Rowan Williams, portfolio manager: Nitrogen Fund Managers
Buy: Momentum
Momentum is a broad-based insurance and savings group, operating in South Africa, with exposure to fast-growing India as well. At a recent capital markets day, the group outlined its refreshed “Impact” strategy, aiming to almost double normalised earnings to R7bn by FY27 and achieve a return on equity of 20%. We expect earnings growth to be driven by cost savings, continued demand for savings products due to the group’s strong distribution capabilities, a materially improved underwriting performance in Insure as management interventions improve the underwriting margin and expected cost reductions in Guardrisk. The company also plans to increase its tied agent force by 55% and wealth adviser network by 85% by FY27, driving further market share gains in the lucrative wealth management market.
Sell: Implats
Impala Platinum is a South Africa-based platinum group metals (PGM) mining group. The prices of the PGM basket remain depressed as supply continues to exceed demand, which has been dampened as demand for electric vehicles grows, and by lacklustre internal combustion engine vehicle demand and the reduction in the use of platinum in jewellery manufacturing. Russian supply also continues to leak into the market. The expensive acquisition of Royal Bafokeng Platinum at the top of the platinum cycle has further weakened the group’s balance sheet and increased its exposure to PGMs at a time when the operating environment is extremely challenging. Consensus earnings estimates remain too high given the PGM basket price. We also expect further restructuring at Impala, including a tough decision on whether to make progress with the Two Rivers Merensky expansion.
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