For the JSE, last year was a tale of contrasts, as SA’s largest stock market grew and shrank at the same time. First, the good news: the all share index (Alsi) soared 24%, with the top 40 skittering up at about the same rate. It was welcome relief after Covid laid sentiment low in 2020, and caused further jitters with its variants.
That the JSE rose was all the more remarkable considering that the share price(s) of the exchange’s largest constituent, Naspers and Prosus, fell markedly.
Other "global heavyweights" enjoyed a mixed performance. Luxury brands conglomerate Richemont glittered, with a 65% gain, but British American Tobacco only managed a smouldering low-digit increase, and beer maker AB InBev leaked 10%.
This speaks of a broad recovery in sectors most ravaged by Covid initially, such as resources, construction, gaming, hotels, retailers, fast food, property and even banks.
But the bad news is that while the stocks listed on the JSE recovered, the exchange itself shrank, as the number of listed shares plunged. The JSE’s 601 shares in 2001 have been whittled down to an anaemic 325.
More companies chose to delist last year, frustrated that their stock prices failed to reflect their value. This included a slew of small-cap companies that no longer needed a platform to raise fresh capital, or found the cost of maintaining a listing to be onerous.
Last year’s delistings, or planned delistings, included stalwart small-cap Value Group (which was consistently profitable and paid superb dividends), Vivo, ARB Holdings, Onelogix, Adapt IT, Long4Life and Alaris. And more obscure counters, including NVest, Spanjaard, CSG Holdings, Stellar and Trustco all appear to be packing their bags.
The worry is that two of the JSE’s top second-line stocks — liquor group Distell and logistics group Imperial — are also subject to buyout offers from global competitors that will lead to their delistings. The premium prices offered by Heineken and DP World respectively also show a disconnect between the value perceptions of local investors and knowledgeable international buyers.
The problem for JSE CEO Leila Fourie is that new listings, to replace those leaving, were scarce. Nor is there much talk of private companies heading for the JSE in the short term, though it was encouraging to see two property counters list at the tail end of 2021.
Fourie has big plans to boost the JSE’s relevance, including capitalising on private equity activity. But whether this can reverse the one-way traffic of those leaving the bourse is unclear.
ClucasGray portfolio manager Andrew Vintcent says one problem is that many good companies remain materially undervalued.
"Public companies have to contend with an ever-increasing raft of regulations and costs to remain listed," he says. "Management teams … spend an inordinate amount of time dealing with queries on why their share price continues to languish, and what they plan to do about it."
Still, he says many management teams can unlock significant value for shareholders. "Failing that, we would expect them to become the subject of corporate takeovers."
In this context, the JSE’s 24% rise last year can only be positive. If it were repeated, a wash of positive sentiment could keep listings afloat, and attract newcomers to the red-hot sectors.
Last year, astute stock-pickers would have made a fortune. Some popular standouts were Shoprite, which gained 55%; Transaction Capital more than doubled; cement maker PPC’s stock soared threefold; and Glencore grew 50%.
Sectorally, the beleaguered investment trust sector, which has been trading at gaping discounts to intrinsic value, made a strong comeback. Sabvest Capital doubled, African Rainbow Capital soared 80%, PSG Group was up 57%, Brait 40%, Ethos 30% and Hosken Consolidated Investments 30%.
Property stocks also rebounded, but punters might have preferred dabbling offshore: MAS was up 75%, Hammerson 47%, Industrials Reit 53% and Irongate about 33%.
Corporate action helped Royal Bafokeng Capital’s share price to more than double, leaving other platinum plays in the shade.
The FM’s hot stocks portfolio — the 17 top shares picked by this magazine’s investment writers from each sector — did even better than the wider JSE, rising 40.6%, and 44% if dividends are included.
The FM portfolio scored strongly from the rebound in bombed-out Tsogo Sun Hotels (up close to 140%), but it also saw a 93% gain from energy giant Sasol, 88% from construction group Raubex and 80% from an inspirational pick in specialist logistics group Santova. Our surprise packages were Vukile Property (up more than 72%) and recovering retailer Woolworths (up 32%). Investment behemoth Remgro surprised with a 36% gain — before factoring in its reliable dividend flows.
The FM also cashed in on corporate action with Liberty Holdings (subject to a buyout from Standard Bank) and RMI Holdings (in the throes of unbundling its interests in MMI and Discovery). Liberty was up more than 50% and RMI more than 40%, outstripping their insurance peers.
The JSE’s searing performance fuelled much excitement too. It was not uncommon to see 100%-plus gains in various stock-picking contests on social media.
But with that in mind, the deeper question is whether the easy money has already been made off the low Covid-inflicted base. That’s far trickier to answer.
Higher interest rates and inflation in the US look certain, and the recent pullback in high-growth tech and fintech stocks looks ominous for those who fear a correction on the Nasdaq. China could also put a spanner in the works, with property developer Evergrande squeezing itself into a tight corner.
Politically, there is worrying sabre-rattling by China and Russia, and SA’s sociopolitical arena is dangerously fraught. Also, the world might still not be out of the Covid woods.
Yet Aeon Investment Management CIO Asief Mohamed believes that it would be a "reasonable expectation" for the JSE to provide a total return of 5%-15% in 2022.
Mohamed says the broad consensus is that developed-market stocks and bonds are relatively overpriced right now. But he still sees the JSE as relatively cheap on an estimated forward p:e of 11 — and if heavyweights Naspers, Prosus and Richemont are excluded, that falls to 9.
Adrian Saville, Genera Capital investment specialist, says sweeping statements about markets are probably not appropriate for the year ahead. "It’s tough to suggest all markets are overvalued, but it is difficult to justify some valuations in the US market," he says. "But emerging markets, like China, Russia and Latin America, look well priced."
Saville believes higher volatility could see an appetite for investment risk replace a raw appetite for risk. "There will be a more sober lens with which to assess markets, and investors should be looking to build positions on a five-year horizon rather than a five-week or even five-day horizon." He adds: "It’s worth remembering the Roaring Twenties ended with the market 90% down."
Momentum Investments’ Herman van Papendorp points out that whereas SA equity market returns were spurred by a strong profit rebound in 2021, that’s likely to reverse this year. He expects pressure on company profits from slowing economic momentum (global and local), on top of the high profit base set last year.
Van Papendorp says stock market returns will have to come from a rerating in market valuations. "Fortunately, the SA equity market picture looks quite favourable. Even assuming negative earnings growth of 15% in the next year, the SA equity market is now one-quarter of a standard cheaper against the average since 1999. Also, SA equities still trade at huge valuation discounts to the rest of the world."
All things considered, 2022 could be the year the value investor returns to the fore.
The pros’ picks
Global stock prices will be helped, says Mohamed, by the fact that China is once again on a path of stimulating economic growth for its economy, albeit at a measured pace and mindful of deflating the property bubble in a responsible way. "China’s projected GDP growth of 5%-6%, and limited supply growth, will support commodity prices," he says.
Mohamed singles out Anglo American, BHP and Impala Platinum. But Naspers is Aeon’s preferred overweight position, trading at more than a 50% discount to the sum of its parts.
"Tencent is a big driver of the value of Prosus and Naspers," he says. "All three shares underperformed significantly over 2021. The consensus earnings growth for Tencent over the next five years is 20% per annum. If Tencent … surprises to the upside, one could expect Naspers, Prosus and Tencent to outperform the Alsi over the next five years."
Mohamed’s speculative play is takeover candidate Metrofile, for which he expects a buyout offer at an attractive price.
Ninety One fund manager John Biccard believes the market hasn’t shifted decisively to favour value investors just yet. "But there are always things to buy", he says — "especially defensive shares like Oceana, Tiger Brands and Spar."
Spar, for example, has fallen from about R210 to less than R170, and offers a lower-risk entry into the retail sector. "If Spar can clean up its investment in Poland and improve the core SA business, we could be looking at cash earnings of around R14 a share, and a nice dividend yield of 5%."
Biccard’s two other picks are commodity firms: AngloGold Ashanti and Gemfields.
For a market cap of $200m, Gemfields offers a gemstone mine in Zambia and a ruby mine in Mozambique that generate annual revenue of about $250m and pre-tax earnings of $80m, he says — along with the Fabergé luxury brands business and Sedibelo Platinum Mine. With emerald and ruby prices rising, he believes Gemfields — with reduced debt and a new anchor shareholder in Assore — could start paying dividends.
Biccard says AngloGold is trading at half its 2020 peak. He likes gold, even if it’s said to lose its shine as interest rates rise. "If interest rates in real terms go up slower than inflation, then gold still looks good," he says. "Gold shares are at 20-year lows ... and are as cheap as they were in 2000, when the bullion price was $300."
Smalltalkdaily Research analyst Anthony Clark picks helium business Renergen as his "wild card" for 2022. With phase 1 of its Virginia project set to come into commercial operation in April, he expects "the potential of the deposit will be seen physically by the market in a revenue stream".
However, Clark cautions that the larger second phase of the project could require capital of as much as R12bn (a good deal more than Renergen’s R4.1bn market cap).
Aside from Renergen’s heady earnings forecasts for 2025/2026, there are "whispers of a Nasdaq listing, investment from overseas interests and strong demand for the recently launched innovative crypto-styled helium token to aid funding", he says.
"Helium is currently the talk of the town," he says, given the space race between billionaires Elon Musk and Jeff Bezos. "Renergen sits on some of the richest, lowest-carbon-intensive helium in the world. Any knock on the door from a space pioneer could take the stock to the moon."
ClucasGray portfolio manager Brendon Hubbard says energy will be a global theme in 2022, as environmental, social and governance issues have contributed to energy shortages and record power prices. "You can cut supply, but not demand," he says.
Hubbard believes Reunert is well-positioned for energy demand, supplying cables for wind turbines, and providing switches and circuit breakers. And it’s got exposure to solar through Terra Firma, and to renewables via its joint venture with AP Moller Capital.
He also likes offshore property play MAS (it plans to double its euro earnings by 2025), Master Drilling (which he reckons will be debt-free in six months), automotive group Metair and logistics group Grindrod.
Hubbard’s colleague, Vintcent, lists Metrofile (share buybacks, dividends and bolt-on acquisitions can enhance earnings); Caxton & CTP (cash and the value of its Mpact stake is worth more than its market cap); and Ethos Capital (significant discount to NAV with underlying investments performing well).
Of the larger stocks, Vintcent highlights Old Mutual (trades at extremely attractive valuation multiples); Absa (trades at a very undemanding multiple); African Rainbow Minerals (the sum of its parts is attractive, with levers to unlock value); and Massmart (could grow profits materially over the next few years).
Saville believes strong commodity prices will translate into a supportive economic environment where there should be infrastructure spend, even if growth is moderate.
In his view, local building firms have shown their resilience over the past 10 years. "If a construction business is still standing and the balance sheet is strong (like WBHO) then that speaks volumes about the business model and management," he says.
Saville believes cement maker PPC should benefit from import restrictions and an improved balance sheet, while also scoring from a revised geographic footprint.
He adds that Aveng — the most traded stock of 2021 — has been taken out of the pennystock bucket after a recent share consolidation. "Both core businesses in SA and Australia have done well, and Trident Steel might come off the selling block."
Saville is also fond of industrial equipment businesses Hudaco and Invicta — "great quality businesses with diversified revenue bases". For the slightly more adventurous, he suggests Argent Industrial, which is building an impressive engineering niche in the UK.
John Slauck, director of Integrated Managed Investments, says higher global interest rates will put pressure on emerging-market currencies. Slauck recommends picking "pockets of excellence ... companies with strong numbers and those quality counters likely to be targets for low-base takeouts."
In terms of potential winners, Slauck is betting on Master Drilling, a buyout at junior platinum miner Wesizwe, a corporate restructuring at Metair, Merafe (banking on a generous special dividend) and Tradehold (a separate listing of the industrial portfolio).
Armitage’s Anchor Capital likes resources business Afrimat, which has an excellent capital allocation record and several sources of growth, including the Nkomati anthracite mine, iron ore mine Jenkins and the Gravenhage manganese deposit.
Anchor cites technology group Alviva as a small-cap value play that is worth far more than its current share price. "While it is a small cap, it is quite a big business, with annualised turnover of about R20bn at present. We think it can make over R1bn ebitda over the next year and the market value is R1.8bn."
Anchor likes two financial services businesses: Investec, which is "starting to generate good performances and its investment case now hinges on earnings growth and operating profit"; and Transaction Capital, where about R1.35bn in profit after tax next year is possible — 35% up on this year.
Anchor also suggests watching MultiChoice, which is now much more than just an SA pay-TV operation. "We believe that in the next year or so, investors are going to be forced to start ascribing value to the other parts of the business — most importantly the currently loss-making African business.
"At the time MultiChoice was listed separately, management [said] MultiChoice Africa would reach operating profit break-even in this next financial year. As that date rapidly approaches, we believe things will get interesting."
Good commodity prices may lead to a supportive environment
— What it means:
ALTERNATIVE EXCHANGE
The AltX, which caters mainly for smaller entrepreneurial businesses, had a fairly rollicking year, with the index up more than 25%.
Mostly, the market perceives the AltX as comprising mainly companies either struggling or left-for-dead. Admittedly, there are some in obvious distress, but that shouldn’t detract from some impressive performances over the year.
Tin miner Alphamin was the standout share, gaining about 265%, while stalwart commodity counter Jubilee Metals Group managed 26% due to progress in building a global resource-extraction business. Day hospitals group Advanced Health saw its share price almost double after reinforcing its balance sheet, and communications business Alaris was up 79% on the back of a pending buyout offer.
Outside of impressive share price movements, a new-look Astoria took shape as a diversified investment company with holdings in retail, mining and gaming. Etion began unlocking value by selling off subsidiaries. Universal Partners managed a successful exit of its investment in electric motor maker Yasa at a decent premium. And sector stalwarts such as ISA Holdings, Workforce, Oasis Property, Silverbridge and Telemaster did encouragingly well.
Other transformatory efforts were less convincing, including plans to breathe new life into bombed-out Mine Restoration, Visual International, Imbalie and GoLife.
Marc Hasenfuss
FINANCIAL SERVICES
Financial services is not a homogeneous sector on the JSE: it includes two large institutional asset managers in Coronation and Ninety One; two large advisory businesses in PSG Konsult and Alexander Forbes; short-term insurer Santam; and holding companies that can’t be described as focused financial services businesses, such as Remgro and Reinet.
All have different dynamics. That’s true even for Coronation and Ninety One, despite similar market shares in their local pension fund and unit trust businesses. About 60% of Ninety One’s earnings derive from non-SA clients; for Coronation it’s less than 15%. But following strong equity markets in 2021, both look fully priced on a 12-month view.
Alexander Forbes might be a good bet over three years, as it sheds its more volatile business units and bulks up its fund administration membership by taking over the Sanlam standalone retirement funds. But this transition could take up to two years. PSG Konsult, in which revenue from client portfolios is closely linked to equity markets, will show limited growth in a more subdued 2022. Meanwhile, Santam still has to shake off the reputational damage from its refusal to pay Covid-related business interruption claims timeously. Besides, it’s hardly a screaming buy at a p:e of about 20.
The FM believes UK-based Quilter, formerly Old Mutual Wealth, could be the hot stock of 2022.
Stephen Cranston
ENERGY
If there was one defining power-generating theme of 2021 it was the global green energy revolution, which played out in the oddest way. Think, for example, of the stratospheric rise in coal prices and the share prices of coal producers. Renewable energy, however, is where it’s at.
For SA investors this has created some new potential targets, like Renergen and Montauk Renewables. It’s a welcome development, as investors keen on energy have pretty much been limited to Sasol until now. Last year, admittedly, a punt on Sasol paid off resoundingly — the share price rose 93% as the oil price recovered. And seven of the nine analysts who cover Sasol still call it a buy.
Sasol is, however, far from the “green” company it says it plans to become. And there’s something cynical about profiting off energy market ructions by buying the offenders of the past, such as Shell or BP. You could instead throw in your lot with the companies that prefer to profit from the waste we produce — like Montauk Renewables.
Born from the stable of Hosken Consolidated Investments, Montauk punts its 30-year track record in capturing methane gas from landfills and converting it into either renewable natural gas or electrical power for the electrical grid. At listing in 2014, Montauk held a market value of barely R280m; today it’s at R21.1bn.
Giulietta Talevi
BUILDING & CONSTRUCTION
There are only a handful of construction stocks left on the JSE, but some that remain had a Lazarus-like 2021: Aveng gained 297%, Raubex rallied 88% and WBHO rose 33%. Building supplies companies did well too, like Cashbuild (+29%), Afrimat (+38%), PPC (+285%), Sephaku (+163%) and Italtile (+18%). The latter operate in a contested space, but results from all players attest to the Covid-induced DIY frenzy of 2020-2021.
The question is, how much is left in the tank, considering the run that the construction stocks had last year? While retail investors have been piling into Aveng with gusto in recent months, it is unclear whether the steep rise in its share price can continue before it begins to repay this faith with money in the bank.
By contrast, there may still be scope for the building supplies companies to grow this year. In its most recent trading update, Italtile explicitly said people’s lockdown-induced dissatisfaction with their homes had been a wondrous one-off that won’t last. But as far as quality companies go, you don’t get much better than this one. That’s why its shares are so tightly held by a committed band of institutional investors alongside founder and nonexecutive chair Giovanni Ravazzotti.
For the past 20 years Italtile has remained one of the JSE’s most consistent performers, and it will benefit from the push for more infrastructure investment.
Giulietta Talevi
BANKS
Over the past year, bank prices rebounded thanks to good news on debt provisions. In most cases, the provisions proved to be highly conservative and led to a strong rerating from March 2020.
Investec was the star performer. Many investors believed it would be especially vulnerable after it unbundled the most successful part of the business, Investec Asset Management (now Ninety One). Yet its bad debts came down to a negligible 0.07% by September.
Capitec had a strong year. It continued growing its client base despite increased competition from low-cost rivals including TymeBank and Bank Zero.
Within the “big four”, Absa and Nedbank, which had more traumatic falls in early 2020, recovered best, with share prices up about 30% each.
FirstRand looks to be the best choice for the long term. Former FNB CEO Michael Jordaan argues that it’s at least two years ahead on the journey to becoming a more digitally focused platform. But that is unlikely to be a catalyst for share price growth over the next year.
Standard Bank probably won’t be a winner while there is uncertainty around its African operations, which depend on commodities.
Nedbank is likely to be held back by its expensive ambitions to offer “anything legal” on its Avo super-app. But Absa has a good chance to make progress.
Stephen Cranston
INDUSTRIALS
The industrials sector is home to some of SA’s stalwart stocks, such as Bidvest, Barloworld, Imperial and Super Group. The sector outperformed in 2021 despite a bleak economic landscape, rising unemployment and the July unrest, in which warehouses were torched and transport disrupted. Even PPC, which not too long ago was battling a debt-fuelled existential crisis, performed admirably, despite a lingering hangover from years of boardroom shenanigans.
If SA can kick-start its economy in 2022, the sector may be able to build on this solid performance in the year ahead.
Within this space, Christo Wiese-chaired Invicta Holdings is a stock to watch. It suffered dramatically in 2020: already mired in debt and facing a R200m tax bill (the final tranche of a R750m account), the last thing the company needed was a pandemic to decimate the economy it serves through the provision of industrial parts and equipment.
The onset of Covid and subsequent lockdowns saw Invicta’s share price plunge to just over R4 in May 2020, while the company teetered on the verge of bankruptcy. But such has been the turnaround under new CEO Steven Joffe that the share has rallied 64% over the past year.
It ’s led small-caps analyst Anthony Clark to call for a medium-term share price target of R35 and R60 over a three-year horizon.
Garth Theunissen
INVESTMENT COMPANIES
Investment holding companies are hardly flavour of the month, thanks to the steep discounts at which they trade relative to their underlying assets. After all, why buy into a holding company, which adds another layer of management and cost, when you could simply buy the underlying assets themselves?
It’s a valid point, and one that’s made PSG unbundle its stake in Capitec to appease shareholders demanding a value unlock. Meanwhile, Long4Life, the company founded by Brian Joffe that owns beauty chain Sorbet and retailers Sportsmans Warehouse and Outdoor Warehouse, will be delisting after selling its assets due to unhappiness over the discount between its share price and the value of its assets.
Still, Andrew Kingston of Sanlam Investment Management (SIM) says these structures offer value investors a cheaper entry into solid underlying businesses. Take Johann Rupert’s Reinet: its two main investments are in the JSE-listed British American Tobacco, which accounts for about a third of its NAV, and unlisted UK firm Pension Insurance Corp, an insurer of defined benefit pension funds. Reinet has used healthy cash flows from its tobacco asset to reinvest in its other businesses. SIM likes Reinet for its conservative management and strong underlying assets. That’s augmented by Reinet’s discounted valuation, offering investors “a big safety net”, says Kingston.
Garth Theunissen
HOSPITALS & HEALTH CARE
As much of the world learnt to live with the pandemic in 2021, hospitals became more proficient at managing waves of Covid patients while still maintaining ordinary surgeries — with these improved occupancies reflecting in hospital groups’ share prices.
Netcare’s stock was up 23% over the year, from R12.50 to R15.88, while Mediclinic rose about 21%, from R56.72 to R68.88. Life Healthcare saw a substantial 42.8% rise, from R16.82 to R24.03.
Elsewhere in the sector, SA’s generic and anaesthetics pharmaceutical jewel, Aspen, rocketed 79%, from R125.37 to R224.44. It proved to be the clear success story of the year, after reducing a debt pile that stood at more than R46bn in 2018 to a more manageable R16.3bn and resuming paying dividends.
Debt-laden drug company Ascendis Health survived liquidation, but offered something of an endless soap opera until days before Christmas: previously ousted management was voted back onto the company’s board, along with a shareholder activist, and foreign lenders called in their debts. It meant Ascendis had to find new lenders.
More broadly, health stocks remain a good long-term bet for investors: people will always age and fall ill. And in the shorter term, hospitals now need to catch up on procedures and the treatment of diseases that were sidelined during the pandemic.
Katharine Child
FOOD & BEVERAGES
There were slim pickings in the JSE’s food segment in 2021, with the food producers index down about 2%. But it was not an uneventful year: AVI and Premier Fishing & Brands were locked in lengthy (unrelated) negotiations that came to naught, Brait signalled its intention to list consumer brands arm Premier Group, and Tongaat Hulett (down about 40%) caused some upset with a controversial proposal for a R4bn rights issue.
Despite their status as an essential service, food producers were dependable rather than spectacular. Sector giant Tiger Brands lost about 11% over the year, while AVI, the other big player, rose 4%.
The big bucks were made by Remgro-controlled RCL Foods, which was up more than 60% after the market priced in the restructuring of its poultry business and the potential of its grocery brands and logistics services. The odds on RCL being bought out and delisted by Remgro have also shortened.
The other strong performer was Astral Foods, up about 20% in a tough year for the poultry sector. Quantum Foods (chicken, eggs and animal feeds) was down close to 10%.
Mid-tier Libstar and RFG rose 4% and 2% respectively. Interest in these stocks might be reignited if Brait spins out Premier Group.
Fishing companies were becalmed by the soon-to-be-finalised fishing rights allocation process; Sea Harvest drifted about 4% higher during the year.
Marc Hasenfuss
MINING
2021 was a mixed year for mining: platinum group metal prices beat a hasty retreat, gold prices flatlined, iron ore surged and then slumped, and 2020’s go-go shares (like Sibanye-Stillwater) went nowhere, while coal producers had their unlikely moment in the sun precisely because of the green energy push.
It helps explain why the FM’s 2021 stock pick, Anglo American (up 44%, including dividends), was bested by Glencore, which rallied 68% thanks to its coal mining and trading business.
While many stock pickers are still punting Sibanye strongly, as well as platinum companies like Northam and Impala Platinum amid talk of an extended commodity super-cycle, the smart money may be in the less obvious miners listed on SA’s resources index.
Take, for instance, ferrochrome producer Merafe. Until 2012, SA was the world’s largest producer of ferrochrome (the key ingredient in stainless steel). Then Eskom’s soaring tariffs and unreliable power supply saw Chinese companies take the lead. Now, ructions in Asia and surging freight rates have ramped up the cost of ore reaching Chinese ferrochrome producers. That’s a problem SA doesn’t have, given that it is home to more than 72% of global chrome reserves.
While Merafe had a stonking year in 2021, gaining 185%, the price has yet to reach its 2008 highs of R4-plus.
Giulietta Talevi
MEDIA & ENTERTAINMENT
While media companies saw some recovery in advertising revenue in 2021, the sector is still feeling the effects of the pandemic-induced lockdowns, which caused companies to cut their ad spend to preserve cash. That’s on top of pressure from internet giants, including Facebook and Google which, the Wits journalism department estimates, have taken as much as 60% of local advertising revenue over the past decade.
MultiChoice, the largest player in the sector, reported a rebound in ad revenues in its latest interim results. But it says it has yet to return to pre-pandemic levels. E.tv parent company eMedia Holdings has reported a similar trend.
Meanwhile, print and publishing company Caxton, which has been restructuring in the face of falling newspaper and magazine sales, has returned to annual profit after cost-cutting.
There would seem to be opportunity in video, radio and music streaming services. All SA’s major television broadcasters now offer online viewing options: eMedia is adding a platform called eVOD to its portfolio; MultiChoice owns DStv Now and Showmax; and the SABC has a deal with Telkom to stream its television and radio content.
Restrictions on movement have also benefited companies that live-stream business, sporting and music events — GoToWebinar, Zoom, Microsoft, Corpcam and, locally, Telkom, with its BCX offering.
Mudiwa Gavaza
LISTED PROPERTY
Appetite for real estate counters gained strong momentum towards the end of 2021, no doubt partly spurred by some stocks resuming dividend payouts.
The SA listed property index rallied 10% in December alone, bringing the year’s rebound to 26% — the first time since 2017 that the index ended the year in the black, and a far cry from the -40% battering it took due to Covid in 2020.
Vukile Property Fund, the FM’s 2021 property stock pick, was the JSE’s top-performing real estate counter last year. The mall owner, whose R36bn portfolio is split roughly 50/50 between SA and Spain, notched up a total return of just more than 80%. Like many of its retail-focused peers, Vukile was oversold in 2020, as investors ran for the hills when trading restrictions, social distancing measures, alcohol bans and curfews were introduced. But by late 2021, property firms were in better-than-expected shape as shoppers returned to malls and vacancies were largely stabilised.
Though there’s probably still recovery upside to be had among local Reits, the FM is betting on stronger economic and consumption growth in Eastern Europe than SA in 2022. As such, our property stock pick is MAS Real Estate. The company is led by highly regarded Martin Slabbert, who was the driving force behind the phenomenal growth of fellow JSE-listed East European mall owner Nepi Rockcastle.
Joan Muller
LIFE INSURANCE
Life insurers have, understandably, been hard hit by Covid. In the past two years, payouts have exceeded premiums collected — quite significantly, in many cases. As a result of this higher mortality factor, the recovery in the life insurance sector has lagged that of the banks. And we can’t assume things will be back to normal in 2022.
Sanlam is the quality pick over the long term, but the stock has remained stubbornly flat at around R60 for the past year. Judging by the underwhelming market response, the merger of its investment businesses with its Absa counterpart is unlikely to lead to a rerating.
Old Mutual must look like a buy to value managers, at R12.30 — well below its June 2018 relisting valuation. But the main drivers of its returns — the cash-strapped funeral policy market and pension-funds sector — will be among the last to recover from the pandemic.
Liberty was a strong performer last year, up 52%, but this was entirely because of Standard Bank’s generous offer to minority investors. It will leave the JSE soon.
Momentum Metropolitan would be a pick on a three-to five-year view because, by then, it will have a competitive short-term insurance and investment business. But, for now, Covid is still wreaking havoc.
Discovery, with much stronger geographic and product diversity, looks like the best bet for 2022.
Stephen Cranston
TRANSPORT & INFRASTRUCTURE
Transport and infrastructure is a relatively underappreciated segment of the market. It’s understandable, considering the sector has languished in a bear market ever since the boom that preceded the 2010 Soccer World Cup.
Factor in horror stories about the “construction mafia” — thugs typically arrive on site demanding everything from jobs-for-pals to payments for non-existent services rendered — and you can see why so many companies in the sector are increasingly looking outside SA for work. Then there’s the fact that landing big contracts often exposes companies in the sector to possible corruption scandals and allegations of collusion, putting them under the regulatory scrutiny. In short, this is no sector for sissies.
That said, there’s a common favourite among the asset managers the FM canvassed: Raubex, a multidisciplinary construction play whose mainstay is roads and earthworks. With an order book of R16.6bn as at end-August, the company has a healthy pipeline of work ahead of it. If the government can get its act together and revive SA’s infrastructure, that could translate into longer-term tailwinds for the share price.
Because Raubex’s order book is so flush, it should be able to tender at higher margins for new contracts, as it doesn’t actually need the additional work at present, says Sanlam Investment Management’s Vanessa van Vuuren. That’s a good place to be.
Garth Theunissen
TOURISM & LEISURE
The scoreboard will show that the JSE’s travel and leisure sector had a huge rebound after being laid low by Covid lockdowns in 2020. Punters who bet early on a recovery scored big, with the index more than doubling from about 1,400 points to about 2,900.
But these statistics don’t tell the full, harrowing tale of what transpired in 2021 — especially when the initial response to the Omicron variant briefly threw off the recovery trajectory. Stocks were also helped by a “mature” response from the government, which resisted tightening restrictions into the festive season.
The share prices of City Lodge and Tsogo Sun Hotels were both up more than 120%, while gaming groups Tsogo Sun Gaming and Sun International advanced by similar percentages.
While the recovery has been quite startling — especially in the case of the hotel groups, where occupancies are still well off traditional levels — the share prices are still far from levels seen in early 2018. City Lodge was trading at about R33 then (it’s now about R5.60), and Sun International at about R66 (now roughly R28.40).
Gaming counters should continue to garner positive sentiment if cash flows remain reasonably strong and debt can be comfortably serviced. Alternative gaming assets — limited-payout machines, electronic bingo and sports betting — have also shown a good deal of resilience.
Marc Hasenfuss
TECH & TELECOMS
2021 was a good year for local telecoms operators, who still benefited, in part, from the increased demand for communications and internet services brought on by Covid.
Sector leader Vodacom was up nearly 10% over the year, but the biggest gains were at its smaller rivals: Telkom was up 71%, while MTN rallied a huge 163%. Meanwhile, Blue Label Telecoms says it’s close to completing the long-awaited recapitalisation of Cell C, which will help it deal with an R8bn-odd debt pile.
As before, spectrum remains a bone of contention: Telkom and MTN took regulator Icasa to court over perceived flaws in its plans for temporary and permanent radio wave allocations. Telkom has since launched a fresh case, which may jeopardise plans for a March auction.
With mobile data margins and voice revenues falling, operators are looking for growth in areas such as fintech and fibre. MTN and Telkom are considering separating out parts of their business to realise value, while Vodacom has inked a R13bn deal with Remgro’s Community Investment Ventures Holdings unit to expand its fibre portfolio.
In terms of tech stocks, Datatec — seen by some as grossly undervalued, given its revenue base and international profile — was up 43% over the year, while Bytes Technology, which was unbundled from Altron, has grown 69% since its April listing in London and on the JSE.
Mudiwa Gavaza
RETAIL
Performance within the retail sector in 2021 was as varied as the products its companies sell, with one common constant: SA’s constrained consumers. Yet there’s still potential in the sector.
TFG, which dominates SA’s mall space with brands such as Markham, @Home and Foschini, could see a slight improvement in its formal-wear stores in the UK, as people return to work and start attending events again.
Things are picking up at Truworths, where the credit book is looking better and progress is being made in changing the leadership team. And Pepkor could do well in the next few years, given its flair for discount retail — though it has warned of rising prices from July.
Shoprite continues to expand, opening standalone baby and pet stores, and moving into banking. Stable management and market share make it an attractive longer-term bet.
But Massmart has been forced to restructure its debt with parent Walmart, and plans to sell 15 of its 114 unprofitable local Game stores.
Spar, successful in Switzerland and Ireland, is struggling to turn its Polish business around. It has high debt and its local convenience stores face competition from delivery services.
With its legal battles out the way, Steinhoff can finally focus on its underlying businesses. It makes an interesting wild card.
Katharine Child
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