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We take a look at the latest JSE All Share Index PE ratio as calculated based on data released by the operator of the stock market, the JSE. The PE ratio of the All Share index declined sharply compared to the previous month, largely due to a very strong decline of the markets during May 2019.
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All Share PE ratio over time up to end May 2019
Before we take a look at the JSE All Share PE ratio over time and the levels it is currently at, perhaps its best to explain exactly what the PE ratio measures and what it tells one about the valuation of a company and or the markets overall. In short the abbreviation PE stands for Price to Earnings.
So a PE ratio is the price over the earnings. So lets say company X is listed and its shares are trading at R100 a share. Same company X reported in their last set of results that their earnings came in at R10 a share.
This the PE ratio is R100/R10 = 10.
So its the value of the shares divided by the profits made by the company (or more broadly total value of all shares divided by total profits of all shares on the market). But now we have a PE ratio of 10. What does that tell us? What does it mean? Assuming company X will make R10 a share every year to infinity, the PE ratio of 10 tells you that in 10 years time, the company would have made in profits per share, what you are paying for the share price now. Or looked at differently R100 paid per share over PE of 10 gives you a earnings yield of 10%. Lets take an example that doesnt include so many 10's.
Company B makes a profit of R5.95 a share (and its share price is trading at R100 a share). The PE ratio would be R100/R5.95= 16.81. Thus the PE ratio of company B is 16.81. So assuming it makes R5.95 in profits each year, one would have to wait 16.81 years before profits made over 16.81 years equals what you are paying for the shares now, alternatively that's a earnings yield of 5.95% (R100 a share/ PE of 16.81 = 5.95)
So now that we know how to interpret a PE ratio, lets take a look at the monthly PE ratio's for the JSE All Share Index as well as a 13 month moving average which is indicative of a longer term PE ratio for the market as a whole.
So a PE ratio is the price over the earnings. So lets say company X is listed and its shares are trading at R100 a share. Same company X reported in their last set of results that their earnings came in at R10 a share.
This the PE ratio is R100/R10 = 10.
So its the value of the shares divided by the profits made by the company (or more broadly total value of all shares divided by total profits of all shares on the market). But now we have a PE ratio of 10. What does that tell us? What does it mean? Assuming company X will make R10 a share every year to infinity, the PE ratio of 10 tells you that in 10 years time, the company would have made in profits per share, what you are paying for the share price now. Or looked at differently R100 paid per share over PE of 10 gives you a earnings yield of 10%. Lets take an example that doesnt include so many 10's.
Company B makes a profit of R5.95 a share (and its share price is trading at R100 a share). The PE ratio would be R100/R5.95= 16.81. Thus the PE ratio of company B is 16.81. So assuming it makes R5.95 in profits each year, one would have to wait 16.81 years before profits made over 16.81 years equals what you are paying for the shares now, alternatively that's a earnings yield of 5.95% (R100 a share/ PE of 16.81 = 5.95)
So now that we know how to interpret a PE ratio, lets take a look at the monthly PE ratio's for the JSE All Share Index as well as a 13 month moving average which is indicative of a longer term PE ratio for the market as a whole.
So since January 2011, the JSE All Share average PE ratio is sitting at 17.78. As at the end of April 2019, the JSE All Share PE ratio was sitting at 17.33 (so below above the average levels since the start of 2011). And the longer term PE ratio as measured by the 13 month moving average (which has been in constant decline for some time now), came in at 18.13, which is above the current PE ratio of the market as a whole.
So what does it tell us about the markets and its valuation? Well market valuations have certainly come down strongly since late 2016 when the market PE ratio was around the 23 mark. Since then company profits and earnings have been disappointing sending share prices tumbling down and dragging down PE ratios with them. The month of May was a particularly brutal months for the markets, with May seeing the markets lose almost 5% of its value, which is the main reason the PE ratio of the overall markets saw the decline from over 18 last month to just above 17 as at end of May 2019.
It is handy to know what the overall market PE ratio currently is, what it's longer term trend and average value is. Especially when looking at the valuations and PE ratios of individual shares listed on the JSE one can compare individual company PE ratios and see how they compare to the overall market average PE. But PE ratios is one of a multitude of numbers one should look at before determining whether the markets or a particular share is expensive or not.
So what's happened in SA equities markets in recent weeks? Well below a short summary from Peregrine Treasury Services for the last week in SA equities. Read the full weekly market wrap here.
SOUTH AFRICAN EQUITY
Local markets sold into the cabinet reshuffle this week, pointing toward a material amount of investors not being too confident in the thinking of Ramaphosa - most interestingly, David Mabuza being appointed as an MP.
Sibanye Gold saw their shareholders voting overwhelmingly in favour of the buyout of Lonmin, indicating that the risk appetite is big enough to venture into the likes of palladium and platinum, where they previously hadn’t. Shortly after this announcement the Sibanye chairman announced his retirement. Neal Froneman will now take center stage and ensure the success of the takeover.
Here’s some of the bigger movers on the JSE for the 2019 year so far, as at Friday morning:
So what does it tell us about the markets and its valuation? Well market valuations have certainly come down strongly since late 2016 when the market PE ratio was around the 23 mark. Since then company profits and earnings have been disappointing sending share prices tumbling down and dragging down PE ratios with them. The month of May was a particularly brutal months for the markets, with May seeing the markets lose almost 5% of its value, which is the main reason the PE ratio of the overall markets saw the decline from over 18 last month to just above 17 as at end of May 2019.
It is handy to know what the overall market PE ratio currently is, what it's longer term trend and average value is. Especially when looking at the valuations and PE ratios of individual shares listed on the JSE one can compare individual company PE ratios and see how they compare to the overall market average PE. But PE ratios is one of a multitude of numbers one should look at before determining whether the markets or a particular share is expensive or not.
So what's happened in SA equities markets in recent weeks? Well below a short summary from Peregrine Treasury Services for the last week in SA equities. Read the full weekly market wrap here.
SOUTH AFRICAN EQUITY
Local markets sold into the cabinet reshuffle this week, pointing toward a material amount of investors not being too confident in the thinking of Ramaphosa - most interestingly, David Mabuza being appointed as an MP.
Sibanye Gold saw their shareholders voting overwhelmingly in favour of the buyout of Lonmin, indicating that the risk appetite is big enough to venture into the likes of palladium and platinum, where they previously hadn’t. Shortly after this announcement the Sibanye chairman announced his retirement. Neal Froneman will now take center stage and ensure the success of the takeover.
Here’s some of the bigger movers on the JSE for the 2019 year so far, as at Friday morning:
- Impala Platinum: up 54.85%
- Kumba Iron Ore: up 60.70% (up 7.00% in the last week)
- Lonmin: up 51.13% (up almost 20.00% in the last week due to Sibanye takeover)
- Tongaat Hulett: down 67.56%
- Rebosis Property Fund: down 69.52%
- Delta Property Fund: down 56.00% (more than 10.00% in the last week)