SHARES are no longer trading at elevated multiples.     African News Agency (ANA)
SHARES are no longer trading at elevated multiples. African News Agency (ANA)

Tough times for investors, but there's reason for hope

By Staff Reporter Time of article published Sep 9, 2019

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Delivering exceptional investment performance in the current market conditions is no simple task, given that uncertainty and unemployment remain critically high, while economic growth, liquidity and interest rates remain stubbornly low, says Samantha Steyn, the chief investment officer at Cannon Asset Managers.

The market has been tough, and given the fact that the FTSE/JSE All Share Index delivered average annual returns of just 5.6percent over the past three years, many investors would have been better off with cash in the bank, says Steyn. This said, there is some good news ahead for resilient investors. Shares are no longer trading at elevated multiples and dividend yields have become extremely attractive, says Steyn.

Valuations are one of the most powerful indicators of long-term returns and while short-term risks are elevated, the longer-term investment case has notably improved as the dejected environment has given rise to several great investment opportunities, says Steyn.

She says these include:

* Master Drilling, a technology solution-driven company, focused on raise bore drilling services. It operates across a number of countries, with predominantly local currency costs and hard currency revenue, says Steyn.

Essentially, a margin of safety and a strong balance sheet are key and arguably even more so during tough times. Master Drilling offers both, and more. It trades on an undemanding earnings multiple of 7.2 times and a 2.5percent dividend yield, says Steyn.

The company has a gearing ratio of only 16.2percent, enabling the company to withstand economic downturns. With a healthy order book, disruptive technologies in pilot phase and a strong management team, we believe this business will be able to deliver good results in the future, says Steyn.

* Investec Limited. While the banks are likely to provide modest asset growth, they remain well capitalised, with their primary focus on costs, says Steyn.

Investec is on track with the proposed de-merger and separate listing of Investec Asset Management, which should enhance the long-term prospects of both businesses.

The group trades on an undemanding multiple of 8 times, with an attractive dividend yield of 6percent. Investec has a high level of foreign earnings, which provides great diversification for local investors. At current levels it is trading about 1.0 times price to book value, with a return on equity of 11.7percent - highly attractive for this bank.

* Santova. The mid- and small-cap universe has underperformed over the past three years, says Steyn. “We have seen shares de-rate from a nine times earnings multiple to extreme lows of around five times. Santova is one of these companies, and while the local environment remains challenging, for long term investors, these levels are attractive entry points into great businesses that are well run,” she says.

Santova is a multinational global trade solutions business, which we believe is deeply undervalued. Currently, just under half the group's profit comes from South Africa, which has translated into hard yards.

“We expect the offshore earnings component to grow significantly over the next three years, buoyed by strong franchises in the Netherlands, Hong Kong and the UK,” says Steyn. 


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