Background and overview of JSE (JSE):
The JSE is a key institutional feature of South Africa’s economic landscape, providing a Primary and a Secondary Market as well as post-trade and technology services. It also sells market data, and regulates the Primary and Secondary markets.
• The Exchange connects buyers and sellers in a variety of financial markets: ͵ Equities, Financial Derivatives, Commodity Derivatives, Currency Derivatives and Interest Rate Instruments.
• The JSE is licensed to operate under the Financial Markets Act, 19 of 2012, and is the largest African exchange by market capitalisation and value traded.
• The Exchange has global reach through its international investor base and range of tradable instruments, enabled by cutting-edge technology. It offers exposure to investments from South Africa, the African continent and further afield.
The JSE is currently the sole provider of stock market services in South Africa. Their monopoly in the sector and the high regulatory barries to entry makes the JSE a compelling investment case even before we review their financial results. We believe in value investing and cases like these where there is no real competition and barriers to entry will always offer a value investment proposition
• The Exchange connects buyers and sellers in a variety of financial markets: ͵ Equities, Financial Derivatives, Commodity Derivatives, Currency Derivatives and Interest Rate Instruments.
• The JSE is licensed to operate under the Financial Markets Act, 19 of 2012, and is the largest African exchange by market capitalisation and value traded.
• The Exchange has global reach through its international investor base and range of tradable instruments, enabled by cutting-edge technology. It offers exposure to investments from South Africa, the African continent and further afield.
The JSE is currently the sole provider of stock market services in South Africa. Their monopoly in the sector and the high regulatory barries to entry makes the JSE a compelling investment case even before we review their financial results. We believe in value investing and cases like these where there is no real competition and barriers to entry will always offer a value investment proposition
Scroll over or click on the funnel chart to get more details of JSEs latest financial results
Financial review:
The review of the JSE's financial results comes at a time when news broke that ZAR X has been granted a conditional stock exchange licence by the Financial Service Board (FSB). It will however take a very long time for ZAR X to build investor confidence and lure companies to list on their exchange. Since barriers to entry are high in this industry, one would expect the JSE to earn decent margins as they are the only supplier of the service.
Their net profit margin is sitting at 42% which is extremely strong. Their earnings per share came in at R10.40 (putting them on a PE of around 14.5), which is not demanding at all considering they basically the monopoly as the only regulated stock exchange in South Africa. We feel they can easily get away with a valuation on PE level at closer to 20. They generated around R11.60 per share in cash from their operations. Since they dont have large retail outlets and a footprint across the country, and most of their operations are located in one central location, their overheads wont be astronomically high, part of the reason their margins are so strong.
We do not think that ZAR X will have a significant impact on the JSE's future earnings for some time and would still recommend buying JSE shares due to their foothold in the market they in.
Their net profit margin is sitting at 42% which is extremely strong. Their earnings per share came in at R10.40 (putting them on a PE of around 14.5), which is not demanding at all considering they basically the monopoly as the only regulated stock exchange in South Africa. We feel they can easily get away with a valuation on PE level at closer to 20. They generated around R11.60 per share in cash from their operations. Since they dont have large retail outlets and a footprint across the country, and most of their operations are located in one central location, their overheads wont be astronomically high, part of the reason their margins are so strong.
We do not think that ZAR X will have a significant impact on the JSE's future earnings for some time and would still recommend buying JSE shares due to their foothold in the market they in.
The graphic below shows the contribution of some of JSEs operating divisions to the JSE's revenue
As can be seen from the pie chart above, there are a large number of revenue streams for the JSE. Which is a good thing as they not overly dependent on just one product or service that they supply. We like the fact that they have a diverse revenue stream. As long as the JSE keeps track of this and ensures all products are traded regularly they should be smiling for a long while still.
Valuation:
Based on JSE's financial results, the markets they operate in and their "monopoly" on the trading services and stock exchange industry, we value the JSE at between R165.50 and R167. The valuation would place them on a PE of (which should not be used to often as a measure of valuing a share) around 16, which is not that high, as we mentioned earlier. At this valuation we feel the JSE might be worth more, as our valuation model is extremely conservative. We therefore see the JSE as a buy at its current price level.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
