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

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 1

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 2

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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) 4

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 on 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? 5