Bank of America (BofA) has published a new report focusing on stocks which could benefit the most ‘post-Covid’.
The methodology used produces several stocks on the list that are familiar to South African investors, including Aspen, Naspers and Prosus.
“In mid-April we outlined how Covid-19 was likely to accelerate existing macro-social long-term trends: de-globalisation or localisation; automation; social instability; and populist policies,” the analysts said.
“With the benefit of more information since the peak of the crisis, we go a step further and create a framework to identify potential EEMEA (Eastern Europe, Middle East, and Africa) equity beneficiaries in the post-Covid world.”
BofA used five key themes as a starting point, including:
- Geopolitics & Deglobalisation;
- Tech Wars;
- Big Government;
- Health – New Wealth;
- The New Consumer: OK Zoomer.
It then added a country overlay which emphasises the importance of local conditions where these companies operate.
“The range of top 10 picks captures the breadth of post-Covid changes: digitalisation, increased focus on health, changing consumer preferences, but also the importance of localised supply chains and government protectionism,” it said.
“Our top healthcare pick is Aspen. The other likely EEMEA beneficiaries are technology, media and telecom (TMT) names such as MTS, Naspers, Play and Prosus, which can outperform due to digitalisation and changing consumer preferences (e-commerce, e-entertainment, food delivery, online payments).
“However, less obvious choices are also set to outperform due to the new consumer: ENBD (online payments) and X5 (big data, online sales).”
Aspen is South Africa’s largest pharmaceutical company, selling a mixture of generic, branded, injectable and over-the-counter products globally, with significant operations in Europe (40% of revenues), South Africa (23%), China & LATAM (20%), Australasia (12%) and MENA (3%).
BofA said that it believes Aspen could benefit from the following long-term mega themes.
- Health: the new wealth and focus for ESG. Aspen is a key supplier of critical anaesthetics and thrombosis products into Europe and China. These products are essential for hospitals treating critical care patients (such as severe Covid cases). The group also has relatively large market share in “Over the Counter“ medicines across Sub-Saharan Africa and Australia.
- Geopolitics & de-globalisation: All 23 of Aspen‘s manufacturing facilities remain online during lockdown with pharmaceuticals designated as essential business. The group is comfortable with its supply of APIs over the next three to four months, having built up stock (particularly of Heparin) despite India‘s export ban on certain pharma products and 26 APIs.
- Big government: Aspen is a key supplier of generic antiretroviral (ARV) drugs to the public sector in South Africa. At the end of 2019, 4.7 million South Africans were receiving ARVs through the public sector (largest programme globally).
Naspers and Prosus
Naspers is a media conglomerate with exposure to best-in-class social networking, games and e-commerce. It owns a 72.5% stake in Prosus and also leading South Africa‘s online store Takealot and Media24.
Prosus offers similar exposure.
BofA said the companies strategy tallies well with long-term mega themes.
- The New Consumer: Prosus offers exposure to Tencent but also key digitalisation themes across the globe i) food delivery, ii) classifieds and e-commerce, iii) online payments. Online classifieds represent 48% of the ex-Tencent some-of-the-parts for Prosus. Over the past three months, the company has carried out three M&A transactions which will entrench its leading position across key markets.
- China recovery is underway: Four key drivers for Tencent going into 2H20: i) improving macro indicators in China, ii) mobile and internationalisation drive solid growth in games (c.45% of 1Q20E revenue); iii) macro recovery + enhanced monetisation = online advertising set to recover gradually throughout 2020; iv) payments are recovering from the lows.
Although Covid-19 has led many companies towards paralysis (i.e. operation closures and employee redundancies), some top responders have been agile by adapting their business models in order to provide assistance during the crisis.
This includes sentiment data as well as Truvalue Labs dataset on volume (number of news items/signals) .
Some of the top South African companies include Clicks, Life Healthcare, PSG Group, and Netcare and Mondi Plc.