SIMON BROWN: I’m chatting in now with Chantal Marx, head of research at FNB Wealth and Investments. Chantal, I appreciate the early morning.
You’ve put out a list of five local and five offshore stocks you like. Let’s stick to the local today. They are Richemont, Kal Group which used to be Kaap Agri, African Rainbow Capital Investments which owns Rain and TymeBank, Afrimat which is trying to buy Lafarge, and Bidcorp.
I’m not going to have time for all of them, but let’s start off with Bidcorp. This was of course spun out of Bidvest and really has had a terrific period on the market and is a nice business. It is well put together, good growth, some organic, they do clever bolt-on acquisitions and a stock you’re liking a lot.
CHANTAL MARX: Yes. We’ve been Bidcorp fans ever since the unbundling – and probably before the unbundling as well, probably liking Bidvest a bit less without Bidcorp. It’s just so well positioned, as you mentioned, and the biggest thing for me is that it trades in a very fragmented market still. So even though they’ve been trading for years and years and years and years, there aren’t a lot of very big players and there are a lot of small players, which means that opportunities for those bolt-on acquisitions exist. They are so good at doing it – they seamlessly integrate these businesses into the bigger platform.
I still think that there is room for growth in travel and entertainment. People haven’t forgotten about the lockdown and how terrible it was. I think that there’s still a sense among people globally that they want to get out there – and Bidcorp really services restaurants. They service hotels, they service catering businesses. These are the businesses that I think can still benefit from that return to entertainment, particularly in catering, which hasn’t really fully recovered after Covid-19.
SIMON BROWN: Then Afrimat. You mentioned deal making, which Bidcorp does. Afrimat is perhaps the king of deal making, Andries van Heerden and his team. The stock has run but is still not expensive. A forward PE of under eight times. The Lafarge deal is waiting for some sort of i’s to be dotted and Ts to be crossed. But this really has been a stellar performer on the market and you’re saying it is still offering some value with a very strong balance sheet.
CHANTAL MARX: Yes. I think a company with a track record like Afrimat should not be trading on a forward PE of eight. I think that a lot more can be assigned to a company with a management team with a very strong track record of making super-good acquisitions, and which is also growing the business organically against a very, very difficult macroeconomic backdrop. Its core business back in the day was construction materials, and we haven’t seen big, massive product rollouts and infrastructure investments in South Africa in a very long time. They did the right thing by making those acquisitions, but that didn’t mean that the core business really suffered as a result or was exceptionally poor. They still managed to do good business in that area.
I really like the Lafarge acquisition. I think it’s going to complement that construction materials business quite well.
Our infrastructure is literally crumbling before our eyes, so I think that they could be a key beneficiary of a forced infrastructure investment at this point.
And then you have that complementary bulk commodities business that just offsets any sort of weakness in construction materials, or potentially that detracts a little bit. But I think that through the cycle it’s a really nice suite, though.
SIMON BROWN: And then talk to me about African Rainbow Capital investments. As I said, the big ones we know from them are Rain and TymeBank. It’s a holding company that brings BEE credentials to the companies it holds and trades at massive discount to net asset value.
CHANTAL MARX: Yes. This is despite management having threatened to delist the company because of that discount. So if you’re thinking, well, maybe management will actually delist the company, you could expect a really solid payday based on the net asset value of African Rainbow Capital. If it doesn’t do it, you have two very strong growing businesses that are gaining scale at an exceptionally high pace that will probably over time deliver the goods to the extent that that discount will start narrowing, or it will just grow in line with the net asset value of these really, really strong investments.
I think a really nice catalyst for Africa Rainbow Capital could be that TymeBank is now profitable, so it’s no longer detracting from a cashflow perspective. I think that that’s really great.
I think the stuff that they’re doing in Southeast Asia is super interesting. And I think that Rain also moving into voice and becoming a bit more of a well-rounded mobile services provider could be very good for them as well.
The smaller businesses are also great, the smaller investments. Alexander Forbes is one of their investments, and we know Alexander Forbes has done a lot over the last few years.
SIMON BROWN: I’d actually forgotten about their Southeast Asia. That’s a little embarrassing. But yes, it’s a really great space.
A quick last one. The Kal Group used to be Kaap Agri. I’ve got to say that’s one that really stood out for me. The likes of Richemont makes perfect sense. Kaap Agri I would have thought very much more tied to farming; perhaps the great harvests from the rainy seasons are behind us. You say no, hang on a second, there’s some value here.
CHANTAL MARX: Simon, firstly on the agriculture space we know that we are moving from a La Niña weather pattern to an El Niño weather pattern, which tends to be drier. But expectations are that it’s going to be a short El Niño period, so it’s not going to be a long kind of period of drought with below-average rainfall. And because we’ve had these periods of La Niña and a lot of rainfall, our soil moisture levels are still quite high in South Africa, which means that harvests are expected to be quite good. This year we still expect a really good outcome from the agri sector, so they’ll benefit from that.
And then they made a transformative acquisition a few years ago. They bought a fuel retailer called Peg, and they own a bunch of kind of petrol stations across South Africa. I know that’s very contentious at the moment with dieselgate that we have, but they trade under reputable brands and have these massive forecourts with restaurants and all the rest of it, and they’re continuing to improve that service offering. I think that that’s a really solid business for them, particularly in the retail space with the forecourts. We know that with fuel retail you don’t make a lot of money, but it’s all the rest that really does well for you.
SIMON BROWN: You pop into that little shop and you can quickly spend a pile of cash.
We’ll leave it there. Chantal Marx, head of research at FNB Wealth and Investments, I always appreciate the insights.
