Purchasing offshore shares has become a lot easier for South Africans over the years, provided that the relevant regulatory and tax implications have been considered. From a cost perspective there isn’t a huge difference between purchasing something like British American Tobacco (BAT) in South Africa or Britain.
Investors with a focus on building a strong, competitive offshore share portfolio are therefore no longer limited to shares listed only locally.
I came across a very interesting graph recently which showed me the advance-decline line on our local index. This graph takes all shares of a particular index into consideration and on a daily basis subtracts shares that performed negatively from those that performed positively (this figure is then added to the previous day’s figures). It shows that even though an index’s total performance might have been positive, it creates a negative sentiment towards the index if there were more negatively performing shares than positive.
The FTSE/JSE All Share Index is a great example of this: despite the index performing marginally positive over the last three years, the advance-decline indicator clearly shows us that over this three-year period we have been moving closer to negative levels last seen after the 2008 correction.
When we look at the S&P 500, we’ll see that according to price-to-earnings (P/E) valuations, this index is priced very high and has also enjoyed a very positive trend over the last few years, according to the advance-decline indicator. So, are there still investment opportunities available in offshore markets?
With the help of PJ van Niekerk, equity analyst at PSG Wealth Old Oak, we have identified five companies which we feel still offer value:
Volkswagen (DE: VOWG)
Volkswagen consists of two divisions: The automotive division and the financial services division. The automotive division comprises of names like Audi, Skoda, SEAT, Bentley, Porsche, Scania, MAN and Volkswagen. The financial services division combines dealer and customer financing, leasing, banking and insurance activities. The majority of the group’s sales occur in European markets. The company started on a strong footing in the first quarter of 2018. Its vehicle sales increased by 6.1% and sales revenue increased by 3.6% compared to the same period in 2017. The group expects to produce a year-on-year increase in sales revenue of at least 5% for the 2018 financial year. This company is currently trading at a P/E of 6.43 and forward P/E of 5.54.
Rio Tinto Plc (LSE: RIO)
Rio Tinto is one of the world’s largest producers of a range of essential materials including iron ore, aluminium, copper, diamonds, gold, industrial minerals, thermal and metallurgical coal and uranium. The company operates across 35 countries in the world, with China contributing the most to its revenue. Iron ore is contributing 44% to the group’s revenue, while its second-biggest segment, aluminium, contributes 26%. For its latest financial year, the company produced a return on equity of 21.9% compared to an industry mean of 13.3%. Rio Tinto seems to be offering some value according to its current P/E of 10.43, which is slightly below the average P/E of its peers.
Brookfield Asset Management (NYSE: BAM)
Brookfield is an alternative asset management company listed on the Toronto and New York stock exchanges. The group operates in more than 30 countries and has approximately $285bn under management. It has been growing assets under management at a compounded annual growth rate of 8.6% since 2013. The group focuses on investing in assets across real estate, renewable power infrastructure and private equity. Relative to peers, the group appears to be offering value. It managed to increase dividends and cash flow from operations over the past five years.
Samsung Electronics Co Ltd (KS: 005930)
Samsung is a Korean-based company principally engaged in the manufacture and distribution of electronic products. Their three major segments are consumer electronics, IT & mobile communications and device solutions. Revenue is well-diversified with 19% of sales derived from North and South America, 19% Europe, 16% China, 13% Korea and 18% from Asia and Africa. It recently released results for the first quarter of 2018 in which sales increased by 20%, with semiconductor sales showing the biggest increase, now contributing 34% to total sales. Operating profit for the group increased by 58%. Samsung appears to offer value, trading at a P/E and forward P/E of 7 and 6.44 respectively and dividend yield of 2.32%. Its current price-to-book multiple is at 1.46.
British American Tobacco (LSE: BATS)
BAT was unbundled out of Richemont and Remgro in 2008. The Rupert-controlled company provides tobacco and nicotine products to consumers worldwide. On 25 July 2017, it acquired the remaining 57.8% stake it didn’t already own in Reynold American Inc. for a total consideration of £41.8bn in a combination of cash and ordinary shares. Brands within the group include Rothmans, Camel, Dunhill, Kent, Pall Mall, Peter Stuyvesant, Lucky Strike and Benson & Hedges. It's dividend yield is currently 4.4% and its P/E ratio is well below its long-term average.
As always, I recommend that any of these shares are considered as part of a balanced portfolio.
Schalk Louw is a portfolio manager at PSG Wealth.