A recipe for preserves without a rush or a crash
I’VE GIVEN UP SUGAR . . . 26 days (at the time of writing) and counting. The impact on the household grocery bill is remarkable, and might well explain the weakness in Woolworths’ share price.
What I haven’t quite given up just yet is my belief that South African companies are a tough breed, and there are still JSE counters mostly focused on the local economy that will thrive.
It’s clear from recent correspondence that a good number of retail investors are in two minds about bailing or buying into shares that trade at heavily discounted levels under the broader SA Inc.
Sentiment does get rattled when margins at industrial stalwarts such as Nampak, Aveng, PPC and Invicta appear to be buckling. Even nimble and freshly capitalised contenders such as Torre are finding trading conditions a grind.
Sentiment does appear to be awfully brittle, which makes it dangerous to try to call the bottom on popular counters.
Personally, I’d probably not want to delve into any of these counters at this delicate juncture. Though there appears to be fundamental value, there is a pervading despondence in the market that could push these prices even lower.
That said, there are more than a handful of South African-focused shares that I would not be too uncomfortable investing in at current levels.
In fact, I’d be happy to offer up a 10-strong portfolio that can be assessed again in the last edition of the year.
The common characteristics would be strong (in some instances “underrated”) management, a sound value proposition, a niche that’s able to sustain profits (and cash flow) or convincing recovery prospects.
My steady eddies would be building supplies specialist Afrimat (disclosure: I own a few hundred shares), packaging group Transpaco and Metrofile. The common characteristics would be strong management, reliable cash flows and the ability to tap sweet spots in the economy.
My X-factor stocks would be financial services counters Sygnia (yup, I own a few) and Purple Capital — both counters that are potential game changers in the broader wealth management segment.
My deep value pick would be diamond group Trans Hex, whose share price mostly reflects the cash value of the company and practically writes off the operations.
My quartet of recovery stocks would be a construction-aligned pairing of Esor (see Fifi Peters’ analysis on page 30) and claddings specialist Mazor coupled with the poultry pairing of Sovereign Food Investments and Quantum Foods. All four counters are facing up to harsh trading conditions, but have the balance sheets, business models and management strength to not only survive but thrive when the respective cycles turn.
We’ll revisit these picks in six months, and I promise I won’t try to sugar-coat the outcome.