finweek

Are SA shares still attractive?

Schalk Louw is a portfolio manager at PSG Wealth.
Schalk Louw is a portfolio manager at PSG Wealth.

While 2020 certainly was the bearer of bad news for markets globally and here at home, there are a number of local stocks that are poised for a positive outlook.


What a year 2020 has been so far. Most news this year was understandably negative, with words like Covid-19, pandemic, lockdown, market correction and economic recession everywhere.

Locally, we also had a few bonus words thrown around, like junk status and foreigners as net sellers of local shares and bonds. The question I’d like to address in this issue, considering the fact that foreigners have been net sellers of South African shares for 16 months in a row as at the end of October 2020, is whether or not there are still any buyers of SA shares out there.

The short answer is: definitely.

In fact, recent news about local companies has been very positive, and that may very well lead to more good news. Let’s look at a few.

Adcock Ingram

In total, 99% of Adcock Ingram’s turnover is generated in Southern Africa. Earlier this year, it bought back 1.5% of its shares. Its largest shareholder, Bidvest, announced on 23 October, however, that it has increased its shareholding in the company to 56.1%.

Afrox

American-German Linde, which owns 50.47% of Afrox, recently announced that it would like to buy the rest of the outstanding shareholding at R21.18 per share, resulting in its delisting.

Barloworld

Zahid Tractor & Heavy Machinery increased its shareholding in Barloworld by a further 5% at the end of September, and now owns 15% of the company. This makes us wonder if we could expect a possible further increase in shareholding.

Bell Equipment

With John Deer discontinuing the distribution of Bell products, it was looking for a buyer for its Bell Equipment shareholding. IA Bell and Co., owned by the founding family, is so positive about Bell Equipment that they offered to buy John Deere’s stake, which will increase IA Bell’s shareholding to over 68%.

Impala Platinum

This may not be one of the most significant ones but, in September, Implats announced that it would be making an offer to buy back all shares from shareholders holding less than 100 shares. With the miner’s most recent results, it was revealed that the group has R13.33bn in cash available, and with debt valued at R8.85bn, further buy-back offers are a real possibility.

Long4Life

Long4Life, which owns popular chains like Sportsmans Warehouse, Outdoor Warehouse and Sorbet, recently announced that it bought back 40m shares (or 4.66% of the company). With the release of the company's end-August 2020 results, it still had R821m in cash on the balance sheet, making further buy-backs or other takeovers a real possibility.

MultiChoice

This share definitely made big headlines during October. French media company, Groupe Canal+, first featured in the news on 5 October when it announced the purchase of a 6.5% shareholding in MultiChoice.

Immediately, questions arose as to whether it might increase this shareholding in the future, and it didn’t take long to get an answer. Three weeks later (28 October), Groupe Canal+ announced that it now owns a 12% shareholding in MultiChoice. Should we anticipate more news in the near future? Only time will tell.

Naspers*/Prosus

There is no way we can talk about the JSE and 2020, without mentioning our very own giant. One of the topics that enjoyed quite a bit of airtime during the year, was the widespread discount at which all of SA’s holding companies are currently trading.

Should we consider this an opportunity or a warning? Well, on 30 October, Prosus attempted to answer this question with an announcement that it plans to buy back $1.37bn (R22.2bn) in Prosus shares, as well as $3.63bn (R58.8bn) in Naspers shares. Prosus plans to move forward with these buy-backs after the release of its half-year results, which are expected to be available later in November.

Remgro

Speaking of a widespread discount, as at 4 November, one of my favourite shares at the moment, Remgro, was trading at a discount of 45% to its intrinsic net asset value, and this after trading at an average discount of 15% over the past ten years. With the release of its 30 June 2020 results, it became clear that Remgro has several options at its disposal due to the R9.2bn in cash on their balance sheet.

CEO, Jannie Durand, mentioned in a recent interview that the group is well aware of the widespread discount, but that it definitely creates some opportunities. He also said that they “can reinvest into our underlying companies at a huge discount if [they] buy back our shares”.

I would like to prompt investors to act cautiously. The bad news so far in 2020, is without a doubt still part of our lives. Don’t be reckless, and don’t base 100% of your decisions on the bad news in 2020, because it definitely wasn’t all bad news. To completely withdraw from the market based on bad news alone, carries its own risks.

Read more
This article originally appeared in the 26 November edition of finweek. You can buy and download the magazine here.
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