The FM’s small-cap portfolio performed solidly in 2024. “Solidly” might sound self-deprecating in considering a 37% annual return with dividends added back in.
The JSE’s small-cap index returned about 28% and the mid-cap index around 17%. But more than a handful of small-cap stocks registered gains well in excess of 100%. So, maybe — as stock pickers — we should be humble enough not to be content to peg against benchmark indices.
This year the portfolio fortunately did not have a blow-out position — unlike last year when the portfolio was badly bruised by investment company Brait.
If there was a drag then security barrier specialist Trellidor was the party pooper. Trellidor has managed marked operational improvements and debt reduction, but the market remains sceptical over prospects with demand for security products no longer as robust as in previous years. Consumer products distributor Nu World managed a pedestrian share price gain, but the overall return was bolstered by the traditional generous dividend serving. Assurer Clientele also trundled along behind the pack.
Ironically, Brait blazed a trail of glory late in the year — justifying the FM’s faith in the prolonged turnaround effort. Of course, some may quibble. The FM assumes that the rights offer shares, pitched at 59c a share, were taken up. That would effectively have reduced the entry price to 96c, and ensure a gain of more than 100% for the year. If the rights offer was not followed — a most illogical option — Brait would have had a return in the high single digits … and reduced the overall portfolio gain to under 30%.
Aside from Brait, the other star performers for 2024 were RFG Foods (up more than 55%), the JSE (over 40%), technology conglomerate Reunert (over 25%) and KAP Industrial (over 20%).
The biggest surprise was technology group Ioco (the old EOH), which made a strong charge from the end of September to register a gain of about 70%.
That said, the FM missed out on some real crackers. Investment counter African Rainbow Capital — which is a major shareholder in TymeBank — almost doubled, while Novus, which is increasingly taking on the aspect of an investment company, managed more than 60%. The share price of technology group Altron was up well over 120% and gold miner Pan African Resources showed a glittering 114% gain. Recovering construction group Stefanutti Stocks was up over 200% and Bell Equipment (following an attempted buyout) up over 75%. Nothing, however, could touch Kore Potash, which gained about 360% as its project in the Republic of Congo shifted closer to realisation.
Interestingly, new listings — or rather spun-off listings — We Buy Cars and (more recently) Boxer performed stoutly. Another recent listing, Premier, which is a big player in the bread sector, finally found traction and doubled its share price over the year.
There were a number of landmines that the FM fortunately avoided — especially among the junior mining constellation. Jubilee, Wesizwe, Copper360 and Renergen all took nasty smacks.
The FM’s eight small cap picks (as at 09/01) for 2025 are as follows:
York Timber (230c): York requires patience. But old market hands know that this timber company has tended not to reward patience over the best part of four decades. With activist-minded A2 Capital as a prominent shareholder York should hopefully log more convincing progress towards sustainable profits this year.
Gold Rush (640c): Largely ignored by the market, which would obviously default to larger gaming firms such as Sun International and Tsogo Sun. Gold Rush has a decent slab of the electronic bingo market but, more importantly, has a vibrant online gaming segment that might interest larger players.
KAL Group (R50.75): A well run and diversified retailer with well-fortified margins that dominates its agricultural niches … and can be bought at an earnings multiple of less than 10 times.
Ethos Capital (518c): Maybe this investment company — despite extricating itself from Brait and other small exits — is still perceived as lagging on its value unlocking effort. Hopefully developments with a couple of its bigger investments could firm sentiment and close the discount to net asset value.
Grindrod (R11.90): Political unrest in Mozambique spooked sentiment of late. Looking past current skirmishes north of our border, Grindrod remains well poised to cash in on Southern African logistics demands.
Zeda (R12.82): Car rental and fleet management might not be the most exciting vocations. But the share looks underpriced, especially considering another large influx of tourists into local holiday spots for the Christmas holidays … and the not-so-secret season that runs until the end of April.
Homechoice (R29.95): The progress on building a compelling financial service and fintech business has been nothing short of remarkable. Risks, thanks to a long-standing client base in its traditional retail segment, have so far been well managed.
4Sight (65c): Specialising in AI solutions for mining and industrial groups, 4Sight appears to have compiled a decent-enough client base with solid cash flows to boot. Full year results to end-February should be intriguing to peruse after a fair interim showing.
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