Stock picks to rock your world

TOP FUND MANAGERS GIVE THEIR BEST IDEAS

The JSE’s often-overlooked small and mid-cap stocks can provide compelling investment opportunities.

The JSE’s often-overlooked smalland mid-cap stocks can provide compelling investment opportunities.

Alpha Wealth’s Keith McLachlan, Devin Schutte of The Robert Group and Vestact’s Bright Khumalo presented some great small-cap ideas at The Money Expo on Saturday:

ADvTECH

This private education group owns and runs institutions under brands including Crawford, Varsity College and Vega.

Khumalo said there are 13 million schoolgoers in SA, but private schooling contributes only 5%-6%. Demand is much higher. “If you look at developed countries, about one-third of all schoolgoers go to private schools.”

ADvTECH has high margins and attractive valuations.

Master Drilling

Schutte said the raise boring and drilling solutions company offers a unique investment proposition.

“They have world-class technology and incredible IP in terms of their horizontal raise bore rigs. They are able to drill holes two to three times bigger than anyone else on the planet and are doing it quicker and cheaper than their competitors.”

Trading on a price-to-earnings multiple of just seven times, it seems extremely good value.

Blue Label Telecoms

Blue Label has a profitable distribution arm selling virtual products such as airtime and has finalised a deal to buy 45% of Cell C. McLachlan believes the synergies this will create in an industry increasingly less dependent on capital spending makes this an interesting prospect.

Transaction Capital

The asset-backed lender specialises in providing funding to taxi owners through its SA Taxi division. Despite some local governments introducing more efficient bus services, Khumalo believes this is an attractive industry.

“Taxis are still very efficient. You can question whether the industry is growing, but it’s resilient. SA Taxi funds one-third of the country’s taxis and that is increasing.”

Metrofile

The company that provides integrated record and information management is “the only way to go long on bureaucracy”, says McLachlan.

It provides solutions for recording, storing and destroying records, in hard copy and digital.

“Add in an incredibly good dividend yield at around 6%, and that you’re paying a fair value of around 14 times earnings, and it looks like a great investment,” said Schutte.

RECM and Calibre

Khumalo believes the investment company run by deep-value investors is well placed to be successful in the current environment.

“They can find businesses ripe for the picking,” Khumalo said. “And they have the research ability, patience, acumen and stomach to say this is not a bad business, it’s just going through a slump and I can buy it while sentiment is low and have the opportunity to sell later at a much higher price.”

Santova

The niche supply chain management company has successfully entered international markets, where opportunity is massive. It has a huge runway for the use of its tech solutions.

“It is not a South African business, but increasingly a global one and it’s very scalable,” said McLachlan. “It could be the Capitec of global logistics and you can buy it on a single-digit multiple.”