Post on 03-Jan-2016
description
Stefan Ampenberger (1908 - 1983), detail from “The Red Sun”, oil on board, Sanlam Art Collection.Stefan Ampenberger (1908 - 1983), detail from “The Red Sun”, oil on board, Sanlam Art Collection.
FIA Meeting16 October 2012
Economic reality
IFO world economic climate survey
Recent trends/themes
Cheap shares became cheaper
and relatively expensive shares remained expensive
Global laggards cheap and underperforming
Global equities sideways but volatile
Asset performance driven by risk-off or risk-on
Globally: risk-on and risk-off dictating
Correlation can remain high for sustained periods
All about expectations
Policy measures and earnings expectations
Earnings expectations – 2012
Source: JP Morgan
Where do we invest OPM?
Common answer...
In assets where the value appreciate
US bonds – multi-year bull market
Source: I-Net
US bonds – multi-year bull market
Source: I-Net
Global Sovereigns do not p
rovide the rig
ht answer
Global Equities
Pattern
Sideways with short cycles
Source: I-Net
Price
Valuation – methodologies differ
Source: Case Shiller
US equities – valuation from all angles
Valuation Metric Current Value
Long term Ave
Avg. Since 1991
Trailing PE 16.3 15.5 25.3
Normalised PE 24.3 18.0 29.7
Forward PE 15.4 14.9 23.7
Forward DY 2.3 4.5 2.1
ERP 4.11 4.23 0.99
US equities multi-year lows versus bonds
Source: Case Shiller
US equities multi-year lows versus bonds
Source: Case Shiller
Preferred Asset class
... and property?
Expectations look reasonable
A local update
Macro context
SA GDP – trend heading in the wrong direction
Source: I-Net
Rand weakness – SA unique problems
Source: I-Net
Pattern
JSE All Share – cyclical bull market
Source: I-Net
Price
ALSI valuation, fair but...
Source: I-Net, SPI
The value dilemma in SA
Sector/Share FY1 Consensus Earnings growth
FY1 spot earnings growth
Gold sector 32% 42%
Platinum sector 23% -51%
Sasol -3% 37%
Anglo American 3% -15%
Billiton -1% -12%
Resource Sector 6% -5%
Commodity prices – visible response to tough environment
Source: I-Net
Copper – very muted response
Source: I-Net
FINDI earnings – lower PMI suggest pressure
Source: I-Net
Case for positive but subdued returns
A few share thoughts
Share A – R2 to R155
Source: I-Net
MTN – investment case summary 9-Oct-2012
• Diversified portfolio of businesses in growing economies
• Penetration levels are low
• Attractive dividend yield with an outlook for increased
dividend pay-outs
• Strong balance sheet with R7.7bn as at 30 June 2012
• Current price of R151 is a discount to our fair value of
R175
MTN – diversified portfolio in growing economies
MTN – capex and cash profile
Share B – a clear winner
R5
R162
Source: I-Net
Shoprite – a winner but priced accordingly
Source: Bloomberg
Price to sales ratio
Shoprite’s success story
Source: Bloomberg
Share C – should we forget about this one?
Source: I-Net
Astral – quality in tough industry
• Delivering through the cycle returns of circa 30%.
• Through the cycle intrinsic value R200.
• Trading around R100
• Delivered high quality earnings
• Good dividend payer historic dividend yield of 7.9%.
• 10 year average dividend yield is above 6%.
• Expected 2012FY dividend yield of 6.3% in extremely tough operating environment
Astral – look through the cycle
• The short term results expected to be poor
• regional oversupply
• increasing imports from Brazil
• high input cost inflation
• FMCG retail sector playing the producers off against each other.
• Medium term balance likely to return
• weaker producers out
• demand catches up with supply
• possible increase in tariffs on imports
• input costs pressures moderate
Astral – play on “normal” margins
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
Astral operating profit margins
Feed
Overall
Poultry
Conclusion
• Tough macro environment
• No long term alternative – embrace risk
• Equities likely to move modestly higher – volatile
• Property remain important building block
• Volatility a friend rather than enemy of long term investors