Centaur Asset Management
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.