Pinnacle the best share of the century

ANCHOR CAPITAL – From the Desk

Anchor Capital – 20 February 2012

Pinnacle the best share of the century

Pinnacle Technology, a long-time favourite of ours, is the best performing SA share of the century so far, with a return of over 7000%. R15,000 invested on the first day back at work in January 2000 would be worth R1.12m today.

Over the same period the index was up 305%, or 25.4% per annum, excluding dividends.

Last week we published a list of the top 20 worst performing big cap SA shares and today it is the turn of the best. The top 10 (>R1bn market cap today) also includes Grindrod, Cashbuild, Assore, Brimstone, Aspen, Invicta, Wilson Bayly, Famous Brands and Premium Properties.

Perhaps the most striking feature of the results is all of the top 10 shares have almost nothing in common in terms of industries or economic drivers. They all have their own individual stories and methods of creating enormous value. Great management is common, not unexpectedly, but besides this we would group the major drivers of performance of the top 20 as follows:

•       Very high return business with strong business formula rolled out: Cashbuild, Aspen, Famous Brands, Shoprite, Mr Price

•       Combination of organic (big market share growth) and acquisitive growth: Pinnacle, Aspen, Invicta, Wilson Bayly, Cashbuild, Premium, Metair, Netcare, Sentula, AVI

•       Clever deal-making: Brimstone, Hosken, Dawn

•       A significant growth in the industry, or positive shift in industry fundamentals: Grindrod, Assore, ArcelorMittal

•       Recovery of business that was in trouble: Rainbow

•       Low share price and size as a starting point: Pinnacle, Grindrod, Brimstone, Hosken, Dawn, Sentula, ArcelorMittal

So what can we learn in helping us identify the winners for the next 10 years? Firstly, few of these shares were highly rated to start with and many were small businesses. Finding a management team with the ability to grow market share within an industry and make the right value-adding acquisitions appears to be the most common characteristic. The industry itself does not seem to be that important over a long period, but it has to at least be a reasonable industry.

Probably the most important factor is to maintain fundamental analysis of a business and many of these shares would not have been identified without careful analysis and assessment of management. This has to be sustained and winners can fall off their pedestal. Sentula, Dawn and ArcelorMittal might be in the top 20 shares this century, but they are also in the top 20 worst performing shares of the last five years!