SHARE WATCH: Diving into the rubbish bin

Cape Town - This week’s share watch will look in the rubbish bin of 2016 to see if there are any shares that still offer value, according to stocks analyst Kirk Swart from Overberg Asset Management.

When one invests in shares it is always a good idea to look in the so called “rubbish bin”. The shares in the rubbish bin are shares that the market for some or other reason, has punished. It is not uncommon to see the “darlings” of today be binned tomorrow.

This coincides with analyst lofty expectations of earnings potential and an unwavering belief that the current business conditions will continue indefinitely.

Mediclinic [JSE:MDC]

In 2016, Mediclinic moved its primary business to the London Stock Exchange after it merged with the UAE hospital group, Al Noor. Mediclinic experienced some headwinds with the integration of Al Noor into the Mediclinic stable. The market didn't like the integration troubles and the share price has been hammered.

It traded as high as R218 in June 2016 and fell as low as R119 in December 2016. With more than 70% of Mediclinic's revenue being generated outside of South Africa, the company is very exposed to currency fluctuations. The recent rand strength also contributed to Mediclinic's share price decline.

With the rand looking a lot more stable and the market possibly being too cynical about the UAE operations, Mediclinic, at R130, offers investors a good entry point into the private hospital group.

Reinet [JSE:REI]

Unfortunately, the market still views Reinet as a proxy for British American Tobacco (BAT) [JSE:BTI]. This implies that Reinet is also seen as a “bond proxy” share. The term “bond proxy” is used for companies that have typically gone ex-growth and offer stable dividends with slow and steady growth. These companies offer an alternative for bondholders in a low yielding environment. However, inflation is starting to pick up slowly which means interest rates will start to rise. This will lead to the bond proxy shares de-rating.

Reinet is also exposed to currency movements as it generates a lot of its revenue outside of South Africa. The share price was as high as R36 in May 2016 and fell all the way down to R26 in December. It is currently trading at around R27.

Investors who are willing to look past the “bond proxy” theory as well as the currency volatility, will buy a quality company with excellent assets at a big discount to its Net Asset Value (NAV).

Capital and Counties (Capco) [JSE:CCO]

Capco is a UK based real estate investment trust (REIT) invested in Earls Court and Covent Garden in London. After the Brexit referendum, the pound devalued significantly. This not only meant that the currency was a lot weaker, but UK property prices devalued as well. Capco de-rated from a R100 per share in December 2015 to lows of around R44 in January 2017. It is currently trading at R45.

The market is scared that the centre of London might well cease to be the financial hub of Europe and that the property that Capco owns, will lose a lot of its appeal. However, that is more of a rumour than a fact, and those properties can't easily be replicated. Capco is also trading at a big discount to its NAV.

Metair [JSE:MTA]

Metair has the mission to become one of the world’s leading battery manufacturers and distributors. It's target is to sell 50 million batteries per year worldwide within the next four years.

Metair owns two key battery manufacturers, one in Romania and one in Turkey. The Turkish division had a few political headwinds of late as tensions between Turkey and Russia had escalated. On the local side, there was a once-off retooling at one of Metair's biggest clients in the Original Equipment Market (OEM).

All the above mentioned problems have been resolved and this will be music to Metair's shareholders' ears who have had to put up with a falling share price since 2014. Metair was trading at R45 per share in 2014. It is currently trading at R21 per share.

Aspen [JSE:APN]

Aspen shareholders have seen the share price decline from R427 at the end of 2015 to around R300 where it is currently trading. The share price decline is partly due to the disinvestment by GlaxoSmithKline (GSK). They have gradually disinvested since the beginning of 2015 which created a negative cloud around the share price. That is now gone as GSK is fully disinvested.

The share now trades at valuations that are lower that its long-run average. The company enjoys a dominant position in several markets worldwide. Aspen is the largest supplier of generic drugs in Australia.

Another boost for Aspen is the fact that Donald Trump, instead of Hilary Clinton got elected as US president. Clinton was very keen to regulate the drug industry and to control prices.

Do you agree with Kirk's stock picks? Send us yours and tell us why.

*Kirk Swart is an analyst at Overberg Asset Management, an Authorised Financial Services Provider (No 783) which specialises in the private management of local and global discretionary portfolios as well as pension products.

Disclaimer: The above article does not constitute financial advice and is not a recommendation. Investors must always seek the advice of professionals and trade with caution. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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