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Views Article – Sharenet Wealth

South Africa

Most Investable Shares – Follow Up #2

On 22nd November 2016 we published a post entitled “The Most Investable Shares On The JSE Right Now“, that looked at the results of one particular mechanical stock picking strategy for shares most likely to out-perform the rest of the JSE over the next 3-6 months. Eleven shares were identified. 

The article was immensely popular among Sharenet readers, and we asked our two popular analysts Ian Stiglingh and Daniel Nel to cover each share in a little more detail, good or bad. This is the second part of a two-part follow-up that covers 5 of those shares.

READ THE FIRST PART OF THIS ARTICLE – Most Investable Shares – Follow Up #1

Sappi ltd

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Sappi is a global diversified wood-fibre company focused on providing graphic/printing papers, packaging and speciality papers. Sappi provides paper products to over 150 different countries. The company is the world’s biggest supplier of dissolving wood pulp (DWP) and owns 17% of the global market.

Management was able to reduce debt to their target leverage range of under 1.9 times earnings before interest, tax, depreciation and amortization (EBITDA) earlier than expected, which in return increased earnings per share due to lower financing costs and higher cash generation. Speciality paper and packaging have grown 15% year on year, and the company is seeing the speciality packaging segment as a huge opportunity for growth in global markets.

For the past three years, the company has managed to produce strong earnings growth, and for the first time since 2008 the firm managed to declare a dividend. The executive management has done extremely well to become a market leader in dissolving wood pulp (DWP) and will likely exceed in growing the other segments in the business such as specialized packaging as well.

Pinnacle Holdings

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Pinnacle Holdings is one of Africa’s largest providers of information and technology products and services. The group owns businesses like Centrafin and Modrac, and recently announced that they will increase their stake in Datacentrix to 100% and delist the company. Datacentrix have recently received an award for African Commercial Partner of the Year 2016 at the Cisco Partner Summit in San Francisco. It is an award for best-in-class business practices and serves as a model for the industry within their respective regions.

The information and communications technologies sector or ICT sector had a tough year in South Africa as the country is experiencing slow economic growth. In the local market, there have been no new listings and several de-listings/suspensions, although the South African ICT market still grew 5% over the year, according to Paul Booth from Itweb.co.za. In the African ICT space, telecoms have been the major driver for growth and will likely continue to be a major growth driver as more people are being connected through smartphones across the continent.

Pan-African Resources

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Pan African and its subsidiaries are a South African-based gold mining group which produces over 200,000oz of gold per annum. The group also produces 10,000oz of platinum-group metals (PGM’s) and approximately 400,000t of saleable coal annually.

Anybody who made a bet on resources at the end of last year was a happy camper in December, with stocks like Anglo American and Kumba Iron Ore are up 207% and 298% respectively. The price of gold has come down a bit since it reached its highs in July through to September in excess of $1300/ounce, and is currently trading at $1150/ounce.

The peaks and troughs of resources may be too much to bear for the average investor, when they should rather be investing in the stronger resources/mining companies which can keep their cost of production lower than the rest. Pan-Africa is a good example: the company can control its unit cost of production at levels where it produces gold at $800/ounce, which is a competitive advantage over other gold miners in the industry.

Rolfes Technology Holdings

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Rolfes is a black-controlled platform chemical group that manufactures and distributes an extensive range of market-leading, high-quality organic and inorganic products to diverse industries, including water treatment products, fertilizers and agricultural chemicals.  The group targets the need for food security, clean water and manufacturing demand through its four strategically placed divisions of agriculture, food, industry and water.

The diversified portfolio of the group gave it the ability to do well in tough conditions and outperform its competitors, and it continues to gain market share in the water purification and agricultural segments.

On the 12th of December, the company released an operational update for the six months ending December 2016 which were extremely good news for investors as the company is expecting headline earning per share to be in excess of 25% higher for the period. This is an extremely good result as the agricultural sector is struggling in continued nationwide drought conditions and rising input costs. The agricultural segment of the group actually experienced growth in operating profit against the comparative period, and shows that the company can still do well in tough conditions. 

Clover

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Clover Industries Limited is a branded food and beverage company that has a long and successful history as part of South Africa’s dairy and fast moving consumer goods industry. The group produces and distributes a diverse range of dairy and consumer products through one of the largest chilled and most extensive distribution networks in South Africa.

Clover recently announced that it is restructuring its business to increase its focus on value-added categories and limit its exposure to commoditised products. So, in other words it will be focusing on its branded consumer goods like Crush, Tropika and value-added dairy products. The company will form a “special purpose vehicle”, Dairy Farmers of South Africa Ltd, which will produce all its low margin dairy products under licence. I do believe that it is a better strategy to focus on higher margin, value-added consumer goods that will bring long term organic growth. The company will also be in a better position to make acquisitions of brands that will complement their beverage and consumer foods portfolio.

READ THE FIRST PART OF THIS ARTICLE – Most Investable Shares – Follow Up #1


daniel

Daniel Nel
Analyst and Securities Trader 

Daniel is a full-time analyst and securities trader, and is responsible for equities research across industries. Although he grew up in a small town in the Klein Karoo, Daniel has always been interested in both locally and internationally traded companies. Daniel has been actively investing and trading on the JSE and other global exchanges since starting his Bcom Investments Degree at the University of Stellenbosch, which he completed in 2014 . During his studies, Daniel worked as an intern at Kruger Internasionaal in Johannesburg in 2015, gaining valuable experience from Hein and Mia Kruger. He is currently a CFA candidate.


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