Buy: FirstRand
FirstRand is one of South Africa’s leading bank groups — owning FNB, Rand Merchant Bank, WesBank and Aldermore in the UK. The retail and commercial bank continues to perform well, and we expect tailwinds from sustainably lower interest rates in South Africa. The UK business at an operational level is also performing better even with the tougher macro outlook in that geography. The share price has lagged since the UK Financial Conduct Authority (FCA) launched an investigation into commissions paid on vehicle loans, primarily involving second-hand vehicle sales dating back to 2007. The FCA redress proposal has now been announced, and in the next quarter the matter will be finalised. FirstRand will need to raise a further provision in its UK business, which will negatively impact 2026 earnings. This is, however, already adequately reflected in the share price and creates an opportunity to buy a leading banking business growing earnings at 11% per year with a forward dividend yield of 6%.
Sell: Tiger Brands
Tiger Brands is a leading food producer in South Africa, owning brands including Albany bread, Black Cat peanut butter, Jungle Oats, All Gold, Koo and Tastic rice. Management, headed by Tjaart Kruger, has successfully executed the turnaround strategy by simplifying the portfolio and disposing of noncore brands. It has improved efficiencies and streamlined the operating model. The share price has rerated accordingly with a 25% increase this year. We expect earnings to grow at 9% a year with good cash flows supporting the prospect of increased shareholder returns. However, the valuation multiple has rerated and the share price trades on a richer 16 times forward earnings. We see better opportunities elsewhere in the market.
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