By Chantal Marx
The first month of 2022 is almost nearing an end, but it’s certainly worthwhile to consider investing in the stock market as part of your financial goals for 2022. Investing in the stock market can give you the chance to earn better returns as opposed to leaving your money dormant in your bank account.
The below stocks can be included as part of your 2022 investment strategy:
BHP Group (BHP)
BHP is the world’s largest diversified natural resources company. Its objective is to create long-term shareholder value through the discovery, development, and conversion of natural resources. BHP’s main exposures are to iron ore, copper, coal, and oil and gas.
BHP is well diversified geographically, with over 80 percent of its portfolio assets in low-risk countries.
It boasts a diversified commodity exposure that is being optimised for mega-trends including ESG and Food Security (the unbundling of Petroleum and the recent approval of the Jansen project relates).
Assets are long life, low operating costs and generate free cash flow throughout the commodity cycle.
The group boasts the best in class capital allocation metrics.
BHP has a strong balance sheet that will enable the company to grow energy transition metals in its portfolio.
BHP has a clear and decisive dividend policy with a forward dividend yield currently at 8.8 percent. At spot prices, we estimate BHP has a dividend yield of 14.3 percent.
We expect potential upgrades to consensus earnings of up to 26 percent over the next two quarters if spot prices prevail. The collapse of its dual listed company (DLC) structure may provide the group with strategic flexibility to improve shareholder value, including but not limited to the elimination of the discount of Plc shares to Limited, and more options of providing shareholder returns, including the unbundling of Petroleum and potential share buy-backs.
The unbundling of Petroleum has the potential to enhance shareholder returns in a potential multiple re-rating for BHP as it exits fossil fuel assets and free cash flow improves due to high capital intensity of Petroleum, contributing 33 percent of group Capex but only 8 percent of earnings.
BHP main commodity basket price movements
Prosus (PRX)
Prosus is the international internet assets division of Naspers. The global investment group is the largest consumer internet company in Europe, and among the largest technology investors in the world, operating across a variety of platforms and geographies. Among its largest investments are Tencent (28.9 percent stake), Mail.ru (28 percent stake), OLX, PayU, Delivery Hero (24.5 percent owned) ,and C-Trip (6 percent owned).
Despite recent regulatory ructions, we remain positive on Tencent’s near and long-term growth prospects. Continued growth in advertising, along with growth in its investment portfolio, should support the company’s valuation.
Blue-sky potential in a number of companies, as was the case with its Tencent subsidiary, Delivery Hero and C-trip is especially promising.
Recent acquisitions in payments in India could be a catalyst for better diversification in future.
Managed with a clear long-term vision.
Prosus is well diversified across different industries (internet, social media, classifieds, food delivery, travel) and geographies.
The company trades at a deep discount to its underlying value. Management is actively taking steps to address the size of the discount.
We continue to like the sector and believe there is significant upside to both the Tencent and Prosus share prices.
MultiChoice (MCG)
MultiChoice is a South Africa-based media company that provides digital satellite television (Direct to Home or DTH) and digital terrestrial television (DTT) services, and online solutions (Video on Demand or VOD). The group holds 75 percent of MultiChoice SA, as well as MultiChoice Africa, Irdeto and Showmax (a standalone, over-the-top [OTT] product focused on local and international content).
There is structural support for a rise in pay TV and OTT subscriptions in South Africa and the rest of Africa (RoA). Electrification, urbanisation and a rise in broadband penetration is expected to drive demand, particularly in RoA where rising income levels and migration to the middle class could provide further support.
MCG’s three content pillars, international, local and sport, remain a competitive advantage even as competition begins to rise. In International, it has partnered with HBO, which ensures fresh content from the studio ahead of streaming competitors. It is also working with streaming competitors on certain packages. MCG remains best in class in terms of local content and continues to invest heavily in this space. The resumption of sport could have a big impact on advertising and subscription revenue.
OTT (streaming) is not expected to make meaningful inroads on the continent over the next few years as fixed broadband infrastructure remains limited and the cost of mobile data is high.
A variety of costing options are available to subscribers.
Ability to generate annuity-type income with predictable seasonality (sport seasons, for example).
MCG is highly cash-generative and scope for paying sizeable dividends in future exists.
RoA is moving steadily towards profitability but is currently valued at less than zero by the market.
The company’s share price has come under pressure as a result of a misunderstanding around a regulatory dispute in Nigeria as well as concerns over the repatriation of cash from more challenging operating jurisdictions. Still, MCG is trading at quite a sizeable discount relative to peers and its own history, which looks compelling in the context of strong earnings growth ahead and a forward dividend yield in excess of 5 percent.
MultiChoice EV/EBITDA versus peers
Karooooo (KRO)
Karooooo Ltd is a global Software-as-a-Service (SaaS) provider of mobility solutions for small, medium and large fleets. The company also provides insurance analytics, security and safety products for both businesses and consumers. The business is vertically integrated, which provides complete autonomy regarding the development of its applications and innovation.
The group operates in a growing and under-penetrated global telematics market and is well positioned to take advantage of opportunities as they arise amid a growing vehicle population and customers increasingly seeking digitalised software solutions.
The company is well diversified geographically, with a diverse subscriber base with low industry and customer concentration risk.
Karooooo boasts a strong financial position with ample capacity to fund organic growth, further supported by its unleveraged balance sheet and strong cash position.
Despite the ongoing significant investment in research and development, operations and distribution, Karooooo remains highly cash generative with the majority of its revenue recurring in nature.
Demand for telematic products is expected to continue rising amid the increasing adoption of Internet of Things (IoT) solutions globally.
Results for 3Q22 to November 30 were decent, with the bottom-line result benefiting from robust top-line growth and lower effective tax rates. Good subscriber growth numbers contributed positively to revenue growth, while the inclusion of recent acquisitions also assisted.
Operating expense growth was high but anticipated given management’s aggressive growth plans. However, the pace of revenue growth was ahead of cost growth, which resulted in margin gains. The company remains highly cash generative, and management maintained FY22 guidance.
Samsung Electronics (005930 KS)
Samsung operates four business divisions: Consumer Electronics (CE), Information Technology & Mobile Communications (IM), Device Solutions (DS) and Harman. CE includes traditional electronics and IM includes mobile phones and computers. DS includes semiconductors and display. Harman includes connected car systems, audio and visual products, and connected services.
Samsung is the global leader in smartphones and semiconductor memory and is set to benefit from a cyclical recovery in memory pricing and demand off the back of 5G and increased demand for data centres. Increased demand for data centres is being driven by cloud computing, e-commerce, remote working and, gaming.
We expect a new replacement cycle for smartphones driven by 5G technology and foldable phone innovation.
Although the semiconductor memory market is cyclical, the sector is set to deliver double-digit growth on average over the medium term as new technology products require memory chips to run. The foundry business is particularly well positioned - with recent guidance from Taiwan Semiconductor Manufacturing Company providing a positive read-across.
Samsung has a very strong balance sheet with a high net cash position.
Samsung trades on later multiples than its global peers and has de-rated over the last few months but is set to deliver double-digit earnings growth over our forecast horizon.
Samsung forward PE history
Alibaba (BABA US)
From a simple e-commerce platform enabling small businesses to trade goods and raw materials, Alibaba has grown into a commercial giant that has revolutionised Chinese retail and aims to become integral to a new and global digital economy.
Alibaba is the world’s largest retailer as measured by gross merchandise value (GMV) and China’s largest wholesale marketplace.
Penetration among Chinese internet users is 85 percent to 90 percent, which means it has a large addressable market with growth potential.
As GDP per capita grows we expect to see considerable growth in GMV.
The cloud division, Alicloud, is enjoying high levels of growth and profitability in this area is set to improve.
Continued Covid-19 restrictions, in China particularly, may provide further support for on-line retail.
A recent analyst day highlighted areas for growth, particularly in second tier cities.
Alibaba trades at considerably lower multiples than its global online retail peers against a substantially higher growth rate. This was exacerbated by fears over regulatory intervention by the Chinese state. The company is adapting to new legislation. Moreover, China’s credit metrics seem to be improving more recently, which could bode well for the strength of that economy.
Alibaba premium/(discount) to peers
As we start moving slowly beyond Covid-19, not sure of where to invest, consult with a professional financial adviser who will help you through the process; investing in stocks or shares is a great way to kick-start your investment strategy.
Chantal Marx is the Head of Investment Research at FNB Wealth and Investments.
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