Financial Mail - Investors Monthly
BUY, HOLD, SELL
Sibanye-Stillwater is expected to do well out of the world’s need for palladium in exhaust pipe catalytic converters to purify emissions from vehicles, as the producer of platinum group metals responds to people’s concern about the environment and the pop
SIBANYE-STILLWATER Share price: 1473c JSE code: SGL BUY THE WORLD IS CHANGING.
People are becoming more aware of the impact of their lifestyles on the planet and are starting to adapt their behaviour.
Stricter emissions laws are being passed globally that limit the amount of harmful greenhouse gases motor vehicles are allowed to emit. This creates an interesting opportunity for Sibanye-Stillwater.
It has transformed itself from a spun-off collection of gold mining assets to one of the world’s largest players in the platinum group metals (PGM) arena.
It’s been a strange journey for the company. At first CEO Neal Froneman was seen as a genius, then as foolish, but suddenly he looks like a genius again.
PGMs, particularly palladium (mined in conjunction with platinum), is the primary metal for catalytic converters in motor vehicle exhaust systems, limiting the emission of harmful gases. About 74% of Sibanye-Stillwater’s total revenue in the quarter to June 2018 came from PGMs (R1bn was earned from SA PGM operations, R1.9bn from PGM operations in the US. Together it equals R2.9bn revenue of the group’s total of R3.9bn revenue.)
A sustained push in the PGM sector based on the expected future demand for palladium will benefit Sibanye.
ANHEUSER-BUSCH INBEV Share price: R1159 JSE code: ANH HOLD SINCE ABINBEV’S LISTING ON
the JSE as a consequence of the merger between SAB and ABInbev its share price has dropped by about 40%.
The company has been under some strain due to large amounts of debt and pressure from ratings agencies to “meaningfully reduce” this over the next three months. S&P has warned that it might lower the firm’s credit rating, which now stands at A-, because the company’s leverage is worse than expected. This is bad news for a business that is trading at a price-to-earnings ratio of 39 with a dividend yield of only 3.66%.
There is some good news, though. The US market is proving to be robust, and for ABInbev things are looking better there than they have since 2012.
These factors combined make a case for a wait-and-see approach.
Technical analysis shows that momentum in the share price is turning positive. More trading is taking place on days when there is an upward move in the share price, which could be an early warning signal that the down trend since listing might be coming to an end.
Being patient and giving the stock some time to decide which direction it wants to take seems like the most prudent course of action right now.
ASTRAL FOODS Share price: R171 JSE code: ARL SELL ASTRAL FOODS IS ONE OF SA’S
largest chicken producers as well as a producer of animal feeds, thereby benefiting from some measure of vertical integration.
Sadly, though, the SA poultry industry is suffering from the ravages of cheap imported Brazilian and US chicken. The government tried some time back to curb the dumping of chicken from the US, but SA had to accept it or face the loss of other benefits under the African Growth & Opportunity Act, which allows us to export a large variety of products to the US without tariffs.
Efforts made by the government to curb imports from Brazil have been met with clever tactics: produce is being bounced through a few countries to enter from a country with which SA has an agreement that prevents it from stopping imports or placing tariffs on them. This is creating distress for the entire poultry industry in SA; RCL Foods report a poor set of numbers due to this issue.
It is reasonable to expect that Astral Foods will experience similar difficulties and be unable to produce a satisfactory set of results. Therefore, the call here is to sell out of the stock until a way is found to stop the dumping.