Publications
Partners
Cape Town - Kirk Swart of Overberg Asset Management's weekly list of five shares to watch focuses on noteworthy newsmakers with positive developments.
1. Sibanye Gold [JSE:SGL]
Sibanye Gold, the largest individual producer of gold in South Africa, September 9 announced that it will be buying Anglo American Platinum's [JSE: AMS] three Rustenburg mines (Bathopele, Siphumelele and Thembelani) and two concentrating plants as well as an on-site chrome recovery plant.
The deal sees Sibanye make an upfront payment of R1.5bn and a deferred payment which equals 35% of free distributable cash flow per annum. The deferred payment will not be less than R3bn and will be paid over six years.
This means that Amplats will receive a minimum of R4.5bn for the sale, which is below their own net asset value estimate of R7.7bn.
Sibanye will introduce a BBBEE stakeholder, it will own 26% of the assets purchased and Sibanye the remaining 74%.
Sibanye is buying a platinum mine at a time when the platinum industry as a whole is under pressure with raising costs and a low platinum price of less than a $1 000 per ounce.
If Sibanye can run these platinum assets profitably, they will become a shining light in a dark industry. And if they can do it, so can all the other platinum miners. The platinum industry, and South Africa, needs this.
2. Discovery [JSE:DSY]
The 2015 financial year was a very successful one for Discovery. Not only did they have a successful right issue at R90 per share, but they were also awarded the Bankmed Medical Scheme which helped new business grow by 51%. The rights issue will be used to fund growth opportunities in the UK as well as a number of South African opportunities.
Discovery is competing globally and is actively rolling out its Vitality rewards programme in the UK where physical activity is rewarded through a “real time rewards chassis, with Starbucks as a reward partner”.
This shows Discovery's proactive attitude to getting its members healthy and staying ahead of its competition. In another innovative scheme, Discovery recently collaborated with Apple to bring its members active rewards via their Apple watches. There is also talk that Discovery might enter the retail banking sector.
For the year ending June 2015, Discovery grew embedded value by 21% to R52.3bn. This equates to R82.29 per share. Normalised diluted headline earnings were up 14% to R6.63 per share, while normalised profit from operations grew by 17% to R5.789m.
Trading at R129, Discovery is trading at a premium of 1.56 times embedded value at a price to earnings ratio of 15.
3. Spur [JSE:SUR]
The Spur Corporation offers a lot more than just a R25 breakfast and a free burger on Mondays. In fact, other than the Spur restaurant, it owns various other profitable restaurants such as Panarottis, John Dory's and the Hussar Grill.
It also has the lesser known Captain DoRegos in its stable and has recently bought a 51% stake (not steak) in RocoMamas. RocoMamas is a dining restaurant offering hand-made burgers, ribs and wings. RocoMamas is largely Gauteng-based and has room to grow nationally. This will surely happen as part of the Spur Corporation.
Outside South Africa, Spur operates in Africa, Australia, and the United Kingdom. They have recently released a decent set of results for the year ending June 2015. Despite consumers being under pressure, Spur managed to grow restaurant sales by 12.1% and profit by 10.8%.
Dividends also increased by 9.1% to R1.32. Trading at a price to earnings ratio of 23.2, Spur offers a dividend yield of 3.2%.
4. Super Group [JSE:SPG]
Despite all the negative sentiment surrounding South Africa, Super Group managed to deliver a good set of results for the year ending June 2015. They managed to increase their revenue by 38.6%, which can be attributed to good performances in the South African supply chain businesses, Dealership SA, and the inclusion of Allen Ford (UK) for the seven months to June.
Super Group's good performance is indicative of how South Africa is still very much reliant on road transport as rail transport is still lagging. Profit before tax for all South African operations grew by 21% year-on-year.
Super Group recently announced that it has concluded a deal in which it will acquire 75% of the share capital of Telo Zwei Vermögensverwaltung, which is the holding company of German Logistics specialist IntIME. This deal will see Supergroup expand its offshore operations. A rights offer of R900m was underwritten for this purpose.
Super Group is trading at a price to earnings ratio of 12.
5. Wescoal [JSE:WSL]
Wescoal is a company that mines, processes and supplies coal to local clients in the power generating, manufacturing and petro-chemical industries. Wescoal has recently secured a short-term deal to supply 221 000 tons of coal to Eskom from its Elandspruit operation.
This follows a short-term contract signed in May that sees Wescoal supply 190 000 tons of coal to Eskom from its Khanyisa and Intibane mines. According to Wescoal, the deal represents an “upturn in mining activities and revenues”.
Outside of the Eskom deal, Wescoal has operations in Gauteng, KwaZulu-Natal, the Eastern Cape and the Western Cape. Trading at a share price of R1.35 leaves Wescoal on a price to earnings ratio of 8.8.
Agree with Kirk's stock picks? Send us yours and why.
* Kirk Swart is an analyst at Overberg Asset Management (OAM), an Authorised Financial Services Provider (No. 783) which specialises in the private management of local and global discretionary portfolios as well as pension products.
Disclaimer: The above article does not constitute financial advice and is not a recommendation. Investors must always seek the advice of professionals and trade with caution. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
