Three JSE Small Caps worth watching right now!

Markets love noise: wars, oil prices, interest-rate calls. But some of the best opportunities come from companies that simply get on with fixing themselves while everyone’s distracted. The three small caps I’m sharing today have each done exactly that.

They’ve sharpened their focus, strengthened their balance sheets, and put themselves in a position to reward shareholders. The market hasn’t fully caught on yet.

Here’s what each one has done, and what to watch next…

#1: Lighthouse Properties (JSE: LTE) – A small cap that proves shopping malls can still be profitable!

Every few years, someone declares the shopping mall dead. First, it was online shopping. Then the pandemic.

Yet here’s a JSE-listed company earning its income in euros, from European shopping centres where sales are growing faster than inflation and almost every shop is let.

Lighthouse owns 12 dominant, defensive shopping centres worth around €1.5 billion. Eight are in Spain and Portugal and four are in France. Think Madrid (two malls), Girona, Almería, Castellón and Cartagena in Spain, Coimbra and Montijo (just across the river from Lisbon) in Portugal, and Rouen, Le Havre and Strasbourg in France.

These aren’t just any malls. They’re usually the only place in town where you’ll find a Zara and a Primark.

What makes it interesting, right now?

Call it the Zara test.

Zara’s owner, Inditex, is shrinking its store count. It’s closing weaker stores and pouring money into bigger flagships in the best malls. If Zara upgrades your mall, you’ve won. If it upgrades the mall down the road, you may lose your Zara.

Lighthouse is winning that game. Zara trades in all eight of its Iberian malls, and seven of those stores have been refurbished to the latest flagship format. The eighth, at H2O in Madrid, gets its upgrade in 2027. In Coimbra, Portugal, Zara opened a flagship of almost 4,000m² in Lighthouse’s mall, then closed its other store in the city. Every Coimbra shopper who wants Zara now has to come to Lighthouse’s centre.

Other retailers follow Zara and Primark. That’s why only 1.1% of Lighthouse’s space stands empty. In Spain it’s 0.3%, and in Portugal it’s zero.

The tenants can afford their rent, too. On average, rent is only about 10.5% of what a shop sells. Tenant sales rose 7.9% in the latest period, so when leases come up for renewal, Lighthouse has been able to push rents up by 6.5%. That’s before the annual inflation-linked increases, which were 2.9% in Spain.

The results back the story

In the six months to June 2026, distributable earnings per share rose 9.7% to 1.44 euro cents. Like-for-like net property income grew 4.5%, footfall rose 3%, and net asset value per share was up 4.9%.
Portugal lagged at 1.7% growth. That’s because big tenants were closed for building work at Coimbra, not because shoppers stayed away: tenant sales in Portugal jumped 9.5%. Once those stores are trading fully again, management expects Portuguese growth of more than 6% in 2027.

Management also raised its full-year target. It now expects to pay out 3.00 euro cents per share for 2026, up from 2.95 cents. That’s growth of roughly 8.7%, compared with the 6.9% it originally promised.

Lighthouse has stopped shopping, and that’s good news

For years, Lighthouse parked spare cash in listed property shares, mainly UK mall owner Hammerson, and used them to fund acquisitions. That job is done. The Hammerson stake has been fully sold and turned into four Iberian malls. All that’s left is a small €8.5 million holding in NEPI Rockcastle.

The balance sheet is also in good shape. Loan-to-value is 35.9%, all debt is hedged against interest-rate moves, and recent refinancing has cut lending margins. The French loan margin drops from 3% to 1.75%. Once refinancing is complete, there will be no meaningful loan repayments draining cash flow.

What to watch for?

• The new Zara flagship at Espai Gironès, which opens in October
• Lefties opening at H2O in Madrid before December
• A recovery in Portuguese rental income in 2027
• Whether the French portfolio, where about 6% of space is vacant, starts filling up
• Year-end property valuations, which could rise if mall yields keep falling
• Whether Lighthouse hits, or beats, its upgraded 3.00 euro cent payout target

#2: KAP (JSE: KAP) – The war headline is hiding the real story

If you’ve heard about KAP this year, you’ve probably heard one story: war in the Gulf, a global plastic shortage, and South Africa’s only HDPE factory cashing in.

It’s a good story. But it’s not the only reason why this share is hot right now.

When KAP released its full-year results on 1 September, the most important numbers had very little to do with plastic.

But first, KAP is an industrial holding company that owns six businesses:

• PG Bison, which makes wood-based panels
• Safripol, which makes plastics
• Unitrans, a logistics company
• Feltex, which makes automotive components
• Sleep Group, which makes beds
• Optix, which sells fleet-tracking technology

For years it was a sprawling, debt-heavy conglomerate the market had given up on. That’s changing, and fast.

What makes it interesting, right now?

For the year to June 2026, headline earnings per share jumped 88% to 45.2c. Revenue was completely flat at R29.6 billion, yet operating profit rose 28%. That tells you it wasn’t sales growth driving earnings. It was management squeezing more profit out of the same revenue.

Look at where the profit came from:

• PG Bison grew operating profit 30% to R935 million. Its new MDF line is now running at full capacity, and export volumes rose 39%.
• Unitrans grew operating profit 41% to R616 million. Revenue actually fell, because management walked away from contracts that weren’t earning their keep.
• Feltex grew operating profit 63% to R270 million as car assembly volumes recovered.
• Safripol grew operating profit 25% to R631 million. Most of that came in the final quarter, when the Gulf crisis hit.

Roughly three-quarters of KAP’s operating profit came from businesses that have nothing to do with the war.

A company that paid back R1.1 billion in a year

Management promised to cut debt by R500 million. It cut it by R1.1 billion instead.

Net debt is now R7 billion, just 1.8 times EBITDA (earnings before interest, tax, depreciation and amortisation). That’s a comfortable level of borrowing. The business turned 101% of its EBITDA into cash, and free cash flow nearly tripled to R1.3 billion. Finance costs fell 13%.

Management is targeting another R500 million debt reduction this year. Every rand of debt repaid is a rand of value that shifts from the lenders to shareholders.

And the plastic windfall? Treat it as a bonus

Safripol really is strategic. It’s South Africa’s only producer of HDPE and PET, and one of only two local producers of polypropylene. When Gulf supply dried up in the final quarter, local customers turned to Safripol, and it earned much fatter margins.

It also won an arbitration against Sasol over the price it pays for ethylene, its key raw material.

But management itself expects polymer prices and margins to ease as supply normalises, and a stronger rand won’t help. However, if the Gulf disruption drags on, that’s extra upside. If it doesn’t, the rest of its businesses are growing.

What to watch for?

• Whether KAP delivers the next R500 million debt reduction in FY27
• PG Bison’s new value-add production line, due in early 2027, which adds about 40% more capacity for its higher-margin products
• Unitrans closing the gap to its R700 million operating profit target, from R616 million now
• Optix, which still made an operating loss of R96 million and needs to turn around
• How far Safripol’s margins fall as Gulf supply returns, and the outcome of its separate dispute with Sasol over ethylene volumes

With a share price of 285c and NAV per share of 486c, KAP trades at a discount of more than 40%.

That’s the price of a business the market doesn’t trust yet. But the numbers now show real progress of rising profits, falling debt and strong cash flow.

#3: ISA Holdings (JSE: ISA) – SA’s pure-play cybersecurity stock, now with cash to spare

If you want exposure to cybersecurity on the JSE, your options are surprisingly thin. Most listed IT companies do a bit of everything: software, hardware, cloud and consulting, with security as one division among many.

ISA is different. Cybersecurity is all it does.

Through its operating company, Information Security Architects, ISA has spent more than 25 years helping South African organisations prevent, detect and respond to cyber threats. That covers firewalls, intrusion detection, identity management, secure remote access, vulnerability assessments, and round-the-clock managed security services.

What makes it interesting, right now?

It’s a business built on subscriptions, not once-off sales.

Revenue rose 9% to R127.9 million in the year to February 2026, and 82% of it came from subscriptions. That matters. Clients don’t cancel their cybersecurity halfway through the year. Once a company trusts you to guard its networks, it tends to renew, year after year.

Demand isn’t going away either. Cyber-attacks on African businesses keep climbing, and regulators increasingly expect companies to prove they take security seriously.

ISA’s most recent trading statement proves this with HEPS for the six months to August 2026 expected to rise by at least 20%, to 11.28c or more, compared with 9.4c a year ago.

The DataProof sale makes ISA a purer, cleaner business

For years, ISA’s reported earnings included its 50% share of DataProof, a cybersecurity joint venture that has been underperforming. ISA’s share of DataProof’s profit fell from R7.7 million in 2023 to R5.5 million in 2026.

Now ISA has sold its 50% stake back to DataProof for R62 million. R52 million is paid in cash on completion, and R10 million plus interest follows within 12 months. ISA’s shareholders, meanwhile, get fair value for an asset that had been dragging on earnings.

ISA is valued at about R392 million on the JSE. So, the DataProof proceeds are worth a sixth of the entire company, and they land in a business that has no debt.

Management hasn’t yet said how it will use the money. But ISA has paid special dividends before, when it built up more cash than it needed.

Even without a special dividend, the share already yields roughly 8%.

What to watch for?

• The size of the interim earnings increase, when results are released
• What management does with the R62 million: a special dividend, an acquisition, or both
• Whether subscription revenue keeps growing without DataProof in the group
• Whether the ordinary dividend is maintained or increased

One thing to keep in mind: directors own about 65% of the shares, so the share trades thinly. That means, shareholder interests are closely aligned with management’s, which is not always a bad thing.

PS. If you want to know the buyout opportunities I’m investing in right now then make sure you get the latest issue of Red Hot Penny Shares. It contains The JSE’s small-cap buyout list: Five stocks that could deliver 110% to 600%. Get on the list here.