You can listen to Francly Speaking on your favourite podcast platform each week.

We have just entered the final stretch of 2022. As of 30 September 2022, the price of the Satrix 40 ETF was R58.57, a decrease of 4.87% from the previous quarter (R61.57) and a decrease of 1.13% from 30 September 2021 (R59.24). Let’s analyse what happened this quarter.

Top Performers

Contrary to the previous quarter where only 4 companies had positive returns, this quarter saw 13 of the 40 stocks listed on the JSE Top 40 in the green. African Rainbow Minerals (ARM) were the biggest winners this quarter seeing a share price increase of nearly 15% over the past three months and 124% over the past 5 years. ARM’s performance can be attributed to its positive financial results, in which net profit margins grew from 64% last year to 73% this year.

Just behind ARM was ABSA, who’s share price increased by 14% this quarter. In just 6 months the newly appointed CEO has accelerated the “reimagining” of a group emerging from a 3-year process of detaching itself from former parent Barclays Plc. Absa is now positioned as a front-runner to challenge market leader, FirstRand. A strong profit increase, expanding market share and a solid balance sheet resulted in ABSA outperforming its banking sector peers this quarter.

Woolworths were also big winners this quarter with growth of over 12%. This can be attributed to their strong financial results in which Woolworths’ Fashion, Beauty and Home businesses - which had been underperforming for many years - having sales growth of 6.5% in the last six months and a gross margin now nearing 50%. After struggling with a R21.4 billion debt burden following its takeover of David Jones in 2014, Woolworths now boasts a robust balance sheet and a net cash position of R229 million. This was partly thanks to a R1 billion dividend payout by David Jones, which was used to help settle its debt.

Exxaro continues to perform with quarterly growth of 2.1% and yearly growth of 25.7%. The company, a major supplier of coal to Eskom with interests in energy and iron ore, reported a 75% increase in earnings mainly due to the strong performance of its coal business driven by higher sales prices, but offset by slightly lower sales volumes which were due to Transnet's poor rail performance. Record coal prices were driven by the Russia-Ukraine conflict and Indonesia's ban on coal exports, which affected global trade movement and increased demand for South African coal.

Worst Performers

The majority of companies had a negative quarter and this included the likes of Discovery as its share price fell 18%. This is mainly due to the market taking an increasingly dim view of Discovery’s capital-hungry businesses, especially its Ping An Insurance venture in China. Even with a 70% increase in annual profits, Discovery’s share price fell as they announced they will not be issuing dividends for the second consecutive year. Capitec’s share price fell more than 21% this quarter. This was due to increasing global inflation and worsening interest rate concerns sparked by the bank’s earnings guidance, which the market felt had fallen short of expectations.

Kumba Iron Ore was the worst performer as it plunged 26%. Kumba took it on the chin both financially and operationally as production dropped from its mines in the Northern Cape, while the iron ore price plunged.

Sasol also took a hit as their share price fell 23%. In spite of their promising financial results and dividend payout, the sliding oil price weighed heavily on their performance. The country’s second biggest carbon emitter is also wary of the impending carbon tax, which threatens its financial viability and possibly risks the closure of their South African operations.

Don’t Panic!

This quarter had its fair share (pun intended) of ups and downs due to the sliding oil price, increased inflation and ongoing global supply issues caused by the Russia-Ukraine conflict. However, positive financial results and dividend payouts restored investor confidence and helped bring positive growth to some companies within the fund.