Tag: Share Selection

Transaction Capital

Transaction Capital (TCP) describes itself as “an active investor in and operator of credit-orientated alternative assets”. This is a fancy way of saying that it goes where no one else dares to go in the new South Africa. It has made highly profitable businesses out of financing and servicing the burgeoning mini-bus taxi industry and also out of buying up high-risk debtors books for a fraction of their face value and then systematically collecting the outstanding amounts.

Both of these industries are risky, but both also have enormous potential to be profitable. Transaction Capital has made an excellent business out of finding high-tech ways to reduce the risks which leaves it free to exploit these two “under-served segments of the South African and Australian financial services markets” almost without significant competition. Read More

Ease of Management

One of the most important issues when selecting a share for investment is to try and assess how easy the business is to run. Some businesses are very easy to run, while others face enormous difficulties. When you are considering whether to add a particular share to your portfolio you should try to place on a scale from easiest to hardest.

The hardest businesses to run are those which:

  1. Require huge capital investments in plant and equipment (which, of course, makes them more risky);
  2. Traditionally have high stock levels and large debtors books – leading to massive amounts of money being tied up in working capital;
  3. Require large numbers of unskilled or semi-skilled workers – which inevitably exposes them to union action;
  4. Those which have little or no “annuity income”. In other words, they start every month from zero and have to make sales just to cover their monthly overheads.

By contrast, the easiest businesses to run are those which: Read More

Institutional Blindness

The Business Day reported on 10th April 2019 on the Investment Forum in Sandton where several asset managers talked about the major share collapses of the past three years – most notably Steinhoff, EOH and Tiger Brands. The big institutions and major fund managers (like Alan Grey, PSG and Coronation) lost hundreds of billions of rands when these stock market “darlings” suddenly collapsed.

But in each of these cases, there was clear technical evidence that all was not well long before they collapsed.


In the case of Steinhoff, the share made a perfect declining triple top at least 15 months before the Viceroy report came out and caused the share to collapse. Consider the chart:

Steinhoff (SNH) January 2016 to April 2019 – Chart by ShareFriend Pro (Click to Enlarge Image)

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The Multiple

Probably one of the most difficult problems that the private investor faces is the problem of selection. There are approximately 400 companies listed on the Johannesburg Stock Exchange, so how can you select the best opportunity from these – especially when each is a complex organisation with many strengths and weaknesses.

One of the mechanisms used by investors is the earnings multiple. The multiple is the number of times that the company’s earnings per share (EPS) can be taken out of its current share price in the market. Thus, if a company is trading on the JSE for 1000c today in the market and in its most recent annual financial statements it reported EPS of 100c, then it is on a multiple of 10 – or, put in another way, at the current rate of earnings it would take exactly ten years to recover the current cost of the share in the market.

The multiple of a share shows how investors rate the company. If the company has a high multiple, then it means that investors are prepared to pay much more for 100c of its profits than they are for 100c of other companies’ profits. Thus, for example, right now investors are willing to pay 31 times Capitec’s EPS to buy one of its shares, but the same investors are only prepared to pay 11 times Standard Bank’s EPS for its shares. This is because Capitec is more “highly rated”. Investors believe that the Capitec business model will produce a bigger, better and more reliable stream of EPS in the future than Standard Bank’s will – much bigger and better. Read More


Telkom was originally a state-owned enterprise similar to SAA or Eskom. The company went  through some difficult times, retrenching 4500 employees in an effort to right-size and remain profitable. Today Telkom is owned about 40% by the government and 12,5% by the Public Investment Corporation – which means that it is still government controlled – but it has a very substantial private sector ownership and is essentially independent.

The company consists of five operating divisions –

  1. Openserve, which is an internet connectivity provider with the largest open access network in South Africa,
  2. Telkom Consumer is a fixed broadband and internet service provider,
  3. BCX is a technology company,
  4. Gyro looks after masts, towers and property development and
  5. Yellowpages, which is a marketing and advertising company.

In its results for the six months to 30th September 2018, the group reported adjusted headline earnings per share (HEPS) up 10,3% to 328,6c. The CEPO, Sipho Maseko described the results as “satisfactory” in a difficult economy. Read More