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Cape Town - Overberg Asset Management share analyst Kirk Swart looks at notable results and corporate action in this week's share watch.
1. Mr. Price [JSE:MRP]
With the South African retail sector in recession due to poor economic growth, companies like Mr. Price has struggled to deliver good financial results. For the year ending March 2017, Mr. Price reported a 12,3% decline in Headline Earnings Per Share (HEPS). Not only did bottom line earnings drop, reported sales were merely up 0.7% to R19.8bn, with retail sales decreasing 0.5%.
READ: Mr Price shares surge despite first earnings slump in 16 yrs
On a positive side, cash generation was strong increasing 131% for the year. This allowed Mr. Price to keep their dividend stable at R6,67. Due to the weak results and the low base effect, Mr. Price is trading on a forward P/E of 14.7. Value investors who are not scared of macro numbers might want to look at Mr. Price.
2. Famous Brands [JSE:FBR]
The South African fast food market has seen a lot of competition entering of late. Despite the increase in competition and struggling economy, Famous Brands managed to deliver a solid set of results. Revenue increased 33% with HEPS increasing 13% for the year ending 28 February 2017. Organic growth was strong with recent acquisitions being integrated relatively successfully.
During the reporting period, Famous Brands made seven acquisitions and joint ventures:
- Gourmet Burger Kitchen in the UK
- A joint venture with Salsa Mexican Grill, Lupa Osteria and Catch.
- A 49,9% stake in By Word of Mouth
- Lamberts Bay Foods; and
- Coega Concentrate.
Famous Brands is trading at a P/E ratio of 31 times. This suggests that the market is still backing Famous Brands to keep on delivering good results despite the tough trading conditions.
READ: Famous brands enters Ghana, exits three African countries
3. Toyota
The Japanese car making giant has sold all its stake in Tesla motors. This is part of a strategic move from Toyota as Tesla has become more of a competitor than an ally. Back in 2010, Toyota bought a 3% stake in Tesla for $50m. Part of the deal included the sale of Toyota's assembly plant in Fremont, California.
Toyota will more than likely be competing with Tesla in the electric car industry for years to come. It is also well known that the two companies have complete opposite corporate cultures. Toyota the more conservative versus the more entrepreneurial Tesla.
Toyota shares have had a year to date return of negative 13,3%. The shares are trading at a P/E ratio of 8,86 times.
4. Transaction Capital [JSE:TCP]
Transaction Capital is a non-deposit taking financial services group operating in the South African Taxi market and the risk services market. The biggest division of Transaction Capital is the SA Taxi division. The division supplies financing to taxi operators, enabling them to successfully buy and run a minibus taxi business.
Due to the non-deposit taking nature of the business, it is a riskier credit extension model compared to a deposit taking model. However, the risk seems to be paying off. For the six months ending 31 march 2017, Transaction Capital managed to increase core HEPS by 17%. Dividends increased by 25%.
Transaction Capital is trading on a P/E ratio of around 17 times.
5. Telkom [JSE:TKG]
Telkom is Africa's largest communications company and the biggest fixed line operator in South Africa. For the year ending 31 March 2017, Telkom delivered reasonable results given the tough economic climate. Telkom reported operating revenue which was up 9,8%. Earnings before interest dividends and amortisation was down 0,3%.
READ: Telkom raises dividend 56% as carrier enters next growth phase
The biggest growth area for Telkom was Mobile revenue which was up by 38,4%. HEPS increased by 12,4%.
Telkom is trading at a P/E of 13 times.
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.
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