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15 January 2013 20:13

2013 Stock picks: Theo Vorster (Galileo Capital) and Delphine Govender (Perpetua Investment Management)

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Hilton Tarrant anchors the daily national business news programme, the SAfm Market Update with Moneyweb.

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    Theo and Delphine explain their choices for 2013.

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    HILTON TARRANT: Theo Vorster of Galileo Capital joins us now. Theo, your stock pick for 2013 as we run this little competition – not really a competition, more a game where a couple of fund managers, a couple of market experts, market watchers, pick some stocks. We've got listeners picking stocks – and keep those coming through. You can e-mail those to me – Hilton@Moneyweb.co.za. We’ve got a flood of them coming in today, probably about 25 or 30 that came in to my inbox today. We'll get those on the list. Our staff members here at Moneyweb also picked some stocks across the year.
       Your stock pick for 2013?

    THEO VORSTER: Remember, you pick a stock to try and do well in the competition. It's not necessarily the stock that is the core of your investment. But, having said that, I will go for Murray & Roberts. I do think that the construction shares, although they have picked up slightly, had a very good December. Construction shares were up 14% in December. Having said that, I do believe that there’s been a lot of restructuring, a lot of pain, they had a rights issue, and I think there are some arbitration cases that might be settled in the next 12 or 18 months. And I also think that the government will start to commit to some of the infrastructure spending in the National Development Plan.
       And I do think that things like today’s announcement by Angloplats will enforce the fact that we need a concerted plan to get jobs created, to get investment going and I think that some of the big construction shares will be the beneficiaries of that.
       Remember, the stock was R25. It was R100 four years ago. I don’t think it's going to go there again. But I do think if we start to see some of the pipeline coming through, we see government implementing their agreed policies, I do think the share is undervalued.

    HILTON TARRANT: Murray & Roberts. Incidentally, those December figures that we looked at yesterday, David, Murray & Roberts the sixth-best performer on the JSE in December.

    DAVID SHAPIRO: Ja, I think on the back of Theo’s recommendation [laughter].

    THEO VORSTER: I think perhaps December is the start. Hopefully it's the start of a tone whereby we go back to having a concerted government policy based among other things on infrastructure spending, and that’s where they are positioned.

    HILTON TARRANT: Let’s hear now from Delphine Govender, a good friend of this programme, and a good friend of Moneyweb, whom we haven't heard from for ages. She left Allan Gray about a year ago and is now with Perpetua Investment Management. About an hour ago I asked Delphine what her pick for 2013 was.

    DELPHINE GOVENDER: Standard Bank.

    HILTON TARRANT: Why Standard Bank?

    DELPHINE GOVENDER: Well, it's an interesting one, Hilton, because I know it actually had a sharp run in December, so obviously I would have preferred making this call perhaps just more than a month ago. But in the kind of stretched market that we have, I think there are probably not many places to hide.
       So, notwithstanding the run that it had in December, I think Standard Bank really has lagged the market. In fact, probably for a few years now. And if you look at it from a valuation perspective, it's not expensive on a very reasonable price-to-book of about 1.6, 1.7 times. Earnings are not high. Dividend yield is around 4%, which is much more attractive than the market. And I think what's interesting with Standard Bank – the reason it's lagged is because for a while now the market’s been almost overly focused on the downside aspects of the investment case, of which there have been a few. They’ve had a high cost increase, high bad debts, quite excessive regulatory burdens, as we all know, that are making the banking industry, and in Standard Bank’s case in particular, fall in its London operations. And then the general concerns about unsecured lending and where that might end up in terms of banks and potential for bad debt. But typically, as markets grow, in being so focused on the downside, you miss on what are the potential opportunities. And I think Standard Bank has some unique ones, particularly Africa, the African expansion. They have a very nicely diversified portfolio of opportunity on the continent.
       And interestingly, insofar as the London operations have been disappointing, they also provide a catalyst to unlock value going forward, which we'll probably be likely to be seeing as they restructure. Asset growth domestically – while it hasn’t been great, it hasn’t been entirely benign.
       So I think interestingly with the opportunity in the Standard Bank investment case in the context of quite a stretched, I would argue, overvalued market on the whole, the market has probably been overly pessimistic and I'm perhaps a bit more balanced on the Standard Bank investment case.

    HILTON TARRANT: And from where you are sitting easily the most attractive among the banks?

    DELPHINE GOVENDER: Well, again it's hard to say, because they are probably much of a muchness. But if I had to rank them, Standard Bank would be my biggest bank holding, yes.

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