It's amazing what a financial market shakeout can do to the value of listed companies, even large ones such as the "royal" companies included in the FM's list of giants. When compiling last year's Top Companies, few if any writers could have foreseen the magnitude of the global stock market collapse that was about to engulf equity markets.
The Top 10 list of giants is largely in the same order as last year, with Imperial falling out and MTN coming in. And most giants experienced a decent increase in turnover, even though their market capitalisations were slashed. The one glaring exception is Anglo American, where turnover fell by 25% and market capitalisation plummeted by almost half. SABMiller managed to sneak into the number two spot, just behind leader BHP Billiton.
This analysis, of course, does not include the relatively recent inclusion of London-listed British American Tobacco (BAT), which acquired a secondary listing on the JSE in 2008, as a result of Remgro and Richemont unbundling their BAT holdings to their shareholders. Until recently, BAT was the largest market capitalisation on the JSE, with BHP Billiton only overtaking it in April 2009.
In one fell swoop in mid-February this year, Anglo did the unthinkable - by passing the dividend, it undid 70 years of history. Not since 1939 had the Anglo dividend been passed. Its claim to being a blue-chip share is now tenuous indeed. Rarely has a large company anywhere in the world had such an inglorious fall from grace and investors will be watching this one carefully for signs of possible further distress. No dividend is expected until 2011 at the earliest. The group recently successfully concluded a US$2bn bond issue in the US as well as a convertible bond issue, which neatly gets round the need for an equity rights issue. Hopefully this will be sufficient to help the group survive the next couple of traumatic years.
But there is one factor that some analysts appear to have overlooked regarding Anglo's valuation - its 45% holding in De Beers. A recent (April 6 2009) report by Barclays Capital International highlights some worrying aspects of the De Beers holding, citing the fact that De Beers is "bleeding cash" of about $100m/month in the first quarter of 2009 and that it runs the risk of breaching covenants, unless it can successfully renegotiate the terms of its deals with its bankers.
SABMiller is one of the world's leading consumer goods companies, concentrating on soft drinks and beer. It not only managed to scrape into second spot in SA Giants this year but was also, for a brief period, the world's largest brewer in terms of volume of beer brewed. It overtook Inbev, the Belgian-Brazilian brewer in the middle of last year, only to see the lead revert back to Inbev as the year drew to a close, with Inbev's takeover of the once-mighty Anheuser-Busch of the US. The combined group, now known as Anheuser-Busch Inbev (ABI), is unlikely to be challenged for the top spot in the global brewing league in the long term.
Of all the dual listed (London and Johannesburg) companies on the JSE, SABMiller is arguably the most successful. Prior to attaining its primary listing in London 10 years ago, SAB (as it was then known) was a near-monopoly brewer in SA, with a few international interests scattered across eastern Europe and China. Since then, with access to foreign capital, its growth has been impressive. Its international footprint is now the broadest of any global brewer.
Sasol's market capitalisation reaped the benefits of oil's upwards spike in 2008, only to follow it down with a thump as the oil price dived as the year came to an end. The one saving grace this time around was that the company at long last got its hedging strategy right, after many years of losing money on hedging. And though earnings for the year to June 2009 will likely be slightly lower than last year's, the decline will be mitigated by the effect of the hedge.
Unfortunately, the company fell foul of EU competition authorities, which found that its German subsidiary had colluded in price fixing in the EU in the 1990s and the early part of this decade. Though appealing the ruling, Sasol may end up paying a hefty euro denominated fine.
SA's big four banks appear to be in a far better situation than their US and UK counterparts. All of them are in the SA Giants Top 20 and all of them have either retained their positions from last year or moved up.
Conservative banking practices in SA have meant that banks here didn't go the same way as former global giants such as RBS, UBS and Citigroup.
One of the best performers in the Top 20 has been Shoprite, zooming up the ranking from 19 to 16 and defying the sceptics who reckoned that consumer stocks weren't the place to be. Shoprite is fully exploiting its first-mover advantage into the rest of Africa and it won't be a surprise if it notches up further gains in the SA Giants ranking in the next couple of years.
Telkom slipped a couple of rungs, from 11 to 13, and it may fall further next year as Vodacom is unbundled and listed separately on the JSE. Rival telecom operator MTN went in the other direction, however, going from 12 to 9. Like Shoprite, it has done exceptionally well in the rest of Africa and beyond.
Last year, MTN was the subject of a bid from India's Reliance Group. Once global equity markets stabilise, it would not be surprising to see MTN being the subject of another bid, either from Reliance or elsewhere. It's an exceptionally well managed company that has paid its dues long ago in Africa and knows how to operate there successfully.