Top fund managers’ stock picks
South Africa’s benchmark stocks gauge, the FTSE/JSE Africa All Share Index, has gained 4.7% since the start of the year, touching a new record high of 42 342.30 on 10 February. The country’s top fund managers share their top picks.
Africa’s largest media company, which owns a 34% stake i n China’s Tencent Holdings, returned 41% (share price growth plus dividends) to investors over the past 12 months. There is more upside to the share price, according to boutique asset manager at Old Mutual Investment Group SA and head of Old Mutual Equities Peter Linley.
“The company is very well placed in terms of internet development with a focus on mobile internet,” he said. “Internet usage has been shifting to mobile phones and Naspers’s businesses are well placed for this.”
As China’s economy is shifting from a manufacturing-based to a consumer-driven one, Tencent’s scope to monetise mobile phone usage, primarily from mobile phone applications and games, is increasing.
The potential for further growth in Naspers now also lies in its own e-commerce, or online shopping, business that has largely been ignored in the past, according to Linley.
“Until two months ago, investors placed a negative value on the company’s e-commerce business,” he said. That means that the share price only reflected the value of Naspers holding in Tencent, discounting the other units, he explained.
Naspers has been pursuing online classif ieds in emerging markets, notably through its OLX brand in India, Indonesia and Brazil where it has the largest market share, according to company financial presentations. In SA, it plans to merge its Kalahari.com and Takealot.com brands.
Europe’s largest maker of cigarettes returned 23% to investors over the past 12 months as its market capitalisation reached R1.18tr.
As pressure from health authorities in Europe mounts, the company is diversifying its market to developing countries, including Turkey, Brazil, Indonesia and Bangladesh. During the nine-month period ending September, the company only saw an increase in cigarette volumes in its Asia-Pacific unit, with stagnant volumes in Eastern Europe, Africa and the Middle East. Volumes declined in Western Europe and the Americas.
“British American Tobacco [BAT] is a very solid core holding in any portfolio,” Linley said. “It pays good dividends and is a useful currency hedge.”
The company returned £15bn (R270.9bn) to investors in the five years through 2013 in share buybacks and dividend payments, according to annual f inancial statements.
“British American Tobacco generates a lot of cash,” said Simon Raubenheimer, a fund manager at Allan Gray.
BAT’s free cash f low, or the amount of money it generates from operations subtracting the cash it reinvests, approximates its earnings, he said. As the volume of cigarettes sold remains stagnant, the company’s investment need, into new production capacity, remains constant.
The company pays out two-thirds of its free cash f low in dividends and in addition, it also has a share buyback scheme.