“With such a small market cap, is it fundamental factors that are driving it, or is it a few interested speculators that are pushing it. It’s not hard to do, it doesn’t take a large capital investment to do so,” independent analyst Ian Cruickshanks told CNBC Africa.
“These aren’t suitable companies for, let’s say the widows and orphans, because they can come down just as quickly as they went up.”
Cruickshanks added that a particular stock that entered the list is unsecured lender FinBond, and this raised the question as to whether it will become the next large unsecured lender in the county, such as Capitec bank.
He explained that the risk will however be commensurate with the reward.
Other unsecured lenders such as [DATA ABL:Abil] and [DATA CPI:Capitec bank] will nevertheless have to concentrate on their core businesses in order to continue as strong contenders on the Johannesburg Stock Exchange.
“ABIL, is it a bank [and] a furniture company via Ellerines. They haven’t quite secured their position in the market. Capitec is quite straightforward. They are there to lend in the unsecured market to those people who cannot get credit elsewhere. That means the risk is high, but they’re credit control is very strong and their funding is secure. Those two factors are key,” said Cruickshanks.
[DATA FGLN:FinBond] is one of few companies that have begun the transition into an institutionalised bank, but there are key success factors that need to be observed when making such a transition.
“Confidence of the depositors [is key]. It’s very easy for depositors to take their money in. it takes a long time to take the money away. It takes a long time for depositors to build up the confidence that they’re going to leave their hard-earned assets, hard-earned savings for any length of time,” Cruickshanks explained.
“They have secured a banking licence on the fundamental view that they have the right security systems, controls, compliance and all of these factors together have said to the authorities ‘you deserve a license.’”
Predictions for this year’s best-performing stock will have to depend on their share price performance, security, income returns, among others.
“What we have to see is that companies which have a secure market which has growth potential and that hasn’t been overstretched in the short term. Take the retail sector: consumers are overstretched, over-indebted. It may be a tough time for them. We can’t see them hitting the high spots again,” said Cruickshanks.