by Bekithemba Sibanda of JSE Business Development

We analysed the performance of AltX companies for the May to September reporting season. Seventy companies released their results (46 annual results and 24 interims).

The table below summarises year on year performance measured in terms of growth in revenue, operating profit and headline earnings. We also included year to date share price performance of these companies. This analysis excluded seven companies consisting of recent listings and suspended companies, having limited or no comparative figures.

Growth rate	Companies
	YTD share price	Revenue	Operating profit	Headline earnings
50% +	11.4%	24.3%	20.0%	22.9%
25% to 49%	8.6%	20.0%	15.7%	14.3%
1% to 24%	18.6%	30.0%	12.9%	24.3%
0% to -25%	15.7%	21.4%	11.4%	5.7%
< -26%	45.7%	4.3%	40.0%	32.9%

In terms of revenue 74% of the companies reported growth while only 25% reported negative growth. In contrast, 49% of the companies posted positive operating profit growth while 51% reported a decline. Ironically, year to date, 38.6% of these stocks have appreciated in price terms while 61.4% experienced a decline. Recent economic reports indicate that business confidence levels have somewhat improved which largely signals positive economic conditions leading into 2010. But we still have negative sentiments such as high unemployment, slow pace of fiscal deficit correction and a sticky inflation outlook that could derail these “green shoots”. Thus, a cautionary is that these positive sentiments may not yet reflect reality.

We also sought to determine whether there is some form of correlation between YTD share price performance and the change in variables such as revenue, operating profit and headline earnings. A basic correlation test revealed that during this period there was no strong correlation between share price movement and other variables. It is interesting to note that, though quite small, the correlation between the price change and the growth in operating profits is positive while it is negative for bottom line earnings and revenue.

The AltX is currently reeling from the prolonged after effects of the 2008 financial quake. Leading into the month of October 09, the South African Volatility Index (SAVI) has been on a steady decline and is currently on a 17-month low. Thus given the recent decline in the volatility index one would expect the AltX to at least bottom out as investors and largely small cap fund managers redeploy their cash in line with improving market confidence. They are likely to be confronted by fundamentally sound stocks with considerable cash balances and probably low debt ratios. We expect the next reporting season to show a somewhat marked improvement as it would be coming off a low base.

Java Capital is an independent corporate finance and M&A boutique, providing advisory services to listed and privately held corporates, institutions and entrepreneurs. The business provides a complete range of financial, commercial and legal advisory and transaction execution services. It is licensed as a sponsor of companies listed on the JSE and as a designated advisor to AltX.

Thoughts on AltX: The AltX market has proved its credentials as a credible well regulated market which offers a platform for high growth companies with sound business fundamentals to establish themselves in the listed market and, in conducive market conditions, access capital which might otherwise not be available, says Kevin Joselowitz..

The executive team has six approved executives and three approved designated advisor executives:

• Andrew Brooking
• Kevin Joselowitz
• Marian Gaylard
• Warren Lawlor
• Carl Esterhuysen
• Travis Green

In addition, Megan Simpson completed the necessary exams and is in the process of becoming a JSE approved executive.

Approved designated advisor executives:

• Andrew Brooking
• Kevin Joselowitz
• Carl Esterhuysen

It is designated advisor to the following AltX companies

• Buildworks Group Limited
• Ellies Holdings Limited
• OneLogix Group Limited
• Simeka Business Group Limited
• Myriad Medical Holdings Limited

It is Main Board sponsor to:

• The Absa Capital Warrant Programme
• African & Overseas Enterprises Limited
• Andulela Investment Holdings Limited
• Austro Group Limited
• Buildmax Limited
• Capital Property Fund
• Efficient Financial Holdings Limited
• Faritec Holdings Limited
• Fortress Income Fund Limited
• Hyprop Investments Limited
• KayDav Group Limited
• Lonrho Plc
• MiX Telematics Limited
• New Europe Property Investments Plc
• New Corpcapital Limited
• Six NewFunds Collective Investment Scheme
• Exchange Traded Fund Portfolios
• NewGold Issuer Limited Exchange Traded Fund
• NewRand Exchange Traded Fund
• Pangbourne Properties Limited
• Peregrine Holdings Limited
• Property Index Tracker SAPY Exchange Traded
• Fund Portfolio
• Redefine Income Fund Limited
• Resilient Property Income Fund Limited
• Rex Trueform Clothing Company Limited
• Seardel Investment Corporation Limited
• Specialist Security - Sterling Waterford Carbon Credit Notes
• Universal Industries Corporation Limited.
  
  

by Noah Greenhill & Lauren Czepek of JSE Business Development

AltX turned six on 27 October. Noah and Lauren give an overview of the past year.

The past year has been nothing short of tumultuous, with financial markets experiencing heightened volatility. Share prices came off significantly, with many now back at pre-crisis levels, with some still struggling. The JSE’s AltX board for small cap listings was definitely caught up in the storm. However, its strict admission process for companies wanting to list here has served it well. Its robust quality controls such as the Directors Induction Programme, the requirement to appoint a Designated Advisor, and the selective eye of the AltX Advisory Committee, have all paid off.

In our market, AltX is competing with some top quality international boards for potential listings – especially with AIM (the Alternative Investment Market, part of the London Stock Exchange) and the TSXV (the venture platform of the Canadian Toronto Stock Exchange). We have to ensure we offer a quality product to investors and companies in order to attract listings to South Africa.

During this downturn, the AltX board saw only two delistings, from over 70 companies which are listed on this platform. Delistings are inevitable in volatile times, as share prices come off significantly and management buyouts or takeover deals take advantage of low share prices and low interest rates for financing such transactions. Mobile telecoms group Celcom saw the opportunity to do just this. The second delisting was Country Foods, which certainly went through its fair share of criticism and problems in its short time of being listed – but such is the nature of a listing.

It has been a challenging year but the quality of AltX-listed companies has enabled them to survive the downturn. Operationally, they have gone through the same pains as unlisted companies, and being listed has not added to their risk – their listings have simply made their challenges more transparent and open to public scrutiny. No doubt, in a few years time, they will have to rise to the occasion once more, as economic cycles are a given. Their success lies in being able to come through, especially the more severe downturns.

Companies are still interested in listing on AltX, and the pipeline of aspirant businesses is strong, with presentations constantly being made to the advisory committee. The business development team of the AltX board is seeing numerous companies readying themselves for a listing when the market turns.

The JSE continues to have complete faith in AltX. We had a slow start when we opened our doors in October 2003, with many non-believers proclaiming our downfall. But since the first listing in January 2004 we have gone from strength to strength, helped by a rising market in 2006 and 2007. We now offer a well-diversified suite of stocks across several sectors, with a high concentration of industrials, predominantly in construction and materials.

Since AltX was launched in 2003, there have been six delistings in total, three of these being mergers with other listed entities, and six transfers to the main board. This translates into only 6.98% (of which 3.5% was due to mergers) of all AltX listings being delisted, an impressive record for a market segment that specialises in upcoming and ultimately ‘riskier companies’.

Although liquidity and tradability are always a problem with smaller cap stocks, liquidity on AltX is relatively strong and this is something we are always focusing on. One of our strategies to address low liquidity is showcases, whereby listed companies present their stories to current and potential investors. These showcases promote visibility and investor interest.

An AltX listing is just one step in the life of a company. A listing on the JSE’s main board is really the goal – but only when this progression is right for the company. This year we have seen two main board transfers - geotechnical and civil engineering contractor EsorFranki and fast moving consumer goods support business CIC Holdings - and for these companies to transfer across in such difficult conditions was a great accomplishment and an affirmation that AltX is serving its purpose.

While investors have shied away from small caps in the predictable ‘flight to safety’, there are many well-priced opportunities for astute investors that take the time to seek out these gems and the returns will be rewarding. The safe haven stocks will offer solid returns over time, but for those wanting exceptional returns, the small caps have this potential. We only need to look back at 2007 when the JSE Top 40 index returned 14.9% to investors, whereas the AltX stocks rewarded with a most pleasing 77.8%.

We remain committed to our vision - providing smaller companies not yet able to list on the JSE Main Board with a clear growth path and access to capital.