Noah Greenhill: JSE

MONEYWEB, Belinda Anderson, 22 November 2005

What is happening on the small- to mid-cap market?

MONEYWEB: Noah Greenhill from the JSE is our guest in the Investment Insights feature this evening. Noah, we spoke to Ricco Friederichs from Sanlam at about the end of October about how the small-cap sector was performing. We wanted to talk to you tonight about the mid-caps and their prospects, but first perhaps, how would you define what a mid-cap is?

NOAH GREENHILL: You know, there are parameters in terms of the mid-cap index, and I think if those parameters are normally R2bn to about R9bn. But I think certainly in talking about mid-caps I don’t want to restrict it to the index requirements, but rather anything from around R500m to kind of the top 100 companies.

MONEYWEB: So what are some of the companies that spring out to you in the sector?

NOAH GREENHILL: Ooph, Belinda …

MONEYWEB: Just name a couple so we have an idea of mid-caps.

NOAH GREENHILL: Pshew, very difficult, I actually can’t think of any right now.


DAVID SHAPIRO: It’s all the companies that are performing now, the Avengs, the Murray & Roberts, the Aspens, Reunert – anything outside of the top 40. I think companies number 40 to 60, if I’m not wrong, would be classified as mid-cap. That will take us up to 100, and then from 100 to 165 is the small cap. So you’ve got some incredibly good companies in your mid-cap index, and I think some of the top performers.

MONEYWEB: Noah, we saw the small caps bottoming out probably in around 2002 or so. At that stage Arico [?] was telling us that the P multiples were around six, and since then they have moved up to 10, 11 times.


MONEYWEB: Is that what we’re seeing?

NOAH GREENHILL: Very much so, and I think certainly in the companies that we’re talking to, that are looking at coming into the market, are looking at attracting those kinds of PE multiples or even higher.

MONEYWEB: How many companies are you talking to that are wanting to come to market at the moment?

NOAH GREENHILL: Belinda, it is fantastic at the moment, I mean, and long may it continue. But the number of companies that are interested and that are engaging with us as the JSE and saying, you know, what is this process, how do we go through it, what are the costs, what are time periods, who do we talk to, how do we engage with them, numbers in the 20s and 30s and 50s.

MONEYWEB: And this is AltX and main board?

NOAH GREENHILL: AltX and main board. And interestingly, you know, we are starting to see a lot more of those bigger companies phone us up and say, “Come and talk to us”.

MONEYWEB: And what would you say are the advantages of investing, say, in a mid-cap or even a smallish cap company as compared to a top 40?

NOAH GREENHILL: You know, I think, not for one second would I advocate – and I’m not giving investment advice – but not for one second would I advocate, you know, your top 40s, that’s the foundation of your portfolio. But we must never forget that those top 40 companies were once small companies, so the reality is in the mid- to small-cap sector there are some gems that tomorrow or the next day or the next day will be the constituents of the top 40 companies.

MONEYWEB: What risks are there, though? We have seen a lot of them growing really, really quickly. Surely this sort of growth isn’t sustainable. What should investors be wary of?

NOAH GREENHILL: But why are we so scared of growth? Why is that a negative? I mean, if there is good management in the business, if there are good controls in the business, then we should appreciate that growth and buy into that growth, because why is that a bad thing? You know, the companies that are on the top 40 today, some of them are not old companies, some of them are pretty much young companies and they have grown quickly to where they are today.

MONEYWEB: The fact that a lot of the smallish and even some of the mid-cap companies aren’t quite as well researched as the top 40 companies are – what tools do investors have to evaluate whether they are going to be good investments or not?

NOAH GREENHILL: Absolutely, Belinda, I agree with you, that is the case, and certainly something that the JSE itself, we are looking at doing something about that. We are looking at showcasing some of our small to medium-size companies, to the marketplace, whether it be to specific brokers – and it will be initiatives that we arrange, because you must remember that if more investors invest in quality mid-cap companies, more mid-cap companies look at listing on the JSE. If more mid-cap companies look at listing on the JSE, it creates this virtuous circle, and everybody wins. And one thing we must never forget is that everybody is invested in the JSE if they have a pension fund. So if they are employed, 99% of them are invested in the JSE. So it’s in everybody’s interests that more and more companies list on the JSE.

MONEYWEB: And what can companies themselves do to attract investor interest, remembering that there is probably a fine line between overselling oneself and just telling people the story.

NOAH GREENHILL: Sure, and I think the trick there is, you know, it’s the same as selling any other product – and there’s a trick and an art to that. You know, you don’t want to go and oversell, you don’t want to be too much in the face of the investors, but at the same time you also don’t want to be there twice a year because then the guys are going to say, “Well, you know, we see you twice a year, I’m sorry, we don’t have the time or inclination to do the research”. But if you give them that little bit extra and you keep them on the radar, then the guy goes, “Hold on a second, that’s an interesting account they have just managed to secure. OK, let’s put them on the radar screen. We’re not going to invest yet, but we’ll look. OK, interims come out, so it goes, and so you build your relationship with your investors and potential investors.

MONEYWEB: Noah Greenhill from the JSE. David, that pipeline of new listings?

DAVID SHAPIRO: I wish they would come to the market already. You know, we hear about it and I really hope this is sincere and these companies do make it onto the market. But I just want to take up a point with Noah, you know, not against Noah, but I think companies – I am always amazed when we ask people about the share price and the director says, “Well it’s not my concern, I don’t watch the share price”. I think you should watch the share price, I think that it’s very important because it gives you an indicator of what people think of your company. It’s your currency, and I think that it doesn’t mean you have to manipulate it or manoeuvre it, but be conscious of it because if it starts to fall, then it means that the perception out there is wrong and that you’ve got to adjust that by doing things and by taking care of it. And I think it’s very important that, as Noah says, that these companies learn to get the message out and to actually look after their share price and make sure that the right information is getting out.

MONEYWEB: So maybe watch it, but not too closely.

DAVID SHAPIRO: No, it doesn’t mean deal in it and become obsessive about it, but understand it and watch it and know that there are stories out there. The market’s clever, as we have seen with Investec – so be aware of where you share price is trading.

Posted in Market commentary

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