PSG’s intention to exit the local bourse has left analysts and investors with more unanswered questions on what the local bourse (JSE) needs to do to keep businesses listed. PSG’s exit, driven largely by the negative sentiment towards investment-holding structures as a whole – and the large discounts to its sum-of-the-parts at which the company trades – could be a crucial inflection point. The majority of previously listed entities that have departed the local bourse are in the small-to-medium cap space. PSG is a huge business, even post-unbundling Capitec to shareholders. The onerous requirements, which stifle business opportunities, is another reason Piet Mouton is taking the business private. A tough pill to swallow for market participants and another sad day for corporate South Africa. – Justin Rowe-Roberts
Big JSE exodus
Staff writer
The Johannesburg Stock Exchange (JSE) is facing a big problem — many companies are delisting from the exchange with very few new listings to make up for the decline.
The JSE’s latest financial results revealed 25 companies delisted from the JSE in 2021. It follows 20 delistings in 2020 and 24 delistings in 2019.
New listings in the JSE are few and far between. In 2021, there were only seven initial offerings and only four the previous year.
It means that the JSE experienced a net loss of 34 companies over the last two years — a sizeable portion of the 340 listed companies on the bourse.
To put the JSE exodus in perspective — the local bourse had 850 listed companies at its peak in the nineties.
Many IT companies, including Adapt IT and Alaris, form part of the wave of delistings from the JSE.
Marius Strydom, CEO at Austin Lawrence Gidon, said small and mid-cap shares do not get much coverage and do not attract the attention of investors.
Most investors only focus on the top companies on the JSE, which means small companies are struggling to achieve high trading volumes.
“Another trend is the increase in passive funds. If you are not in the index, you’re not held,” said Strydom.
The low trading volumes mean their shares are often heavily discounted, and they are not seeing the benefits of being listed on the JSE.
Small-cap tech shares like Huge Group and Telemasters can go days without any trading. The costs to be listed make no sense to these small-cap companies.
Strydom said the JSE needs to get the more interesting and exciting companies on its platform.
“You have to offer them more than simply a place to trade the shares. These companies must find improved access to capital and improved visibility through the listing,” he said.
However, it will be difficult for the JSE to compete against the vibrant private equity industry, which provides an excellent alternative for new companies to raise money.
Tech startups like Ozow and VALR, for example, raised R750m and R731m, respectively, which show the appetite from venture capitalists to pump money into South African companies.
It would have been impossible for these two companies to raise the same amount by listing on the JSE.
Despite the high number of delistings and challenges to attract new listings, JSE CEO Leila Fourie downplayed the situation.
Fourie said that while the number of listed entities declined, the market capitalisation of listed companies on the JSE grew by 15% during 2021.
“Most of the recent delistings have been in small-and mid-cap companies and largely off the back of corporate actions and schemes of arrangements,” she said.
She did, however, admit that the delistings harmed the JSE. They are now actively cutting red tape and attracting quality dual listings from foreign exchanges to address this problem.
Commenting on the discounts to net asset value at which many JSE listed companies trade, Fourie said this discount is narrowing.
She said the current geopolitical tensions would work in South Africa’s favour and make it more favoured among international investors looking for emerging market exposure.
“These inbound flows will translate into an increase in valuations [of JSE listed companies],” she said.
Read also:
- The key drivers behind the JSE delisting trend – Marius Strydom
- There’s very little Leila Fourie can do – David Shapiro as JSE delisting trend continues unabated
- Scary numbers – youth unemployment, JSE delistings
