JSE and equities Business Structures The Act provides for 2 - - PDF document

1

N Cert 6 Investment specialisation

THE ACADEMY OF FINANCIAL MARKETS Mod 4 – JSE and Equities

THOUGHT FOR THE DAY

Through perseverance and faith, even the snails reached Noah’s ark

JSE and equities

Business Structures

The Act provides for 2 categories of companies: Non profit companies, which are the successor to

companies limited by guarantee and section 21 companies; and

For profit companies:

– private companies; – public companies – personal liability companies; – state-owned enterprises/companies

2

JSE and equities

Debt vs. Equity:

Shareholders rights

Listing on the JSE:

Purpose of the JSE Why list? Requirements of listing

Structure and role of the exchange

JSE and equities

The JSE and exchanges:

Two boards: Main board, Alt-X

SAFEX; Yield-X

Order driven market (vs. quote driven) Dual trading capacity

Costs

Bear sales Types of equity securities listed

JSE and equities

Trading on the JSE:

SETS system Classification of shares Investment considerations:

Sector and economy Company results:

Profits, profit growth etc. Dividends

3

4

Introduction to financial markets

The costs of trading practically Company results: Dividends; effect, LDR etc

Example 1

Ratio’s and important information from the results Bear and Bull markets Long positions and short positions (using scrip lending)

Introduction to financial markets

Indices and benchmarks

Well known indices Composition of index Example: Share name Shares issued Price (Day 1) A 1000 R15 B 2000 R8 C 3500 R5 Share prices on day 2; A = R17, B = R7, C =

• R7. If index was 20 000 on day 1, what

was index on day 2?

Introduction to financial markets

Analytical tools

Moving averages – Excel example PE, PEG and forward PE

Example 3

Valuation of shares:

NAV and price-to-book value – Excel example PV of cash flows PE method (pay-out ratio) Expected price (Gordon model)

5

Introduction to financial markets

JSE and equity:

Value determination of equities:

CAPM – Return or (cost of equity) = Risk-free

rate + (Equity Market risk x Share specific risk) = Risk free rate + (Market risk x share Beta)

Dividend growth model (Gordon’s) = (Next

expected dividend) ÷ (Cost of equity – expected dividend growth)

Examples 4 & 5 Sasol Excel example

Introduction to financial markets

JSE and equity:

Corporate actions Share repurchases and effect

Other corporate events

Rights issue Share splits Cash vs. stock dividends

Equities

• Example: PTY company has 1m shares

in issue. The NAV of the company is R8m which includes cash of R700 000

• n which they earn 9,5% NACM. The

after tax earnings of the company was R 950 000 for the year. The share is trading at R 7 per share on the JSE. What would the effect on the NAV per share and EPS be if they decide to use the cash to buy back shares in the market?