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Health stocks in play in 5 shares to watch

May 25 2015 10:57

Cape Town - Health stocks are in play in this week's five shares to watch.

Brett Birkenstock of Overberg Asset Management highlights the five shares with interesting actions for the week ahead:

Richemont [JSE:CFR]: The year-end results were below market expectations, impacted by slowing sales and rising costs exacerbated by the currency effect of the strong Swiss franc. Unfortunately the peer group of luxury goods companies have reported slightly disappointing results over the past week. Burberry shares fell around 6% in the UK upon release of weaker than expected numbers. A positive development for Richemont is that Goldman Sachs added the share to its conviction buy list.

Mediclinic [JSE:MDC]: The year-end normalised diluted headline earnings per share increased by 9%. Unlike Richemont the strong Swiss franc has been a tailwind for Mediclinic. The stronger currency does not impact competitiveness since Swiss costs are not exported out of Switzerland. However, there was concern over the slight decline in overall group-level profit margins. The market tends to be unforgiving with highly rated shares. Mediclinic trades on an estimated forward price to earnings multiple of around 26x.

Aspen [JSE:APN]: Africa’s biggest generic-drug maker entered into two separate deals selling some of its pharmaceutical portfolios in Australia raising A$265m and in Mauritius raising US$92m. The market is cheering the deals with a strong run-up in the share price over the past week. Although the deals were transacted at respective price earnings multiples of 14.1x and 10.5x which is well below Aspen’s estimated forward price to earnings multiple of around 30x, the deals are in line with the company’s strategy of reducing debt and focusing on sectors with greater potential for added value.

The Spar Group [SPP]: The group reported solid interim numbers showing a 22.4% increase in headline earnings per share. Turnover increased by a substantial 40.7% boosted by the inclusion of Irish based BWG. The interim dividend increased 22.6%. While management cautioned that South Africa’s trading conditions may be impacted by higher maize prices and electricity outages, the market appears encouraged by the group’s prospects and successful diversification into Ireland. BWG has been successfully integrated.

Coronation [JSE:CML]: Diluted headline earnings per share fell by 10% for the interim period. The results were impacted by a decline in performance-related fees and the base effect of exceptional growth in the comparative period. Funds under management increased by 8% to R636bn. Coronation has a market capitalisation at just over 5% of funds under management which is quite high compared to its long-term historic average. Although the share appears reasonably priced on an estimated forward price to earnings multiple of around 14.5x and forward dividend yield of around 6.8%, both are susceptible to any correction in equity markets. The company has a 100% dividend pay-out ratio policy which means dividends may be volatile.

Agree with Brett's stock picks? Send us yours and why.

* Brett Birkenstock is a director 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.

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