reports
- Jiten Bechoo
- Pratish Soni
Tiger Brands | ESG | Pressed to execute
TBS receives a corporate governance score of 3.37 out of 5 (FY '18: 3.42) and is rated as ‘good'. TBS receives an ESG risk score of 2.6 (FY '18: 2.6) which we consider moderate. As in FY '18, there were various changes to the Board which raises corporate governance concerns surrounding succession planning and the execution of strategies. Post year-end, L Mac Dougall retired as CEO of the Group. N Doyle has become the new CEO of the Group as of 1 Feb '20. We note the corporate governance co...
- Ayan Ghosh
SA Investment Strategy | Review of January 2020 for SA investors: Coro...
From an SA asset-allocation perspective, SA Bonds (ALBI +1.2%) outperformed cash (STEFI +0.6%) and equities (Capped SWIX -2.6%) in Jan ‘20. The ZAR was the worst performing EM currency in Jan ‘20, depreciating by 6.8% against the USD, as EM risk appetite declined, with the Coronavirus spreading further than the Sars virus, which began in 2002, likely to hit global growth. Our discussions with various corporates in China suggest that the Coronavirus will peak over the coming weeks and could ...
- Harry Botha
SA Banks | Low credit risk in commercial property | Time to buy SA ban...
Challenging SA economic conditions bring SA REITs credit health and banks' lending to the sector into the spotlight. Our analysis in this report provides greater detail on SA banks' exposure to commercial property and listed REITs. Our stress tests highlight that SA banks' lending to listed REITs (exposed to SA or offshore operations) has been conservative to date. REITs' equity capital and diversified portfolios support the property companies' credit health. While SA banks' near-term earning...
- Kevin Mattison
- Ruhan du Plessis
Naspers ,PRX | Growth, incentives and discounts
Naspers placed 1.4% of Prosus, raising c.USD1.5bn which will be used for Naspers' first ever N-share buyback. The buyback announcement further signals management's intent on actively managing the discount. The listing of Prosus, unbundling MultiChoice, selling 2% of Tencent and exiting most of Naspers' longtail etail portfolio are previous actions taken as part of the strategic intent to the reduce the c.44% discount that Naspers trades at to its underlying assets. In our view, a key part of...
- Wade Napier
Sasol | Slowly settling in
Sasol's (SOL) H1 '20 production update provided additional detail on the explosion and fire that occurred at Lake Charles Chemicals Project's (LCCP) low density polyethylene (LDPE) unit. Although SOL offered no clear guidance on when and how much the repairs to the LDPE unit would be, the Group suggested damage was isolated to smaller LDPE sections, leaving major components unaffected. SOL's commentary was calming in our view, accordingly, we believe the 12.9% YTD decline in the counter's shar...
- David Talpert
- Harry Botha
- Warwick Bam
Avior Financials | Alexander Forbes | Transaction Capital | JSE tradin...
Alexander Forbes announced a shareholder restructure as Mercer will sell its 34.4% shareholding in AFH. AFH will buyback a 200m shares from Mercer at 515cps for R1bn. We attended a Transaction Capital site visit to see SA Taxi's operations. Management are confident in SA Taxi's ability to grow attributable earnings by c.20% y/y. We highlight the returns from several large SA equity funds. Sanlam followed by Coronation performed the best with one-year returns of 17.7% and 15.5% respectively. P...
- Steph Erasmus
Netcare | ESG analysis
We rank Netcare's (JSE: NTC) corporate governance as ‘good' with a score of 3.16. Based on our ESG risk framework, NTC's ESG risk exposure is moderate, with a residual risk rating of 3.2 out of 5. We commend the Group's willingness to engage in ESG topics. The Group's Board comprises eight non-executive members, of which three have served over nine years. NTC's board is 80% independent (Avior: 50%). We consider Board members with a tenure of over nine years to be non-independent. We support ...
- Wade Napier
- Jiten Bechoo
- Pratish Soni
Clicks | Proxy voting recommendation
Clicks (CLS) receives a corporate governance score of 3.03 out of 5 and is rated as “good†(FY '18: 3.38). By comparison, industry peer DCP scored 2.71 in FY '19. Clicks (CLS) receives a residual risk ESG score of 2.4 out of 5 (FY '18: 2.4). By comparison, industry peer Dis-chem scored 2.6 in FY '19. Changes to the Board include the retirement of D Kneale and the co-ordinated appointment of V Ramsunder as his successor. Ramsunder was the COO of CLS from 2015. Executive Board representa...
- David Talpert
- Harry Botha
- Warwick Bam
Avior Financials | Coronation | Peregrine | Repo rate cut | Investment...
Coronation's Dec '19 institutional factsheets highlight impressive 2019 investment returns. We estimate Group Q1 FY ‘20f net outflows of R17.8bn and Dec '19 AUM to remain flat at R577bn. Peregrine's hedge funds generated strong returns in FY '19. We expect PGR to report improved performance fees in H2 ‘20f. > Due to heightened credit risk in the SA economy, SA Repo rate cuts are positive for SA banks' earnings growth prospects in our view (as lower impairment charges and higher advances g...
- Steph Erasmus
Life Healthcare | ESG analysis
We rank Life Healthcare's (JSE: LHC) corporate governance as ‘adequate' with a score of 2.44. Based on our ESG risk framework, LHC's ESG risk exposure is moderate to high, with a residual risk rating of 3.7 out of 5. LHC's below-average ESG ratings stem from governance concerns we have. We engaged with LHC management regarding our concerns and include the feedback in our report. We commend management's willingness to engage with us. The Group's board comprises of nine non-executive members, of...
- David Talpert
- Harry Botha
- Warwick Bam
Avior Financials | Coronation | JSE trading stats | Insurance valuatio...
• Coronation generated improved returns in 2019 as most funds generated positive one-year alpha. We estimate quarterly retail net outflows of R4bn (H2 '19 retail outflows: R6bn). • The JSE Ltd's trading statistics (to 27 Dec ‘19) show a 3.9% y/y increase in cash equity value traded in H2 '19. • In 2019, A2X's value traded was R2.2bn (JSE value traded: R5.1tril). Until more brokers are actively trading on A2X, we expect trading activity to remain muted. • The SA insurance sector has...
- Mark Sarembock
- Petrus Bosman
Avior Quants | Avior Ranking Table - January 2020
Market's one year forward PE increased to 11.60x, and the forward one year return has decreased to 14.8%. Avior's Top40 top picks are OMU (+89.4%), DSY (+132.4%), and bottom picks are CPI (-15.7%), and AMS (-13.9%). Avior's Mid-caps top picks are TKG (+102.5%), TRU (+68.3%), and bottom picks are IMP (-10.0%), and KIO (-6.8%).
- David Talpert
- Harry Botha
JSE | In need of a catalyst
The JSE released a disappointing trading statement guiding to a 20% to 26% decline in HEPS in FY '19. R43m in once-off costs will affect the results. Despite improved trading activity in H2 '19, we estimate a 1.3% decline in revenue. We expect an improvement in earnings growth in FY '20 as earnings recover off a low base. However, a normalisation in trading activity is required for the JSE to deliver double-digit earnings growth over the next three years. We believe the JSE is defensive re...
- Ayan Ghosh
SA Investment Strategy | Review of 2019 for SA investors: Rand surpris...
From an SA asset-allocation perspective, SA Bonds (ALBI +10.3%) outperformed cash (STEFI +7.3%) and equities (Capped SWIX +6.8%) in 2019. The rand was the sixth best performing EM currency in 2019, appreciating by 2.5% against the dollar, underpinned by improved EM risk appetite , while investors appear less pessimistic on SA, encouraged by the government's resolution on SAA, allowing it to go into business rescue and some real progress in economic reforms. In dollars, MSCI SA (+7.4%) underperfo...
- David Talpert
- Warwick Bam
Alexander Forbes | Stranded in a sea of costs
Alexander Forbes (AFH) reported 1% revenue growth as operating income increased by 3%. Ongoing stranded costs of c.R100m that used to be allocated to the insurance division hinders the investment case. The business relies on macro conditions and employment growth. In the current environment, we do not expect much revenue growth. AFH appears to have reduced the loss of clients and key personal. The new management team is focusing on improving client outcomes. Therefore, we expect stable cli...
- Harry Botha
FirstRand | Muted pre-close guidance
FirstRand (FSR) will release H1 '20 (to Dec '19) results on 10 Mar '20. Based on our pre-close discussion with management, we have reduced our earnings growth expectations due to lower revenue growth (particularly lower non-interest revenue and lower NIMs) and higher than expected growth in operating expenses (management expects flat or negative JAWS). While the muted earnings growth is disappointing, the outcome highlights that FSR continues to gain profitable market share in FNB SA.
- Harry Botha
Investec | Seeing opportunity
Investec should complete its planned demerger with its Asset Management operations (to be renamed Ninety One) in Mar '20. We believe the demerger will result in greater cost and capital efficiency in the banking operations and higher growth potential for Ninety One. We expect the greatest valuation upside for Investec shareholders to stem from improved profitability in the UK bank, as Investec gains scale in its private banking operations and keeps a lid on cost growth. The demerger will incr...
- Mark Sarembock
- Petrus Bosman
Avior Quants | Avior Ranking Table - December 2019
Market's one year forward PE decreased to 11.01x, and the forward one year return has increased to 16.7%. Avior's Top40 top picks are OMU (+94.8%), DSY (+135.4%), and bottom picks are CPI (-15.3%), and AMS (-11.3%). Avior's Mid-caps top picks are NPK (+100.1%), TRU (+56.7%), and bottom picks are SGL (-0.9%), and KIO (-0.3%).
- David Talpert
- Harry Botha
Coronation | A slow improvement in net flows
Coronation Fund Managers (CML) reported an 18% decline in FY '19 headline earnings. Net outflows of R44bn is ahead of the five-year average of R38bn. We expect FY '20f earnings to recover (8.3% y/y growth) as net fee margins improve. We forecast AUM growth at a 3% CAGR over the next three years. In our view, the investment case depends on CML's ability to generate sufficient alpha to stem the outflows. We believe the outflows will continue unless there is consistent alpha generation or net ...
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