Finding value on the Johannesburg Stock Exchange (JSE) is becoming increasingly tricky as companies will continue to navigate through a period of slow economic growth in 2017.<\/p>\n
The JSE all share index has begun the new year on the back foot, having ended 2016 down 0.08%.<\/p>\n
And while big annual returns of 10 to 15% in the coming year appear unlikely, analysts at Sanlam Private Wealth have provided a list of six shares they believe may offer good value.<\/p>\n
Sizwe Mkhwanazi, portfolio manager at Sanlam Private Wealth has picked his top three ‘winners’ for 2017.<\/p>\n
Anheuser-Busch InBev (AB InBev)<\/strong><\/p>\n When AB Inbev bought SABMiller it ended the 119-year relationship of one of South Africa\u2019s most loved companies with the JSE. Part of this US$109 billion mega-deal was listing AB InBev on the JSE.<\/p>\n Mkhwanazi noted that management is well known for cutting costs, with CEO Carlos Brito leading by example. The company plans to reduce employee numbers by around 5,500, which will lead to savings of around US$1.4 billion, he said.<\/p>\n “Earnings are expected to grow between 7% and 9%, and operating margins should improve from 31.9% to 33% over the next few years. This share offers rand hedge qualities and at the current level of about R1 450.00 offers good value over the long term,” Mkhwanazi said.<\/p>\n Standard Bank<\/strong><\/p>\n The analyst said that Standard Bank plans to invest US$100 million in ICBC Standard Bank, which will put the bank in a good position as the cycle begins to turn.<\/p>\n The African presence should provide superior earnings over the next five to 10 years, although over the next two years, earnings may be under pressure due to lower oil prices and a challenging environment.<\/p>\n “The bank has also invested heavily in IT infrastructure to convert its core banking system. Earnings would have been 20% higher had the IT spend been in line with that of South African peers. Standard Bank is currently trading on 1.6 times price to book and 4.65% historic dividend yield and is an excellent dividend payer,” Mkhwanazi said.<\/p>\n Impala Platinum<\/strong><\/p>\n Precious group metals companies, including Impala Platinum, have concluded successful wage negotiations with the Association of Mineworkers and Construction Union (AMCU), reflecting a positive relationship between employers and employees, noted\u00a0Mkhwanazi.<\/p>\n He said that although the World Platinum Investment Council\u2019s latest report has indicated a decrease in autocatalyst demand, it remains the main driver of platinum use and Impala Platinum should benefit from this.<\/p>\n “The platinum price has declined since the November US presidential elections, resulting in a negative effect on platinum shares. The share price of Impala Platinum has recovered from the low of R23.00 in January 2016, and the current levels provide a great buying opportunity as the long-term fundamentals remain intact. We have a target price of R66 over the next 12 months,'” Mkhwanazi said.<\/p>\n Gary McNamara, Portfolio Manager at Sanlam Private Wealth also provided a list of three shares he expects to be ‘attractive picks’ in 2017:<\/p>\n Adcock Ingram<\/strong><\/p>\n This business has strong household names in both its over-the- counter (OTC) and consumer brands divisions, according to\u00a0McNamara. It\u2019s performed poorly on the stock market over the past two years, undergoing a significant management change and refocus on its core business since Bidvest came on as an anchor shareholder.<\/p>\n The recent sale of the non-core Indian business, together with management\u2019s focus on reducing debt over the past two years, has left the business with a strong balance sheet and very little debt, McNamara said.<\/p>\n “This more flexible balance sheet allows Adcock Ingram to be more outward looking to expand the company\u2019s product offering off its existing infrastructure. The share is currently trading on an historic dividend yield of 2.5% with a low and clean base from which to grow,” the analyst said.<\/p>\n Investec<\/strong><\/p>\n The share has been hard hit by the Brexit vote that caught the market by surprise in June.<\/p>\n While Investec does have a London listing, 68% of the current profit comes from South Africa.<\/p>\n “If we separate the business between the specialist bank, asset management and wealth management, and do a sum of the parts valuation, we get a value approaching R110 per share. With a dividend yield approaching 5% and a recovery in interest for offshore banks post the recent Trump victory, a re-rating of the share could be on the cards,” McNamara said.<\/p>\n Woolworths Holdings<\/strong><\/p>\n Woolworths has expanded its business offshore with the acquisition of David Jones in Australia. “With good management, I believe it can create growth off a low base. The Woolworths management will be looking to gradually roll out the group\u2019s very successful South African food franchise into this market.<\/p>\n “While this share price has been under pressure in recent months due to some poor competitor trading updates, I believe that on a historic price earnings multiple of 15 times with a dividend yield approaching 5%, it is very attractive at current levels,” McNamara said.<\/p>\n
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