yield of 4.3%.

Traders looking to trade long or short opportunities in the domestic banking sector whose fate is highly geared to the South African economy, might consider Firstrand a viable option.

A Thomson Reuters poll of 12 brokers (as of the 15th of July 2019) arrive at an average long-term rating of ‘hold’ for Firstrand

A median target amongst analysts for the share price of Firstrand is R68.23

Anglo American Plc (AGL)

Market Capitalisation – R530bn

Is a globally diversified mining company with a portfolio of world class competitive mining operations and undeveloped resources. Anglo American Plc mines copper, diamonds and platinum group metals, as well as iron ore coal, nickel and manganese. The company is the largest platinum producer in the world through its subsidiary Anglo-American Platinum. Other major company holdings for Anglo include De Beers (diamond mines) and Kumba Iron Ore.

FY18 results saw earnings growth of 4% led by the nickel, manganese, coal, copper and platinum group metal operations, while earnings contracted in the diamond and iron ore divisions. Investors have been pleased with the group’s improving operational efficiencies and reduction of net debt which has moved from 4501m in the beginning of 2018 to 2848m at the end of 2018. The company returns 40% of earnings to share holders and has a historic dividend yield of 3.6%.

Traders looking for opportunities to trade the cyclicality of a basket of commodity prices might look to Anglo American Plc as a viable option.

A Thomson Reuters poll of 24 brokers (as of the 15th of July 2019) arrive at an average long-term rating of ‘Buy’ for Anglos

A median target amongst analysts for the share price of Anglos is R421 for the Jse listing and GBP24 for the UK listing.

Compagnie Financiere Richemont SA (CFR)

Market Capitalisation – R610bn

Richemont is one of the world’s leading luxury goods groups with some of the most prestigious names in the luxury industry including Cartier, Van Cleef & Arpels, Baume & Mercier, Montblanc & Alfred Dunhill to name but a few.

A breakdown of the group’s revenue see’s 38% thereof derived from the Asia Pacific region, 29% from Europe, 18% from North and South America, 8% from Japan and 7% from the Middle East and Africa. Richemont is currently realising sales growth across all these jurisdictions most notably in Europe and the Americas (boosted by the consolidation of YNAP and Watchfinder) as well as the Asia Pacific region. The company has also managed to achieve growth across all its business areas in FY19 which include specialist watchmakers, fashion and jewellery maisons divisions.

Traders looking for exposure into a world leading player in the luxury goods space and/or for a rand hedge option against EUR and USD currency movements might consider Richemont a viable candidate.

A Thomson Reuters poll of 36 brokers (as of the 15th of July 2019) arrive at an average long-term rating of ‘Buy’ for Richemont

A median target amongst analysts for the share price of Richemont is R105.50 on its JSE listing and 82.2 for its Swiss listing.

Glencore

Market Capitalisation – R676bn

Is a leading integrated producer and marketer of commodities, operating around the world. The group's commodities comprise of metals and minerals, energy products and agricultural products.

The groups key industrial commodities produced are that of coal, copper, zinc and nickel. These resources account for 33%, 30%, 15% and 5% of group EBITDA respectively. The marketing side of the business accounts for around 16% of Group EBITDA.

FY18 results saw group EBITDA increase 8% to record levels led by the industrial production side of the business (+15%), while the (smaller) marketing division contracted by 17%. Glencore trades on a relatively unassuming P/E of 11 times with a generous historical dividend offering of around 8.9%.

Traders looking for opportunities to trade the cyclicality of a basket of industrial commodities and/or a high yielding resource counter might look to Glencore as a viable option.

A Thomson Reuters poll of 22 brokers (as of the 15th of July 2019) arrive at an average long-term rating of ‘buy’ for Glencore

A median target amongst analysts for the share price of Glencore is R60.42 on the JSE listing and GBP3.43 for the UK listing.

The South African inward listing of Glencore means that traders will need to access the UK listing offered by IG to trade this product as a CFD .

The BHP Group Plc (BHP)

Market Capitalisation – R730bn

The BHP Group is a world-leading diversified resource business, extracting, processing and selling minerals, oil and gas. BHP unbundled its non-core assets into the company South32 in 2015. The unbundling see’s BHP operations mostly removed from South Africa and mostly realised in Australia and South America.

The primary commodities produced by BHP now are iron ore, petroleum, metallurgical coal and copper. FY19 production of these commodities was reported as flat, excluding copper which saw production slowing by 4% year on year. Group output in FY20 is however expected to increase led by iron ore, copper and coal, while petroleum volumes are expected to fall.

The BHP Group trade on a P/E multiple of 15.8, with an historical dividend yield offering of 4.85%.

Traders looking for opportunities to trade the cyclicality of a basket of industrial commodities and/or a strong yielding resource counter with rand hedging attributes might consider the BHP Group a viable option.

A Thomson Reuters poll of 24 brokers (as of the 15th of July 2019) arrive at an average long-term rating of ‘hold’ for The BHP Group.

A median target amongst analysts for the share price of The BHP Group is R60.42 on the JSE listing and GBP3.43 for the UK listing.

The South African inward listing of Glencore means that traders will need to access the UK listing offered by IG to trade this product as a CFD .

British American Tobacco Plc (BTI)

Market Capitalisation – R1245bn

British American Tobacco is a second largest tobacco manufacturer in the world (after Phillip Morris) and one of the globes leading consumer goods companies, with its brands sold in over 180 countries.

From 2005 to 2018 the group has managed to return an average earnings per share growth of 11% per year, whilst also returning a dividend at a compound average growth rate (CAGR) of 12% over the same period.

While stricter regulation globally would have created some headwinds for the group over the last few years, FY18 saw the company still managing to achieve revenue growth of 8.5% and earnings growth (at constant currencies) of 11.8% year on year. The group which leads worldwide sales (when excluding US sales), has been transforming its business into new categories such as vapour tobacco heating, oral tobacco and nicotine products.

The group trades on a conservative historical P/E ratio of 10.7 times whilst having a historical dividend yield of nearly 7%.

Traders looking for an entry into a leading global consumer business with rand hedging attributes might consider British American Tobacco as a viable option.

A Thomson Reuters poll of 20 brokers (as of the 15th of July 2019) arrive at an average long-term rating of ‘Buy’ for British American Tobacco

A median target amongst analysts for the share price of British American Tobacco is R606.67 for its local listing, GBP35.02 for its UK listing and $49.98 for its US listing.

The South African inward listing of British American Tobacco means that traders will need to access the UK listing offered by IG to trade this product.

Naspers Limited (NPN)

Market Capitalisation – R1519bn

Naspers is a global internet group and one of the largest technology investors in the world. It runs or invests in some of the world’s leading internet platforms. The group also has sizeable investments in associates such as Tencent, Mail.ru, MakeMyTrip Ltd., and Delivery.

The group is currently set to list its international assets in Amsterdam under the name Prosus. Naspers will retain a 75% holding in Prosus which will have a secondary inward listing on the JSE.

Markets are hoping that the unbundling of Naspers’ international assets will unlock value for investors. The share currently trades at a discount to net asset value (NAV) estimated at around 35%. While investment holding companies often trade at a discount to NAV, should the price manage to reduce the discount to around 20%, traders and investors alike could be well rewarded for their interest in the company.

Traders looking for rand hedge exposure and inroads into the global, technology, internet, e-commerce and mobile gaming industry might look to Naspers for the opportunity.

A Thomson Reuters poll of 11 brokers (as of the 15th of July 2019) arrive at an average long-term rating of ‘Strong Buy’ for Naspers

A median target amongst analysts for the share price of Naspers is R4581.

Annheuser Busch Inbev (ANH)

Market Capitalisation – R2117bn

AB-Inbev is the world’s largest beer producer and distributor. The company’s portfolio consists of well over 500 beer brands which includes Budweiser, Corona, Stella Artois, and Castle.

The company has over $100bn of debt on its balance sheet which is deterring some investors for the time being. Much of the debt was accumulated when the company bought the world’s second largest brewer, the home-grown SABMiller. A recent proposed Hong Kong listing for its Budweiser assets has been cancelled recently due to unfavourable market conditions. The proceeds of the listing were to be used to help reduce group debt. The company will now need to reassess how it plans to do so in future.

The company has however produced a strong set of Q1 2019 results with volumes and sales growth coming in ahead of consensus estimates. A weaker dollar in 2019 is expected to bode well for the group’s global business, while a stronger US economy should aid sales within the group’s largest market.

Trading on a price to earnings ratio of 18 times, AB-Inbev trades at a slight valuation discount to its major sector peers Heineken and Carlsberg (P/E of around 22 times).

A Thomson Reuters poll of 30 brokers (as of the 15th of July 2019) arrives at an average long-term rating of ‘Buy’ for AB-Inbev

A median target amongst analysts for the share price of AB-Inbev is R1482.5 for the local listing, EUR86.6 for the Belgium listing and $96.46 for the US listing.

The South African inward listing of AB-Inbev means that traders will need to access the European or US listings offered by IG to trade this product.


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