Value funds nib­ble at PPC and Lewis

Most of the larger shares on the JSE lie above their long-term av­er­ages. STRONG­EST SHARES*

Finweek English Edition - - MARKET PLACE - Ed­i­to­rial@fin­ Lu­cas de Lange is a for­mer ed­i­tor of fin­week and an au­thor of two books on in­vest­ment.

although the JSE’s All Share In­dex as well as the Top40 have not been go­ing any­where for some time, it is some­what en­cour­ag­ing that the num­ber of shares ly­ing above their 200-day ex­po­nen­tial mov­ing av­er­ages (EMAs) are in the ma­jor­ity – as is ap­par­ent from the ac­com­pa­ny­ing ta­bles. There has, how­ever, been a change in gear since the pre­vi­ous ta­bles were pub­lished in the be­gin­ning of Fe­bru­ary: the list of strong­est shares is no longer dom­i­nated by re­sources shares. Half of the top 10 now vary from Mur­ray & Roberts (cor­po­rate ac­tiv­ity) and Bar­loworld to Ad­cock In­gram.

An in­ter­est­ing as­pect of the lat­est ta­bles is that some stepchil­dren of the JSE have lately been sub­ject to ac­cu­mu­la­tion as mea­sured by their price/ vol­ume trends**.

Two that catch the eye are PPC and Lewis Stores, which both suf­fered with drops of 89% and 72% re­spec­tively since their his­tor­i­cal highs. Both have been try­ing for some time to get their house in or­der, with PPC re­open­ing its dis­cus­sions on a merger with AfriSam, a ma­jor com­peti­tor. Both PPC and AfriSam are un­der pres­sure owing to the weak econ­omy and a merger would give them greater pric­ing power, in­stead of them at­tempt­ing to re­tain mar­ket share through price-cut­ting. Both are wary of the Com­pe­ti­tion Com­mis­sion and a merger is likely to en­able them to push up prices to a more prof­itable level.

PPC is in the process of ex­pand­ing into other African coun­tries, and ac­cord­ing to a joint state­ment, a merger would re­sult in a stronger bal­ance sheet to boost this trend, while there will also be greater tech­ni­cal depth to im­prove op­er­a­tional pro­duc­tiv­ity.

Value funds that have al­ready be­gun buy­ing a sub­stan­tial amount of PPC shares in­clude In­vestec and Pru­den­tial. Pru­den­tial Core Value has been par­tic­u­larly ac­tive.

That an im­prove­ment is ex­pected at the group is con­firmed by the con­sen­sus pre­dic­tions of an­a­lysts who track the share: four re­gard PPC as a buy, one as a hold and only one as a sell.

Lewis Stores suf­fered greatly, among other things, be­cause of its un­de­sir­able in­surance prac­tices (for ex­am­ple, it levied un­em­ploy­ment in­surance on ac­counts be­long­ing to pen­sion­ers), which led to find­ings against it by the Na­tional Con­sumer Tri­bunal, as well as against its in­surance sub­sidiary, Monarch In­surance. In its trad­ing up­date for the De­cem­ber quar­ter, it com­plains that the stricter credit re­quire­ments im­posed by au­thor­i­ties is ham­per­ing the group greatly. At the same time, it feels the pres­sure caused by the drought. Many of its 444 branches are in ru­ral towns. It has re­duced its in­terim div­i­dend by more than half.

But at the mo­ment Lewis’s share price de­rives ad­van­tage from value funds’ pol­icy to in­vest in com­pa­nies when their cir­cum­stances ap­pear to be at their dark­est, but where there’s po­ten­tial for re­cov­ery. One of the unit trusts that in­vest in Lewis is Al­lan Gray’s Op­ti­mal Fund, while an Absa fund has also nib­bled.

Gold shares are still among some of the weak­est is­sues, while Bid­vest – af­ter its lat­est unin­spir­ing set of fig­ures – has moved up in the ta­ble (which means weak­ened). Of the shares that have bro­ken through, Old Mu­tual and In­vestec plc look in­ter­est­ing.

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