Capital Raising on the JSE, are we about to turn the corner?

May 6, 2024

 

By Troye Brady, Aprio Investor Relations

 

It is well-documented that the JSE had been losing listings at a steady rate, declining from 616 companies in the year 2000, to having slipped under the 300 mark currently. [BB1] Reasons typically provided are the onerous requirements and costs of the JSE. However, in a study of the JSE mining sector, conducted by Aprio in early 2023, we found that other reasons such as the business environment (commodity cycle), breach of rules/fiduciary duty and corporate action (mergers & acquisitions) far outnumbered the reasons for delisting, compared to JSE rules and costs.

 

This was also supported to some extent by JSE CEO, Leila Fourie, who recently said that most de-listings occur among small to mid-cap companies, which are more susceptible to the reasons listed above. This was one of the main reasons for the establishment of AltX in 2003, the alternative exchange of the JSE, with lower costs and listing requirements aimed at accommodating smaller companies. The JSE also periodically eased several requirements on its main board in recent years. And on 18 April this year, the JSE announced that it intends to segment the main board into a Prime and a General Segment, and ease requirements even further for smaller companies.

 

This relaxation in requirements and costs by the JSE come at a very opportune time, as the business environment may be about to improve. We’ve already seen some upward revisions of global economic growth estimates by the likes of S&P. There are also expectations that interest rates, currently at a 15-year high in South Africa, might drop later this year. And then, of course, we have the all-important general election happening in May, which could unlock positive sentiment if there is a favourable outcome, similar to the “Ramaphoria” after the last election.

 

Even disregarding the above, there have been some positive developments regarding listings in the last few months. Firstly, the de-listing trend seems to be slowing, from over 20 in 2022, to 11 in 2023 and only 2 so far in 2024. Secondly, the JSE is talking about an uptick in capital market activity and up to 10 new listings in 2024, most of which are likely to happen after elections.

 

Therefore, it does appear that the cloud of negative sentiment and de-listings may be coming to an end. We could be on the eve of a new concertina-effect; whereas in the last few years we’ve seen companies merging and consolidating (resulting in fewer listings), we may now see a wave of unbundling again, as companies wish to unlock value from profitable underlying businesses. One recent example is WeBuyCars that spun out of Transaction Capital, RCL Foods is looking at spinning out Rainbow Chicken and Pick and Pay is talking about spinning out its discount chain, Boxer. In addition to that, there is still the massive Coca-Cola Beverages Africa listing hovering in the background, along with a few others.

 

What does this all mean for Investor Relations? Well, if activity and sentiment on the JSE improves, it will mean increased interest in all the companies, especially undervalued ones. It may therefore be time to do the following:

 

• Have a re-look at your website and give it a refresh, ensuring that it looks interesting and is easy to navigate.

 

• If your company does not yet have a clear stand-out page with a concise Investment Case, now is the time to get it done, or give it a refresh.

 

• Ensure that your company has a strong presence on social media, the world has moved on and nowadays many investors rely on social media (such as YouTube, Twitter, Facebook etc) to get their daily update.

 

• It is also a good idea to have a good media monitoring service, so that you are alerted to any discussions going on about the company and react to that quickly, in order to prevent the spread of misinformation.

 

At Aprio Investor Relations we can assist with all of these. Our experienced team of professionals has a proven track record of success across a range of industries and can provide tailored solutions to meet your unique needs. Whether you’re looking to develop a comprehensive IR programme, engage with stakeholders, or manage a crisis, we have the expertise to help you succeed. In addition to our full-service offering, we also provide project-based work to inform board deliberations. Our services in this area include market intelligence, peer analysis, and perception studies, among others.