The past year would have been a truly gruelling experience for investors on the JSE — a year best forgotten quickly. Unfortunately, 2021 looks as if it will offer little respite, and traditional equity investors have already been plagued by more sentiment-shuddering developments.
Barely two weeks into the new year, the Covid-19 crisis is anything but resolved.
Internationally, surreal political upheaval in the US — where stock markets have benefited from generous stimulus packages — has cast uncertainty over just how orderly the transfer of power from Donald Trump to Joe Biden will be. At home, the government’s molasses-like pandemic response meant that this week President Cyril Ramaphosa was only able to promise 20-million vaccine doses by July — less than half that required for SA to reach herd immunity.
As the new lockdown, imposed in December, continued to hamper business activity and depress the economic mood, there is little to cheer investors.
Jannie Durand, CEO of the JSE’s stalwart investment group Remgro, warns of a tough three months ahead.
"Two months ago we were much more optimistic … with cash on our balance sheet we were ready for opportunities," he tells the FM. "Right now we are more circumspect. We have front-line workers to protect in some very capital-intensive businesses."
This sentiment has implications for investors, pondering where they can make money in 2021 — a year many pitched as the "great recovery" when fortunes could be made through judicious stock-picking.
There are many currents that need to be navigated in answering this question.
To take one example, beloved tech-giants Naspers and Prosus, the biggest force on the JSE, look increasingly under threat from the Chinese authorities. At the time of writing there were mutterings about China nationalising Jack Ma’s ventures — Alibaba and Ant. The inference is that Tencent, 31% owned by Prosus, may also not escape the tyrannical gaze of the Chinese Communist Party.
Still, for retail investors who trawl the JSE for returns and dividends, the scoreboard for 2020 wasn’t as apocalyptic as was expected in March, when the Covid-19 crash made it shed 35% within three months.
By year-end, the JSE’s all share index (Alsi) had actually scampered up 4.5%. While this may not sound particularly poor, the stocks of the JSE’s "international" listings — including Naspers, Prosus, Anglo American, Richemont, BHP Billiton and even AB InBev (in the second half of the year) — did all the heavy lifting.
Over the past three months the JSE’s Alsi was up more than 15%, with a strong run in commodities offsetting the sudden vulnerability in Naspers and Prosus.
But strip out the big international groups and mining conglomerates, and it’s clear the going on the JSE was considerably tougher in 2020. The Covid-19 lockdown hobbled the tourism and leisure sector (hotels and gaming, in particular), as well as the real estate sector, fashion retailers and banks.
Some companies launched urgent fund-raising efforts, and at times, shares seemed priced for a worst-case scenario.
Looking back
These dynamics were all reflected in the performance of the FM’s 2020 Hot Stocks portfolio (see more on the FM’s small-cap picks here), which was mercilessly smashed at many points.
Overall, the total shareholder return for the FM’s 2020 stock picks was about flat, down 0.5% — below the wider JSE performance. With dividends excluded, we were 2.9% in the red.
Altron, which unbundled Bytes Technologies last year and listed it on the JSE, was the big winner, up 87%. Our other top performers included Sibanye Stillwater (68.7% total return); SilverBridge (46.5%); Afrimat (33.7%) and MultiChoice (22.2%).
However, the overall return in our portfolio was poisoned by Covid-infected stocks such as Comair (down 66% as it applied for business rescue) and EPE Capital Partners (down 46.8%, partly thanks to its large exposure to gym group Virgin Active).
One point in our defence is that the FM portfolio is inflexible. Our writers pick a single equally weighted stock from each of the JSE’s sectors. We can’t sell or switch during the year, and we can’t opt to shift the bulk of the portfolio to, say, commodities.
Still, the FM portfolio also managed to outperform almost all the JSE’s large investment trusts — including Remgro. (For those with a morbid curiosity, the detailed performance is in the accompanying box.)
It’s clear that 2020 was a year in which some sectors were best avoided entirely. The JSE’s financial index ended more than 20% down. And the property sector was down 40% for the year — a slight recovery from being 55% down early in the second quarter.
Most battered JSE indices did offer a recovery opportunity in the latter months of 2020 as SA (initially) got on top of its Covid-19 challenges and lockdown restrictions were eased. But the safest passage to enviable returns remained the vibrant US market, where the Nasdaq (up 43.2%) and S&P 500 (up 15.4%) defied the pandemic crunch.
Aside from Naspers and Prosus, the top performers among the JSE’s top 40 index were commodity plays — Sibanye Stillwater (67%), Gold Fields (37%), Impala Platinum (30%) and Harmony (over 20%). The handful of noncommodity performers included MultiChoice (15%), Discovery (10%), Aspen (8%) and Shoprite (4%).
The worst performers among the top 40 stocks were Sasol (down 54%), Nedbank (-40%), Remgro (-29%), Woolworths (-25%) and Bidvest (-20%).
Overall (and outside the top 40), the best performers were largely commodity counters: small gold-mining outfit Pan African Resources soared 130%, while DRD Gold (aka the Roodepoort Rocket) doubled.
The biggest gain came, perhaps surprisingly, from renewable energy group Montauk, which surged more than 150% after being buoyed in the third quarter by news of a Nasdaq listing. Montauk is now worth considerably more than its former parent, Hosken Consolidated Investments, which unbundled it a few years ago.
Other top performers included container-management group Textainer (recently unbundled from Trencor) and vehicle tracking/fleet management specialist Cartrack (also in the throes of seeking an offshore listing). Both these shares doubled in value.
The worst-performing shares were the companies most afflicted by the Covid-19 fallout. Comair was grounded; hotel group City Lodge, which resorted to a huge rights issue, fell more than 80%; and UK property group Hammerson plunged 80%.
Investment group Brait, which has exposure to the Virgin Active fitness chain, was down more than 60%, while gaming groups Tsogo Sun Gaming and Sun International — another rights-issue situation — fell 60%.
The year ahead
Looking ahead to 2021 — and past the initial ructions in these first weeks — it might be easy to argue for a recovery in the better-quality banking, retail, property, leisure, and food and beverage stocks.
Readers might also justifiably expect more adventurous corporate action — takeovers and mergers rather than the spate of opportunistic minority shareholder buyout offers and delistings from the JSE.
But that may only materialise in the second half of the year, as this second lockdown continues to stifle any recovery.
Johan Holtzhausen, an executive at investment group PSG, says the new lockdown has re-engaged the "pause button" when it comes to deal-making.
"There are not many opportunities on the table right now," he says. "Those that do transpire will take longer to materialise. Due diligences will take a lot longer to complete."
Holtzhausen believes the big question for listed companies will remain: "How well-capitalised are you?"
Nonetheless, most expert market-watchers appear to be leaning towards either deep-value opportunities among SA Inc stocks, or delving into commodity stocks with a bias towards platinum and gold.
ClucasGray Asset Management portfolio manager Andrew Vintcent says it should be comforting to investors that most companies believe they are through the worst.
"The evidence suggests that the operating environment is returning to pre-Covid levels quicker than many would have predicted," says Vintcent. "The extent of the selloff in the first quarter has been well documented, and while it is certainly encouraging to see some level of sanity returning to [companies’] market values, we believe many remain considerably mispriced, and that patience is likely to be well rewarded."
John Biccard, portfolio manager at Ninety One, says he remains aloof to "mainstream" SA stocks — especially banks and retailers.
"I still think SA has some serious challenges fiscally … the underlying economic problems in the country remain."
Biccard says he is happy to hold SA stocks — provided they are "ridiculously cheap" or at decade-low valuations. He cites Caxton & CTP, Grindrod, Brait, Novus and Hulamin as examples.
Going into 2021, Biccard’s portfolio is made up of 40% offshore assets, 20% deeply discounted small caps and 40% in gold and platinum counters.
A possible return to an inflationary environment is informing Biccard’s commodity position — though his top picks, including Royal Bafokeng Platinum and Pan African Resources, are hardly mainstream.
Anchor Capital has set its "base case" for SA equities for an expected return of about 11% for 2021. It says that getting the asset allocation level right will be the key determinant of success.
Liam Hechter, a fund manager at Anchor Capital, says his top picks are Naspers, MTN, Telkom, Bidcorp, Raubex, Grindrod, Mr Price, Curro, Sibanye-Stillwater and Alviva.
"Our core motivation for a positive outlook is more macro-driven than company-specific," he says.
"Front and centre to our constructive outlook for JSE equities ... is our belief that, over the course of the year, global economic conditions will gradually improve and that the vaccine rollout, which likely takes most of the year, will result in society returning to the sort of social and economic habits experienced before 2020."
He concedes that it is crucial for SA to manage a smooth and uneventful vaccine rollout programme.
"This already looks to be off to a controversial start, with much uncertainty as to the availability and timing of the vaccine," says Hechter. "However, we believe these issues will resolve themselves in the coming months and SA will be able to join the rest of the world in a cyclical economic upswing."
Hechter says conventional economic thinking suggests that equities perform best at times of loose monetary and fiscal policy. "We believe central banks (including the Reserve Bank) and government-led stimulus measures will continue to underpin lower real rates and higher equity valuations for the foreseeable future".
He doesn’t see inflation as an issue in the short term. "As we have seen since the first broad-based central bank intervention began after the global financial crisis, risk-free rates (an underpin to equity valuations) will remain low enough to continue to incentivise large/overweight allocations to equities."
Adding to the attractiveness of emerging-markets equities, in Hechter’s view, is the lower multiples and higher yields relative to developed markets.
More political certainty in the US, he says, will provide investors with more comfort to shift capital into riskier assets — with the key beneficiary being emerging-market equities.
Small-to mid-cap expert Anthony Clark believes smart, selective investments will do the trick in 2021.
He says the snap-back in the small-and mid-cap index in the latter half of 2020 shows how much value there was on the table for investors with a longer-term vision to snatch up small-cap bargains.
"Many shares were on multiples of twos, threes and fours .... none would have gone bust, all had good management and prospects. They were just out of favour," he says.
Clark predicts that 2021 will be similar, with unloved, cash-flush small caps either continuing their share buybacks or delisting.
This year, Clark is backing sectors that have largely been abandoned by investors — like agribusiness. In part, this is because the agricultural sector is fast recovering from past woes with good harvests, and firm global soft commodity prices likely in 2021.
He recommends JSE-listed Kaap Agri and ZAR-X listed Senwes and TWK as great agribusiness picks for the year ahead.
Clark’s wild card is helium play Renergen, where he suspects some solid activity may emerge from its sizeable gas prospect.
But he warns about "a continuation of corporate activity as management may simply continue to bemoan the rampant JSE-listing red tape, as well as the lack of wider institutional interest in their stock."
Hechter shares Clark’s concern. "Unfortunately, and more importantly for us as bottom-up stock pickers, the fading away of local entrepreneurs, no doubt stung by the past 10 years of economic mismanagement, has meant that, outside the short-cycle rebound in activity levels, we haven’t managed to unearth the types of structural investment opportunities we had come to expect in the past."
Nonetheless, he still sees pockets of excellence, such as at a company like Transaction Capital. This gives Hechter hope that there is still enough depth in the teams running SA companies to take advantage of any growth that may be unearthed by new policies and increased infrastructure spending.
One question for listed companies to face in the year ahead is: how well-capitalised are you?
— What it means:
ALTERNATIVE EXCHANGE
The much neglected AltX market — created more than 15 years ago to house the JSE’s more entrepreneurial companies — was an unexpectedly good performer in a year that was truly awful for small-and mid-cap stocks.
Though a good number of punters regard the AltX, or alternative exchange, as a graveyard sector where small counters go to die, its annual return was a rather sprightly mid-teens number.
In truth, a cursory scan of the AltX still reveals a number of "left-for-dead" stocks that even the hardiest turnaround investor would prefer to avoid. There also remain a number of "odd" or obscure property and junior mining stocks, where poor share-trading liquidity precludes further investigation by investors.
Yet the AltX rallied encouragingly. One might attribute this to two buyout offers — Anchor and Mettle, which buoyed the respective share prices. Junior miner Jubilee Metals also finally started delivering, achieving good gains in the latter part of the year. Though not a major factor in the index surge, it’s also worth noting that stalwart listing Telemasters regained its mojo.
The FM still has reservations about the role of the AltX in developing future corporate giants and feeding the JSE with new listings. There is talk that the JSE — facing a smidgeon of competition from other alternative bourses — could be looking to create a separate market, where regulations and costs are much less onerous.
Marc Hasenfuss
BANKS
The past year has been miserable for banks — the largest shares in the much-maligned "SA Inc" group of companies.
There seem to be bargains about: Nedbank is trading on a p:e of about eight and Standard Bank about nine. It’s tempting to buy at such knockdown prices, assuming that the worst of the lockdown will be over by about April.
But research by Ninety One banking analyst Chris Steward shows banks are often value traps. Since the global financial crisis, for example, the shares of Absa and Nedbank have been far cheaper than those of FirstRand and Capitec — but the two pricier shares brought a substantially better total return over the past 11 years.
Still, all the banks are adequately capitalised, and a diversified portfolio should include more than one bank.
An opportunistic true blue value investor would look at Nedbank, which is more than 40% below its 2020 highs. CEO Mike Brown runs a decent operation, but the faces never change.
Investec might entice a bargain hunter. It’s under new management, and CEO Fani Titi is shaking it up after some stale years.
Investors taking a quality approach, such as Steward, believe the only choices are FirstRand and Capitec. The latter operates in the controversial microlending sector, and several fund managers have questioned its ethics. FirstRand, with a toe in retail and merchant banking and a foothold in the UK, looks to be the best choice.
Stephen Cranston
BUILDING & CONSTRUCTION
Last year was another horrible year for a building and construction sector still reeling from a severe downturn due to SA’s barely breathing economy and poor sentiment, thanks to fines imposed on a raft of companies for bid-rigging related to the 2010 Soccer World Cup.
Murray & Roberts, which has repositioned itself as an engineering service provider, slumped more than 25% — its worst performance since 2015. Wilson Bayly Holmes-Ovcon lost 34%, its biggest drop since 1998, and Group Five, once a darling of the sector, finally delisted in June after battling in business rescue since 2019.
Esor also delisted in June, highlighting the devastation of a sector brimming with promise a little more than a decade ago.
While the economy shows no signs of recovering from structural woes that have only been worsened by Covid-19, there are some bright spots in a sector all but reduced to penny stock status.
Aveng, which is increasingly pitching itself as an infrastructure and mining group, ended last year flat after three years of share price declines. And Raubex fell a moderate 10.4%, paring the previous year’s 41% gain.
The sector will be watching to see if President Cyril Ramaphosa can deliver on his pledge to unlock R1-trillion in infrastructure projects over the next four years. There could be immediate upside for the embattled sector if it does get off the ground.
Garth Theunissen
ENERGY
It’s been a bonkers 12 months for the energy sector. At one point, oil producers could not give the stuff away, causing the West Texas Intermediate price to turn negative, while Brent Crude struck multidecade lows.
Prices have recovered, but this won’t stop a wave of cost cutting in the oil industry, which in any case must reinvent itself if it is to survive the transition from fossil fuels to cleaner alternatives.
Crashing oil prices and a stretched balance sheet spelt disaster for JSE stalwart Sasol, which aggressively cut costs and sold assets — a move that may stave off a rights issue in the months ahead.
The lockdown and depressed electricity demand offered a reprieve for monopoly power utility Eskom, though it delayed maintenance plans that are now only expected to yield results by April.
Operational improvements at Eskom do appear promising, however, and its unbundling is on track for the end of 2021. But its finances are a mess, and a solution for the utility’s crippling R488bn debt has never been more urgent.
Notable policy strides include the removal of red tape preventing businesses from generating their own electricity. Still, self-generation projects are at least 18 months away, and rising electricity tariffs continue to threaten business.
A second significant gas discovery has fuelled SA’s gas ambitions, but there’s been little progress on the oil and gas policy framework.
Lisa Steyn
FINANCIAL SERVICES
It was an excellent year for several financial services companies, despite the state of the economy.
Investec unbundled Ninety One in March, at the bottom of the market, and shares in the asset manager have more than doubled since then. On a 10-year view it makes sense to back Ninety One, as it has competitive global franchises in equities and fixed income. But it will battle to beat other shares over one year.
Rival Coronation — more dependent on the SA unit trust and institutional markets — lagged behind, though its large performance fees enabled it to increase profit by 17%. It is certainly the tortoise to Ninety One’s hare, but its core SA market remains extremely fragile.
Sygnia has been the other darling of the sector. CEO Magda Wierzycka has focused on some of the less glamorous parts of financial services, such as umbrellas and exchange traded funds. Investors have drawn comfort, and the share has doubled. But she has powerful competition — not least in Sanlam and its Satrix index fund unit.
Quilter, our 2020 pick, has recovered from its R20 low in March to about R31 — a little disappointing, given its sterling income and top-tier status in the investment platform and financial planning business.
For this year, Rand Merchant Investment Holdings, a one-stop shop in the insurance sector, is our pick for Hot Stock.
Stephen Cranston
INVESTMENT COMPANIES
Punters could usually apply the "three Ds" to investment companies on the JSE: diversity, deal-making and dividends. That might well have changed to discount, discount and discount.
You’d be hard-pressed to remember when last discounts across listed investment trust-type companies have been so wide. In the not-so-distant past, discounts of more than 40% meant the market had deep doubts about the investment manager’s skills, or the quality of assets in the portfolio. Discounts of more than 50% would have suggested the portfolio was set for a serious crimping, with a slim chance of value being unlocked.
But as Covid-19 plagues the market, such discounts are now common — even with reputable investment managers and some very decent assets on show.
It’s possible longer-term investors buying into these discounts now will be amply rewarded for their determination — and patience. The problem is timing. There’s little enthusiasm for investment counters — despite recent value- unlocking efforts.
The FM was spoilt for choice in terms of a pick for 2021, with RECM & Calibre, Hosken Consolidated Investments, Brimstone, Ethos Capital, Reinet Investments and Zeder Investments all offering compelling discounts on quality assets. Even Brait might have come into reckoning, were it not for rumours of a hard lockdown at the time of writing this article.
Marc Hasenfuss
FOOD & BEVERAGES
There was much gnashing of teeth for investors who thought the JSE’s food sector would be a defensive buffer against the ravages of Covid. Instead, most major food counters were markedly down.
Tiger Brands, which is tinkering with its operational mix, managed a sliver of positive flavour.
The best "mainstream" performer was fishing company Oceana, which trawled to a 7% year-on-year gain, with its bestselling Lucky Star canned pilchards brand managing a stout showing.
Of course, Oceana was no match for agri-resource business Quantum. But Quantum’s share price was driven by corporate activity — a proverbial turkey shoot for control of this small (but strategic) business.
Recovering Tongaat was down over our reporting period, but enjoyed a second-half spurt, with some euphoric gains.
"Newer" conglomerates RFG (with a fruity niche) and Libstar (which has a cash cow in the dairy sector) didn’t seem to appeal to broader market appetite.
RCL Foods found some traction in the last quarter. It’s rumoured the company may be seeking a buyer for Rainbow Chickens.
Overall, 2020 wasn’t great for poultry groups, as reflected in the more than 35% drop in the share price of "big bird" Astral Foods. If agricultural conditions were more predictable, the superbly managed Astral would probably have been the FM’s pick for 2021.
Marc Hasenfuss
HOSPITALS & HEALTH CARE
It is ironic that, in a year of a pandemic, the stocks of health companies fell.
At hospital group Netcare the share price plummeted almost 37%, while Mediclinic Southern Africa fell 25% and Life Healthcare dropped 31.4%.
Revenues decreased as nonemergency and elective surgeries were cancelled to allow hospitals to prepare and make space for Covid-19 patients. Trauma cases were also down during the hard lockdown in April, with factories closed and fewer road accident deaths as South Africans stayed at home.
Hospitals were also forced to halve ward capacity in order to create social distance between patients.
For Life Healthcare, hospital occupancy was 40% lower in April 2020 than 2019. By July, it was still 14% lower.
Still, it’s a fact of life that people get sick and require health-care services, and after the Covid-19 second wave peaks, it is likely that any delayed surgeries will resume.
Hospitals may also have an increase in patients who put off seeking care during the hard lockdown. And, dare we say, a lockdown baby boom may well be on the cards.
The already-rising share price of Aspen Pharmacare, up nearly 14% in the past year, which has a deal to manufacture 300-million doses of the Johnson & Johnson (J&J) Covid-19 vaccine, may spike in February, when J&J announces its vaccine trial results.
Katharine Child
INDUSTRIALS
Industrial firms had a torrid time in 2020. With manufacturing activity virtually halted for the three-month hard lockdown and the National Treasury estimating a 7.8% economic contraction in 2020, sector stalwarts had their worst performance in years.
Blue-chip behemoth Bidvest slumped 23%, its biggest yearly drop in two decades. Barloworld fell more than 17%, and Nampak plunged 71% — extending its rather grim six-year downward trend.
Small-cap industrial stock Hudaco was down 24%, matching the previous year’s decline and giving it the biggest annual drop since the end of 2008.
However, there were some bright spots: Mondi was up 5.2%, and Mpact dropped a comparatively sedate 7.1%.
Under the circumstances, that’s a creditable performance.
While it’s tempting to believe the situation can’t get any worse, the reality is that it most certainly can. At the time of writing, the UK had already gone into another hard lockdown with no end in sight, and SA was rumoured to be moving to level 4 restrictions countrywide.
With unemployment exceeding 30% and much of the economy still in the doldrums, there is only so much more the sector can take.
In such an adverse climate, one probably wants to stick with quality blue-chip stocks that have a strong track record, and the scale and diverse revenue streams to weather the crisis.
Garth Theunissen
LIFE INSURANCE
Many investors took fright at the write-downs life insurers reported as a result of Covid.
But the way actuaries write down life results is more aggressive than the write-downs banks show from bad debts. Life offices are leveraged to the market, so their earnings could recover quite spectacularly with a broad recovery in the JSE and fixed-income markets. And life offices continue to earn profits on policies written years ago, as they receive monthly debit orders to maintain policies.
The best performer for the year was Discovery, up 15%. It’s the most diversified business both by region — with a large UK operation and a global franchising network — and product line. Its bank has also built up a sizeable deposit franchise.
Sanlam looks relatively cheap, having fallen by about a quarter. But there’s execution risk in new CEO Paul Hanratty’s strategy: his take-no-prisoners approach might not be welcomed in the same way as Ian Kirk’s cheerful blarney.
On a p:e of six, Old Mutual is a steal, considering it remains one of the most powerful consumer brands in SA. The share is down a third after a long period without a full-time CEO. New boss Iain Williamson is a competent operator, but perhaps not the one to take it across the Red Sea.
Our hot stock, Liberty, is an even more troubled and cheaper share. However, it could well be on the brink of a revival.
Stephen Cranston
LISTED PROPERTY
Despite a mini-recovery in the last two months of 2020, SA’s listed property index still delivered the worst performance on record last year, with a total return of -34.49%. Mall owners had a particularly torrid time due to Covid-induced trading restrictions, which forced retail landlords to subsidise struggling tenants through rental relief packages.
East European mall owner Nepi Rockcastle, our property pick for 2020, wasn’t spared, only marginally outperforming the index with a total return of -31%.
While many are still shying away from retail-focused property stocks, it’s hard to ignore their value proposition. A number of blue-chip mall owners are trading at staggering discounts to NAV of 60%-80%.
One counter that appears particularly oversold is Vukile Property Fund, the FM’s property stock pick for 2021. The company’s R36bn portfolio is split roughly 50/50 between SA and Spain.
The share is trading more than 50% below its pre-Covid levels of about R20. That’s despite Vukile’s shopping centre portfolio being in relatively better shape than many of its peers. A large chunk of its 45 SA malls cater to lower-income shoppers. These have experienced a less pronounced drop in turnover compared with glitzier centres in wealthier areas.
Even so, Vukile is set to benefit significantly from a potential revival in retail spending once vaccines become widely available.
Joan Muller
MEDIA & ENTERTAINMENT
You’d imagine that one of the few industries that would have done well from the devastation of 2020, and the demand for information about Covid-19, would have been the media. But as much as websites hit record numbers, SA’s legacy media operations took plenty of strain, with many — like Associated Magazines — collapsing entirely.
And yet some investors who are wondering where to deploy their capital may be willing to bet on the media sector since, in theory, South Africans stuck at home may be far more willing to subscribe to streaming services for their news and entertainment than in the past.
There is some speculation that Independent Media and Sekunjalo chair Iqbal Survé has plans to relist the group’s media assets in an effort to find new capital for the ailing newspaper group. Other media companies, such as Caxton, are struggling to remain profitable, even if their actual media products are far more impressive than those of the Independent.
Last year, MultiChoice was one of the few shares to rise, and it may continue this trajectory in 2021. Its Showmax Pro streaming offering, in particular, offers viewers access to the regular Showmax bundle, along with music channels, news and SuperSport content, at less than half the cost of a full DStv subscription.
Naspers could gain more momentum in 2021, as it continues to enjoy handsome returns from its investment in China’s Tencent.
Alistair Anderson
MINING
Mined commodities did extraordinarily well in 2020, despite the Covid chaos. Precious metals continued a winning streak that started in 2019. Platinum group metals fared particularly well, thanks largely to palladium and rhodium prices, which reached record highs. Platinum also did well, breaching $1,050/oz for the first time in more than four years.
Global uncertainty meant gold prices hit record highs, while rand gold prices shot the lights out. Iron ore continued a marvellous run, thanks to unrelenting demand from China.
Despite major production losses, largely due to Covid-related disruptions, stellar prices ensured shares excelled.
Anglo American’s share price is 41% higher than a year ago and its platinum business is up 9.5%; Impala Platinum’s share is also 39% higher.
Last year, AngloGold Ashanti’s share price rose 10%, Harmony’s 35% and Gold Fields’ 55%. Kumba gained almost 60%, while Sibanye-Stillwater stock rose 70%.
With cheap money washing around the globe and growth-led demand from China, commodities look set for a good year. Coal faces growing negative sentiment, but dwindling production could buoy prices in the medium term.
In SA, a number of challenges remain. Port and rail infrastructure is a thorn in the sector’s side, and local content quotas are likely to be a hot topic. For operations on the edge, rising Eskom tariffs may prove to be the death knell.
Lisa Steyn
RETAIL COMPANIES
Investors are hardly clamouring for retail stocks. Last year consumers stayed away from shopping malls due to Covid and lockdowns, and the alcohol bans only added to these woes. But the stocks have recovered from midyear lows, rewarding investors who were brave enough to buy when things looked bleakest.
Massmart started the year at R51.30, tumbled to R19.16, then bounced back to R42.73 — an overall drop of 16.7%. Despite the vote of confidence of CEO Mitchell Slape, who bought R8.2m in shares, its fundamentals remain weak, with the group losing over R1bn in just six months.
Spar’s Swiss and Irish franchises did well, as lockdowns forced consumers to shop closer to home in community stores. The group is confident its turnaround of the Polish business it paid €1 for will work out. Buying Spar shares is not a bad idea for those looking for a rand hedge.
More risky stocks include TFG, whose sales in the UK plummeted 56.2% in its half-year to September. Its UK brands sell workwear and evening dresses — hardly in demand in a country facing ever more stringent lockdowns. Also struggling is Truworths, which spent £6.5m bailing out its UK shoe chain Office.
Woolworths is more promising — it struck a deal last year to renegotiate debt agreements with Australian funders. This means Country Road and SA operations are no longer overshadowed by debt from David Jones.
Katharine Child
TECHNOLOGY & TELECOMS
Despite all its promise, the knocks keep coming for MTN. The cellular giant took a big beating during the year, driven by its reliance on oil-producing countries, particularly its largest market, Nigeria. As oil prices plunged to their lowest levels on record, its share price more than halved, from R81 to R29. The stock has recovered to about R67, but that’s still an overall drop of about 17.5%.
Telkom was also down (9%), while Vodacom ended the year 7.3% firmer.
The sector is looking forward to the upcoming radio frequency spectrum auction — the first in more than a decade — set to take place by the end of March. After the Independent Communications Authority of SA issued a temporary allocation to operators in May to cope with communications demands during the pandemic and detailed its auction process, the industry is hoping the regulator finally makes good on its promise.
Financial services will be another big theme for tech and telecoms operators, which continue to explore opportunities in mobile money, insurance and e-commerce.
Altron, the FM’s 2020 stock pick, did well in an uncertain environment and was one of the JSE’s strongest mid-cap stocks. By November it had gained almost 37%; over three years it was up 163%. Shareholders did well as Altron listed its Bytes subsidiary on the London Stock Exchange and the JSE in December, creating about R13bn of value for investors.
Mudiwa Gavaza
TOURISM & LEISURE
For the tourism and leisure sector, 2020 was a year to forget. Between the hard lockdown, closed borders, and the effect of the pandemic on consumers’ wallets, it’s been a battle for survival.
After SA entered hard lockdown in late March, hospitality companies were left unable to make any substantial form of income, and had to rely on cash reserves and government support.
Things started looking up from August, as lockdown restrictions eased and economic activity picked up.
But recovery has been slow. According to the latest figures from hospitality research group HCI Consulting, international arrivals to SA for October were 90% down on previous years, despite borders having reopened. Hotel occupancy for November was at 33.5%, bringing the year-to-date performance to 36.1% — against 62.2% for 2019.
The festive season also proved trying, with renewed lockdowns abroad and some local travellers cancelling bookings after the reinstatement of restrictions.
The pandemic has taken its toll on travel and leisure stocks. City Lodge’s share price tumbled more than 80% over the year, while Tsogo Sun Hotels dropped almost 60%.
Though the gaming sector resumed operations under level 3, Tsogo Sun Gaming and Sun International were down 60% over the year.
The sector will recover as vaccines roll out and travel picks up. But that may be a while.
Alistair Anderson
TRANSPORT & LOGISTICS
Transport and logistics is another sector battling some of SA’s unique risks.
SA’s rail infrastructure is used largely to ship coal and iron ore to ports. The road logistics sector, which does most of the country’s goods transportation, has been under attack for several years from what appear to be organised syndicates.
Truckers suffered an onslaught in the past year from shadowy groups that claim they’re opposing the illegal employment of foreign nationals. Attacks have increased in recent months, with several truck drivers losing their lives. SA’s worrying history of xenophobia has further fanned the flames, which are often real rather than figurative.
A backdrop of faltering economic growth and rising unemployment makes for a volatile sector.
That’s also largely evident in the share price performance of many of its better-known counters over the past year.
Imperial Logistics lost 36.2% in 2020 and OneLogix dropped 27.2%, while Super Group declined 18%. Grindrod performed better, given the diversification of its offering, which includes significant ocean-going shipping and financial services. But it was small-cap Santova Logistics — which provides specialised supply chain management, financial services, business intelligence, freight forwarding and IT solutions to the sector — that really stole the show, with a stellar 72% surge in arguably the worst year in living memory.
Garth Theunissen
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