31 December 2020 | www.moneymarketing.co.za
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SA Inc stocks: Has too much bad news been priced in? has lagged. “This underperformance is not sustainable,” says Pick, adding that SA Inc companies are remarkably oo much bad news has been resilient. “These companies have been priced into some locally focussed dealing with a difficult environment for South African companies, often the last five to 10 years, as well as the referred to as SA Inc stocks. This is the coronavirus pandemic this year – yet view of Meryl Pick, Head of Equity many of them have still been growing Research at Old Mutual Investment revenue, growing profits and finding Group*. She points out that while a ways to not only survive, but thrive.” strong rebound has been seen in rand Pick sees cyclicality as the only thing hedge stocks, in Naspers and in resource that is certain in markets. “Every few stocks since the end of March, SA Inc years a crisis of some shape or form comes along and the market takes a tumble in response. Markets react, Meryl Pick, Head: Equity but markets recover. The real paradox Research, is that you can’t get the phenomenal Old Mutual investment opportunities without the Investment messiness, the confusion, and the fear. Group The market noise is the very thing that actually creates opportunity.” Seeing beyond a particular crisis isn’t easy. “It takes a bit of patience, a countercyclical sort of attitude, and perhaps a bit of imagination,” Pick says. When she considers SA Inc stocks as a broad sector, she believes that they present some phenomenal opportunities currently, that many JANICE ROBERTS Editor: MoneyMarketing
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investors in the market today haven’t seen in their careers. “Just take the banks, for example: Price-to-book multiples are back to 1980 levels. You’d have to go back pre-1990 to find banks trading at the price-to-book multiples that they are at now – and yet, these businesses are probably stronger and have bigger market share, and more robust balance sheets, than what they did back then.” Pick adds that when making investment decisions, it’s not only important to look at the macroeconomic environment but also at company specifics and how companies have been responding, either to COVID-19 in particular, or just to South Africa’s lowgrowth environment. “You then make up your mind whether those individual companies, based on their share prices, offer good value and good long-term investment opportunities, despite the macroenvironment.” She cites, as a good example of how local companies are responding to current circumstances, the case of Aspen Pharmacare, the company that has struck a provisional deal with Johnson
& Johnson to manufacture its COVID-19 vaccine candidate. “This will allow Aspen to increase volumes at its Port Elizabeth manufacturing facilities.” Turning to the construction sector, Pick says that Wilson Bayly Holmes and Raubex, “the last two construction companies in the listed space that have survived since 2010”, both have strong balance sheets. “They’ve cut costs where they could, and they are poised to benefit from government stimulating the economy through infrastructure spending, as well as the pivot to renewable energy.” Continued on page 3
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