SIMON BROWN: I’m chatting now with Chantal Marx. She is head of research at FNB Wealth and Investments. Chantal, morning. I appreciate your time. There is lots of talk around construction, around infrastructure spend. I chatted with PPC last week. In their update they said that they were seeing double-digit growth from … the July to February period. Is there opportunity on the JSE? We don’t have the same size construction industry that we used to back in the last boom around the World Cup, but we’ve still got some of the aggregate suppliers in cement and the like. Is there opportunity here?
CHANTAL MARX: Yes, absolutely. It’s not only PPC that’s been seeing an increase in activity, but when you speak to the likes of Raubex and look at the announcements that came through on Sens in terms of new orders, the order book growth for a company like Wilson Bayly Holmes Ovcon has also been decent. We’ve also seen some good demand coming through for equipment at some of the retailers in the space; Cashbuild and Italtile are already seeing an increase in demand.
There are many small companies that used to be much larger companies that you can still invest in. I was scratching through the support industries in construction this morning, and it was like a blast from the past.
Hold onto your hat: Argent, Insimbi Industrial, Invicta, Hudaco, Trellidor – the list is actually quite substantial. [Also] [South Ocean Electric Wire Company]. These are the types of industries that will benefit from a widespread infrastructure rollout.
Even a company like ARB Holdings, which has a big lighting wholesaler, could benefit from an investment in an area like housing, where we’ve already seen JVs (joint ventures) between government and the likes of a Balwin – there’s another company that will benefit from an infrastructure rollout. So the list is quite endless or it’s quite large. It’s not endless. From my quick calculations, I’ve identified about 30 companies that could benefit directly from infrastructure rollout.
And then of course, infrastructure lifts economic growth and there are knock-on impacts everywhere. I think some of the indirect beneficiaries are banks, which provide the financing for some of these projects; transport, which would move around workers; and hospitality, which would house some of these workers and project managers and engineers. So a lot to get through, but a lot of opportunity.
SIMON BROWN: And your list was right. Argent, South Ocean. Typically we think of construction companies. Of course, they’ve got project-execution risk. If I go with a Trellidor or an ARB or something, they don’t have that project execution. Actually, in some senses, it de-risks the potential investment because they’re going to solve their lighting or their cabling. If the project has cost overruns, that’s not their problem. That’s the builders’ problem.
CHANTAL MARX: Absolutely. That is a very good point. It’s almost a slightly safer space to invest in. And I think that’s also why I like the retailers in the space in particular. And it further de-risks if you are going to look at a retailer like Italtile, where they would be beneficiaries of, for example, a housing rollout. The company also has a very substantial private investment footprint. So there you could also diversify your exposure in that way.
SIMON BROWN: Yes. I love that – a giant list for folks. But when I thought about this, and I tweeted it last night, my thought was sort of PPC combining all, but actually that list is giant, and there’s a bunch of really quality little stocks there that could do well. Chantal says “blast from the past” for some of them, but they are still there, they are still listed.
Chantal Marx, head of research at FNB Wealth and Investment, I appreciate your early morning time.
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