JSE Contrasts: Why Fundamentals Trump Noise in Super Group vs. Absa

The Johannesburg Stock Exchange (JSE) has long been a microcosm of South Africa's economic pulse, but recent months have revealed starkly divergent paths for two of its listed giants: Super Group Limited (SPG) and Absa Group Limited (ABG). While Super Group's shares have cratered amid operational struggles, Absa has navigated macroeconomic headwinds with relative stability. This contrast underscores a timeless investing truth: fundamentals—profitability, balance sheet strength, and strategic execution—ultimately outweigh short-term market noise.

The Super Group Slide: A Cautionary Tale of Fragile Fundamentals

Super Group, a supply chain and mobility services provider, has become a poster child for how poor financial discipline can erode investor confidence. Key metrics paint a dire picture:
- Revenue vs. Profitability: Despite R62.94 billion in trailing revenue, its net profit margin has turned negative (-0.11%) due to soaring costs. Gross margins have also compressed to 13.78%, reflecting pricing pressures or inefficiencies.
- Debt and Dividends: With a debt/equity ratio of 47.7%, the company's leverage is a red flag. Its dividend payout ratio of -291%—meaning dividends exceed losses—suggests unsustainable payouts, further spooking shareholders.
- Market Sentiment: Analysts have slashed Super Group's price targets, with consensus EPS estimates dropping 10% in early 2025. Its stock, down 55% year-to-date, trades at a negative P/E ratio, reflecting deep skepticism about its turnaround prospects.

Absa Group's Steady Hand: The Power of Financial Resilience

Absa Group, by contrast, has demonstrated the value of a prudent balance sheet and sector dominance. Key strengths include:
- Profitability and Efficiency: Absa's headline earnings rose 10% to R22.1 billion in FY2024, with a net profit margin of ~20%. Its cost-to-income ratio held steady at 53.2%, even as revenue grew 5% to R109.9 billion.
- Capital Strength: A Common Equity Tier 1 (CET1) ratio of 12.7% ensures regulatory comfort, while its Return on Equity (ROE) of 14.8% (targeting 16% by 2026) signals disciplined capital allocation.
- Dividend Sustainability: Absa's dividend per share rose 7% to R14.60, underpinned by stable earnings and a dividend payout ratio of 66%, far more sustainable than Super Group's.

Investor Sentiment: Noise vs. Substance

The market's reaction to both stocks reveals a clear divide between short-term volatility and long-term fundamentals:
1. Super Group's Downward Spiral: Its weekly price volatility of 17.2% (vs. 5.2% for the JSE) reflects panic over its financial health. Investors are punishing its lack of a credible turnaround plan and reliance on unsustainable dividends.
2. Absa's Steady Appeal: While Absa's stock has underperformed the JSE benchmark (-53.7% vs. +15.5% annually), its beta of 0.25 indicates lower volatility. Investors are betting on its diversified financial services portfolio and macroeconomic resilience.

Lessons for Investors

The Super Group-Absa contrast offers two critical takeaways:
- Avoid Fragile Balance Sheets: High leverage, negative margins, and unsustainable dividends are red flags. Super Group's debt and payout ratio warnings were ignored until it was too late.
- Prioritize Sustainable Growth: Absa's focus on cost control, risk management, and capital efficiency has insulated it from broader market turbulence.

Investment Advice: Where to Turn

• Super Group: Avoid unless there's a credible restructuring plan (e.g., asset sales or equity raises). Its -55% YTD decline and negative P/E suggest further downside risks.
• Absa Group: Hold or accumulate for long-term investors. While its valuation is not cheap, its 20%+ profit margins and path to 16% ROE by 2026 justify cautious optimism.

Final Word

In an era of market volatility, investors must look past noise to fundamentals. Super Group's collapse is a cautionary tale of ignoring profitability and debt, while Absa's resilience shows how strong financials and strategic discipline can weather storms. For JSE investors, the message is clear: trust the numbers, not the noise.