In search of deep value on the JSE

The world is noisy, and markets are noisy – but clever filters allow us to discover potential gems hidden amid the chaos.

Focusing on the battered JSE market, I have filtered the listed ordinary shares to arrive at a defendable deep value list that can warrant further research.

Read: Buffett followers score a rare win for value investing in Spain

Filter No 1: Exclude resources and financials

I have excluded the materials, energy and financials sectors as the volatile fundamentals in the commodity market dilute the worth of quantitative measures here, while banking and insurance business models have unique ratios that make them less comparable to non-financial stocks.

Filter No 2: Free cash flow yield greater than SA government 10-year bond yield (8.7%)

Free cash flow (FCF) as a percentage of enterprise value (EV) must be higher than our local 10-year sovereign bond:

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This implies the company is actually FCF-positive (profitable and liquid);
EV neutralises for highly geared balance sheets and makes them comparable to ungeared ones for valuation purposes; and
Having a FCF yield greater than our own ‘risk-free rate’ implies a relative cheapness that is quite unique and takes into account sovereign risk of South Africa.

Filter No 3: Dividend yield greater than the repo rate (7%)

If FCF is positive but never being paid out to shareholders, then is it worth much to a minority shareholder?

Ensuring there is dividend yield greater than our repo rate means investors can be more patient in waiting for this value to unlock as they are earning a reasonable (real) yield flowing from dividends over time.

Filter No 4: Five-year revenue cumulative average growth rate (CAGR) greater than inflation (5%)

If FCF is positive, some of this is being paid out in dividends, and the company’s sales are growing by at least our local inflation rate, then nominal fundamentals are at worst treading water.

Typically speaking, the major difference between a deep value play and a value trap is growth.

Value traps (eventually) collapse to zero while companies that continue to grow should be (eventually) recognised by the market.

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This filter, hopefully, helps avoid value traps.

What’s left after all this filtering?

Given the rigorousness of the four filters, it is of little surprise that few JSE-listed companies made it through to the final list. But some do, and here are five that offer some fascinating options.

Potential deep value plays on the JSE

Name
Sector
Market cap
FCF yield (last 12 months)
Dividend yield (last 12 months)
EV/Ebitda
Revenue CAGR (five years)

Spur Corp
Consumer discretionary
R3.28bn
12.23%
7.70%
6.9x
48.92%

Sun International
Consumer discretionary
R12.94bn
10.05%
7.86%
5.7x
16.47%

Frontier Transport Holdings
Industrials
R1.81bn
27.50%
10.49%
2.8x
11.72%

Novus Holdings
Industrials
R1.98bn
41.50%
8.81%
2.5x
8.13%

Truworths International
Consumer discretionary
R19.29bn
16.00%
9.67%
5.3x
6.69%

Sources: Koyfin (31 July 2026) and author’s workings

It is little surprise to see consumer discretionary stocks on this list given the sell-off we have seen in this sector locally, but the nature of some of these ‘discretionaries’ is quite different to the typical clothing retailer that most think of:

Spur Corp is a superb restaurant franchisor;
Sun International is a diversified gambling group; and
Truworths is the only one that fits the classical bill as an unsecured lender parading as a fashion retailer.

Quite different to these is Frontier Transport, spun out of and still largely held by Hosken Consolidated Investments.

It operates a passenger transport network, alongside vehicle sales and servicing, within the mobility and logistics sectors (its most famous being Golden Arrow in the Western Cape).

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Likewise, Novus Holdings (spun out of Naspers as its legacy printing business) is a manufacturing and publishing group that provides commercial print media, flexible packaging solutions, and educational content across sub-Saharan Africa.

Read: We did not mislead regulator over Mustek buyout, says Novus

Of all of these, Spur Corp and, to a lesser degree, Sun International jump out at me as having great potential – but the rest are certainly worth a look.

Read/listen:

Spur Corp: More than just juicy burgers …
Sun International: A bargain in plain sight?

Keith McLachlan is CEO of Element Investment Managers.

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