Small rustlings in the hedges

Finweek English Edition - - Cover -

WHILE TRA­DI­TIONAL (and most pop­u­lar) rand hedges are the larger conglomerates and min­ing coun­ters cited in our main re­port, there are more than a hand­ful of small caps that of­fer hard cur­rency ap­peal. But in­vestors need to be se­lec­tive. Re­cent his­tory shows (par­tic­u­larly the late Nineties) that it’s one thing to trum­pet off­shore in­vest­ments, part­ner­ships and ac­qui­si­tions but quite an­other thing to ac­tu­ally se­cure mean­ing­ful and sus­tain­able re­turns in mar­kets over­seas.

Many a small cap com­pany has fallen flat on its face chas­ing hard cur­rency op­por­tu­ni­ties in for­eign climes by not as­sess­ing risks and com­pre­hend­ing the ad­di­tional de­mands on man­age­ment. As such, the more es­tab­lished mid-caps with strong por­tions of hard cur­rency earn­ings – and here we in­clude Stein­hoff In­ter­na­tional, Grindrod, Dis­tell, Datatec, Oceana and Di­men­sion Data – may be the more pru­dent op­tion.

There are also mid-cap com­pa­nies with op­er­at­ing as­sets based off­shore, such as re­tail group Trade­hold. How­ever, the at­trac­tions here are di­min­ished by years of poor per­for­mance and the cur­rent dis­mal out­look for re­tail in Bri­tain.

Tren­cor, the con­tainer man­age­ment spe­cial­ist, has al­ways been pop­u­lar as a pure rand hedge al­ter­na­tive to the de­fault op­tions such as An­glo Amer­i­can, Richemont and SABMiller. Tren­cor con­trols Cal­i­for­ni­abased Tex­tainer, the world’s largest lessor of in­ter­modal con­tain­ers. Nat­u­rally, Tren­cor earns US dol­lars from Tex­tainer – but a global eco­nomic slow­down could negate any cur­rency gains for SA in­vestors.

Gen­uine small caps that could be con­sid­ered as pos­si­ble rand hedges are rel­a­tively scarce. But ve­hi­cle-tracking firm Digicore springs to mind af­ter crack­ing some lu­cra­tive mar­kets in Europe and the Mid­dle East. Con­trol In­stru­ments, which has seen its shares drib­bling down to 60c on the JSE, also has a ma­jor global an­gle in its au­to­mo­tive man­u­fac­tur­ing op­er­a­tions. Once again, eco­nomic con­di­tions world­wide may over­shadow any cur­rency gains from off­shore sales.

Met­mar and In­simbi are com­mod­ity traders and should at­tract some in­ter­est from hedge­seek­ing pun­ters. But, again, the ben­e­fits of a weaker rand could be off­set by brit­tle com­mod­ity prices.

Though restau­rant fran­chisor Spur Cor­po­ra­tion and Tote op­er­a­tor Phumelela may not be re­garded as out­right hedges, in­vestors could re­gard both as early stage op­por­tu­ni­ties in terms of their re­spec­tive for­ays off­shore.

Re­cently listed Uni­ver­sal In­dus­trial Cor­po­ra­tion may also score from a weaker rand, since its bak­ery sup­plies arm, Maca­dams, tra­di­tion­ally boasts a size­able ex­port or­der book.

For the brave of heart, Sekunjalo – which ex­ports tons of lob­ster and claims to have an in­ter­na­tion­ally listable biotech­nol­ogy op­er­a­tion – may also hold rand hedge at­trac­tions over the longer term. Lob­ster, of course, may not be pop­u­lar in a global re­ces­sion.

You shouldn’t for­get two of SA’s stal­wart un­listed shares – KWV Ltd and Ven­Fin – also hold strong rand hedge qual­i­ties. KWV Ltd ex­ports much of its liquor brands, with its wines notch­ing up con­sid­er­able suc­cess in Ger­many, Bri­tain and Scan­di­navia. Ven­Fin holds a num­ber of in­vest­ments that earn their keep in hard cur­ren­cies – in­clud­ing a num­ber of in­vest­ments in China.

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