By: James Cooke, Kathy Davey, Magdel Neale, Dylan Griffiths.
SPM Best Ideas - Local
Compagnie Financière Richemont (CFR)
Richemont is a Swiss luxury goods group managed with a view to the long-term development of successful international brands. The company owns several of the world's leading brands in the field of luxury goods, with particular strengths in jewellery, luxury watches and writing instruments. Brands include Cartier, Alfred Dunhill, Montblanc, Lancel, and Van Cleef & Arpels.
The first quarter (to June 2023) started off strong but growth eased in the second quarter as inflationary pressures, slowing economic growth, and geopolitical tensions began to affect customer sentiment, compounded by strong comparatives. The group was still able to achieve growth across most regions and channels. Sales in all regions, except the Americas, rose in 1H24, with growth led by Asia Pacific which continued to benefit from the removal of Covid-related restrictions. Within the channels, the group's directly operated store network posted the strongest growth and now accounts for 69% of total sales.
Following recent share price pressure, Richemont is trading on a forward PE of ~17.5 times, well below its average rating historically. We believe the current price offers an attractive entry point into a company we view favourably from a long-term perspective.
Bidcorp (BID)
Bidcorp is a market-leading food service product distributor across several geographies including the United Kingdom, Europe, Middle East, South America, the Asia-Pacific region, and South Africa. The company's business units operate across the food and ingredient manufacturing sectors, such as catering, hospitality, leisure, baked products, poultry, meat, seafood, and processing. The strategy is to grow organically in existing regions and acquisitively in new ones, with improvements in the customer mix and value add opportunities providing further upside potential.
Despite a challenging economic backdrop, the financial performance has shown resilience across its operating markets. Margins have also remained fairly healthy, against a demanding base, which is noteworthy given the current inflationary environment as most businesses were able to pass through inflation increases. The company remains financially strong, with relatively low levels of gearing and a robust business model with solid diversification and defensive characteristics.
Bidcorp is trading on a forward PE of 16.6 times, below its long-term average of 20 times. We maintain a favourable long-term view on the counter.
MTN Group (MTN)
MTN Group is a multinational telecommunications group offering voice and data network access and business solutions. From Sudan to South Africa, the MTN footprint spans many countries, connecting several hundred million people across Africa.
Against a challenging operating environment, MTN released a decent nine-month trading update to the end of September last month. The group saw steady growth in SA, while MTN Nigeria and MTN Ghana delivered robust double-digit growth. The EBITDA margin came under pressure, however, impacted by upward pressure on costs due to inflation and forex depreciation, network resilience costs in MTN SA and the impact on operations from the conflict in Sudan. This resulted in a sharp negative share price reaction following the release.
We think the worst is now in the base (load-shedding in SA, forex in Nigeria) and expect an improvement in margins and cash flow over the next few reporting periods complemented by the company's expense efficiency programme. The balance sheet has improved substantially, and we see scope for higher dividend payments if forex repatriation improves.
MTN Group is trading on a forward PE of 9.2 times, which looks compelling relative to its own history and its peers.
Growthpoint Properties (GRT)
Growthpoint is an international property company with a vast portfolio of office, retail, healthcare, industrial and residential properties. The company's portfolio is diversified across South Africa, Australia, Eastern Europe, and the United Kingdom, with one of the most well-known properties being the V&A Waterfront in Cape Town. In addition to being the largest commercial property owner and developer in SA, Growthpoint is also the largest primary REIT (by market cap) listed on the JSE.
The company provides a liquid entry point into South Africa's listed-property market, in which fundamentals seem to be improving. In a recent investor update, management noted that the SA portfolio has seen an advancement across most key metrics, namely, rising occupancies, higher retentions, lower vacancies and improving reversions. This bodes well for growth ahead, particularly in the retail and industrial portfolios which continue to see a recovery despite the challenging macroeconomic environment.
On a total return basis, Growthpoint is trading almost 10.5% lower over the past twelve months, though consensus remains mostly positive on the stock. The company offers a forward distribution yield of 11%, which is attractive. We like the quality and diversity of Growthpoint's portfolio and client base, along with its prudent cash flow management framework and solid balance sheet.
Tiger Brands (TBS)
Tiger Brands is a branded fast-moving consumer packaged goods company that operates mainly in South Africa and selected emerging markets. Brands include: All Gold, Koo, Beacon, Albany, Tastic, Ace and many others.
The company's latest year-end result was decent - even though revenue fell short of consensus expectations, HEPS was well- guided for, and most divisions beat expectations in terms of profitability. The trading environment was characterised by soaring inflation, persistent load-shedding, strained consumer disposable income, and rand depreciation. The outlook was similar to that of other food retailers, with high inflation and constrained consumer disposable income expected to remain detractive. We do, however, foresee an improvement in the macro-outlook and input cost dynamics into 2024, which could be complimented by management's focus on margin preservation/expansion
While the share price has recovered in the last six months, it is still down ~2% year-to-date on a total return basis. Tiger Brands seems to offer good value on a forward PE of ~10.7 times, based on what we regard to be conservative consensus numbers, which is well below its five-year average rating.
