MORE SINNED AGAINST THAN SINNING
While investors once could seek solace in ‘sin sector’ shares in times of uncertainty, things are looking decidedly parched on that front today
The “sin sector widely renowned as a custodian of damned fine long-term returns is just not what it used to be. In times of trouble, investors could traditionally find consolation in shares issued by casinos, liquor makers and tobacco product peddlers. Spending on these vices would, back in the day, continue unabated even in the leanest economic times and especially in times of prolonged uncertainty. A portfolio of sin stocks might have been just the defensive foil needed to cope with the increasing unpredictability of the outcome of the election.
But South Africa’s urban casinos are largely seen as ex-growth (albeit with much fluttering around online gaming), and tobacco’s health risk status is not much altered as large players morph towards contentious new-generation products such as vapes.
The liquor sector should still provide some succour, but prospects look quite dehydrated here too. Over five years, AB InBev the JSE’s booze kingpin and the remaining link to the old South African Breweries is down about 13%. Investment house Remgro’s early travails at newly formed Heineken Beverages, which was set up to rattle the dominance of AB InBev in Africa, are well documented.
A more than R5bn writedown by Remgro in Heineken Beverages recently is hopefully the lowest point for that investment venture. But it’s quite apparent that a beer war is under way in South Africa. The last time Remgro, or at least its predecessor, Rembrandt, was involved in a beer scrap it did not end well at all. Promotional activity at bottle stores certainly indicates some intense market share skirmishes, something that will greatly benefit beer drinkers who are willing (or able) to switch brands to whatever happens to be on special in a particular week.
But Remgro is not the only investment company with a hangover. Highly regarded Sabvest Capital also took a rather rapid value evaporation on its recent liquor tilt, though this is a tipple in comparison with Heineken Beverages.
Sabvest holds an effective 19.95% stake in Halewood South Africa via its 41% stake in empowerment group Masimong Beverage Holdings, which is headed by BEE visionary Mike Teke. Halewood is a specialised liquor player; it has a viable niche in the alcoholic and nonalcoholic ready-to-drink segment, with brands