Mark du Toit, portfolio manager at OysterCatcher Investments
Buy: Shoprite
Fuel prices are set to rise due to higher oil prices on the back of the conflict in the Middle East. Higher fuel costs mean the end of low food inflation. Defensive industries like food retailers are best placed to outperform in a higher inflation environment. Shoprite is the dominant food retailer in South Africa, and its Sixty60 delivery service sets it apart from its peers. Rising urbanisation rates and continued logistics optimisation within the organisation provide longer-term tailwinds. The group has significant scale and is well placed to expand its e-commerce offering. Earnings can continue to grow in the low double digits. This, coupled with a 3.4% forward dividend yield and its defensive qualities, makes for an attractive investment opportunity.
Sell: Vodacom
The telecommunications sector continues to face structural headwinds, including low revenue growth, intensifying competition and the need for sustained capital investment in network infrastructure. In addition, the economic outlook for Egypt has deteriorated as a result of the conflict in the Middle East. This is material for Vodacom, given its majority stake in Vodafone Egypt. The Egyptian pound has already depreciated by about 15% against the rand since the start of the year, creating a currency‑translation headwind for group earnings. Vodacom is also experiencing margin pressure in its core South African market due to competition and operating cost inflation. Vodacom will, however, continue to pay dividends and is on a 4.6% forward dividend yield, but with lower growth prospects than other South African listed companies.
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