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FIA Meeting
16 October 2012
Stefan Ampenberger (1908 - 1983), detail from “The Red Sun”, oil on board, Sanlam Art Collection.
Economic reality
IFO world economic climate survey
Recent trends/themes
Cheap shares became cheaper
and relatively expensive shares remained expensive
Global laggards cheap and underperforming
Global equities sideways but volatile
Asset performance driven by risk-off or risk-on
Globally: risk-on and risk-off dictating
Correlation can remain high for sustained periods
All about expectations
Policy measures and earnings expectations
Earnings expectations – 2012
12
10
8
6
3Q
4
4Q
2
0
-2
-4
Europe
Source: JP Morgan
US
Where do we invest OPM?
Common answer...
In assets where the value appreciate
US bonds – multi-year bull market
Source: I-Net
US bonds – multi-year bull market
Source: I-Net
Global Equities
Pattern
Sideways with short cycles
Source: I-Net
Price
Valuation – methodologies differ
Source: Case Shiller
US equities – valuation from all angles
Valuation Metric
Current
Value
Long term Avg.
Ave
Since
1991
Trailing PE
16.3
15.5
25.3
Normalised PE
24.3
18.0
29.7
Forward PE
15.4
14.9
23.7
Forward DY
2.3
4.5
2.1
ERP
4.11
4.23
0.99
US equities multi-year lows versus bonds
Source: Case Shiller
US equities multi-year lows versus bonds
Source: Case Shiller
... and property?
Expectations look reasonable
A local update
Macro context
SA GDP – trend heading in the wrong direction
6
5
4
3
2
1
0
-1
-2
SA GDP %
Source: I-Net
Rand weakness – SA unique problems
Source: I-Net
Pattern
JSE All Share – cyclical bull market
Source: I-Net
Price
ALSI valuation, fair but...
Source: I-Net, SPI
The value dilemma in SA
Sector/Share
FY1 Consensus
Earnings growth
FY1 spot
earnings growth
Gold sector
32%
42%
Platinum sector
23%
-51%
Sasol
-3%
37%
Anglo American
3%
-15%
Billiton
-1%
-12%
Resource Sector
6%
-5%
Commodity prices – visible response to tough
environment
Source: I-Net
Copper – very muted response
Source: I-Net
FINDI earnings – lower PMI suggest pressure
Source: I-Net
Case for positive but subdued returns
A few share thoughts
Share A – R2 to R155
Source: I-Net
MTN – investment case summary 9-Oct-2012
• Diversified portfolio of businesses in growing economies
• Penetration levels are low
• Attractive dividend yield with an outlook for increased
dividend pay-outs
• Strong balance sheet with R7.7bn as at 30 June 2012
• Current price of R151 is a discount to our fair value of
R175
MTN – diversified portfolio in growing economies
MTN – capex and cash profile
35
50
30
40
30
25
20
20
10
15
0
10
-10
5
-20
0
-30
Capex
Net (Debt)/Cash
Share B – a clear winner
R162
R5
Source: I-Net
Shoprite – a winner but priced accordingly
Price to sales ratio
Source: Bloomberg
Shoprite’s success story
9
45
8
40
7
35
6
5
30
4
25
3
20
15
1999
2
1
2000
2001
2002
2003
2004
2005
ROE
Source: Bloomberg
2006
2007
P/B
2008
2009
2010
2011
Share C – should we forget about this one?
Source: I-Net
Astral – quality in tough industry
•
•
•
•
•
•
•
Delivering through the cycle returns of circa 30%.
Through the cycle intrinsic value R200.
Trading around R100
Delivered high quality earnings
Good dividend payer historic dividend yield of 7.9%.
10 year average dividend yield is above 6%.
Expected 2012FY dividend yield of 6.3% in extremely
tough operating environment
Astral – look through the cycle
• The short term results expected to be poor
• regional oversupply
• increasing imports from Brazil
• high input cost inflation
• FMCG retail sector playing the producers off against
each other.
• Medium term balance likely to return
• weaker producers out
• demand catches up with supply
• possible increase in tariffs on imports
• input costs pressures moderate
Astral – play on “normal” margins
Astral operating profit margins
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Feed
Overall
Poultry
Conclusion
• Tough macro environment
• No long term alternative – embrace risk
• Equities likely to move modestly higher – volatile
• Property remain important building block
• Volatility a friend rather than enemy of long term investors