3

Wayne McCur­rie

Finweek English Edition - - COVER STORY -

MO­MEN­TUM

1. SA­SOL

2. BID­VEST

3. RICHEMONT

4. VO­DA­COM

5. BHP BIL­LI­TON I am go­ing to choose from the medi­u­mand large-cap uni­verse – I don’t really re­search the small-cap uni­verse. I’m not out to “win” the com­pe­ti­tion. I would be sat­is­fied if my se­lec­tion does de­liver a to­tal re­turn of in­fla­tion plus 4% to 5% and most im­por­tantly does not turn out to be a dis­as­ter over the next 10 years! That is prob­a­bly the best out­come that any port­fo­lio man­ager can hope for.

1 SA­SOL P/E: 9 Div­i­dend yield: 4.5%

The main rea­sons for choos­ing Sa­sol are: The ab­so­lute (and rel­a­tive) val­u­a­tion. The rel­a­tive is very low in com­par­i­son to its his­tory. So the mar­ket is dis­count­ing very bad news. The div­i­dend yield is of par­tic­u­lar in­ter­est. The yield is well above the mar­ket. Now Sa­sol has cut its div­i­dend be­fore so it may hap­pen again, but the div­i­dend growth will prob­a­bly av­er­age ±10% over the next 10 years (over the past 25 years it was about 15%).

Gas re­serves in North Amer­ica. Th­ese as­sets have caused some con­cern to share­hold­ers, given the re­cent write-down. I take a dif­fer­ent view. I really think that the avail­able sup­ply of nat­u­ral gas in North Amer­ica (and else­where) will trans­form the world en­ergy en­vi­ron­ment over the next decade. Com­pa­nies like Sa­sol , which have an ad­van­tage, will ma­te­ri­ally ben­e­fit. While gas will also de­press the oil price, which is neg­a­tive for Sa­sol, the gas ben­e­fit should out­weigh this.

2 BID­VEST P/E: 16 Div­i­dend yield: 2.5%

You feel more com­fort­able rec­om­mend­ing Bid­vest as it hits a record high! While the glory days for the share price were in the Nineties, Bid­vest is a real blue chip that you are buy­ing at a rea­son­able price. Yes there are many blue-chip shares, they are all at 30 P/E ra­tios while Bid­vest is at a 16 P/E. There is some key per­son risk, but Bid­vest is big­ger than one per­son.

3 RICHEMONT P/E: 19 Div­i­dend yield: 0.9%

You have to have some ex­po­sure to emerg­ing mar­kets in a 10-year port­fo­lio. They are truly the only eco­nomic group­ing that has the abil­ity to sus­tain growth over a decade. The con­sumers do not really have debt and as liv­ing stan­dards im­prove, they will take on debt. Cur­rently very sim­i­lar to devel­oped mar­ket con­sumers in the Fifties. Richemont is really well ex­posed to this mar­ket and is at a fair P/E. I think that this is a more rea­son­able ex­po­sure than Naspers.

4 VO­DA­COM P/E: 16 Div­i­dend yield: 6.8%

This is prob­a­bly the best share on the mar­ket for sus­tain­abil­ity of the div­i­dend yield. While ex growth, the mar­ket is very sta­ble and prob­a­bly has been sub­ject to all the com­pe­ti­tion that it is likely to face. Plenty of new tech­nol­ogy will en­ter the com­mu­ni­ca­tions mar­ket over the next decade, which will be in the con­sumer elec­tron­ics/ soft­ware ap­pli­ca­tions space. The providers of the back­bone will prob­a­bly not be su­per­seded by tech­nol­ogy. They will ap­ply the new tech­nol­ogy. With the growth of ev­ery­thing we do elec­tron­i­cally vir­tu­ally guar­an­teed, the main providers should be safe from ex­tinc­tion!

5 BHP BIL­LI­TON P/E: 13 Div­i­dend yield: 3.5%

The emerg­ing mar­kets story again. BHP will be a ma­jor ben­e­fi­ciary of emerg­ing­mar­ket growth. It has a very di­ver­si­fied port­fo­lio and con­se­quently lower risk. The val­u­a­tion is rea­son­able, given that earn­ings are prob­a­bly ap­proach­ing a trough level. So the big­gest theme in the se­lec­tion is China and other emerg­ing mar­kets.

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