For investors on the JSE, 2023 was both the best of times (if you’d timed it perfectly, and grabbed a share on the way up) and the worst of times (for the many who did precisely the opposite).
The scoreboard will show that the JSE edged up 5.3%, but those with the ability to time the “blips and dips” or play the sectoral sweeps would have done a lot better, just as others who dived into mining shares could have ended deep underwater.
In retrospect, much of it wasn’t worth the risk. Those who sat on cash for the year would have comfortably beaten the market — despite a bout of fomo at the infrequent moments when the market spluttered into life.
In the FM’s Hot Stocks article exactly a year ago, Fenestra Asset Management CEO William Meyer argued that cash was king. Protecting portfolios from capital losses, and hoarding cash to buy assets at distressed prices later, would be the savvy play, he said.
Meyer was spot on. Looking back, it was those who made inspired (or lucky) stock picks who did the best, rather than those who targeted entire sectors or themes.
Last year, the FM’s Hot Stocks portfolio performed admirably, with a 17.3% total gain, including dividends. With dividends excluded, it was 12.67%.
Of our picks, property group Sirius (+48.9%) and life insurer Sanlam (+56%) were the big winners, followed by Universal Partners (+26%) and Shoprite (+24%). Only two ended in the red: RCL Foods (-14.9%) and Santova (-9.8%).
This means the returns from our FM Hot Stocks portfolio did more than twice as well as the JSE’s forgettable 5.3% gain (which was still better than the 0.9% drop of 2022.)
And the South African market was left for dead by other global markets. In the US, the S&P 500 rose 24.4% and the tech-laden Nasdaq soared 43%. South Africans who backed the Satrix Nasdaq ETF would have returned more than 60%.
The main culprit for the poor performance on the JSE was mining, where shares shafted investors. From nearly 80,000 points early in the year, the resource 10 index ended 2023 at just 56,000 points.
Yet even amid the mining carnage, there were winners — including gold shares.
Harmony Gold climbed 103%, and Gold Fields 57.7%. The platinum miners, though, took a pounding, led by Impala Platinum (-57.2%), Sibanye-Stillwater (-44.3%) and Anglo American Platinum (-32.3%). Coal miner Thungela fell 46.3% and Sasol lost nearly a third.
Were there sectors you could describe as “sweet spots” last year? Yes, the banks and, believe it or not, the much-maligned construction sector. While Murray & Roberts stuttered, cement group PPC thrived (+83%) as did WBHO (+46.7%).
In the banking sector, Standard Bank gained 24%, while FirstRand climbed 15% — even as Nedbank retreated, and Absa dipped 16%.
The strongest companies beat the odds as their rivals floundered. Notable here were fashion retailer Truworths (+48%), property group Fortress (+48.2%) and Johann Rupert’s investment firm Reinet (+42%). Other stars included Bytes Technology (+80%) and pharma group Aspen (+49.3%).
Among smaller firms, industrial conglomerate enX Group finished the year up 80%. Brand management business CA Sales (+63%), industrial specialist Bell (+59%), and franchisor Spur Corp (+56%) also showed up.
The big losers were taxi business Transaction Capital (-75.9%), steel giant ArcelorMittal (-65%), Pick n Pay (-59%), Purple Group (-58%) and MultiChoice (down more than 30%). In many cases, investors didn’t see these train wrecks coming.
Shift from cash to stocks
So what strategy should investors choose for 2024? Is cash still the smart play, as Meyer presciently predicted a year ago?
The good news for the JSE is that Meyer is now shifting money from cash into the stock market — slowly. “For the first quarter, I still advise a very high percentage of cash. Investors need to reassess their position at the end of March,” he tells the FM.
He cites lower inflation, falling interest rates and a “well-behaving” oil price as possible tailwinds, as well as pockets of consumer strength and the fact that 2024 is an important election year. “Election years are generally good for the stock market.”
South Africans will probably go to the polls after the end of May for an election that could see the governing ANC lose an outright majority for the first time since democracy in 1994. The US election in November will be equally fraught, with incumbent Joe Biden potentially facing off against his predecessor, Donald Trump.
Yet Meyer isn’t convinced the JSE is the place for investors seeking chunky returns. In part, this is because the infrastructure snarl-ups and load-shedding don’t look like letting up any time soon, even if interest rates drop.
“There is going to be considerable opportunity this year — especially overseas and especially investing into small-cap American shares. As far as the JSE is concerned, there are fewer than six companies that are investable, in my opinion,” he says.
Nor is Keith McLachlan, portfolio manager at Integral Asset Management, a beacon of optimism. “Domestically, our economy is under pressure due to falling (or fallen) commodity prices, the public sector malaise, Eskom, Transnet and the buildup to our own 2024 elections,” he says.
McLachlan says the valuations tell a story of their own: stocks in the US are much more expensive compared to the JSE, where local stocks are valued relatively low.
Expect volatility. “We should be cautious of overly optimistic views. The risks may all evaporate but they could also all materialise. The market is not fully pricing in either.”
It paints a picture of a deeply uncertain market, neither one thing nor the other. One crisis, and it could all look quite grim indeed.
‘Money on the SA shares’
Yet within this, some experts see opportunity on the beaten-up JSE. They include John Biccard, a portfolio manager at Ninety One and the godfather of value investing on the JSE.
Biccard argues that last year’s underwhelming JSE performance isn’t a reflection of South African-based business. “If you look at the things that dragged on the JSE last year, most were not SA Inc stocks. There was Anglo American, British American Tobacco, Richemont and Naspers. If you aggregate what cost the JSE index, it was because most of the big stocks ran into problems ... and these problems had nothing to do with South Africa.”
Nor did the local economy get appreciably worse last year.
“My money is still on the South African shares. There are lots of opportunities — the banks, the food producers. I’ve got lots of them, because they are cheap,” he says.
So what stocks is Biccard buying? Largely, commodities: Anglo American and African Rainbow Minerals are on his list, along with gold miner Pan African Resources.
He is avoiding platinum companies, however. “Platinum is a bit trickier. It may well be the end of the line for rhodium and palladium, and those are still more than 50% of the PGM [platinum group metals] basket. The way forward is still electric cars,” he says.
Others believe now is precisely the time to back platinum.
For Asief Mohamed, CIO of Aeon Investment Management, Impala Platinum is (Implats) his preferred play.
“While near-term earnings might feel tepid or disappointing, the production cuts by Sibanye and Anglo Platinum offer a tailwind. Unlike typical price corrections, PGMs tend to overshoot,” he says.
Mohamed says Implats, with its lean operations, “is poised to soar when the inevitable rebound arrives”.
Inflation hasn’t gone away
A rebound might seem more likely than not from here, but Piet Viljoen, portfolio manager of the Counterpoint Value Fund, stresses the importance of building a portfolio to hedge against unforeseen risks.
“The biggest risk to investors is inflation. That erodes your purchasing power. You also need to hedge against a recession. It might or might not happen, but it’s a real risk. What you also need to generate in your portfolio is income. This gives you money to reinvest,” he says.
Energy costs are a major contributor to inflation, says Viljoen, so you could hedge against this by buying oil stocks. He points to Hosken Consolidated Investments, which owns exploration blocks off the Namibian and South African coast.
Viljoen says we may see a swing away from the US towards emerging markets. “A stock to look at would be beer giant AB InBev, which produces beer and cool drinks predominantly in emerging markets. It’s paying off its debt, so the equity is leveraged for the upside,” he says.
Diversified miner Afrimat could also score from an improvement in commodity prices, he says. “It’s the best-managed business in that sector in South Africa, with some of the best capital allocation.”
When it comes to small-cap shares, Viljoen says there are any number of high-yielding companies to consider. “Two that stand out are [assurer] Clientèle and [furniture retailer] Lewis. Both are trading on dividend yields of about 10%,” he says.
In the end, however well-managed as they may be, many JSE companies are still hostage to the travails of the South African economy.
Adrian Saville, professor at the Gordon Institute of Business Science and a veteran asset manager, isn’t optimistic about the country’s economic prospects. In part, this is because “network inefficiencies” in transport and energy (courtesy of Transnet and Eskom) continue to play havoc with the economy, hurting miners in particular.
“Commodities are the principal driver of our economic performance. If we had the network industries working properly — reliable energy and robust infrastructure from pit to port — South Africa would be looking at a 3%-4% GDP growth rate. In the absence of that, we are looking at a 1% growth rate ... which is worse than anaemic and below the population growth rate,” he says.
One thing in the country’s favour, Saville argues, is that the US economy has been particularly strong over the past year. “The Federal Reserve could be cutting [interest rates] as early as March,” he says.
Saville says good growth in the US, and cuts to global interest rates, could boost commodities and appetite for emerging markets — which would help South Africa.
But a rising tide wouldn’t lift all boats. “We really sit with two exchanges — a foreign sector made up of the commodity businesses and the multinationals — and then the domestic sector,” he says.
In the foreign sector, there are some extremely attractively priced assets, including British American Tobacco and Anglo American, which “offers an attractive buying point”.
Even domestically, Saville says, there are well-run companies which investors ignore, either because they misunderstand how resilient they are, or simply because it’s seen as an SA Inc stock. “As an example, Pan African Resources is delivering a superb operating performance and is supported by an elevated gold price and a weak rand. It has margins wider than a double-decker bus and strong cash flows,” he says.
Betting on growth, and resilience
Investment house Anchor Group believes there could be a temptation to sift among the rubble of 2023 to find shares tipped to recover if interest rates fall and load-shedding eases.
“While we have sympathy for this view, we are concerned that many of the companies in this motley camp do not have the benefit of time on their side should, as so often has happened in the past, these favourable catalysts prove slower to materialise than hoped.”
Anchor says its stock picks for 2024 reflect “caution and a bias towards our long-term preference for quality compounders” — companies with strong management and a growth thesis relatively insulated from the shocks in South Africa’s wider economy.
Its five picks for 2024 are schools group Curro (“earnings projected to grow at around 25% per annum”), miner Afrimat (“a very strong balance sheet”), health-care retailer Dis-Chem (“strong store growth with stable or even improved operating margins”), property group MAS Real Estate (“100% upside”) and Naspers/Prosus (“time for Tencent to enhance an already unfolding self-help story”).
Mohamed agrees, pointing out that Chinese gaming platform Tencent is an undervalued gem. “Do not be spooked by China’s macroeconomic jitters or gaming regulatory noise. Tencent remains a diamond in the rough, consistently delivering top-notch earnings with significant upside potential,” he says.
Equally, as interest rates fall, another blue chip that could do well is Growthpoint. “With office vacancies expected to stabilise and a well-diversified portfolio anchored by offshore assets, Growthpoint Properties is primed for a turnaround,” he says.
Drawing these threads together, it’s difficult to discern a common sentiment. Other than that, in a country crippled by service vacuums and a crisis of confidence, it’s the most resilient who will remain standing.
Biccard, for one, believes things are looking up. “News at the margin in South Africa has got better. Load-shedding has not gone away, but the trend is definitely improving.”
At this point, these are the straws to clutch at, while avoiding those that break the camel’s back.
AltX
The FM’s (inspired) pick from the AltX for 2023 — Universal Partners — was fortunately way out of sync with its countermates. While Universal Partners was richly rewarding, the AltX index skittered down more than 30% — perhaps not that surprising considering the jaundiced sentiment reserved for the JSE’s microcaps. Those determined to find good news on the AltX in 2023 might have pointed to the listing of mining exploration counter Copper 360, an event that created a bit of a stir among small-cap punters.
Interestingly, much of the AltX’s pain stemmed from share price weakness in its larger “resource” or “commodity” counters, notably Renergen and Jubilee Metals. Mantengu Mining (formerly Mine Restoration Investments) took shape as a new mining venture, attracting some speculative interest. But prospects for Kibo Energy seem to be dimming by the day.
Several ventures, such as PSV and Wearne, remain in limbo, hardly helping the perception that the AltX is a graveyard. This perception also masks the fact that a number of companies are quietly plugging away profitably — particularly below-the-radar counters such as Astoria, security technology group ISA, Vunani, Oasis Crescent Property and Workforce.
At this juncture, the future of the AltX seems uncertain, with the JSE under pressure to provide a more compelling conduit for capital raising for smaller entrepreneurial ventures. — Marc Hasenfuss
Banks
Few industries are as intrinsically linked to a nation’s economic performance as banks are. When the economy grows robustly, so do banks’ loan books. The flipside is also true; in South Africa GDP growth has all but dissipated, unemployment remains rife, crime is sapping the life out of consumer and business confidence, and high interest rates are keeping a lid on any bank’s expansionary hopes.
You could argue that such a directionless situation, created and nurtured by the government, offers banks a time to reflect on their processes and productivity.
With consumers increasingly unable to access the mainstream credit markets, banks have a nasty choice: aim for market share as the pool of quality borrowers shrinks, or pull back on lending and target growth from smaller units, such as the rest of Africa.
As for the tailwind delivered by higher interest rates, that may end soon. The endowment effect delivered by such increases — which started in November 2021 — may this year result in lenders struggling with higher loan losses than last year. In addition, organic loan growth — for new expansions and newly built homes — is probably already flat, if not declining. This will leave South African lenders with their existing loan books being run off through repayments and with a shrinking and riskier market to tap. — Jaco Visser
Energy
Last year was pretty grim for buyers of JSE-listed energy shares. Think coal group Thungela, down 43% over one year, oil and petrochemicals giant Sasol, down 33.3%, helium play Renergen, down 40%, and coal and iron ore outfit Exxaro, down a comparatively benign 10%. Montauk Renewables didn’t fare much better, losing 17% over one year.
After a staggering 2022, views of the coal price are dim, while the outlook for the oil price is as exciting as Gwede Mantashe’s new integrated resource plan (IRP) for energy. JPMorgan Research forecasts a price of $83 a barrel of Brent oil on average in 2024 — in other words, it will remain flat.
So where should investors look? Renewable energy is, arguably, the no-brainer choice. If the government’s IRP is anything to go by, we are stuck with at least another four years of power outages — ironically, because of the state’s low-ambition approach towards renewable energy. The IRP proposes adding new generation capacity of about 29GW to the grid by 2030; previous estimates, including Eskom’s, say South Africa needs at least 50GW-60GW of renewable power, combined with energy storage, to ensure energy security.
The answer then is to look for those businesses involved in the supply of renewable energy products to households and big industrial users, who’ll no doubt be forced to go off-grid further. — Giulietta Talevi
Building & construction
South Africa is a stagflationary economy, which means we have very little genuine underlying economic growth despite the presence of inflation. Our infrastructure spend has been woeful over the past decade.
Since football association Fifa left our shores, there really hasn’t been much to get excited about in this sector. Murray & Roberts has become a speculative play with incredible volatility. Stefanutti Stocks is a special situations play, so you need high risk tolerance for that. WBHO has been the winner over the past year, returning roughly 50% as investors started to feel better about the story. The challenges WBHO faced in Australia are a strong reminder of just how badly things can go wrong for construction companies, in case you’ve forgotten what happened to Murray & Roberts.
It’s debatable whether anything in this sector can really be considered a buy-and-forget stock, but Calgro M3 is perhaps the closest thing the sector has to a “safer” play. We may not have economic growth, but urbanisation and population growth mean that demand for residential property will continue, particularly properties aimed at lower-income buyers. Balwin doesn’t have the same appeal, as the properties are aimed at higher-income buyers, and Calgro arguably has a better recent track record with capital allocation. With a roughly 30% return in the past year, Calgro has worked out well for recent investors and could have another decent year. — The Finance Ghost
Financial services
The local stock market didn’t shoot the lights out last year, with the JSE all share index up 5.3%, compared with the S&P 500’s 24.4% return. Local investors opted for domestic multi-asset portfolios as stores of savings rather than putting their cash in hard currency funds. No wonder; South African bond yields blew out as foreigners dumped government bonds for most of last year, driving the price of government debt down and fuelling yields to multiyear highs.
Data from the Association for Savings & Investment South Africa shows that multi-asset income funds attracted R31bn in the 12 months to end-September, compared with R24.6bn in outflows from locally registered foreign portfolio funds over the same period.
Despite the tilt to local income funds, South Africa’s fund management industry recorded net new investments, excluding returns, of R9bn in the third quarter. Over a 12-month period, the unit trust industry’s assets under management grew to R3.36-trillion at end-September, up from R3.01-trillion.
The unit trust industry has been hit with a tax onslaught from a beleaguered fiscus, with the National Treasury sharpening its focus on local fund houses’ offshore units. Coronation Fund Managers has become the poster child for battling the Treasury’s attempts to tax offshore units prohibitively as extensions of their local operations rather than as foreign companies. — Jaco Visser
Food & beverages
Frankly, 2023 won’t be remembered as the tastiest period for the JSE’s food and beverages segment, with performance patchy at best. Brewing giant AB InBev offered some cheer with a 16% gain over the year. But there was a tinge of bitterness, as investors had to give up liquor group Distell, which now forms part of the unlisted Heineken South Africa beverage constellation.
On the food side, fishing group Oceana was the standout performer, with AVI and RFG also registering inflation-beating gains for 2023. Sector leader Tiger Brands was down about 8%. But it finished considerably higher than its October low of R140 — thanks mainly to the appointment of the highly regarded Tjaart Kruger as CEO. The less said about the FM’s pick, RCL Foods, the better, other than that the turnaround is taking far longer than expected.
But RCL was nowhere near as bad as small food producer Libstar, whose share price dropped about 40% over the year. Whether it is a juicy buyout target at current prices remains to be seen. Sea Harvest was also a notable laggard, and hopefully its decision to shift into fish canning and to broaden its aquaculture offering will pay off in the year ahead. Astral Foods, the big bird on the JSE, was down only about 11% — which seems quite acceptable, considering the woes that beset the poultry industry in 2023. — Marc Hasenfuss
Industrials
The industrials sector on the JSE is incredibly broad. We apply a stricter definition here, with Bidvest having been my pick for 2023 in last year’s Hot Stocks. That worked out well, with a share price return of roughly 17%. That’s ahead of Hudaco at 12.5%, as well as Invicta, which was slightly positive, and Argent Industrial, which was slightly negative.
The thesis then was that scale was important, as was pricing power. Though Bidvest has several consumer-facing businesses, the idea was that the industrial services side of the business would be able to protect margins. That played out for most of the year, until a November update disappointed the market and drove a sharp drop in the price.
Interestingly, if you look over a longer period, Argent has beaten the competition by a significant margin. Like Bidvest, there are consumer-facing exposures alongside the pure-play industrial exposures. Unlike Bidvest, Argent trades on a multiple of just 3.3.
The quality (Bidvest) vs value (Argent) debate will rage eternally, but there’s something to be said for giving yourself margin for error. With diluted HEPS growth of 22.9% and the dividend up by 22.2% in the six months to September, Argent is showing incredible earnings growth off modest revenue growth. That’s exactly what you want to see in this sector. The question is whether the market will notice in 2024 and reward Argent. — The Finance Ghost
Hospitals & health care
Things looked a little rosier in 2023 for the broader health-care sector on the JSE — notwithstanding its rather anaemic appearance at mid-year, when private hospitals giant Mediclinic International delisted. Let’s not even talk about the looming National Health Insurance. For the record, the health-care index shifted up from about 4,400 points to 5,560 and the health-care providers segment edged up to 5,866 points (from 5,631 at the start of the year).
During the year a buyout and delisting of day clinics group Advanced Health took place as well, and as the year closed, a scheme for the potential delisting of health-care products group Ascendis was proposed.
The star performer for 2023 was Aspen, which lunged close to 50% (if the dividend is added back) — easily outstripping its staid rival, Adcock Ingram, which could not quite reach a 20% annual gain, even with the dividend worked back. The two remaining private hospital groups, Life and Netcare, endured a tougher time — the former managed a high single-digit gain (with dividends) and the latter was pretty much static for the year (with dividends).
Perhaps most surprising was the 33% gain registered by small private hospital and health-care services group RH Bophelo, which declared quite a generous 31c a share dividend for its interim period ended August. The share is highly illiquid, though, and traded at about 100c-450c between June and July. — Marc Hasenfuss
Insurance
Inclement weather and crumbling local government infrastructure have battered short-term domestic insurers of late. Especially on the catastrophic claims side, these insurers have started to feel the pinch as much as consumers are.
As catastrophic events occur more frequently, global reinsurers are hardening their stance towards local short-term insurers and increasing their premiums. This is combined with a stalled economy in which little new insurable capital asset expansion is taking place and inflation is driving up the replacement costs of assets insured years ago. No wonder some short-term insurers are either opting to target customers in offshore markets or focusing on their internal productivity — in other words, slashing costs.
Among long-term insurers it seems a little less dark. With the pandemic and its spike in death claims now in the past, the struggle for market share, especially among lower-income consumers, is back in full force. Old Mutual and Metropolitan Life (part of Momentum Metropolitan) are two of the largest players at the lower end of the income curve. Capitec, the bank with 21-million clients, has its own life licence now and will no doubt give competitors a run for their premium takings.
Unlike short-term insurance, life policies — especially funeral policies — are viewed as wealth-building tools for most poor South Africans. — Jaco Visser
Investment companies
It was a mixed bag for mainstay investment counters in 2023. The closed end investments index dropped from 7,500-odd points to less than 6,300. This was in contrast with the investment banking & brokerage services index, which moved from 3,000 points to 3,700.
Individual shifts were more intriguing. Brait dribbled down for most of the year, then lost what traction it had near year-end to finish more than 50% down on 2022. Hosken Consolidated Investments spiked to R243 (from about R160 in January) on optimism around its oil and gas exploration interests off the Namibian coast. It promptly retreated to less than R200 after indications that the find would yield billions of barrels of oil rather than tens of billions.
Sector doyen Remgro continued to offer an uncharacteristically wide discount of more than 40% on its now mostly unlisted investment portfolio. It did, however, enjoy an encouraging rally in the last few weeks of 2023. Sabvest Capital, the darling of the investment sector, suffered — perhaps unfairly — from a relatively small exposure to financial services business Transaction Capital. African Equity Empowerment Investments pitched a cheeky offer to its few remaining minority shareholders, and Brimstone Investment Corp continued to aim for that elusive value-unlocking opportunity. Diversified investment group ARC Investments held a R750m rights issue, which seemed to further reinforce the market’s cynical view of the company. — Marc Hasenfuss
Media & entertainment
The media world has never felt in such a state of flux.
In broadcasting, online streaming is the primary focus, with South Africa’s biggest TV operator, MultiChoice, due to update its Showmax platform this year. It seems to have embraced the idea that you need to cannibalise yourself to progress, so it has signed streaming deals with NBC, HBO, Netflix, Amazon and Disney+. It could score by bringing this content under one roof, with one subscription. It won’t be cheap, however, and the group’s half-year costs increased by R714m. But intuitively it feels like the right move.
In publishing, jobs continued to be shed as traditional players grappled with growing digital revenues. Arena — the FM’s parent company — cut about 10% of its workforce in 2023. And others, including Media24, have for years been tinkering with online subscription models to offset declining circulation, which once commanded hefty advertising fees. Caxton continues to shift towards packaging — the group’s fastest-growing profit segment.
In addition, advertising has been affected by power cuts. Earlier in the year, eMedia reported that 282 days of load-shedding in 2022 had resulted in advertising revenue dropping by almost R500m across the industry. Television viewership decreases by an estimated 32% during load-shedding.
As consumer businesses, media firms are hamstrung, with much hinging on South Africa’s economic prospects. — Mudiwa Gavaza
Listed property
Those who followed the FM’s lead last year and placed their bets on Sirius Real Estate are sitting pretty. The Germany- and UK-focused business park owner notched up a 45% return for 2023 — a stellar performance given that property stocks have largely been out of favour the past two years. The listed property index nevertheless staged a comeback late last year, ending 2023 in the black (+2.5%).
Though there’s still plenty of gas left in Sirius’s tank, several other rand hedge real estate investment trusts (Reits) also appear poised for a rebound, given expectations of global interest rates finally easing. And given South Africa’s stagnant economy and the ever-weaker rand, the FM is sticking to offshore counters for now.
Our stock pick is London-focused Shaftesbury Capital. The former Capital & Counties Properties was sold down in recent years, initially due to Brexit and later the pandemic. But the stock reappeared on investor radars last year after a successful R100bn tie-up with Shaftesbury. The new entity owns 670 buildings worth £4.9bn in precincts such as Covent Garden, Carnaby Street and Soho in the fashionable West End.
Though Shaftesbury trades at a lower dividend yield than the JSE’s other offshore Reits (2.25% vs 5%-7%), the FM believes it offers above-market share price upside. Shaftesbury has recovered 20% since the merger was completed in early March, but the stock still appears undervalued given its sizeable 44% discount to NAV. — Joan Muller
Mining
Anglo American’s share price took a mauling in 2023, especially after a year-end investor update in which it warned of lower production numbers in copper. Investors were already out of love with the company after it committed $1bn a year to capital expenditure on the $9bn Woodsmith fertiliser mineral project with an untested market. Would the group make back its money? Nope, has been the response from analysts.
While the timing and rate of China’s economic recovery remain hard to call, there are reasons to be cheerful. Platinum group metal prices, to which Anglo is exposed via its 79% stake in Anglo American Platinum, are set to recover — though the extent of that is uncertain. Similarly, diamond prices have most likely bottomed out. In both commodities, destocking in the midstream and end-user markets is largely complete.
There is also speculation that Anglo is opening the door to an equity partner in Woodsmith that will handily lessen the group’s capital burden. Were it to sell a minority stake in Woodsmith, the market would take a far sunnier view of its cash flow generation and ability to pay dividends.
But there are few words of comfort when the cycle turns down in mining. The best move is to choose stocks with quality assets, good jurisdiction and dependable, unskittish management, and — cold comfort — to sit it out. As a tactic in the mining downcycle, Anglo is a good bet. — David McKay
Retail
Load-shedding, inflation, higher interest rates and numerous other challenges were the drivers of a tough year in the retail sector in 2023. South Africa is scoring multiple own goals and retailers feel it harder than anybody else because they are dependent on the general wellbeing of consumers.
Of course, there are many local retailers with international businesses, but there’s no getting away from where the core operations sit. When consumers are taking strain, it’s difficult to put through the pricing increases necessary to protect margins. Eventually, most retailers had to protect margins, even though this resulted in a drop in sales volumes. Perhaps the band Coldplay said it best in The Scientist: “Nobody said it was easy; no-one ever said it would be this hard.”
Hard times separate the successful businesses from the weak and vulnerable, with Shoprite (up about 20%) crushing Pick n Pay (down about 60%). The clothing sector also had a major positive outlier, with Truworths (up about 33%) obliterating the competition, many of which ended the year in the red. In pharmacy retail, Clicks was a standout, up by about 20% vs Dis-Chem, which couldn’t beat money market returns.
Though this environment can reward relative valuation plays (such as Truworths), a focus on quality seems a wise choice. Shoprite still has much market share to win and is the choice once again for 2024. — The Finance Ghost
Transport & logistics
The transport company that everyone is focusing on is one that you can’t buy shares in: Transnet. Thankfully, the private companies offer more compelling opportunities than the hapless state-owned enterprise.
You have to be careful on how companies are characterised, as Grindrod (about a 14% share price return) could arguably be an industrial player as well. You might even be able to argue that Transaction Capital is in this sector! We all know how that share price did in 2023. There’s no such debate around how to classify Frontier Transport Holdings, with the bus-focused company having returned about 26% in the past year. It achieved flat growth in expenses despite revenue growth of 6.9% in the most recent numbers, driving a leap in ebitda of 42.6%. That’s a compelling story, particularly alongside the barriers to entry that Frontier enjoys. Super Group is a dependable contender, having returned about 9%.
In the red, we find Santova (a small-cap darling) and recently listed Zeda, both down about 6%.
There are a few stocks you could justify holding in this sector. Santova has been very strong over longer periods and Frontier is managing its business extremely well, but Zeda’s growth prospects and humble multiple make an appealing combination going into 2024. Zeda is my horse to back this year, particularly as it should start paying dividends. — The Finance Ghost
Tech & telecoms
Infrastructure investment was the main event for operators in 2023, led in the fibre business by Vodacom’s proposed R13bn acquisition of a co-controlling stake in Remgro’s CIVH. With the deal encountering opposition from the Competition Commission, the parties have taken their battle to the Competition Tribunal. A hearing is expected mid-year.
Undeterred, Standard Bank led a R25bn loan effort for Maziv to ramp up its fibre rollout as lenders rub their hands at the prospect of further growth in telecoms infrastructure. In the prior year, Standard Bank and RMB ploughed a combined R7bn into such projects.
And former Telkom CEO Sipho Maseko unsuccessfully bid for the state-controlled operator in May.
Then there are calls for Elon Musk’s Starlink satellite service to plug network gaps. MTN recently confirmed it is in talks with Starlink, though that may be for operations outside the country, while Vodacom is working with Amazon’s Project Kuiper. Telkom, Liquid and Vox have long offered satellite services through partners such as France’s Eutelsat.
While subscribers and revenue are growing, progress continues to be clouded by rolling blackouts that have added billions of rand in additional costs.
There’s also a struggle among the smaller players. Jasco, Adapt IT, Alaris, Etion and Alviva have all left the JSE; Altron chose to list Bytes Technology in London and Karooooo did so via the Nasdaq. MiX Telematics is gearing up to exit the JSE in early 2024. — Mudiwa Gavaza
Tourism & leisure
Last year was a rollercoaster for most hospitality stocks, as reflected by the wild swings in the JSE’s travel & leisure index. This surged nearly 15% in the first quarter, but by mid-year the gains were all but wiped out. The sector posted something of a rebound in the second half of 2023, ending the year up 6%.
The rebound was no doubt supported by an influx of international travellers. Stats SA figures show that the number of overseas tourists to the country increased by a hefty 51.8% year on year in the first 11 months of 2023, touching 1.85-million. Industry players expect the full-year tally to be 2-million, with a further pickup likely this year.
The FM’s stock pick for 2023, hotel group Southern Sun, was a major beneficiary of the trend and outperformed the index with a capital return of more than 20%.
The FM believes there’s more steam left in the sector’s recovery. For 2024, we are betting on hotel and gaming giant Sun International. The group’s 13 casinos, resort and hotels — including Sun City in North West, The Maslow in Sandton and The Table Bay Hotel and GrandWest Casino in Cape Town — had already achieved double-digit occupancy and income growth in the six months to June.
The Sun International stock appears undervalued at this week’s levels of about R39. Still, despite a significant rebound from its pandemic-related lows, the share price lags 2019’s R60 highs. The group offers an attractive dividend yield just shy of 8%. — Joan Muller
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