By Anchor Investment
Johannesburg â€“ The Anchor Capital investment team has compiled a selection of 11 interesting local stock ideas for investors to mull over during the festive season.
Naspersâ€™ 31% stake in Hong Kong-listed Tencent comprises approximately 90% of the groupâ€™s net asset value (NAV). Tencent is projected, based on Bloomberg consensus forecasts, to grow by more than 20% a year over the next three years, as its past strategy to diversify starts to deliver results. Streaming of content, financial services, online advertising and cloud services are likely to grow robustly off low bases.
As economic activity normalises next year, a recovery in oil demand should alleviate Nigeriaâ€™s foreign exchange shortages, paving the way for a resumption in dividends. We also expect progress in MTNâ€™s plans to raise R25-billion through the sale of various assets, many of which are classified as non-core.
Bear in mind that Telkomâ€™s share price reached almost R100/share as recently as June last year, we expect 2021 to be the year in which Telkomâ€™s value-unlock starts in earnest, beginning with a potential tower asset disposal by the end of this financial year. This could be followed by the separation of its data centre and wholesale network businesses.
Although the second round of restrictions on the back of a second wave of COVID-19 infections have subsequently affected sales progression in Bidcorpâ€™s various regions, management is confident that these geographies will be able to withstand this next phase of the pandemic.
Positively, second-wave lockdown restrictions have been less severe relative to earlier this year. We remain confident that Bidcorpâ€™s operations are not permanently impaired and will most probably normalise within the next 18 months.
We think that Raubex is well placed to benefit from governmentâ€™s infrastructure build programme to drive longterm economic growth. It is also important to note that Raubex has won three significant contract opportunities recently and continues to await the adjudication of other contract opportunities that were tendered for in the construction sector.
Given that contract revenue contributes 70% towards its total revenue, contract wins are especially important for revenue and earnings growth. We think that the South African National Roads Agency and government infrastructure build programmes offer compelling prospects for Raubex in the short to medium term and possibly even in the long term.
Out of all these new growth initiatives, we are most excited about the R1.6-billion Power Fashion acquisition. Power Fashion is a deep-value clothing retailer that offers basic clothing needs at very affordable prices, much like Pep Stores. Currently, Power Fashion operates out of 170 stores, while Pep Stores operates out of more than 200 stores across SA. We believe that there exist exciting opportunities for Mr Price to expand this store base aggressively over the next few years. Additionally, Mr Price management has indicated that Power Fashion will also allow it to better categorise its product offerings across its brands, enabling it to stabilise the gross profit margin going forward.
The governmentâ€™s commitment to reducing its wage bill will thus bode well for Curroâ€™s future cost growth. Finally, the South African consumer has proven far more resilient than many pundits, including us, had expected. Looking at the performance of the COVID-19 loans offered by the banking sector, we believe that the market may be overestimating the bad debt loss that Curro will suffer this year.
Transaction Capital is made up of (1) a vertically integrated taxi finance business (SA Taxi); (2) a debt-collection business that collects debts on behalf of others (agency basis), as well as buying books for collection (principal basis); and (3) trade in second-hand vehicles following the recent purchase of a 49.9% stake in WeBuyCars. Operationally, 2020 has been a â€œlost yearâ€ in a manner of speaking for Transaction Capital, with increased provisions for credit losses in SA Taxi, the impairment of its purchased collection portfolios and reduced volumes all conspiring against it. However, it has emerged from the COVID-19 pandemic in a strong position. Sibanye-Stillwater Platinum group metal (PGM) prices strongly recovered into a bull market soon after and PGMs continue to be strong at present.
That has allowed Sibanye to quickly pay down the debt it took on to make those acquisitions. From R27-billion in net debt at the end of 2017, we estimate that it is now in a net cash position. Cash flow for 2020 is more than twice that of 2019 and more than three times that of 2018. The danger, of course, is that the cash flow is very dependent on precious metal prices.
Grindrod is a shadow of its former self. After unbundling its once extremely profitable shipping business it is now a collection of assets that do not really fit together.
Management is aiming to change this, which should help in narrowing the gap between its share price of just less than R5 and its NAV of over R12.
The market cap of the business is R3.5-billion and there are assets worth about R3-billion that the company intends disposing of.
These include Grindrod Bank (with a book value of around R1.6-billion), a stake in Senwes (which would realise about R500-million), the working capital in a trading business (about R600-million), and various private equity interests.
The intention is for this cash to be given back to shareholders via share buybacks or dividends.
While Alviva is a small cap, it is a fairly material business with over R15-billion in turnover.
It is also South Africaâ€™s biggest IT distributor and has a growing services business. Alvivaâ€™s balance sheet is strong.
It has ringfenced and securitised its finance business (Centrafin), but its core debt to equity rate is less than 10%.
Centrafin has performed relatively well under the circumstances.
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