OpenUCT :: Browsing by Author "Correia, Carlos"

Browsing by Author "Correia, Carlos"

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Open Access
Analysis of South African listed real estate to serve as an inflation hedge versus other asset classes
(2015) Erasmus, Warren; Correia, Carlos
Purpose - The analysis of the South Africa property sector to provide an effective inflation hedge has not been researched to the same extent as other more developed countries. In addition, the South African property sector has been excluded from international studies owing to its underdevelopment and inconsistent legislative environment. However, post 2013 the new SA REIT legislation was promulgated putting it on par with its international counterparts. In addition from 2012-2013 the market capitalisation of the sector doubled. The study reviews inflation's relationship with direct and indirect property, and the study compares this relationship to other asset classes available to investors. It further reviews the difference between inflation hedging versus inflation protection, using different measures of inflation hedging and also reviews the various component parts of inflation being expected versus unexpected inflation. Design/methodology/approach - The methodology in this study is adopted from the extensive research previously applied to other more developed markets. Additionally, technical and fundamental analysis of returns, correlations, risks and returns were applied.
Open Access
An analysis of the accuracy and determinants of earnings forecasts of companies listing on the alternative exchange of South Africa
(2011) Levinson, Lisa; Correia, Carlos
This study analyses earnings forecast accuracy and bias, and the determinants of earnings forecast accuracy, for firms listed on the Alternative Exchange (AltX) in South Africa.
Open Access
An analysis of the use of discounted cash flow methods and real options to value flexibility in real estate development projects
(2007) Bauer, Michael; Correia, Carlos
Surveys of firms outside the property sector indicate the growth in the use of DCF methods such as the NPV and IRR methods to evaluate projects as compared to the use of such naïve methods as Payback and the Accounting rate of return. The growing convergence of theory and practice is indicated by the growing use of the NPV method. The objective of this study is to determine the capital budgeting methods used to evaluate real estate development projects and to compare the results of a survey with the results of other studies. Further, recent developments in capital budgeting theory, indicate that the investment valuation tools such as the Net Present Value (NPV), Internal Rate of Return (lRR), Payback Period (PP), and theAccounting Rate of Return (ARR) may fail to recognize flexibilities in real estate development projects. As a consequence, the discounted cash flow methods (DCF) may systematically undervalue strategic or large-scale real estate development projects. Two methods are introduced as an alternative to address the weaknesses of the DCF methods. Decision Tree Analysis (DTA) employs an approach to analyse flexibilities by creating a chain of possible options and allows alternative courses of action for management to adapt their initial strategies in order to capitalise on new opportunities or to minimise losses. Real Option Analysis (ROA) introduces the theory of valuing financial derivates, in particular call options, and allows the staging of the development. These instruments further introduce a risk management aspect, as call options have a limited down side and an unlimited upside. Each approach has advantages and shortcomings and should only be used in appropriate circumstances. DTA is suited for the analysis of the project specific risks. ROA on the other hand, is a superior tool when dealing with uncertainty. The thesis finds that that over 90% of all respondents are using a combination of NPV and IRR methods most often to evaluate development opportunities. Interestingly, 85% of all respondents are also using the payback period. Other methods used are the profitability index, residual value, free cash flow, economic value, and return on equity. Developers have adopted DCF methods such as NPV and IRR as the primary methods to evaluate projects rather than naïve methods such as Payback and ARR, although these latter methods remain in use. The use of decision tree analysis and real option analysis is very limited.
Open Access
An application of the Piotroski F-Score to the South African market
(2012) Attwood, Michael Richard; Correia, Carlos
This paper examines whether application of the Piotroski F Score (Piotroski, 2000), to the South African market is feasible and whether or not the distribution of returns earned by an investor can be shifted upward through use of this investment screen.
Open Access
A corporate failure prediction model for non-financial South African corporates incorporating best practices used by the credit industry
(2016) Rowlings, Douglas; Correia, Carlos
In the context of the current macroeconomic environment there is an expectation of an increase in South African non-financial corporate failure, where advance prediction thereof will become even more important. A number of South African non-financial corporate failures have occurred following the financial crisis. In addition, South Africa experienced a watershed moment with the first default on a non-financial corporate bond in 2013. At the same time, with the adoption of the International Financial Reporting Standards (IFRS) framework there have been significant advances in the quality of financial information which should improve its usage in predicting corporate failure. This study used the latest sample to date of listed South African non-financial corporates that met the definition of failure but limited the universe of financial information to that which was prepared under IFRS. At the same time, adjustments were made to the financial data based upon pre-selection of independent credit statistic variables most commonly used in ranking relative credit risk for non-financial corporates. Additionally, equity market price data was introduced into the model to add a forward-looking information consideration. This resulted in an eleven variable model where differentiation of corporate failure was facilitated through the use of multiple discriminant analysis.
Open Access
The cost of equity capital in a regulatory environment: an international comparison
(2015) Graham, Kyle Stephen; Correia, Carlos
South Africa's electricity tariff determinations have been a matter of much public debate. This has been highlighted in popular media in South Africa, with above inflation increases in electricity tariffs allowed by the National Energy Regulator of South Africa (NERSA) in Multi-Year Price Determination (MYPD) 2 and MYPD 3. However these increases are below those applied for by Eskom. Estimating the cost of equity capital is a key element of the tariff determination process. This study therefore aims to evaluate the cost of equity methodologies used by regulators, and to assess whether NERSA's (South Africa) methodology is in line with international best practice. This study analysed the published cost of equity methodologies of 14 electricity regulators operating within developed and developing economies. A review of academic literature indicates that the Capital Asset Pricing Model (CAPM) understates the returns of low beta stocks, such as utilities. Furthermore, the Fama and French Three Factor model (FF3F) has been shown to have better explanatory power and results in higher estimates of the cost of equity. In spite of these empirical findings, this study found a preference for the CAPM among regulators, with no regulators using the FF3F model. The CAPM is selected due to its widespread use and the fact that it is simple to implement. This finding indicates that regulators are systemically under-compensating utilities for the risk undertaken. NERSA's (South Africa) cost of equity methodology was found to be in line with regulatory methodology, although its lack of consideration of alternatives and its relative lack of disclosure into the estimation does result in less transparency and potentially less reliable estimates of the cost of equity. Until a definitive answer has been reached, it is likely that the CAPM will continue to be used in a regulatory environment.
Open Access
A critical analysis of Black Economic Empowerment funding structures and their impact on BEE effective ownership
(2008) Buthelezi, Sfiso; Correia, Carlos
In this study it is argued that Black Economic Empowerment is very important as a way of creating stable socio - economic stability in South Africa. We note that we are now at the stage where both the government and corporate South Africa have accepted that BEE is an economic imperative. This has resulted in policy adoption by the government and the private sector driven Sector Charters. Agreeing that 25% of the economy should be in black hands by 2014. It is argued in this research that reliance of BEE investors on debt funding, creates serious doubts about the attainability of this objective.
Open Access
Do large South African acquisitions result in post-acquisition improvements in cash flow returns?
(2016) Brink, Jaco; Correia, Carlos
The purpose of this study is to evaluate whether South African acquisitions result in success, with success measured as post-acquisition improvements in cash flow returns. The reason for this approach is the view that a firm's intrinsic value is coupled to its long-term cash-generating ability. Post-acquisition change in cash flow returns for large acquisitions made by JSE-listed firms over the period 1995 - 2009 were analysed. Cash flow returns were measured as free cash flow to the firm over capital employed. This measurement of cash flow return is neutral to the firm's financing decision and capital structure, thus facilitating a comparison between different firms. Changes in annual cash flow returns were measured over the period covering five years preceding and five years following completion of acquisitions. The cash flow returns of the acquiring firms were compared to benchmark returns of firms in the same sector which did not undertake major acquisitions. The study found in 22 of 24 tests that the benchmarked post-acquisition cash flow returns and EBITDA returns were not significantly different in relation to the benchmarked pre-acquisition returns. However, in two tests which adjusted for operating leases and used total returns over the pre-acquisition and post-acquisition periods, it was found that the difference in returns were significant. The sample of eleven firms is relatively small and any inferences about South African acquisitions in general should therefore be approached with care. The divergence in results between the individual firms within the sample, as well as the outlined sensitivities of observed results lend further support for this cautionary approach. Despite the limited number of acquisitions that occurred over the period, this study should contribute towards a better understanding of the overall value proposition of large South African acquisitions, as well as provide impetus for related future research.
Open Access
The effect of corporate diversification on firm value : an emphirical assessment of the JSE securities exchange listed companies
(2005) Weldeslassie, Samson; Correia, Carlos
This paper examines the value effect corporate diversification on firms listed on the JSE Exchange. The value gain or loss for the diversified firms is measured using Berger and Ofek's (1995) model that estimates the value of diversified companies' segments as though they were independent companies. The result indicates corporate diversification in South Africa is value enhancing. Evidence shows that sample of diversified companies are traded, on average, 39-57 (Excess Value 0.33 to 0.45) percent above the industry averages. The value gain is higher in related-diversification than unrelated ones. A similar assessment of a sample of 57 focused companies showed a much lower Excess Value (EV). The EV for diversified companies (0.33 - 0.45) is higher than the EV for focused companies (0.00 - 0.19) suggesting that diversified companies are traded at premium as compared to focused companies. Further analysis of the result shows that the value gain is higher in the medium sized sample companies as compared to the bigger companies. Regression of the EV in relation to firms' characteristics (number of segments per company, capital expenditure, and profitability) showed no significant relationship. To explain the possible sources for higher premium shown in diversified companies, analysis of the companies leverage and tax rate shows that diversified companies have, on average 13% lower debt-to-assets ratio and pay 4.13% lower tax rate than focused companies. It suggests that higher leverage, which gives companies greater tax shield, is not one the sources for the observed higher premium. It, however, indicates that a lower tax derived by combining businesses with imperfectly correlated cash flows can be one of the contributing factors for the value gain. A comparison of Price-to-Earning and Price-to-Book value ratios for the sample diversified and focused companies suggests, in contradiction with the above results, that focused companies perform better than diversified companies.
Open Access
Financial risk exposures in the airline industry : case of South African Airlines
(2008) Tsai, Betty M C; Correia, Carlos
The airline Industry has been recognised as a high value industry. The market carrying over 2 billion passengers each year and occupied over 35% of global merchandise in trade by value.Studies have been conducted globally to investigate the feasibility and return on investment for local or international airlines, with several analytical methodologies in use. The focus of this dissertation is to analyse the impact of financial risk factors, including interest rate exposures, currency fluctuations, and fuel price changes on the airline industry. This study investigates risk exposures in the South African airline industry and uses data on South African Airways (SAA) and Comair to calculate the impact of risk factors on exposure significance. The key results show that, on average, the exposures are more significant over the short-term horizons which becomes fundamental as the horizon length increases. In cases where the non-linear coefficient is slightly strengthened as the return horizon is lengthened, the sign of the exposure point coefficient does not necessarily point in the favourable direction of returns. Thus, a positive coefficient indicates a tendency of the risk factor and returns to move in the same direction, while a negative sign means that the impact on returns decreases as the exposure increases. Based on the financial ratio analysis of the airline characteristics, the results indicate that SAA shows a better return on investment better than Comair. Particularly SAA (SAA Annual Report: 2005) shows an improvement in performance with an increase in revenues and stable cost bases, despites the unexpected increase in oil dollar prices by 42%, which contrib tes to a large increase in returns. Lastly, structural changes in exposures are investigated, focusing on an extraordinary event of the global aviation industry the terrorist attack in New York on September 11 , 2001. No impact on SAA or Comair was found during the study period, which indicates that our study subjects may be less risk impacted by U.S. influences in comparison to other international airlines. The common financial speculation of higher risks are accompanied by higher returns may not be feasible to the airline industry, but strategic planning changes and future financial management adaptations to fit the global economy may bring a positive impact on the industry. This brings opportunities for further research.
Open Access
Impact of constructive capitalisation of operating leases on South African companies considering new proposed lease accounting rules
(2014) Dillon, J; Correia, Carlos
This study analyses the impact that operating lease capitalisation has on key financial statement ratios and failure prediction indicators of listed South African companies operating within five sectors (namely General Industrials, Industrial Transportation, Food & Drug Retailers, General Retailers and Travel & Leisure), as well as whether the impact thereof is substantially the same as the new proposed accounting treatment for Type A and Type B leases in terms of ED/2013/6 (IASB, 2013). Furthermore, the extent of lease usage in South Africa and whether the size of a company has a bearing on its extent of leasing is examined. Additional analysis is also performed investigating the materiality of straight-lining and onerous contract provisions relating to operating leases, as well as the impact of operating lease capitalisation on disclosed loan covenants. Based predominantly on the constructive operating lease capitalisation method developed by Imhoff, Lipe and Wright (1991 & 1997), a refined constructive lease capitalisation model is developed in this study which incorporates aspects of current lease accounting rules not previously considered, namely provisions recognised in respect of the straight-lining of operating leases as well as onerous operating lease contracts. This model also incorporates the new proposed lease accounting rules which require the capitalisation of all leases (Type A and Type B). The results indicate that the capitalisation of future non-cancellable operating lease commitments have a significant impact on key financial statement ratios and failure prediction indicators, most notably leverage and other debt-related ratios. Furthermore, of the five sectors analysed, retailers were the most affected. When considering the new proposed accounting treatment for Type A and Type B leases, the results indicate that operating lease capitalisation has substantially the same impact on key financial statement ratios and Altman‟s failure prediction models as the conventional operating lease capitalisation method, except for certain debt-related and profitability ratios. Further results indicate that operating leases are used extensively and substantially more than finance leases within South Africa. It was also found that operating lease usage was positively related to company size, while finance lease usage decreased as company size increased. Curvilinear relationships were also noted between a company‟s size and its extent of leasing. Further analysis revealed that recognised straight-lining lease provisions are substantially more material than recognised onerous lease contract provisions and are capable of distorting the analysis of operating lease capitalisation if ignored. When scrutinising loan covenants disclosed, it was established that none of the loan covenants were breached when capitalising operating leases; however, in each instance operating lease capitalisation negatively impacted all covenant related ratios.
Open Access
The JSE Stock Exchange News Service : the impact of SENS announcements on trading activity on the JSE securities exchange
(2011) Watermeyer, Renen; Correia, Carlos
Almost all models of market behaviour in some way or another, suppose some causality between news or information, and market prices. This study seeks to explore the relationship between information and the behaviour of investors. Specifically, it will examine the impact of Stock Exchange News Service Announcements (SENS Announcements) on trading volumes.
Open Access
Potential impact of the Mineral and Petroleum Resources Development Amendment Bill on investment in South Africa's upstream oil and gas industry
(2015) Ellis, Maryke Louise; Correia, Carlos
The Mineral and Petroleum Resources Development Amendment Bill has drawn criticism from industry experts and the press. There are a number of amendments that could be damaging to future investment in South Africa's upstream oil and gas industry. This study examines the key changes brought about by the Bill, South Africa's fiscal terms, how the fiscal terms are impacted by the Bill and current activity in South Africa's upstream oil and gas sector. The report then focuses on the most significant change made by the Bill, which is the level of State Participation. A fit for purpose economic model was built and the resulting cash flows were used to calculate the economic indicators presented in the results. The results from the model indicate how the increase in State Participation levels affects the ranking of South Africa's fiscal terms and the profitability of hypothetical investment opportunities. When ranked on fiscal terms, the country moves from having some of the best terms in Africa without the new Bill, to a position where the fiscal terms can be described as average or even onerous, depending on the interpretation of the State Participation clause. Accordingly, the result of the hypothetical investment opportunity has very positive economic indicators without the changes from the new Bill. If the most optimistic interpretation of the State Participation clause is modelled, the opportunity is less attractive but still viable and if the most pessimistic interpretation is modelled, the opportunity would not warrant investment. Even though South Africa has limited reserves, significant exploration activity is taking place under the existing legal and fiscal framework. If the Bill is implemented in its current format, it is likely that the country will see a significant decline in investment in the upstream oil and gas industry. Attracting new investment by international oil and gas companies in an environment governed by the terms of the proposed Bill will be challenging.
Open Access
Predicting corporate failure: an application of Altman's Z-score and Altman's EMS models to the JSE Alternative Exchange from 2008 to 2012
(2014) Coelho, Myles; West, Darron; Correia, Carlos
The JSE Alternative Exchange (Alt-X) experienced a dramatic decline in equity values from 2008 to 2009 as part of the global economic crisis of approximately 60, and has subsequently experienced a decline of a further 50 from 2009 to 2012. By way of comparison, the JSE Main Board declined approximately 33 in 2008 and 2009, and has subsequently experienced a 100 increase in equity values from 2009 to 2012. The extent of the decline in equity values of companies listed on the Alt-X has raised the issue as to whether companies listed on the Alt-X have a higher likelihood of corporate failure. This study applies the Altman Z-Score and the Altman Z'EM score in order to identify trends in corporate solvency of Alt-X listed companies. Thereafter bond equivalent ratios are calculated for further analysis.
Open Access
Public - Private partnership financing in South Africa
(2015) Prüssing, Tim; Correia, Carlos
This study argues that the financing options available to PPPs in the South African financial market are limited and only few traditional financing solutions, such as commercial bank debt, are available to project developers. While traditional financing solutions may provide an attractive and easy to obtain financing solution, they are not necessarily optimal, cheap or able to provide the best value for money (National Audit Office, 2001). This suggests that the South African financial market, which is so critical to the success of PPP projects, may in fact be hindering the development and efficiency of the market. The main research questions addressed in this study are: * what is a PPP and what does its typical structure look like; * what is the state of the South African PPP market including framework and number of projects procured; * what financing options and models are available to PPPs worldwide; and * what financing solutions have been employed on South African projects? In answering these questions, we particularly focus on the financing options available to PPPs. As part of this overview we discuss private sector and public sector solutions. Private sector solutions discussed include equity, debt and mezzanine finance. We give particularly focus to debt financing which tends to make up the majority of financing in a typical PPP. Public sector solutions include government contributions, guarantees as well as hybrid structures.
Open Access
A two-part study on the alternative exchange of South Africa (AltX) : a study on the underpricing of new equity issues listed on the alternative exchange of South Africa and the effects of specific use of disclosure on underpricing
(2007) Gondo, G M K; Correia, Carlos
Extensive research has been conducted in a variety of countries investigating the extent of underpricing of initially listed companies. In addition, various studies have been conducted in an attempt to try and establish the relationship between disclosure and underpricing. Underpricing remains a vexing issue that continues to stimulate rigorous debate within economic and accounting research. This study seeks to remedy the omission of recent South African research on this subject. The study looks to establish whether underpricing has occurred on the Alternative Exchange of South Africa, (AltX). The AltX was launched on 27 October 2003, as the junior exchange to the larger Johannesburg Stock Exchange (JSE). The study follows the methodology of a previous South African study, by Barlow and Sparks (1986), which looked at the underpricing of shares on the JSE between the periods 1972 to 1986. This study looks at establishing underpricing on the AltX, during the periods October 2003 to March 2007.
Open Access
Underpricing on initial public offerings: further evidence from the JSE
(2011) Muller, Michael; Correia, Carlos
This paper provides evidence of the existence of IPO underpricing on the JSE between 2000 and 2008. Average underpricing over the period was found to be 17.1 percent (median: 9.4 percent). In line with the general global decline in first day returns following the end of the internet bubble period, average underpricing on the JSE has decreased relative to previous studies.
Open Access
The use of derivatives in the mining sector : a comparative analysis of companies listed in South Africa, Australia and the UK
(2011) Greenbaum, Mark Joel; Correia, Carlos
This study investigates whether significant differences exist between South African, Australian and United Kingdom mining corporations in terms of derivative usage. The study further investigates whether such differences or similarities are due to size differences, specific mining industry sector differences, or are as a result of specific derivatives being more prevalent in a particular region of the world.

Browsing by Author "Correia, Carlos"

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