Bargains emerging in SA’s equity market

Nkareng Mpobane

The SA overall equity market has shed over 20% from its highs at the beginning of the year in dollar terms.

For investors however, valuations in some shares look attractive with some of the JSE’s leading names trading substantially below long-term valuations. For patient investors great stocks can be had at very attractive prices. Some of these companies are: Vodacom (VOD): Very nega- tive sentiment has driven share prices down in the SA telecommunications space. In our view, this remains a quality company that has opportunities for growth outside our borders. At a forward price earnings ratio of 12x and a dividend yield greater than 6% we think the stock is attractive.

Aspen (APN): Its FY18 results in September were below consensus expectations, disappointing the market and resulting in an aggressive share sell-off which appears overdone at current levels.

In our view, the sale of its Infant Milk Formula business de-gears the balance sheet to some extent and allows Aspen to concentrate on the core pharma business.

If the rand continues to trade around current levels, it would be a tailwind for them. Aspen trades on a 1yr forward price earnings ratio of 9.5x with forecast earnings growth for FY19 at 10%. At current levels, it trades way below its long term average valuation.

Shoprite (SHP): This quality counter with a strong balance sheet has come under pressure following weak full-year results in a low food inflation environment and a disappointing performance from its African operations. But operationally, the company appears sound. Shoprite has invested a significant amount of capex into upgrading its IT infrastructure and has also commissioned a new distribution centre. The share now trades on a 1 year forward price earning ratio of 18x. We expect this counter to benefit from an increase in food inflation and a risk-on environment.

Nkareng Mpobane is at Ashburton Investments