Small rustlings in the hedges
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.