The good, the bad and the ugly — JSE earnings season has it all

In markets, you’ll sometimes hear people talk about the rising tide that lifts all boats. The US is a great example of this, with macro drivers that (usually) boost the market. Here at the tip of Africa, it’s a lot harder. The closest we’ve had to such a tide was last year with GNU exuberance – and we all know how long that tide lasted.

In our market, you need to pick your boats very carefully. We have some excellent listed companies and some really weak options as well. All of them are competing for your capital, so it’s best to try to take an unemotional view when picking stocks, which means focusing on the fundamentals instead. Easier said than done!

With a very busy week of detailed earnings releases and trading statements, there are plenty of fundamentals to sink your teeth into. I’ve picked three updates that show the full spectrum of performance that you’ll find on the JSE.

The good: OUTsurance

OUTsurance is particularly interesting. The company is a household name in South Africa, yet you almost never see it come up as a stock pick. This is a pity, because the share price is up by a spectacular 60% in the past 12 months. With the share price up 15% in 2025, it clearly wasn’t just a 2024 GNU fluke either. This puts it ahead of peers like Discovery and Santam, both up roughly 12% year-to-date.

A trading statement for the year ended June 2025 shows that headline earnings per share (HEPS) increased by between 26% and 32%, so the excellent share price performance has the earnings to back it up. This increase has been driven by a combination of growth in premiums and an improvement to the underwriting margins, with better investment income as the cherry on top. There are a bunch of other drivers as well, all of which add up to HEPS growth that should make OUTsurance more popular than it seems to be on our market.

Perhaps the valuation is what scares people off, with OUTsurance currently trading on a price/earnings multiple of 25x based on the midpoint of the latest earnings guidance. That’s a demanding valuation, but the group’s underlying segments are all posting impressive numbers. OUTsurance is also one of the very few South African corporates to find success in Australia, having built Youi from scratch in that market over the past 17 years. The group is hoping to emulate this success in Ireland with a new business that they are currently incubating. It’s encouraging to see a corporate playing the long game instead of taking the usual approach of doing risky offshore deals to quickly create a global footprint. Building something from the ground up might take longer, but it’s usually the safer bet.

The bad: Harmony Gold

Now here’s a controversial one – how can a company with a 47% year-to-date share price increase be considered “bad”? The context matters, as Harmony Gold’s competitors (think Gold Fields and AngloGold Ashanti) are up about 120% this year. Although nobody can feel too unhappy about their investment increasing by 47% in just eight months, it’s still frustrating if you’ve picked a laggard instead of a winner.

The gold sector has been an unusual local example of what I raised earlier – a rising tide that does wonders for all the boats. Harmony Gold is the best evidence of this, as earnings are up despite the underlying business metrics having gone in the wrong direction.

For example, we can look at production in FY25, which came in at 1,479,671 ounces, down more than 5% year-on-year. It’s unfortunately not a trend that will be improving anytime soon, with production guidance for FY26 reflecting a midpoint of 1,450,000 ounces. That’s heading in the wrong direction.

What about costs? Those who follow the mining sector know that poor production is usually accompanied by a disappointing unit cost performance, as overhead recoveries are split across fewer units. When combined with inflationary pressures on costs, this was enough to push All-In Sustaining Costs (AISC) higher by 17% in FY25. The midpoint of guidance for FY26 suggests an expected further increase of 12%, so the cost pressures are relentless.

Despite this, HEPS was up 26%. There’s only one explanation, of course: the gold price. With underlying metrics going the wrong way and with Harmony having its heart set on expansion in copper, this seems like a relatively weak play for a gold theme and one that relies entirely on the gold price to keep earnings on an upward trajectory. That’s a dangerous position to be in.

The ugly: Truworths

The clothing retail sector has been a bloodbath this year. Even Pepkor hasn’t been spared, down 12%. Mr Price has shed 29% of its value despite posting strong results throughout, showing how negative sentiment has been. The Foschini Group has also had a torrid time, down 35%. But you have to go all the way to a drop of 41% to find Truworths, a retailer that appears to have no redeeming qualities in South Africa.

Having a CEO and two joint deputy CEOs probably isn’t a good start, especially when one of those deputy CEOs also happens to be the CFO. Exactly who is responsible for what and why is this structure necessary? It just sends a message to the market that the company doesn’t know which direction to take from a leadership perspective, which might explain the state of things in the South African business.

They try very hard to pin the issues in the local business on macroeconomic factors. I must point out that competitors are facing exactly the same issues, so that excuse falls flat. Speaking of flat, retail sales in Truworths Africa showed zero growth in the year ended June 2025 and margins deteriorated, leading to a 10% drop in profit before tax for that segment. They don’t have a single category in which they are winning, with menswear as the “best” performer with just 1% growth. There’s literally nothing to hang your hat on when it comes to the South African business and it’s pretty likely that you bought that hat somewhere other than at a Truworths store. 

The silver lining in the group is Office UK, with sales growth of 10% and profit before tax growth of 12%. They’ve pulled off a strong turnaround in that business in the past few years, but it’s not enough to save the group result.

For the year ended June 2025, the group reported sales growth of just 3% and a drop in HEPS of 7%. The dividend fell by 8%. Return on equity of 28% is the lowest level we’ve seen in the past five years.

Is it going to get better? Probably not. For the first seven weeks of the new trading year, group sales were down 0.1% and gross profit was slightly positive. Shock and horror: Truworths Africa is down 3.1% and Office UK is up 3.4% in local currency. And despite the obvious trajectory, the capital expenditure allocation split for 2026 is R300-million for Truworths Africa and almost R250-million for Office UK. I’m not sure that just throwing money at the local problems is going to fix them. DM