This article was first published in the second-quarter 2015 edition of Personal Finance magazine.
Compared with the disappointing contents of the State of the Nation Address in February, the state of the financial markets stack up remarkably well and are a cause for confidence in the future of the country.
Our inflation rate is under six percent (it does not always feel like that when I look at my monthly living costs), which is healthy; our interest rates are relatively low and stable; the rand has been holding up relatively well; and our stock market is regularly flirting with new highs as the FTSE/JSE All Share Index moves around 53 000 points. Our dividend withholding tax, capital gains tax and company tax are not unduly onerous and were left unchanged in the National Budget. We have virtually no exchange control regulations left and investors are free to invest substantial sums abroad. We also still have the ability to attract good inflows from foreign investors into our property, bond and stock markets.
The question for market analysts is whether the State of the Nation address gave us any pointers for investing in local shares for 2015. We learnt what we already knew: that South Africa is struggling with lethargic economic growth, made worse by crippling electricity constraints and a government that is either powerless or unwilling to grapple with problems and provide clear leadership and solutions.
Far too few South Africans are employed. We are given evidence daily of the fact that the quality of education for the majority of children is woefully sub-standard. We can see that our inadequate infrastructure inhibits economic growth. Our dependence on resources is unsustainable and, to a large extent, we missed out on the stock market’s last major resources bull run due to a lack of beneficiation, labour unrest and government red tape.
We have a public health system under immense pressure, patchy and unpredictable performance by the public service, and rampant corruption that undermines the legitimacy of the state and impedes service delivery. We have much work to do to achieve integration and realise the economic aspirations of the vast majority. There are so many economic opportunities – in eco-tourism, for example – but, for a variety of reasons, we seem to be unable to exploit them.
President Jacob Zuma did not give much concrete information in the speech, but he did lay out a nine-point economic plan to stimulate growth, with the emphasis on promoting industrialisation and accelerating infrastructure development.
The nine top government priorities are:
1. Resolving the energy challenge;
2. Upping the agricultural value chain;
3. Beneficiation of mineral resources to add value;
4. More effective implementation of a higher-impact Industrial Policy Action, which prioritises the development of industries supplying government’s trillion-rand infrastructure-build programme;
5. Encouraging private-sector investment;
6. Moderating workplace conflict;
7. Unlocking the potential of SMMEs, co-operatives, townships and rural enterprises;
8. Reforming state-owned companies and improving broadband roll-out, water sanitation and transport infrastructure; and
9. Operation Phakisa, which aims to grow the ocean economy.
So, given all this, which stock market sectors or shares are likely to benefit from the stated objectives? I have identified some promising companies, but in doing so, I do not for one minute suggest you sell the “old faithfuls” in your portfolio to move into these shares. Bear in mind that the government has not produced clearly developed plans, and improving the state of the nation is a long-term project. Shares should be considered with this in mind, in the context of your risk and investment profiles. I have not done any specific research on these companies and the onus is on you, the investor, to do the homework. You may well think of other prospects. The relevant government policies are in brackets.
* Afrimat (7 and 8) was founded in 2005 and has been listed for nine years in the construction and building materials sector of the JSE. It is a leading black-empowered supplier to the resources, industrial minerals, mining, road, rail and construction sectors. It specialises in open-cast mining, industrial minerals and the beneficiation of mined products, and continues to expand its footprint in Africa.
* Ansys (7 and 8) develops and distributes niche technology-driven engineering solutions for harsh environments. It was founded in 1987 and has been listed on AltX (the JSE’s board for good quality, small and medium-sized high-growth companies) since 2007. It is black-owned and controlled and operates in the defence, mining, railway and telecommunications sectors.
* Austro Group (8) is an industrial supplies group founded in 1980 and listed since 2007. The business is built on 30 years of experience in the woodworking industry, but it now supplies products and technical service and support to a range of allied industries.
* Consolidated Infrastructure Group (1 and 8) is a diversified infrastructure holding group with substantial exposure to the civils, power and extraction industries across Africa and the Middle East through its subsidiaries. A core business is the provision of services to the African infrastructure sector, particularly electricity infrastructure.
* Calgro M3 Holdings (7) is a black-empowered residential project developer with an 18-year track record in the niche market of integrated housing. These projects include RDP housing (fully subsidised “give-away” homes), subsidised rental housing, affordable or bonded housing, and mid- to high-income sectional title and full-title developments.
* Capitec Bank Holdings (7) was established in 1999 as a retail bank that provides simplified and affordable banking facilities to clients through the innovative use of technology.
* Cashbuild (7) is the largest retailer of building materials and associated products, selling to cash-paying customers at 217 stores in South Africa, Namibia, Lesotho, Botswana, Swaziland and Malawi. Its shares have been listed on the JSE since 1986.
* Ellies Holdings (1 and 8) has been trading since 1979 and is a leading South African manufacturer, wholesaler, importer and distributor in diversified sectors, including consumer goods, renewable energy, water management, data and telecommunications.
* EOH Holdings (4 and 7) is a leader in technology and business solutions with a strong black economic empowerment profile. It is committed to the creation of sustainable employment opportunities.
* Esor (8) is one of South Africa’s benchmark civil engineering and construction groups, providing construction solutions for building, civils, roads and earthworks, pipelines, pipe and bridge jacking, and property and township developments throughout sub-Saharan Africa and the Indian Ocean islands.
* Grindrod (8 and 9) is becoming a fully integrated freight, logistics and shipping service provider in its four operating divisions, with a specific focus on dry bulk and bulk liquid commodities, containerised cargo and vehicles.
* Italtile (7) has been trading since 1955 and listed since 1988 and is a leading supplier of tiles.
* Oceana Group (9), incorporated in 1918 and listed in 1947, is committed to responsible fishing practices. It has an ecosystem approach to fisheries management, promotes research to ensure the sustainability of marine resources, and has a zero-tolerance approach to illegal and unregulated fishing.
* Sasfin Holdings (5) is a financial services group offering products and services to entrepreneurs, corporates and high-net-worth individuals. It provides logistics and trade solutions, corporate finance, debtor finance, asset consulting, trade finance and equipment finance.
* Raubex Group (8) is a heavy construction sector company focused on infrastructure development and operating across Southern Africa. It employs over 7 800 people and has a record of 39 years’ uninterrupted profitability.
* Rolfes Holdings (8) is well established locally and internationally as a manufacturer and distributor of a wide range of high-quality chemical products to diverse industries, including the coatings, plastics, vinyl, ink, metallurgical, cleaning, automotive, agricultural, food, construction, home-care and water-treatment industries. It was listed on AltX in 2007 and on the main board of the JSE in 2011.
* Zeder Investments (2) is part of the PSG Group and has been listed since 2005. It invests in the “agribusiness” industry: farming of all kinds, machinery, distribution, processing, marketing and financing. The success of this industry is key to the future of the global population as it grows and becomes increasingly urbanised.
Be aware that I have investments in some of the companies mentioned. As always with stock picks, let the buyer beware, do your homework and speak to a financial adviser if necessary.
* David Sylvester is a stockbroker with Investec Wealth and Investment.