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European exposure the focus in 5 shares to watch

Aug 04 2015 16:05

Cape Town - European equities are in play in this week's five shares to watch, according to Kirk Swart of Overberg Asset Management.

He said a few weeks ago the world was fascinated by the probable exit of Greece from the eurozone. Local and European markets pulled back on the possibility of a Greece exit. Fear of negative contagion was everywhere. All over economists were giving high probabilities of a Grexit. Some economists attached probabilities as high as 85%.

"Fast forward a few weeks and we find that Greece has not left the eurozone and has reached a short term agreement with its creditors. What many of the experts and so called economists failed to factor in, is that Germany has an export driven economy and, therefore, relies on a weak euro," said Swart.

A Greek exit would have left the euro much stronger and the German exporters worse off.

"This is a typical prisoner's dilemma example in which no party is better off by having Greece exit the eurozone," said Swart.

"With a weak euro, low rates and a bond buying programme which is scheduled to end in September 2016, European equities, at their current valuations, appear to be offering value. With European growth also picking up slowly, this week's five shares will focus on shares with European exposure." 

Swart'sfive shares with interesting actions for the week ahead:


Mediclinic [JSE:MDC] is a globally diversified private hospital group with operations in three regions. These regions are Southern Africa (Namibia and South Africa), Switzerland and the Middle East. In Southern Africa it has around 7 885 beds in over 52 hospitals.

In the Middle East, via its controlling share in Emirates Healthcare, it has two hospitals and 10 clinics with 382 beds and in Switzerland, via the Hirslanden group, it has 16 hospitals with 1 655 beds.

"More than 50% of Mediclinic's revenue is being generated offshore, which offers a good rand hedge. Trading at a price-earnings multiple of 22, Mediclinic might seem expensive at the current earnings potential. However, Mediclinic has recently finalised a rights issue raising R10bn, which will help to fund the purchase of a 29.9% stake in Britain's second largest private hospital group Spire," said Swart.

"With an aging population we can expect significant revenue growth going forward for Mediclinic." 


Steinhoff [JSE:SHF] is an international retailer with stores in South Africa, Africa and Europe. In Europe it operates across eight countries and has 276 stores.

Steinhoff is on a growth path to become one of the biggest retailers in Africa and Europe. With its core business being furniture retail, Steinhoff has recently acquired the Pepkor group, which offers diversification outside of furniture. Pepkor also has stores outside of South Africa, namely in Australia and Eastern Europe.

"The Pepkor acquisition was by no means cheap, but it offers Steinhoff increased exposure outside of South Africa into the European continent. With Steinhoff moving its primary listing to Frankfurt, Germany, expect more capital raising in the future as Steinhoff grows into a worldwide multinational giant.
Steinhoff is trading at a price-earnings multiple of 19," said Swart.

JSE Limited

Even though the JSE Limited [JSE:JSE] does not have a direct exposure to the European landscape it does offer European investors a gateway into Africa. With all the liquidity being created by the European Central Bank (ECB) with the asset buying programme, the JSE stands to benefit, in Swart's view.

"In such a low interest rate environment, foreign investors have remained net buyers of South African equities as their search for yield continues. The JSE Limited is trading at a price-earnings multiple of 20.2," he said.


The Spar group [JSE:SPP] owns various Spar retail and Tops liquor stores nationwide. Not only does it own the stores, it also owns the distribution centres that supply and service those retail outlets. Outside of food and household supplies, Spar also serves the hardware sector via its Build-It brand.

Outside of South Africa, Spar International is operating in 40 countries across Asia, Africa and Eastern Europe. Spar's Ireland and South-West England divisions are already contributing over 20% to group revenue.

DBX Euro

The Deutsche Bank Euro-Tracker Index, is an exchange traded fund (ETF) comprising the 50 market leading eurozone companies. This ETF can be traded on the JSE under the code DBXEU. The fund includes companies like Sanofi, Total SA, Siemens, and Daimler.

"The DBX tracker offers South-African investors a low cost effective way to diversify their investment portfolios across geographical regions without having to tap into the offshore allowance. The price is quoted in rand and the index can be bought in rand," said Swart.

Underlying is a dividend yield of 1.3%.

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.

pepkor  |  spar  |  steinhoff  |  mediclinic  |  equities  |  share watch  |  markets

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