Grindrod will probably become a classic case study of how it's possible for everything to go right for a company. Attaining the top position was not a surprise, after it came in sixth last year, but management seems to have sailed especially well in favourable winds.
Against a background of a strong global shipping market, the company showed perfect timing in the early 2000s in its fleet upgrade. Through entering long-term contracts at the right price, it is now in the unusual and enviable position of being protected for some years from any lurch in the global market, while standing to benefit handsomely from any upsurge.
Some of that timing may have been lucky, but as golfer Gary Player never tires of pointing out, you work for your luck. And Grindrod CEO Ivan Clark has not rested on his laurels. Recent purchases of interests in port facilities and private rail operator Sheltam, for instance, are consistent with the aim of becoming a dominant and comprehensive freight-handling company. Revenue should grow, both organically and through further acquisition and the diversification into land-based transport reduces the exposure to the seaborne shipping market.
This is the third year of the present Top Companies format, where we identify the top 20 according to sustained historic performance and an assessment of their prospects in the years ahead. Only four companies - MTN, BHP Billiton, Altech and Pick 'n Pay - have made the top 20 in all three years. Another five companies made the top 20 for the second year - Grindrod, Edcon, Kagiso Media, Murray & Roberts and Standard Bank (see box).
Looking at those nine companies, it's hard to discern what they have in common operationally, beyond their excellence. The only two that can be regarded as being in the same sector, retailers Pick 'n Pay and Edcon, have a completely different focus - food and clothing respectively. What is clear is that all nine are consistent market leaders in their fields.
Of the newcomers, Aspen in second place made the most spectacular entry. As a pharmaceutical manufacturer, it operates in what is, in regulatory terms, a tortuous environment. The health sector is fraught with historical anomalies and vested interests that have created severe market distortions. Players in each of the main subgroups of the sector - pharmaceuticals, hospital groups and medical aids - tend towards constant suspicion that the others are out to gain unfair advantage.
Add to that cocktail a health ministry that seems instinctively hostile to the market, yet is also concerned to protect the consumer, and you get interventions that create further distortions and unintended consequences. Yet Aspen under entrepreneurial CEO Stephen Saad has remained undistracted, and scored a major coup with its contract to supply generic drugs to treat Aids. That offers investors some clarity in a notoriously uncertain sector.
Some observers were surprised that SABMiller did not make last year's list, given its superb record of profitability. But there had been lingering uncertainty over its ability to digest the troubled Miller, acquired in late 2002. Miller's market share in the US was well below 20% and declining, but in volume terms that share was still twice the size of the SA operation. Now that it's clear that "Stormin' Norman" Adami has started a turnaround, the risk is much reduced and investors will be comforted by strong growth in most other SABMiller operations - not least at SAB Ltd, the SA engine-room of the company.
SAB's beer volume growth in SA is directly related to the increased disposable income that has resulted from low inflation and low interest rates. That's also the main reason why Edcon and Pick 'n Pay have been joined in the elite by two other mainstream retailers, Truworths (clothing) and Woolworths (hybrid clothing/food). Cement manufacturer PPC also benefited from higher consumer spending, working in conjunction with the long property and home renovation boom.
The banks, of course, are beneficiaries of all this spending and borrowing, and it's no surprise that Standard Bank has retained its place in the top 20 and has been joined by Absa, a leading retail bank whose outlook has been brightened further by the imminent Barclays deal.
Conspicuous by their absence, for two years now, are the life assurers, once a blue-chip sector in the SA investment environment. It's increasingly evident that they have battled to keep up with changing investment trends and have allowed themselves to be saddled with some outdated products and internal reward systems.
The life offices' poor reputation at present contrasts with that of their cousins in the short-term sector. This is ironic, as motor and household insurance has always been more of a grudge purchase. The outstanding performer in a star sector was Santam, which came in strongly at 14th on the list.
The point about this top 20 table is not that these companies are outstanding performers - they all are - but that they are expected to again do much better than their peers.
There is more sectoral variety than in last year's list, when the top 20 contained seven resources-linked companies (all except BHP Billiton fell out). But whatever the sector, a common factor is that most of these companies are benefiting from increased economic activity and friendly macro-economic conditions, either directly (the big retailers) or indirectly as suppliers (Metair, Astrapak and PPC) and service providers (Kagiso Media and City Lodge). Predictions on how well they will continue to do will depend on what your call is on where the economy is going in the next few years.
The specialists (Edcon, Murray & Roberts and MTN) seem to offer a higher risk - because they are so intensely focused - but also potentially greater rewards because their managements have proved adept at exploiting favourable sectoral conditions. Edcon and MTN will be counting on the seemingly endless good times being extended, though for M&R (in construction, it's often a case of riches or rags) the boom lies around the corner. IT companies are recovering from the trauma of the burst bubble of a few years ago, and should reappear leaner and wiser.
But the companies in the top 20 that are least vulnerable to sectoral vagaries and changes in macroeconomic indicators - inflation and interest rates, disposable incomes and employment - are those that have achieved diversity of product and geographical presence, and who have built up the kind of weight in their markets (in SA and elsewhere) that makes them serious players in any terms. Here one thinks especially of Grindrod, BHP Billiton, SABMiller, Altech and Standard Bank.
These five are arguably the elite within an elite. Apart from their diversified strength, their managements have proved themselves to be visionary, decisive and nimble.
