Standard Bank SBG Securities has extended its market dominance in the annual Ranking the Analysts survey, which celebrates its 45th anniversary this year.
It has won the overall award for the top-ranked research firm for the sixth consecutive year. RMB Morgan Stanley takes second place and Renaissance Capital is third — unchanged from 2020.
These awards, which recognise excellence in research, shine an important light on SA’s institutional stockbroking sector. The buy side — largely asset managers and pension funds — rates individual research analysts in various sectors and categories and the results are presented in the tables. The FM has been publishing the rankings since 1977 and Intellidex has been conducting the research since 2014.
The FM Ranking the Analysts survey has been the leading assessment of investment banks’ stockbroking businesses for 40 years. The survey remains the most comprehensive assessment of SA’s top investment researchers.
– Click to view other sector tables not included in the print edition
– Click to read the full methodology for the 2021 survey
— Methodology and more rankings
Sellside companies nominate their analysts in the various JSE categories, then the firms that buy their research — asset managers, pension funds and the like — rank the analysts.
Noah Capital wins the Small Black Broker Award, which was introduced last year to recognise excellence in this space, as well as to help overcome structural hurdles that small brokers face. Prescient Securities ranks second, followed by Primaresearch.
The Young Analyst Awards go to Standard Bank SBG Securities’ Keamogetse Konopi for the equities category and Reezwana Sumad from Nedgroup for the nonequities category.
In the institutional stockbroking sector itself, the second Markets in Financial Instruments Directive (MiFID 2) in Europe continues to reshape the industry with the rise of corporate-commissioned research. This is a direct result of MiFID regulations, which require the separate invoicing of research and execution — two elements that were traditionally grouped under execution services.
MiFID’s biggest unintended consequence was a sharp drop in sellside coverage, particularly of small- and mid-cap stocks. Asset managers are now using fewer research companies and squeezing out smaller brokers, leading to consolidation and a shrinking commission pool. In SA, this is particularly problematic in that it retards transformation in the industry.
Many of the smaller players are black brokers who already have difficulty in gaining access to the large asset managers, for example, or struggle to provide their analysts with the resources that those who work for the large investment houses may receive.
Because of the reduction in coverage, many companies are now commissioning sellside analysts to generate consensus earnings forecasts, without which it’s difficult to get investors to bite.
Noah Capital Markets CEO Michael Kavanagh says MiFID 2 has resulted in a dramatic decline in payment for research. “This has led to fewer analysts and reduced coverage of listed companies,” he says.
Consequently, companies that are not covered by brokers are commissioning direct coverage.
Kavanagh says Noah does not employ analysts, but rather has “a network of independent industry experts” contracted to deliver services for clients.
“The independence of our experts by nature means that some of them work for corporate clients as well. So this is not new to us,” he says.
“At the end of the day, our clients require a value-added service from us, one aspect of which is expert opinion and research. Where there is an actual or perceived conflict of interest, this would need to be disclosed.”
Yvonne Mhango, Renaissance Capital’s head of research for Africa, says RenCap introduced corporate-commissioned research last year across all its geographies and has received a positive response from companies and investors.
“Given the decline in sellside coverage of small-cap stocks, we see corporate-commissioned research as providing an important link between small- and mid-cap companies and investors.”
Marc Ter Mors, the head of equity research at Standard Bank SBG Securities, says corporate-commissioned research, which is a growing trend in Europe, will become more prevalent here. This is when companies pay for sellside research ratings — in the way companies and governments do for credit ratings — to generate consensus earnings forecasts.
He says Standard Bank SBG Securities has noted substantial demand from companies for coverage. The two main drivers of the trend are: the ability to market a corporate profile to retail and institutional investors; and to provide a quality consensus forecast on earnings and dividends.
“If you don’t have that, as an investor you’ll put a higher risk premium on that stock. Improved coverage lessens the risk premium of investors,” says Ter Mors.
He says the consensus earnings forecast provides an important underpin to a stock.
“Passive index trackers and artificial intelligence programmes require sellside forecasts for investments to kick in.
“So firms with no consensus earnings forecasts will be excluded. We did some quants work comparing price:earnings ratios over 10 years of covered and noncovered stocks and the valuations were 8% higher for covered stocks on a rated market-cap basis. We think there’s opportunity for small- and mid-cap companies to pay a fee for coverage — something which is common in Europe.”
He says JSE small caps were up 28% in the first quarter of 2021, “substantially outperforming after underperforming over the past 10 years”. That’s further good news for investors, providing an underpin to the commodities-led upswing.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.