The celebrity CEO may be history, as The Economist declared last month, but there is always room for the super-successful company .
But identifying those companies has become a difficult task The late Nineties spawned many companies, in SA and abroad, whose published figures did more to confuse than explain. The goal was to obfuscate the fact that business plans were built on shaky foundations and there was little profitable activity. Many investors were duped. It has been a baptism of fire for bargain hunters looking to score in the new economy.
In light of Enron, perhaps the biggest wake-up call investors have ever suffered, it's tempting to declare company disclosure an art rather than a science. The prettier the picture, the bigger the rewards. Some embittered losers in the flurry for
By looking at a range of numbers that have been carefully standardised make comparisons meaningful, our ranking here aims to find the real performers.
Three factors come into the ranking of our 20 Top Companies. First, these companies have delivered to shareholders, growing their wealth consistently over a five-year period, as measured by internal rate of return (IRR). Second, they have delivered strong growth in earnings per share (EPS) over the same period. Finally, they are current winners, delivering a strong return on equity for the latest year.
They have also held a consistent JSE Securities Exchange listing for the past five years, and have a market cap in excess of R1bn at the end of February.
Apart from the Top 20 we name as our winners, all the eligible companies are ranked by IRR in the Top Performers table, which includes five-year compound EPS growth too. Companies with less than R1bn in market cap also appear in this table.
By using the three measures, we hope to capture those companies that have performed well in the past and still deliver. They must appeal to investors who make their own forward-looking judgments.
Because this ranking is determined from historic data, hindsight can show some companies lacking. The IRR column is roughly based on share price performance; a low rating indicates that investors are not too hopeful about the future.
The majority here, though, are still real winners.
It always takes a bit of luck to hit the big time. That ticket was handed to platinum companies last year, as the price of the metal outshone all else. Four of our best 20 companies are in platinum, including the top spot taken by Impala Platinum, a company that has walked a careful path of reinvention to unlock the huge potential in the business (see page 93).
Riding on the back of Implats' achievements has been sixth-placed Gencor, a 46% shareholder. The Implats holding is now about all that's left of Gencor, and that is expected to be unbundled to shareholders imminently. Gencor will then be wound up. That's the theory, but a group of people who once worked at Gencor-owned asbestos mines is trying to prevent the unbundling, to protect future claims against Gencor.
Anglo American Platinum, the world's largest producer, rode a similar wave to come in at third place. It has more in the ground than Implats, but has spent heavily on capital expenditure. Executive chairman Barry Davison has said he intends Angloplat to be able to produce 3,5m oz of platinum a year by 2006 - 50% more than current levels, and more than half of current world production.
Ninth-placed Lonmin Plc is the fourth platinum heavyweight. But it has not kept up that performance - March 2002 interim EPS were down 13%. Investors still have some faith in the stock, affording it a 13 historic p:e.
Second-placed African Bank Investments Ltd stands out. Here is a company in the new and uncertain world of microlending that has genuinely performed. Competitors Unifer and Saambou hit the skids earlier this year. But if ever there was evidence that a business plan and management decision making, not an industry, makes the biggest difference to a company, then Abil provides it. It has proved that clever management thinking can beat the odds. Witness Abil's cautious response to the end of government payroll deductions in 2000. Unifer and Saambou turned to corporate payroll and direct lending, growing their loan books at breakneck speed. Abil's total advances were down in the same year, but have grown slowly since March 2001.
Abil CEO Leon Kirkinis told the FM earlier this year: "There are two ways to build assets. One is to take a truckload of money and dish it out. The other is to pay someone to take a truckload of money and dish it out." Abil has played it far more cautiously, building a network of distributors who are on the Abil payroll, and forming a joint venture with Standard Bank.
In a completely different industry, fourth-placed Ceramic Industries is the smallest by market cap of our Top 20. The low-profile producer of ceramic tiles and sanitaryware has taken advantage of the weak rand and become a model of import-substitution business. As the allure of imported tiles dwindled for SA consumers, Ceramic opened its own business in the capital of ceramic-chic, Italy. It also has international expansion ambitions in Australia. But domestic business through marketing-heavy retailers such as Italtile and Tile Afrika has given Ceramic Industries its record-breaking growth. CE Nick Booth is not one to grab the limelight, but investors are noticing Ceramic's performance and have pushed its p:e to almost 14.
Fifth-placed Datatec is the highest-ranking company in IT, the industry most hurt by the end of the late-Nineties bull run. Datatec's low IRR, second only to that of IT bedfellow Didata, shows how investors have turned against the share. Profits forecasts are dim and CEO Jens Montanana has been criticised for his handling of an insider trading settlement. The company has achieved this year's ranking primarily because of its stellar long-term performance; compound growth in EPS places it third behind Implats and Abil. But that came to a sudden end with its March 2002 year-end results (which do not affect this ranking), when EPS were down 18%. The business faces huge challenges next year to claw its way back to the outstanding achievements of the past few years. Much depends on a turnaround in developed-market IT spending, which all but collapsed in the depressed economic climate of the past year. Datatec earns only 3% of its revenue in SA, so foreign market performance is paramount.
Didata, placed 17th, tells a similar story. Its position is secured by historic growth, but with an IRR of 2,6, no other company in the Top 20 has experienced a greater loss in investor faith. Their scepticism has been borne out: EPS collapsed 76% in the six months to March 2002.
Electronics company Allied Technologies (Altech), a subsidiary of Altron, proves that all is not evil in the "new economy". Mainly in the business of telecommunications equipment, Altron has become a high flyer in two years. The secret has been its successful money-spinner UEC Multi-Media, which produces digital satellite TV systems. It has also benefited from the weak rand, with foreign demand rocketing. Sustaining this run will take a Herculean effort.
Altech is not the only achiever from the electronics industry - 10th-placed Delta Electrical Industries shares the terrain. Delta (not to be confused with Delta Motors) is the world's largest manufacturer of electrolytic manganese dioxide, used by international battery manufacturers such as Duracell, Energizer and Panasonic. As an exporter, Delta scored from rand weakness, which helped it overcome a fall in global demand for its key product. Talk is rife that its British parent is looking to buy out the few minorities from the SA company and delist it.
Ranking just above Altech is Richemont, six times its size by market cap. The Swiss-based luxury goods group is something of a patriotic symbol for SA investors, who have seen the global brands company grow from within Stellenbosch-based Rembrandt (now Remgro and Venfin) to hit the big time with brands like Cartier, Mont Blanc and Van Cleef & Arpels. Richemont decided to turn itself into the luxury goods group in 1997, a decision that has since won it big fans, despite the glum outlook for luxury brands recently. The big driver for Richemont's achievement in this year's ranking is its latest return on equity. The ROE is boosted by a R6bn intangible asset, representing the cost of control, which, by our methodology, is removed from the company's total equity.
Banking groups have established their presence in the Top 20. Aside from Abil, two of SA's four biggest banks, FirstRand at 11th place and Nedcor at 15th, take their places with good compound EPS growth. The fifth-largest bank, Investec, has taken the 17th spot with the similar support of historic numbers. Both Investec and Nedcor were helped by the latest year's ROE, which benefited from rand depreciation.
The exchange rate also helped 12th-placed Uni serv, a locally listed company whose only investment is 36% of Nasdaq-listed transport group UTi. UTi has been hit by the US economic slump, but rand weakness has kept Uniserv's numbers looking good.
Sharing the transport sector is Super Group, whose historic compound EPS growth and latest ROE have done more for its ranking than investor sentiment. Super Group's latest results show the reason: EPS were down 27%, thanks to a 20% exposure to Unifer which had to be almost written off. But the core business of Super Group remains sound and the company should return to the rankings in 2004.
Fishing group Oceana is an example of solid management of an industrial company and it also has strong empowerment credentials through Real Africa Holdings. Though vulnerable to government's decisions on fishing quotas, Oceana has diversified across the fishing industry and built a strong export business. Institutional investors give firm support, despite its R1,5bn mid-cap status.
Paper and pulp company Sappi (14th) is another example of clear, solid management on a large scale. CE Eugene van As has won market plaudits for a careful acquisition strategy, financial prudence and taking calculated risks. Sappi's most recent interim results show the company is weathering the global economic downturn well, putting into context the dip last year-end that led to the low ROE number recorded here. US investors are particular fans of the business, which collects three-quarters of its earnings in hard currency and trades at a 17 p:e.
Coca-Cola bottler Amalgamated Beverage Industries takes 16th place. Other consumer-focused companies have blamed their poor performance on market conditions, but this one shows that good management can fight a market trend. ABI is a subsidiary of SA Breweries; between the two, the beverages market in SA is almost entirely wrapped up. ABI has had to be creative to grow. It has done so by improving productivity and looking for under-tapped markets, particularly black consumers. Financial director Gavin Brockett commented on its latest annual results (which do not affect this year's ranking) that ABI had "fetched the growth", overcoming economic conditions.
The only gold mine on our list, Harmony Gold, takes 20th spot. It's in good shape and is making deals to get out of noncore investments such as its 9% stake in Australia's Aurion Gold, from which it looks set to earn R900m gross profit.
With gold prices now at US327/oz, 23% higher than a year ago, gold companies could make more of an impact on next year's Top 20. If the rand remains stable, financials could also improve their rankings. Against that, companies have to beat off the economic gloom felt around the world. But even if easy times don't return, many of the companies on this list are proof that good management can outweigh bad news.