Stock picks for the year ahead

Nedbank Private Wealth suggests their stock picks for 2014 for every member of your extended family.


The Nedbank Private Wealth Christmas stocking selection of shares for 2013 included some strong performers, but the portfolio’s overall performance was adversely affected by exposure to Foschini, which mirrored a weak showing by most retail counters.

The top performers were Mpact (+50,8%), Bidvest (+26,2%), Dipula B (+28,8%), MTN (+22,9%) and Clover (+17,4%). Ascension A rose by 9,9% and Iliad was up just 3,5%. The negative performers in the portfolio were Foschini (-18,7%), Pan African Resources (-8,4%) and Ellies (-6,7%).

Now, for this year’s selection for various members of the extended family!


For Mom: Old Mutual

Mom will be receiving Old Mutual for 2014. Old Mutual is a global, diversified financial services business that has been around for 165 years. There are not many shares on the JSE that still offer value after the strong run we have seen over the past few years. Old Mutual offers the attractive combination of a reasonable valuation, organic-growth prospects, an increasing dividend payout ratio and corporate action potential. While it is not 100% clear to Mom what the long-term structure of the group will be, the prospects for 2014 are promising and, importantly, without too much risk. Old Mutual has fully recovered from the dark days of 2009 and is even moving to a position of excess capital. Mom is looking forward to 2014, which is likely to be a rewarding year for her!

For Dad: Adapt IT

Smarter. Better. Faster. Those are words Dad likes to hear, and the team at Adapt IT can help him achieve exactly that. Adapt IT provides specialised IT solutions to more than 120 clients in 20 countries with services ranging from consulting to application design and IT support. Demand for managed services is booming as corporates seek to reduce costs and improve efficiencies in an increasingly competitive environment. In our view Adapt IT is well positioned to benefit from this trend. Furthermore, the recent acquisition of Aquilon (an oil and gas consultancy), along with continued healthy earnings growth from existing operations, should enable the group to deliver strong profit growth over the next two financial years. So add some Adapt IT into Dad’s Christmas stocking and help spread the festive cheer!

For Son: Keaton

Over the past two years the selection of gold shares for Son has not been rewarding. However, with the global financial crisis forgotten and global economic growth starting to gain momentum, the demand for energy will increase. Coal is still the cheapest source of energy for electrical-power generation in South Africa. Keaton Energy, which had a troubled birth during the financial crisis, has finally reached steady-state production, with the bulk of production being supplied to Eskom at favourable rates. Management can now turn their attention to the Exceed acquisition, which will double the group’s production of thermal coal once the main project is fully developed by 2016. Keaton Energy is an ideal stock for a growing boy who has a higher-risk profile.

For daughter: MTN

MTN is a geographically diverse mobile operator, with representation in 21 countries and its main operations in South Africa and Nigeria. With MTN’s focus on smartphone and data accessibility, Daughter will love surfing the internet and checking out her status on social networks such as Facebook. She can even use VOIP to chat to her friends while they are enjoying their international holidays. If Daughter is on a prepaid or top-up package, she can also use MTN Zone and get up to 100% discount on calls and SMSs to MTN numbers, plus great discounts to other networks. MTN should continue to show strong growth in the years ahead because of its diverse mobile operations and will continue to pay an attractive dividend of almost 5% – definitely something to ‘like’.

For Uncle: Telkom

For Christmas 2013 Uncle would like to receive a good-news call from Telkom. Sure, it’s a company with a chequered history, but we like two things about it: firstly a chief executive and board with credibility and the ability to execute, and secondly the strategic refocus on data transmission leadership in South Africa by using the group’s network advantage. The potential catalysts we are looking for to propel the share higher in the year ahead include: (a) the successful reorganisation of Telkom Mobile (we note ongoing discussions between MTN and Telkom); (b) confirmation of mobile termination rate (MTR) reductions proposed by ICASA, which were published in October 2013; (c) implementation of cost control measures; (d) a favourable tax ruling from SARS relating to foreign exchange losses from legacy operations in Nigeria; (e) the curtailment of portions of the South Africa network that are not economically viable; and (f) indications of a reinstatement of the dividend. We think backing the underdog in this context is the right call to make in 2014.

For your ambitious Aunty: Mondi

Aunty has been looking for opportunities to diversify some of her portfolio risk and gain exposure to high-growth emerging markets. We believe Mondi meets her portfolio requirements and will keep her smiling in 2014. Mondi specialises in the production of packaging materials and other consumer packaging solutions. Through its wide customer base, Mondi is exposed to high-growth emerging markets. The group’s high-level integration across its packaging and paper value chain remains in line with its low-cost-production strategy. This is why we expect Mondi to deliver superior returns through the cycle. In light of the recent acquisition and signs of economic recovery, particularly in Europe, there’s good scope for future earnings growth and a dividend pay-out that could allow Aunty to spoil herself in December 2014.

For Nephew: Sun International

For Nephew, with a higher-risk appetite and a long-term investment horizon, we’ve chosen an old stock with a new lease on life. Sun International is an established casino/resort operator, with the renowned Sun City being one of the jewels in its crown. With a new, high-flyer chief executive at the helm and the brand new position of Chief Operating Officer filled, Sun International is on a quest to revive its performance. Measures to drive operational efficiencies and cut costs are underway and we expect margin uplift over the next three years. Add to this margin recovery story the group’s foray into high-growth emerging markets and two new casinos opening in South Africa in 2014, and a winning streak may be on the cards. If Sun International delivers, Nephew will be thanking you for many more Christmases.

For Niece: Aspen

After getting burnt by Foschini last year, Niece needs more peace of mind. Pharmaceuticals are expected to be a growth story into the medium term and sales of generics will continue to grow faster than branded drugs. The key drivers of this growth will be overall population growth, increasing affluence (which results in people looking after their health better), an ageing population and an increase in chronic diseases. Aspen is well positioned to take advantage of this trend and we expect Aspen to achieve market share gains in all the markets it has entered (Latin America, sub-Saharan Africa, Asia Pacific and Europe). Aspen’s defensive earnings and strong medium-term growth potential should ease Niece’s worries about market corrections and sub-par economic growth.

For Granny: Ascension Properties

Ascension has a dual-listed structure with the A units designed to give a guaranteed 5% annual distribution growth to its unit holders. At a forward yield of 8,9%, plus guaranteed 5% distribution growth until June 2018, Granny can rest assured that her daily income needs will be met for yet another year. If you missed your chance to buy her Ascension A units last year, this is your chance! Guarantee her comfort in her old age, slip some Ascension A units into her Christmas stocking.

For Daughter-in-law: Mpact

This stock delivered a good performance for its holders last year and we expect them to benefit once again from growth in earnings and dividends. Mpact is a packaging company that operates in South Africa, Mozambique, Namibia and Zimbabwe. It was demerged from Mondi in 2011 and is a leader in southern Africa in corrugated and carton board packaging – it also specialises in recycling of cardboard packaging and paper and the making of plastic (PET) beverage bottles and other packaging products. We are backing the innovative management of the company, looking forward to continued value delivery to its shareholders through effective management and market leadership growth. As its performance is further appreciated by the market, we expect the impact of Mpact’s share price on Daughter-in-law’s share portfolio to be positive – encouraging her to spend, spend, spend!

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