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Cape Town - Overberg Asset Management share analyst Kirk Swart looks at notable companies to watch following recent results in this week's five shares to watch.
1. Pick n Pay [JSE:PWK]
Pick n Pay is still in the process of implementing their turnaround strategy. For the financial year ending 2017, Pick n Pay increased diluted Headline Earnings Per Share (HEPS) by 17%. An impressive part of the results is that costs were contained excellently. Like for like operating costs were up only 3%.
Pick n Pay managed to grow sales by 7% on a like for like basis. Price inflation was 6.1%. This is very slow growth for a company trading on a price earnings ratio of 23.
Therefore, investors in Pick n Pay will place hope on the strategy to refurbish old stores and aggressively open new stores. The new stores will need to be opened in better locations that give them access to the ever-changing South African consumer landscape.
2. Sun International [JSE:SUI]
Sun International reported a decline in adjusted HEPS of 35% for the six months ending December 2016. The inclusion of the Latin America mergers, via Dream SA and the GPI slots resulted in a 31% increase in revenue. However, the inclusions come with increased costs lower down the income statement leading to the decline in HEPS.
The economic conditions in both South Africa and Latin America is reflected in the results. South African casino revenue dropped by 2.7% while the Latin America revenue only grew by 1% in their local currency.
Investors in Sun International will place their faith in management’s ability to successfully integrate the Latin America business into the group and cut costs going forward. When economies are slowing down, casino and leisure companies often feel the pain.
3. Capitec [JSE:CPI]
Capitec might well be the most expensive bank in the world but at the same time might very well be one of the most innovative. For the financial year 2017, Capitec managed to grow diluted HEPS by 18%. Clients grew 18% and total retail funding grew 27%. At Capitec's current valuation there is a lot of growth priced in.
Where other banks in South Africa mostly compete in the established traditional banking market, Capitec has grown outside of that market. Having a very low market share and a very underdeveloped credit card offering, Capitec can still grow and take up market share.
Capitec is also willing to grow their offering outside of South Africa. Capitec took up a 40% stake in Cream Finance, a leading European online lender. The payment of €21m, will be made in three tranches over nine months.
4. Aspen [JSE:APN]
Recently it came to light that Aspen failed to disclose a €5.2m from the Italian competition authorities. The company said that due to the amount being insignificant they did not make a SENS announcement.
The fine came due to some pricing irregularities for cancer drugs.
Two British newspapers, The Times and The Independent reported that in 2014, Aspen wanted a 4 000% increase in prices or it would’ve stopped supplying Spain the needed drugs. Aspen's share price declined by 4% on Tuesday after the reports were published.
5. Oceana [JSE:OCE]
The fishing group saw their share price down by 3.56% on Friday after issuing a voluntary trading statement. Basic earnings per share for the six months ending March 2017 are bound to decrease between 15% and 18%.
The company states that the losses are primarily due to foreign exchange contracts that they held to cover the imports of frozen fish. This is a great example of how political uncertainty is forcing companies to hedge their foreign exchange exposure. Oceana and the like will benefit hugely from more political certainty that will provide greater exchange rate certainty.
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