Cen­taur As­set Man­age­ment

Roger Wil­liams

Finweek English Edition - - Cover -

WOOL­WORTHS: Woolies is the leader in con­ve­nience food. The com­bined trend of work­ing spouses, in­creased health con­scious­ness and con­ve­nience has led to its foods con­tin­u­ally gain­ing mar­ket share from the tra­di­tional food re­tail­ers and that’s set to con­tinue over the next five years. Re­turn on eq­uity is in ex­cess of 35%, al­low­ing it to grow faster than 15%/year while still pay­ing out 60% of earn­ings as div­i­dends. This qual­ity com­pany could well re­turn more than 20%/year over the next five years. AD­VTECH: This ed­u­ca­tion fo­cused com­pany is ideally placed to ben­e­fit from SA’s skills short­age and on­go­ing trend to­wards private ed­u­ca­tion. Though Ad­vtech has solid niches in school and ter­tiary ed­u­ca­tion, with brands such as Craw­ford Col­lege and Var­sity Col­lege, its mar­ket share is still small in those mas­sive mar­kets but has con­sid­er­able blue sky po­ten­tial. Cash flow is ex­cel­lent, due to up­front fee pay­ments. This share can sus­tain 15% to 20% earn­ings growth while pay­ing out more than 50% of prof­its as div­i­dends, which should be suf­fi­cient to give five-year re­turns in ex­cess of 20%/year. MVE­LAPHANDA GROUP: This black-con­trolled in­vest­ment com­pany has fo­cused po­si­tions in busi­ness ser­vices (through Mve­laserve), a lever- aged 4,47% hold­ing in Absa (through the Batho Bonke em­pow­er­ment ve­hi­cle), 22% of Life Health­care, and an ef­fec­tive 10,8% of Group Five. This share is cur­rently trad­ing at more than a 20% dis­count to its add-up value and the dis­count in­creases to al­most 30% if the cash is ex­cluded. Re­turns of well over 20%/year are pos­si­ble over the next five years. SAPPI: This multi­na­tional pa­per com­pany has a poor track record over the re­cent past, pri­mar­ily due to a cost squeeze, as its in­put costs have in­creased with no com­men­su­rate rise in the pa­per price. Con­se­quently, there’s been un­der­in­vest­ment in the pa­per in­dus­try and the scene is set for price in­creases when de­mand ex­ceeds sup­ply. Cash flow is good, due to a high de­pre­ci­a­tion charge that ex­ceeds cap­i­tal ex­pen­di­ture, and Sappi is also an ex­cel­lent rand hedge. This stock has above av­er­age risk but you could well be re­warded with re­turns in ex­cess of 25%/year over the next five years. JOHN­COM: It has a col­lec­tion of some pre­mier me­dia as­sets. Some other as­sets in­clude 36% of Cax­ton pub­lish­ers, a stake in Naspers worth R36/ share and about R4/ share in cash. Un­lock­ing value by man­age­ment (eg, their re­cent sale of M-Net/Su­perS­port and pro­posed dis­tri­bu­tion of sale pro­ceeds equiv­a­lent to R36/share is an ex­am­ple). Short-term up­side ex­ists if private eq­uity buy­ers seek this un­der­val­ued port­fo­lio of cash-gen­er­a­tive me­dia busi­nesses. Five-year re­turns of more than 20%/year should be achiev­able from this de­fen­sive busi­ness.

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