Publications
Partners
Cape Town - Overberg Asset Management analyst Kirk Swart says high end consumers are starting to feel the economic slowdown in this week's five shares to watch.
1. Mediclinic [JSE:MDC]
Mediclinic recently released its half year results for the 2016/17 financial year. Although operating profit was up 10%, underlying earnings per share was down 26% in sterling terms. The drag on earnings can be largely attributed to the groups Middle East exposure. The group are still integrating the Al Noor group into operations and this will take time.
Investors sold the share heavily, trading at around R138, after it reached highs of R218 in June. With any big acquisition, patience is needed and investors will only see the synergies in future years.
2. Woolworths [JSE:WHL]
Shares that have exposure to the South African retail sector have struggled of late. As mentioned in my previous share watch articles, when an economy is expected to grow at 0%, retailers cannot possibly do well. Woolworths has for the most part been immune to this as their target market is a wealthier consumer that has a lower spending elasticity in tough times.
Unfortunately, in the recent trading update, it seems that the slow economic conditions are even impacting Woolies.
READ: H&M, Cotton On expose SA retailers on price, fashion - analyst
The Australian side of the business was also very lethargic and didn't bail out the slow South African side as investors would’ve hoped. However, as with Mediclinic, investors should exercise patience as the underlying business is solid and the Australian integration won't be without growing pains.
3. Richemont [JSE:CFR]
Richemont, a favourite among many investors, reported a decline in headline earnings per share for the interim period of 52.4%. Revenue declined by 12.6% and trading profit was lower by 42.6%.
Like Woolworths, Richemont caters to a wealthier consumer and has historically been immune to economic downturns. However, the continual decline in economic conditions are now starting to show in the results of the higher end retailers. Watches, which are responsible for 28% of sales, saw revenue decline by 17.4%. Jewellery, which contributes 54% to sales saw revenue drop by 13.3%.
READ: Richemont announces changing of the guard amid profit plunge
4. Redefine Properties [JSE:RDF]
Any investment portfolio needs some property exposure. With some blue chip shopping malls in its portfolio, Redefine is an attractive long term investment for investors that want some property exposure. For the year ending 31 August 2016, Redefine increased their distribution by 8% in the second half of the financial year. Full year distribution increased by 7.5% to 86 cents. Trading below R7 places Redefine on a distribution yield of 12%. This is a very attractive alternative yield and compares well to yields currently offered by preference shares.
READ: Reits shine among JSE’s most empowered companies
5. Santova [JSE:SNV]
Santova is a logistics company that keeps growing their offshore exposure. Their offshore diversification strategy helped to increase normalised headline earnings per share by 15%. Stripping out acquisition growth, Santova grew normalised headline earnings per share by 9%. Santova sits with cash on its balance sheet of R100m and will probably use this to pay off much of its debt. With lower debt, expect Santova to start increasing their pay-out yields.
Do you agree with Kirk's stock picks? Send us yours and tell us why.
* Kirk Swart is an analyst at Overberg Asset Management, 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.
