Time to be wise

Finweek English Edition - - COVERSTORY - BRUCE WHIT­FIELD

Pick­ing stocks at a time when the av­er­age mar­ket mul­ti­ple is in its up­per teens is a bit like be­ing of­fered ei­ther a fir­ing squad or lethal in­jec­tion as a pre­ferred means of ex­e­cu­tion – the end re­sult is the same. Now isn’t the time to get too clever with your in­vest­ments. The JSE recorded solid gains in 2010, largely as a re­sult of for­eign cap­i­tal flows, and as val­u­a­tions be­came in­creas­ingly dif­fi­cult to fathom, lo­cal fund man­agers waited on the side­lines. This year will bring its share of shocks and re­sul­tant buy­ing op­por­tu­ni­ties, but in or­der to make sen­si­ble 12-month picks with a de­fined start and cut off date, ul­tra con­ser­vatism is re­quired.

The 2010 Whit­field port­fo­lio re­turned 27,6%. But be­fore you praise ge­nius stock-pick­ing abil­i­ties, there was low sin­gle-digit growth in three-quar­ter of the stocks, with a dig­nity res­cue cour­tesy of Fa­mous Brands (+92,62%), which served up a win­ning recipe. It’s per­pet­u­ally ex­pen­sive but the time has come to take prof­its, as the busi­ness needs to con­sol­i­date and man­age­ment’s at­ten­tion is go­ing to be fo­cused on its new South African pub con­cept and the ex­pan­sion in Bri­tain of De­bonairs and Steers.

Chris Seabrooke’s listed in­vest­ment play Sab­vest (+7,24%) is best suited for its pri­mary pur­pose, which is the preser­va­tion and long-term growth of fam­ily wealth. Stan­dard Bank (4,09%) is out to pas­ture for the time be­ing: the mar­ket needs proper guid­ance on a turn­around process and fu­ture lead­er­ship strate­gies. As for Lib­erty In­ter­na­tional (6,48%), it was more of a hedge against the cur­rency than the fun­da­men­tals of Bri­tain’s prop­erty mar­ket. As it turns out, the cur­rency hy­poth­e­sis couldn’t have been more wrong.

So for 2011...

NED­BANK is for sale and – de­spite be­ing shunned by HSBC – will be sold at a pre­mium to its rul­ing share price. It’s a deal that could hap­pen mid-year. Stan­dard Char­tered is in­ter­ested. How­ever, as Africa moves up the global agenda, other play­ers may be pay­ing closer at­ten­tion.

AN­GLO AMER­I­CAN is cur­rently the cheap­est di­ver­si­fied re­sources play on the JSE. CEO Cyn­thia Car­roll has been shown to be a smart op­er­a­tor and has taken de­ci­sive ac­tion to cut costs and re­align its port­fo­lio. Where BHP Bil­li­ton has striven for ex­pan­sion­ary deals and is yet to suc­ceed, An­glo has been con­ser­va­tive and has re­aligned its global as­set base with a strong China fo­cus.

TIGER BRANDS. Some­how SA isn’t yet feel­ing north­ern hemi­sphere food in­fla­tion, which will stretch its mar­gins dur­ing this year. The busi­ness is also in­creas­ingly be­ing geared to­wards African ex­pan­sion and re­cent ac­qui­si­tions will broaden its dis­tri­bu­tion plat­form. It has a lazy bal­ance sheet and will ei­ther buy back shares or do more deals. It’s now the cheap­est en­try into the food prod­ucts sec­tor.

AD­COCK IN­GRAM. Two se­ri­ous knocks in less than a week would put off a lesser man (maybe a more sen­si­ble one). It an­nounced the loss of R200m in sales due to its with­drawal from the mar­ket of three branded painkillers con­tain­ing FDAbanned Dex­tro­propoxyphene, and later re­vealed it had won just 4% of Govern­ment’s ARV ten­der, as op­posed to the 25% it was an­tic­i­pat­ing. Bad luck or bad man­age­ment? The year will tell.

RAUBEX. While the con­struc­tion sec­tor looks dis­mal – with very lit­tle hope of mean­ing­ful do­mes­tic re­cov­ery in the first half of 2010 – there’s hope for road builders and Raubex is fo­cused on that sec­tor.


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