Stock Select Monthly
March 2016 Risk Factor
Top 40 up 0.75% this year Small Cap in focus In this edition: Steinhoff International Invest in one of our portfolios NV Do not have the time to actively manage your portfolio? – Let us do it for you. We have been managing wealth for our clients JSE Winners & Losers (page 3) since 1969. We have well qualified and experienced portfolio managers and analysts to Top 40 Recap (page 3) select the right shares for you. By paying a small management fee you can sit Small Cap Focus (page 16) back and relax and see your money grow.
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Stock Select Monthly – March 2016
Table of Contents Executive Summary JSE Winners and Losers 3 Welcome to the March 2016 edition of Stock Select Monthly, a monthly publication produced by Thebe Stockbroking for our private clients. Top 40 Key Events and Results 3 The JSE All Share Index closed 5.74% higher in March supported by strong JSE Indices Performance 5 performances in platinum and financial shares. Platinum shares were the best performers during March, rising as a group by 24.98% followed by Top 40 Focus 6 banking shares that gained 13.43%. Platinum shares benefitted from increased demand for the metal - the platinum price rose by more than 4% Top 40 Stock Pick Performances 6 during the month - while banking and financial shares benefitted from an increase in the repo rate. Of all the main JSE indices, the gold index (down Top 40 Stock Selection 7 2.48%) was the sole decliner during the month. However, the index is still up 92% for the year. Market Focus – Steinhoff International 9 During March the Reserve Bank raised the benchmark repo rate by 25 basis points to 7% from 6.75%, the second increase this year. The Bank said that it Top 40 Share Price Moves 11 expects inflation to exceed its 3% to 6% target band until 2017. The Bank also cut its growth forecast for 2016 to 0.8%, which would be the weakest since Mid-to Small Cap Focus – ARB Holdings 16 the 2009 recession. Following the repo rate hike South African consumer inflation (CPI) accelerated to 7.0% y/y in February, the fastest pace since June Mid-to Small Cap Share price Moves 19 2009, from 6.2% in January. The acceleration in inflation is adding to the central bank’s policy dilemma of rising consumer prices and slowing economic growth. Producer inflation (PPI) accelerated to its highest level in more than a year to 8.1% y/y. South Africa’s trade deficit narrowed to a R1.07 billion in February from a revised R17.96 billion shortfall in January. The current account deficit widened more than estimated, reaching 5.1% of GDP in Q4:15. The rand reached a 4-month high against the US dollar on 31 March 2016, trading at R14.65. The rand also appreciated against the euro and the pound. When the compared to the end on February the rand gained 7.48% against the US dollar, 3.15% against the euro and 4.36% against the pound. On a year-to-date basis the rand has gained 5.22% against the US dollar, 0.57% against the euro and 6.47% against the pound. On 31 March 2016 the Constitutional Court found that President Jacob Zuma failed to respect the constitution when he ignored the instructions from the Public Protector to repay some of the money spent on his private home. From an individual share perspective, the share price of Delrand Resources (DRN) recorded the largest gain in March, increasing by 3574%. The share price of Labat Africa (LAB) was the biggest loser by falling 61% in March. For the year-to-date, the share price of Delrand (DRN) Resources rose by 1590% while the share price of Andulela Investment Holdings (AND) declined by 68% making it the worst performer. AngloGold Ashanti reclaimed a position in the Top 40 Index in March, ousting PSG Group in the process following the JSE’s first quarterly Index review of the year. The JSE also placed Gold Fields (GFI) and Sibanye Gold (SGL) on its reserve list for possible inclusion into the index. Harmony Gold (HAR) moved back into the top 100 companies after languishing in the small-cap category for most of 2015, while Grindrod (GND) and Adcock Ingram (AIP) slipped out of the top 100 and into the small-cap index. In this issue of Stock Select, we review the performances of our recent Top 40 stock picks and profile the winners and losers on the JSE. We also review key updates and results from the Top 40 shares that have occurred during the month. In our Top 40 focus on page 9, we discuss why the Steinhoff International could be an attractive investment option and on in our Mid-to- Small Cap Focus we provide an update on ARB Holdings’ latest results.
Analyst Top 40 Recommendation changes during March 2016 Movement Up/ Company Code Previous Analyst Recommendation Current Analyst Recommendation Down Barclays Africa BGA BUY HOLD FirstRand FSR BUY HOLD RMB Holdings RMH HOLD BUY Standard Bank SBK HOLD SELL Sasol SOL BUY HOLD Tigerbrands TBS HOLD BUY Source: Bloomberg
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Stock Select Monthly – March 2016
JSE Winners & Losers Top 40 Company Results & Key Events
Anglo American PLC (AGL) Best Performing Shares (YTD 2016) Anglo announced that it had completed its bond buy-back programme that resulted in an immediate $130 million reduction in net debt. Share Price Share Price Company Code % Change (31/12/15) (31/03/16) Anglo American Platinum (AMS) Delrand DRN 50 845 1 590.00% Disposal Harmony Gold HAR 1 560 5 303 239.94% Anglo announced that the Competition Commission had approved the sale of Hwange Colliery HWA 26 69 165.38% its Rustenburg operations to Sibanye Gold subject to certain conditions and Assore ASR 6 210 16 100 159.26% qualifications.
Sibanye Gold. SGL 2 285 5 664 147.88% Aspen Pharmacare (APN) DRDGOLD DRD 261 596 128.35% Interim results for the 6 months to 31 December 2015 African Rainbow ARI 4 345 9 503 118.71% Aspen reported headline earnings per share (HEPS) of 418.8cps, which is a Amplats AMS 18 534 36 188 95.25% decline of 22.7% (1H15: 541.7cps). Kumba Iron Ore KIO 4 120 7 954 93.06% AngloGold ANG 10 626 20 450 92.45% Barclays Africa (BGA) Final results for the year ended 31 December 2015 Worst Performing Shares (YTD 2016) Barclay’s Africa reported HEPS of 1,687cps, which is an increase of 9.7% (FY14: 1,538cps). A final dividend of 550cps was declared taking total dividends to Share Price Share Price Company Code % Change 1,000cps, which reflects an 8.1% increase (FY14: 925cps). (31/12/15) (31/03/16) Disposal Andulela AND 109 35 -67.89% Barclay’s PLC announced its intention to divest its 62.3% shareholding in Labat Africa LAB 150 54 -64.00% Barclay’s Africa. Mediclinic MEI 42 408 18 976 -55.25% Delta EMD DTA 300 135 -55.00% BHP Billiton (BIL) Erin Energy ERN 5 210 3 130 -39.92% Acquisitions Net 1 UEPS NT1 20 600 13 450 -34.71% BHP Billiton announced that it was looking at possible acquisitions of copper Nutritional NUT 3 2 -33.33% and petroleum assets in a bid to revive profits apart from further cost cuts. Verimark VMK 49 33 -32.65% Cognition CGN 194 131 -32.47% Capitec (CPI) Capital & Counties CCO 10 250 7 000 -31.71% Final results for the year ended 29 February 2016 Capitec reported HEPS of 2,787cps, which is an increase of 26% (FY15:
2,209cps). A final dividend of 680cps was declared taking total dividends to Best Performing Shares (March 2016) 1,055cps, which reflects a 26% increase (FY15: 836cps).
Share Price Share Price Company Code % Change FirstRand (FSR) (29/02/16) (31/03/16) Interim results for the 6 months to 31 December 2015 Delrand DRN 23 845 3573.91% FirstRand reported HEPS of 185.4cps, which is an increase of 2.7% (1H15: Imbalie Beauty ILE 10 18 80.00% 180.5cps). An interim dividend of 108cps was declared, which reflects a 16% Sasol Inzalo SIPBEE 2650 4400 66.04% increase (1H15: 93cps). Montauk MNK 880 1400 59.09% Wescoal Holdings WSL 97 153 57.73% Growthpoint (GRT) Atlatsa Resources ATL 42 65 54.76% Interim results for the 6 months to 31 December 2015 Beige BEG 2 3 50.00% Growthpoint reported distributions per share (DPS) of 89.5cps, which is an African Dawn ADW 2 3 50.00% increase of 6% (1H15: 84.4cps). The board expects DPS growth for FY16 to be Murray & Rob. MUR 897 1260 40.47% in line with 1H16. Impala Platinum IMP 3346 4700 40.47% MTN Group (MTN) Worst Performing Shares (March 2016) Final results for the year ended 31 December 2015 MTN reported HEPS of 746cps, which is a decrease of 51.4% (FY14: 1,536). A Share Price Share Price final dividend of 830cps was declared taking total dividends to 1,310cps, Company Code % Change (29/02/16) (31/03/16) which reflects a 5.2% increase (FY14: 1,245cps). Labat Africa LAB 138 54 -60.87% The Nigerian Communications Commission restored regulatory services to Andulela AND 80 35 -56.25% MTN Nigeria, with the outcome of the proposed fine still pending. Delta EMD DTA 230 135 -41.30% Mine Restoration MRI 4 3 -25.00% Nedbank (NED) Jubilee Platinum JBL 88 68 -22.73% Final results for the year ended 31 December 2015 Sentula Mining SNU 20 16 -20.00% Nedbank reported HEPS of 2,284cps, which is an increase of 7.4% (FY14: ELB Group ELR 2000 1650 -17.50% 2,127cps). A final dividend of 570cps was declared taking total dividends to South Ocean SOH 40 33 -17.50% 1,107cps, which reflects a 7.7% increase (FY14: 1,028cps). HEPS growth for Eqstra EQS 187 155 -17.11% FY16 expected to be lower than FY15. Conduit Capital CND 300 250 -16.67% Disposal Old Mutual announced that it would reduce its 54.1% shareholding of Source: iNET BFA Nedbank to a strategic minority position.
Old Mutual (OML) Final results for the year ended 31 December 2015 Old Mutual reported HEPS of 13.9 pence, which is an increase of 13% (FY15: 12.3 pence). A final dividend of 6.25 pence was declared taking total dividends to 8.9 pence, which reflects a 2.3% increase (FY14: 8.7 pence).
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Stock Select Monthly – March 2016
Old Mutual (OML) Disposal Old Mutual announced that it would separate its four principle businesses, namely, Old Mutual Emerging Markets (OMEM), Nedbank, Old Mutual Wealth and Old Mutual Asset Management. OMEM and Nedbank’s relationship will continue following the separation, with a minority shareholding in Nedbank distributed to Old Mutual shareholders over time. The separation is expected to be concluded by the end of 2018.
Redefine (RDF) Acquisition Redefine announced that it had agreed to acquire 75% of Echo Prime Properties for $1.3 billion to boost its international expansion. Echo Prime owns a portfolio of office and retail space in Poland.
RMB Holdings (RMH) Interim results for the 6 months to 31 December 2015 RMB reported HEPS of 246.4cps, which is an increase of 2.3% (1H15: 240.8cps). An interim dividend of 142cps was declared, which reflects a 16% increase (1H15: 122cps).
Rand Merchant Investments (RMI) Interim results for the 6 months to 31 December 2015 RMI reported HEPS of 101.4cps, which is a decline of 17.2% (1H15: 122.4cps). An interim dividend of 53cps was declared, which reflects a 1.9% increase (1H15: 52cps).
SABMiller (SAB) Disposal SABMiller was informed by AB InBev that it had entered into an agreement to sell SABMiller’s 49% interest in its Chinese joint venture, China Resources Snow Breweries Limited, to China Resources Beer Holdings Limited (CRB) for $1.6 billion. CRB currently owns 51% of the joint venture. The proposed transaction with CRB is conditional on, and expected to close in conjunction with the completion of AB InBev’s acquisition of SABMiller.
Sanlam (SLM) Final results for the year ended 31 December 2015 Sanlam reported HEPS of 464.4cps, which is an increase of 11.5% (FY14: 416.5cps). A final dividend of 245cps was declared, which is an increase of 8.9% (FY14: 225cps).
Sasol (SOL) Interim results for the 6 months to 31 December 2015 Sasol reported HEPS of 2,428cps, which is a decline of 24.1% (1H15: 3,200cps). An interim dividend of 570cps was declared, which reflects an 18.6% decline (1H15: 700cps).
Standard Bank (SBK) Final results for the year ended 31 December 2015 Standard Bank reported HEPS of 1,359cps, which is an increase of 27% (FY14: 1,070cps). A final dividend of 371cps was declared taking total dividends to 674cps, which reflects a 12.7% increase (FY14: 598cps). A cumulative preference dividend of 3.25 cents per first preference share was also declared as well as a non- cumulative preference dividend of 396.76 cents per second preference share.
Steinhoff (SNH) Acquisition Steinhoff announced that Conforama, a wholly owned subsidiary of the group, had agreed to acquire French electronics retailer Darty PLC for approximately £673 million.
Tiger Brands (TBS) Appointment of new CEO Tiger Brands announced that it had appointed Lawrence MacDougall, from Mondelez International, as their new chief executive officer (CEO) following the resignation of Peter Matlare.
Vodacom (VOD) Acquisition Vodacom announced that the proposed deal for Vodacom to acquire the majority of Neotel’s fixed line assets lapsed due to regulatory complexities in concluding the transaction as well as certain conditions not being fulfilled. As a result both parties agreed not to proceed with the deal.
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Stock Select Monthly – March 2016
JSE Indices Performance
JSE Sectoral Indices 160
140
120
100
80
60
40 02/01/15 02/04/15 02/07/15 02/10/15 02/01/16 JSE Resources JSE Basic Materials JSE Industrials JSE Consumer Goods JSE Healthcare
160
140
120
100
80
60
40 02/01/15 02/04/15 02/07/15 02/10/15 02/01/16 JSE Consumer Services JSE Telecommunications JSE Financials JSE Technology JSE All Share
Source: iNET BFA
Small Cap Index versus Top 40 70000 Small Cap Top 40 Index 60000 2016 Year-to-date 10.58% 0.75%
50000 2015 -8.0% 4.2%
40000 Q4:15 -5.6% 2.0%
30000 Q3:15 -5.1% -2.7%
20000 Q2:15 0.3% 0.3% Q1:15 2.4% 4.7% 10000 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Dividend Yield (DY) 4.18% 2.83%
JSE Small Cap Index (J202) JSE Top 40 (J200) Price Earnings Ratio (PE) -20.01x 18.30x
Source: iNET BFA
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Stock Select Monthly – March 2016
Top 40 focus
The JSE Top 40 index consists of the forty largest companies by market capitalisation listed on the JSE. While the index is well diversified across sectors, it is dominated by Tobacco (19.42%), Breweries (17.08%) and Media (8.99%). Constituents of the Top40 Index – Main Sub-Indic
Diversified Industrials Clothing and 3% accessories 5% Retailers Investment Banks 3% 3% General Mining 9% 5% Furniture Gold Mining manufacturers 1% 4% Platinum Mining Oil and gas Healthcare 1% 3% 4% Food producers 1% Breweries Life insurance 16% 5% Telecoms 5%
Paper Media 1% Tobacco 10% 18%
Property 3%
Source: iNET BFA The largest five companies by market capitalisation in the Top 40 index are British American Tobacco (R1,744bn), SAB (R1,506bn), Naspers (R902bn), Richemont (R509bn) and Steinhoff (R375bn).
Top 40 Stock Pick Performances
Below we track the performance of our previously covered Top 40 Company Focus stocks. Date of Price at Median Remaining Previous analyst Current analyst Current Share initial initial 12 month share price Company Code consensus consensus spot price Price company publication target price upside recommendation recommendation (cps) Growth Focus (cps) (cps) Aspen APN BUY BUY 28-Feb-14 27 780 32 018 15.26% 33 849 21.85% British American BTI BUY BUY 31-Mar-14 57 454 86 058 49.79% 90 320 57.20% Richemont CFR BUY HOLD 30-Apr-14 10 543 9 749 -7.53% 11 260 6.80% Old Mutual OML BUY BUY 29-Aug-14 3 500 4 098 17.09% 4 554 30.11% Tiger Brands TBS BUY HOLD 30-Apr-15 31 000 32 523 4.91% 33 011 6.49% Vodacom VOD HOLD HOLD 30-Jun-15 13 870 16 053 15.74% 14 946 7.76% MTN Group MTN BUY BUY 30-Jun-15 22 875 13 520 -40.90% 15 385 -32.74% Netcare NTC BUY BUY 31-Jul-15 4 039 3 610 -10.62% 3 934 -2.60% Mr Price Group MRP BUY BUY 30-Sep-15 19 300 17 743 -8.07% 19 378 0.40% Sanlam Group SLM BUY BUY 30-Oct-15 6 250 6 849 9.58% 6 617 5.87% Investec Ltd INL BUY BUY 29-Feb-16 10 303 10 991 6.68% 12 971 25.90% Investec PLC INP BUY BUY 29-Feb-16 10 312 10 880 5.51% 12 828 24.40%
Source: iNET BFA, Thebe Stockbroking
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Stock Select Monthly – March 2016
Top 40 Stock Selection
Methodology Our monthly Top 40 Stock Selection Model is constructed by: Step 1: Compiling consensus analyst2 Earnings per Share (EPS) forecasts on the constituents of the Top 40 index from Bloomberg and iNET BFA. Step 2: Shares are filtered according to forecast EPS growth. Step 3: Share are filtered according to analyst2 consensus recommendations. Step 4: Strong analyst2 BUY recommendations are filtered by reviewing MTD and YTD share price movements to highlight potential over-bought and over-sold companies. Step 5: We then apply our consensus Target Price Model (mean 12-month analyst2 Target Price (TP) forecast) to selected companies and calculate potential share price upside to arrive at our Top 40 Company Recommendation. Top 40 - Median Analyst EPS and 12-Month Target Price Forecasts and Consensus Recommendations Consensus Analyst1 Forecast Current Spot Median Analyst1 12- Implied Share Price JSE Code Code Analyst1 EPS Growth (next Share Price month TP Forecast Return (%) Recommendation 12-months) Anglo American PLC AGL SELL 11 552 8 855 -23.35% -19.53% Anglo American Platinum AMS HOLD 36 188 32 967 -8.90% 1650.00% AngloGold Ashanti AGL HOLD 20 450 22 482 9.94% -771.80% Aspen Pharmacare APN BUY 32 018 33 849 5.72% 17.86% Brait SE BAT HOLD 16 700 13 700 -17.96% No Forecast Barclays Africa BGA HOLD 14 959 15 212 1.69% 5.44% BHP Billiton BIL HOLD 16 600 17 414 4.90% -86.04% British American Tobacco BTI BUY 86 058 90 320 4.95% 21.05% Bidvest Group BVT BUY 37 300 38 088 2.11% 14.59% Capital & Counties Properties CCO HOLD 7 000 8 419 20.27% No Forecast Compagnie Financière Richemont CFR HOLD 9 749 11 260 15.50% 83.09% Capitec Bank CPI SELL 57 303 46 254 -19.28% -1.61% Discovery DSY SELL 12 150 11 050 -9.05% -19.47% Fortress Income Fund A FFA HOLD 1 571 1 456 -7.35% -48.18% Fortress Income Fund B FFB SELL 3 580 3 372 -5.82% -44.17% FirstRand FSR HOLD 4 837 4 753 -1.74% 7.36% Growthpoint GRT HOLD 2 457 2 382 -3.06% 23.60% Investec Ltd INL BUY 10 991 12 971 18.01% 35.10% Investec PLC INP BUY 10 880 12 828 17.90% 45.11% Intu Properties ITU HOLD 6 630 7 287 9.91% No Forecast Mediclinic MEI BUY 18 976 20 006 5.43% 78.80% Mondi Ltd MND HOLD 28 391 31 500 10.95% 38.87% Mondi PLC MNP BUY 28 279 33 382 18.05% No Forecast Mr Price Group MRP BUY 17 743 19 378 9.21% 11.95% MTN Group MTN BUY 13 520 15 385 13.79% 81.00% Nedbank NED HOLD 19 425 19 577 0.78% 3.10% Naspers NPN BUY 206 100 265 157 28.65% 147.60% Netcare NTC BUY 3 610 3 934 8.98% 21.37% Old Mutual PLC OML BUY 4 098 4 554 11.14% 54.24% Redefine Properties RDF BUY 1 198 1 107 -7.61% 1.69% Reinet REI HOLD 3 174 3 600 13.42% No Forecast Remgro REM BUY 25 018 28 975 15.82% 2.26% RMB Holdings RMH BUY 6 126 6 245 1.94% 6.05% Rand Merchant Insurance RMI SELL 4 162 4 190 0.67% 9.43% SABMiller SAB HOLD 89 659 95 659 6.69% 27.58% Standard Bank SBK SELL 13 248 12 412 -6.31% 2.59% Shoprite SHP BUY 17 362 16 581 -4.50% 8.75% Sanlam SLM BUY 6 849 6 617 -3.39% 4.28% Steinhoff SNH BUY 9 466 9 623 1.66% 37.20% Sasol SOL HOLD 44 154 47 227 6.96% -21.12% Tigerbrands TBS BUY 32 523 33 011 1.50% 16.24% Vodacom VOD HOLD 16 053 14 946 -6.89% 9.39% Woolworths Holdings WHL BUY 8 967 10 272 14.55% 25.76% 1) Analysts from Barclays, Renaissance Capital, Deutsche Bank, BPI, UBS, JP Morgan and SBG Securities are included.
Source: Bloomberg, iNET BFA; Thebe Stockbroking Calculations
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Stock Select Monthly – March 2016
Top 40 Stock Selection
We use a price/earnings to Growth (PEG) ratio for the shares included in our Top 40 coverage. The PEG ratio compliments the traditional P/E ratio in reviewing company valuations. While the traditional P/E ratio only looks at past earnings, the PEG ratio gives an indication of a company’s future earnings growth prospects. The PEG ratio is calculated by dividing a company’s current price earnings ratio (P/E ratio) into the company’s expected 12 month forecast earnings per share (EPS) growth rate. A PEG ratio of one indicates a theoretical equilibrium between the spot share price and anticipated 12 month earnings growth, indicating that the share price is FAIRLY VALUED. A PEG ratio of less than one indicates that the market has not fully priced in the company’s future 12 month earnings growth, implying that the stock is UNDERVALUED. A PEG ratio of more than one indicates that the market is overestimating a company’s future 12 month earnings growth, implying that the stock is OVERVALUED.
Top 40 share price change March 16 (%) Top 40 EPS forecast Top 40 PEG graph
CCO ANG FFA CFR BIL FFB SAB FFA SOL BTI FFB BIL MND MNP SOL DSY REI AGL AGL DSY CPI MTN ITU CPI RDF GRT RDF REM MEI REM SBK SOL SBK SLM REM NED NED BVT FFA SLM SHP BGA RMI BIL RMI RMH VOD INP FSR RMH DSY SHP APN NED VOD FSR INL RMI BGA VOD MRP MRP RMH SAB MRP BVT BAT TBS BVT FFB APN TBS FSR BTI BTI NPN NTC NTC BGA GRT WHL OML WHL GRT AMS NPN WHL SAB AGL INL SNH AGL SNH AMS TBS MND INL NTC INP MND SHP OML INP APN MEI CFR SNH MTN MEI RDF CPI CFR OML
SBK NPN MTN
SLM AMS ANG
-10% 0% 10% 20% 30% -1000% 0% 1000% 2000% -10 -5 0 5 10
Share Price % - March (M/D) Expected EPS growth over next 12 months
1) Based on Median Forecasts of analysts representing Barclays, Renaissance Capital, Deutsche Bank, BPI, UBS, JP Morgan and SBG Securities.
Source: Bloomberg, iNET BFA; Thebe Stockbroking Calculations
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Stock Select Monthly – March 2016
Top 40 - Company Focus Market Focus – Steinhoff
Steinhoff International Holdings N.V. is a holding company with a primary listing on Consensus Recommendation BUY the Frankfurt Stock Exchange and a secondary listing on the JSE. Steinhoff has a 12m median target price 9 623 vertically integrated and geographically diverse business model, consolidating all Spot price 9 466 12m implied return 1.66% points of contact from raw materials to retail outlets across an extensive product Share code SNH offering. The group employs 90 000 people and has more than 6 500 retail outlets Sub Industry GICS Household Goods & with operations in 30 countries across Europe, Africa and Australasia. The majority Home Construction of Steinhoff’s revenue (59%) and profits (74%) are generated in Europe, where most JSE ICB Consumer Goods of its operations and assets are located. It is the second largest furniture retailer in Market Cap (R’m) 375 143 Europe after the Swedish company Ikea. The recent listing on the Frankfurt Stock Market Cap ($’m) 25 540 Exchange enhanced the group’s ability to access a larger capital market where it is Average monthly trade (‘000) 199 128 relatively cheaper and easier to raise capital and as a result the group is able to Source: Bloomberg, iNET BFA support the expansion of its European operations and other growth opportunities available in international markets. Steinhoff share price The company’s operations are divided into the retail of furniture, household goods, cps and clothing as well as operating in the automotive industry. The household goods 11 000 segment accounts for 63% of group revenue and 73% of operating profit - it is involved in the retail of furniture, building materials and consumer electronics. The 9 000 general merchandise segment, which accounts for 28% of group revenue and 25% of operating profit, provides clothing, footwear and accessories to men, women and 7 000 children. The Automotive includes car rental, logistics services, warehousing and distribution, agricultural services, supply chain consulting, mining services and 5 000 passenger transport – it accounts for 9% of group revenue and 2% of operating profit. 3 000 Performance by segment 1 000 Revenue Operating Profit Mar-13 Mar-14 Mar-15 Mar-16 4% 2% 14% 9% Source: iNET BFA 25% 28% Contribution by geography
96% 86% Revenue 73% 63% 7%
1H15 1H16 1H15 1H16 Household goods General merchandise Automative 34%
Source: Steinhoff 59% Investment case Steinhoff is currently trading at a PE of 22.53x and at a 12m forward PE of 19.00x. According to Bloomberg analysts’ forecasts, the group’s earnings per share are expected to grow by 8.61% in the long term. Operating Profit The group’s integrated supply chain allows it to reduce transportation costs, enhance purchasing power and leverage supplier rebates. It also allows the 1% group to source and manufacture products in low-cost locations for retail in developed markets. This provides its retail operations with a competitive 25% advantage over its competitors. Steinhoff maintains businesses that are geographically and operationally diverse, which helps to hedge the group against economic downturns in any specific region or industries. The geographical spread of the supply chain, 74% retailing and warehousing functions allows the group’s units to adjust operations quickly to counter market difficulties. Steinhoff’s business is primarily focused in the growing discount market segment, which has been growing faster than the total market, particularly in Europe Africa Australasia
Europe and Africa, supporting the group’s growth in these territories. Source: Steinhoff The acquisition of the Pepkor Group expanded the group’s exposure to the discount retail segment and further diversified its product range within this growing market segment. With access to Steinhoff’s presence and infrastructure, Pepkor will be able to further expand into Europe and grow the
group as a whole.
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Stock Select Monthly – March 2016
Downside risks Steinhoff’s main risks in Europe are an economic slowdown and not finding more merger and acquisition targets. Steinhoff earns its revenue from many different countries with varying currencies and as a result any currency fluctuations will have an effect on reported euro earnings after translating from those currencies. In particular, the volatility of the South African rand adds uncertainty to the group earnings. Results for the six months ended 31 December 2015 Management reported that revenue grew by 47% to €6.7 billion (1H15: €4.56 billion), which translated into market share gains in the majority of the regions the group operates in. Gross margin increased to 36.6% (1H15: 35.6%), despite a volatile currency environment during the first half of the year. Operating profit before capital items was recorded at €802 million (1H15: €480 million) which reflects a 67% increase and operating margin improved by 250 percentage points to 12%. The diluted weighted average number of shares increased by 36% and diluted earnings per share from continuing operations increased by 1% to 16.1 cps (1H15: 15.9cps). Headline earnings per share (HEPS) from continuing operations declined by 2% to 16.9cps (1H15: 17.3cps). Net debt amounted to €2.2 billion reflecting an increase of €262 million since June 2015. The increase is after the effect of share repurchases amounting to €758 million during October 2015 and a dividend payment in November 2015. Cash generated from operations amounted to €791 million after funding working capital. The household goods division increased revenue by 7.6% to €4.2 billion (1H15: €3.9 billion) and operating profit by 27.3% to €587 million (1H15: €461 million). While the retail operations continue to drive the growth momentum in the household goods segment, the efficiencies and cost savings flowing from the integrated supply chain have resulted in good margin growth for the segment as a whole. The general merchandise division was created following the acquisition of Pepkor Group (effective 1 April 2015) and contributed 28% of group revenue and 25% of operating profit. Pepkor’s revenue increased by 19.2% to €1.8 billion (1H15 Pro forma: €1.5 billion) and operating profit grew by 25.5% to €197 million (1H15 Pro forma: €157 million). In constant currency Pepkor increased revenue by 25%. The company also opened 320 stores throughout its operating regions during the period, adding nearly 220 000 m2 of retail space to the group. Notwithstanding the increase in the company’s footprint, like-for-like growth increased by 8%. Pepkor reported an operating margin of 11% despite the effect of the new store openings on operating margin. The automotive division reported that revenue declined by 0.5% to €649 million (1H15: €652 million) and that operating profit declined by 5.3% to €18 million (1H15: €19 million). Operating margin eased by 10 percentage points to 2.8%. Acquisitions Steinhoff announced that Conforama, which is a wholly owned subsidiary of the group, had reached an agreement with French electronics retailer Darty PLC with regards to an all cash offer to purchase the company. In terms of the agreement Conforama will pay 125 pence per Darty share, which puts the value of the share capital at approximately £673 million. The group also announced that it had decided against making an offer for Home Retail Group PLC. Forecast Analysts’ consensus forecasts are for headline earnings per share (HEPS) to rise by 15% in FY2016 to 520.4cps, 12% in FY2017 to 582.9cps and 9.8% in FY2018 to 639.0cps before declining by 5.5% in FY2019 to 603.6cps. Revenue is expected to surge 70% in FY2016 on the back of recent acquisitions with the operating margin declining by 240 percentage points. In the subsequent periods, revenue is expected to grow at a more stable rate, with an increase of 6% in FY2017 and 7% in FY2019. Operating margin is expected to remain relatively unchanged from FY2017 to FY2018 after rising by 60 percentage points in FY2017. Revenue is expected to grow by 1% in FY2019; with operating margin declining by 100pps.
Steinhoff headline earnings trend Steinhoff revenue and operating margin
700 639.0 300 14% 603.6 12.0% 11.4% 11.5% 10.5% 582.9 600 250 13.2% 10.8% 12% 520.4 10.0% 461.7 453.7 9.7% 500 10%
359.4 200
400 315.4 8%
cps 150 300 6% 100
200 4% Revenue (R (R billion) Revenue 100 50 2% (%) Margin Operatinhg 80.1 97.9 117.4 134.9 229.1 243.4 260.7 263.3 0 0 0% 2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E
Source: Bloomberg, ProfileData Recommendation and target price The 12m target price (TP) reflects Bloomberg’s median target price and recommendations on Steinhoff International Holdings N.V. allocated by major institutional brokers. Bloomberg’s consensus median 12m TP is calculated at 9 623cps, implying a price return on the current share price (9 466cps) of 1.88%. The majority of brokers have given the group a BUY recommendation.
Please refer to the disclaimer at the end of this document 10 10
Stock Select Monthly – March 2016
Top 40 Share Price Movements
BTI SAB
100000 110000
80000 85000
60000 60000
40000 35000
20000 10000 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
BTI SAB
BIL CFR
43000 14500
35000 11500
27000 8500
19000 5500
11000 2500 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
BIL CFR
NPN AGL
255000 48000
195000 36000
135000 24000
75000 12000
15000 0 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
NPN AGL
MTN SOL
30000 73000
25000 61000
20000 49000
15000 37000
10000 25000 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
MTN SOL
Source: iNET BFA
Please refer to the disclaimer at the end of this document 11 11
Stock Select Monthly – March 2016
SBK FSR
20000 7000
17000 5500
14000 4000
11000 2500
8000 1000 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
SBK FSR
VOD OML
18000 5300
15000 4100
12000 2900
9000 1700
6000 500 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
VOD OML
APN AMS
50000 80000
38000 60000
26000 40000
14000 20000
2000 0 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
APN AMS
BGA SLM
23000 10000
20000 8000
17000 6000
14000 4000
11000 2000 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
BGA SLM
Source: iNET BFA
Please refer to the disclaimer at the end of this document 12 12
Stock Select Monthly – March 2016
NED SNH
30000 11000
25000 8500
20000 6000
15000 3500
10000 1000 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
NED SNH
REM BVT
42000 32000 34000 26000
20000 26000
14000 18000
8000 10000 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
REM BVT
SHP PSG 48000 24000 40000
20000 32000 24000 16000 16000
12000 8000 0 8000 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
SHP ANG
CPI RMH
65000 8000
50000 6500
35000 5000
20000 3500
5000 2000 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
CPI RMH
Source: iNET BFA
Please refer to the disclaimer at the end of this document 13 13
Stock Select Monthly – March 2016
MND NTC
5000 40000 4000 30000 3000 20000
10000 2000
0 1000 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
MND NTC
ITU MEI
9000 24000
7500 20000
6000 16000 4500
3000 12000 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Feb-16 Feb-16 Mar-16 Mar-16 Mar-16
ITU MEI
WHL RMI
12000 6000
9000 4500
6000 3000
3000 1500
0 0 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
WHL RMI
CCO INL
12000 13000
9000 10500
6000 8000
3000 5500
0 3000 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
CCO INL
Source: iNET BFA
Please refer to the disclaimer at the end of this document 14 14
Stock Select Monthly – March 2016
MRP TBS
32000 42000 24000 34000
16000 26000
8000 18000
0 10000 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
MRP TBS
DSY GRT
20000 3300 15000 2800
10000 2300
5000 1800
0 1300 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
DSY GRT
BAT FFB
20000 4000
15000 3000
10000 2000
5000 1000
0 0 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
BAT FFB
REI RDF
3700 1500
2900 1250
2100 1000
1300 750
500 500 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
REI RDF
Source: iNET BFA
Please refer to the disclaimer at the end of this document 15 15
Stock Select Monthly – March 2016
Mid- to Small Cap Focus
Thebe Stockbroking Analyst Share Recommendations
Price at Current 12 month target Ticker Latest Date of initiation Remaining share Company initiation spot price Growth2 price code recommendation1 of coverage price upside (cps) (cps) (cps) Afrimat AFT HOLD 16-Jul-15 1 889 2300 22% 2 734 19% ARB Holdings ARH BUY 14-Jan-13* 430 520 21% 674 30% Blue Label Telecoms BLU HOLD 23-May-11 460 1525 232% 1 407 -8% Clover Industries CLR SELL 15-Sep-12 1 100 1720 56% 1 827 6% Datacentrix DCT BUY 11-Jul-11 445 475 7% 769 62% Datatec DTC HOLD 28-Feb-11 3 487 4597 32% 6 706 46% Ellies ELI SELL 31 Jul 14* 835 78 -91% 88 13% EOH EOH SELL 26-Jan-11 1 700 14748 768% 14 133 -4% Pinnacle Technology PNC BUY 27-Nov-12 1 690 1491 -12% 1 796 20% Raubex RBX BUY 10-Jun-14 2080 1834 -12% 2 819 54% BUY: 12m target price (TP) produces a total return in excess of 15%, HOLD: 12m TP produces a total return from 5% to 15%, SELL: 12m TP produces a total return less than 5%. 2) Since initiation. *Transfer of coverage Source: iNET BFA, Thebe Stockbroking
Mid- to Small Cap - Company Focus ARB Holdings (ARH) - BUY
ARB Holdings Ltd 1H16 Results – Electrical segment outperforms
HEPS increased by 12% year-on-year to 27.79cps (1H15: 24.79cps). ARB Holdings maintained its dividend policy (maximum of 40% of NPAT for full year). Accordingly the Group did not declare an interim dividend. Revenue increased by 12% to R1.235bn (1H15: R1.099bn), due to improved performances by the Electrical (revenue increased by 12.2%) and the Lighting divisions (revenue increased by 19.8%). Gross profit increased by 12% to R277.0m (1H15: R247.1m), with the gross profit margin remaining relatively stable at 22.4% (1H15: 22.5%), although lower than in FY15 (24.05%), due to efficient product mix. EBIT increased by 11% to R108.3m (1H15: R97.7m) as operating expenses increased slightly ahead of revenue growth. The EBIT margin contracted 12pps from 8.89% to 8.77% (FY15: 9.13%). ARB Holdings remains ungeared with R190.9m cash on hand.
ARH share price relative to All Share Index Our Thoughts: Short term organic growth
650 In their Outlook Statement management indicated
630 that they expect market conditions to remain challenging in the foreseeable future. The low levels 610 of infrastructure investment, the decline in 590 manufacturing production, lower mining activity and 570 an abnormally volatile rand exchange rate represent 550 challenges to earnings growth for the Group.
cents per (cps) per centsshare 530 Management guided that the Electrical division has 510 experienced increased spending from the 490 municipalities on overhead lines. The Lighting 470 02/15 04/15 06/15 08/15 10/15 12/15 02/16 segment has managed to grow revenue significantly since consolidation and as a result the contribution ARH Relative ALSI to Group revenue has increased from 24% to 27%. Source: iNET BFA This solid growth trend in Lighting has absorbed some of the downward pressure in the Electrical Wholesaling segment, particularly in the cable product category. We expect this trend to continue until larger infrastructure expenditure programs commence.
Please refer to the disclaimer at the end of this document 16 16
Stock Select Monthly – March 2016
Recommendation: BUY maintained Our 12m TP of 638cps (previous 12m TP: 674cps) implies a 21% price return. We therefore maintain our BUY recommendation on ARB. ARB Holdings is a solid cash generator with an excellent track record. The Group has managed to display resilience in its growth performance in a relatively subdued economic environment. We remain of the opinion that ARB is a valuable counter to include in portfolios to gain from any anticipated long-term upturn in the local economy. However, given Eskom’s current power supply constraints and the absence of a clear macro-economic catalyst to drive significant growth, we believe that growth in the Electrical Wholesaling segment (the Group’s main contributor to revenue and profit) will remain negatively impacted in the near term. Investors should take note of the following: Working capital – The Group managed to maintain its working capital to revenue ratio at 20.9% (1H15:22.08%), in-line with its targeted 20% to 25% range. The Electrical division managed its cable stock levels well despite the volatile copper price combined with rand weakness and a strike at Aberdare Cables during the period that necessitated product sourcing elsewhere. - Inventory days declined significantly to 74.4 days (1H16: 90.3 days), in line with the Group’s traditional 70 days stock holding. Management indicated that the Group’s stock level is not at an optimal level and the divisions are working towards reducing stock levels over time to be aligned with demand. - Debtors days has increased to 55.5 days (1H15: 43.5 days) as the Electrical division perform the role of banker to OHL contractors as projects in this sector typically have a 60day payment period. The Group has taken out credit insurance through CIS to minimize its exposure to bad payments in the Electrical division. - Creditors days remain well managed at 50.4 days (1H15: 41 days) as management managed to align its extended debtor terms with its suppliers. Management guided to the unwinding of this extended working capital position during March and April 2016.
Copper price fluctuation – Management is monitoring Copper price in rand/tonne the Rand Copper price closely as fluctuations in the copper price could impact its business significantly. As a 93000 17.00 result of the manufacturing lead time of cable, there is 90000 16.00 15.00 normally a two month lag from commodity price 87000 fluctuation to product price impact. Management is 14.00 84000 therefore able to manage its stockholding more 13.00 effectively as fluctuations in the copper price could 81000 12.00 signal cheaper buying opportunities or alert 78000 management to potential overvaluation in stock. During 11.00 FY08 ARB Electrical incurred an R12m impairment on its 75000 10.00 12/13 05/14 10/14 03/15 08/15 01/16 R300m stockholding as a result of the copper price decline. Management expects that its impairment risk COPSA USDZAR
would be between R5m and R6m based on its current Source: iNET BFA R200m stockholding. While this impairment risk is of concern to management, the potential impact on margin over the next six months would cause greater distress. Electrical Wholesaling segment Electrical Wholesaling (contributed 80% to revenue and 59% to profits) revenue increased by 12.2% to R999.1m (1H15:R890.2m) due to increased municipal infrastructure spending on overhead lines. Management described the interim period as a period of two halves where the first quarter was very quiet with cause for concern, while the second quarter performance exceeded expectations as contractors rushed to finish projects in November ahead of the building holidays in December. Operating profit increased by 8.4% to R64.1m (1H15:R59.1m), while the operating margin contracted 20bps from 6.6% to 6.4%. Contingent liability – ARB Electrical Wholesalers received a summons in December 2015 as a third defendant from a major construction company totalling R78m. Management believes that there is no reasonable justification for the claim. Exclusive agency agreements – While trading new exclusive agency agreements is small, it is gaining momentum as adoption of products such as Copperweld are increasing as municipalities and Eskom see increased uses for its anti-theft earthing products. CHINT is now trading profitably, its contribution remains small as it its struggling to gain a foothold in the retail market because of its premium pricing placement. Competition in this product range has increased significantly to
Please refer to the disclaimer at the end of this document 17 17
Stock Select Monthly – March 2016
c.52 brands. The adoption of ACCC remains challenging as contractors with City Power sourced unpatented products from India instead of the specified ARB product. ARB Connect – Significant potential exists to expand further into Gauteng, Western Cape and the Eastern Cape through the hub-and-spoke model as we highlighted in our FY14 and FY15 Results Updates. Management has utilised the services of a retail geographer to identify the best locations for its expansion initiatives. Through this exercise management has compiled a Top 10 locations list to expand its geographic footprint. The division recently opened a store in Silver Lakes with store openings in Meadowdale and Diep River to follow. Although the Group has a significant footprint in Gauteng, mainly in Pretoria through its Paragon acquisition, it still lacks presence in the greater-Johannesburg area, specifically in the Central (Midrand, Waterfall), West Rand (Krugersdorp, Roodepoort) and East Rand (Boksburg, Benoni) areas. The Alrode branch could serve as a hub to stock all the major cabling needs (as it is currently the Group’s largest revenue contributor) while smaller spoke stores would serve the local communities with smaller items. Management envisions the optimal number of stores between 30 and 40 stores, with 8 to 10 stores in the greater Johannesburg, which could potentially see a relocation or expansion of its Alrode distribution centre. Outlook – Management expect short term opportunities for electrification projects in the near-term to continue. We believe that ARB Electrical remains well placed in this market as a distributor as it is not exposed to the misfortunes faced by the electrical cabling manufacturers with regards to depressed pricing combined with high labour costs, manufacturing inefficiencies caused by a lack in demand and potential Competition Commission fees outstanding. The current economic environment is creating opportunities for the division to source cabling at reasonable pricing as manufacturers offload production, although it expects margin pressure to stem from smaller electrical wholesalers dumping stock at lower prices to generate revenue. As there is currently no visibility in the market, with no signs of Eskom’s electrification projects resuming in the short term, management is being very proactive to find opportunities for growth. Lighting segment Eurolux (contributed 20% to revenue and 27% to profits) reflected 19.8% revenue growth to R255.9m (1H15: R213.5m) as a result of the increased distribution of new product lines and key customer gains. Operating profit rose 27.5% to R29.8m (1H15:R23.3m), while operating margin contracted 70bps from 10.9% to 11.6%. While the lighting division’s operating margin remains robust as its product offering is predominantly in the middle market, the current economic environment does expose it to down trading to the lower-end of the market. This risk is however mitigated somewhat by the top-end of the market trading down to Eurolux products. There is also opportunity for growth participating more aggressively in the projects sector to increase its brand power. Eurolux has done well in expanding its product offering into all the major retailers, such as BUCO (Iliad), Mica, Cashbuild, Massbuild and Built-It. Opportunity exists to roll out a more diversified range of products in its existing retail presence (commanding a larger floor space) as well as expanding into new branches both locally and cross-border as the retailers grow their branch network and ARB follows. The division continues to grow market share as it follows its existing customer base in their expansion endeavours, both in South Africa and cross border. Opportunities exist for further expansion into Cashbuild’s newly acquired P& L Hardware stores as well as additional distribution into Steinbuild (Pennypinchers) as the Steinbuild recently acquired Iliad (BUCO) which has been a valued customer of Eurolux. Eurolux concluded a joint venture agreement with Crabtree for the distribution of products (switch sockets, fittings and adaptors) to retail customers. While this agreement was originally signed as an exclusive distribution, one other competitor has gained rights to distribute Crabtree products in South Africa as well. Outlook – We expect the Lighting division to maintain its momentum growth through additional product extensions and the focussed targeting of key customers and markets. Corporate segment The market value of the Group’s property portfolio is valued at R181m. The portfolio currently consists of 16 properties. During the interim period the Group disposed of its Reuven (Industrial Cables) property for R8.2m, as its location was not optimal to ARB’s expansion strategy.
Please refer to the disclaimer at the end of this document 18 18
Stock Select Monthly – March 2016
Mid- to Small Cap Share Price Movements
Afrimat ARB 3300 900
2800 BUY 800 HOLD 2300 700 Upgrade to: Resumption 1800 600 BUY of coverage: HOLD HOLD 1300 500 BUY 800 400
300 300 02/01/13 02/07/13 02/01/14 02/07/14 02/01/15 02/07/15 02/01/16 02/01/13 02/07/13 02/01/14 02/07/14 02/01/15 02/07/15 02/01/16 AFT ARH
Blue Label Clover 1700 2220
1550 BUY 2050 Downgrade to: 1400 HOLD HOLD 1880 Downgrade 1250 to SELL HOLD 1710 1100 BUY BUY BUY BUY 950 1540 800 1370 650
500 1200 02/01/13 02/07/13 02/01/14 02/07/14 02/01/15 02/07/15 02/01/16 02/01/13 02/07/13 02/01/14 02/07/14 02/01/15 02/07/15 02/01/16 BLU CLR
Datacentrix Datatec 560 8400
500 7500 BUY Downgrade to: HOLD 440 6600
BUY 380 BUY 5700 BUY HOLD BUY 320 4800
260 3900
200 3000 02/01/13 02/07/13 02/01/14 02/07/14 02/01/15 02/07/15 02/01/16 02/01/13 02/07/13 02/01/14 02/07/14 02/01/15 02/07/15 02/01/16 DCT DTC
Source: iNET BFA; Thebe Stockbroking
Please refer to the disclaimer at the end of this document 19 19
Stock Select Monthly – March 2016
Ellies EOH 1200 21000 Downgrade to: 1000 17500 SELL Downgrade to sell 800 14000 HOLD HOLD 600 10500
400 7000 SELL
200 SELL 3500 SELL 0 0 02/01/13 02/07/13 02/01/14 02/07/14 02/01/15 02/07/15 02/01/16 02/01/13 02/07/13 02/01/14 02/07/14 02/01/15 02/07/15 02/01/16 ELI EOH
Pinnacle Raubex 2900 2800 HOLD 2500 2500 BUY 2100 2200
1700 1900 Upgrade to: BUY 1300 BUY BUY 1600 BUY BUY 900 1300
500 1000 02/01/13 02/07/13 02/01/14 02/07/14 02/01/15 02/07/15 02/01/16 02/01/13 02/07/13 02/01/14 02/07/14 02/01/15 02/07/15 02/01/16 PNC RBX
Source: iNET BFA; Thebe Stockbroking
Please refer to the disclaimer at the end of this document 20 20
Stock Select Monthly – March 2016
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Please refer to the disclaimer at the end of this document 21 21
Stock Select Monthly – March 2016
Disclaimer Certification The analyst(s) who prepared this research report hereby certifies(y) that: (i) all of the views and opinions expressed in this research report accurately reflect the research analyst's(s') personal views about the subject investment(s) and issuer(s) and (ii) no part of the analyst/s compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed by the analyst(s) in this research report. Rating & Risk Factor Definitions for Mid- to Small Cap Focus BUY: 12m TP produces a total return in excess of 15% HOLD: 12m TP produces a total return from 5% to 15% SELL: 12m TP produces a total return less than 5%
Risk Factor Red: Stocks outside of Top 40 than can be more volatile and low levels of trading liquidity.
“Small Cap”/”Mid Cap” Definitions & Prices
All companies outside of the Top 40 index on the JSE.
Every effort has been made to use JSE closing prices, market ratios, implied returns and all other market-related variables from the close of 29 March 2016. Despite this, we do not warrant the completeness or accuracy thereof.
Frequency of Next Update
This is a monthly report.
Conflict of Interest
It is the policy of Thebe Stockbroking (Pty) Ltd that research analysts March not be involved in activities in a way that suggests that he or she is representing the interests of Thebe Stockbroking (Pty) Ltd or its clients if this is reasonably likely to appear to be inconsistent with providing independent investment research. In addition research analyst/s reporting lines are structured so as to avoid any conflict of interests. For example, research analysts cannot be subject to the supervision or control of anyone in Thebe Stockbroking (Pty) Ltd sales and trading departments. However, such sales and trading departments March trade, as principal, on the basis of the research analyst/s published research. Therefore, the proprietary interests of those sales and trading departments March conflict with your interests.
Disclosures*
A. The analyst is an officer, board member, or director of the Company B. The Company is a client of Thebe Stockbroking (Pty) Ltd C. This research report has been communicated to the Company and following this communication, its conclusion(s) has been amended before its dissemination D. Analyst (s) holds long or short personal positions in a class of common equity Stockbroking of this company
Aspen D BHP Billiton D British American Tobacco D Compagnie Financière Richemont D MTN D Naspers D Reinet D Remgro D Richemont D SABMiller D Sanlam D Sasol D Shoprite D Steinhoff International Holdings D Vodacom Group D Woolworths D Previous Ratings This is a sector note. Legal Entities To South African Residents: Thebe Stockbroking (Pty) Ltd is an Authorised Financial Services Provider. General For the purposes of this report Thebe Stockbroking (Pty) Ltd refers to all employees of Thebe Stockbroking (Pty) Ltd. This research report is based on information from sources that Thebe Stockbroking (Pty) Ltd believes to be reliable. Whilst every care has been taken in preparing this document, no research analyst or employee or director of Thebe Stockbroking (Pty) Ltd gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy or completeness of the information set out in this document (except with respect to any disclosures relative to members of Thebe Stockbroking (Pty) Ltd and the research analyst/s involvement with any issuer referred to above. All views, opinions and estimates contained in this document March be changed after publication at any time without notice. Past performance is not indicative of future results. The investments and strategies discussed here March not be suitable for all investors or any particular class of investors; if you have any doubts you should consult your investment advisor. The investments discussed March fluctuate in price or value. Changes in rates of exchange March have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Employees of Thebe Stockbroking (Pty) Ltd and/or their respective directors’ March own the investments of any of the issuers discussed herein and March sell them to or buy them from clients on a principal basis. This report is intended solely for clients and prospective clients of Thebe Stockbroking (Pty) Ltd and is not intended for, and March not be relied on by persons to whom this report March not be provided to by law. This report is for information purposes only and March not be reproduced or distributed to any other person without the prior consent of a member of Thebe Stockbroking (Pty) Ltd. Unauthorised use or disclosure of this document is strictly prohibited. By accepting this document, you agree to be bound by the foregoing limitations.
Please refer to the disclaimer at the end of this document 22 22