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Stock picks for 2015: Nkareng Mpobane – fund manager, Ashburton Investments

Criteria for selecting top stocks for 2015.

SIKI MGABADELI: It’s 2015, so we are doing our annual stock-pick session, looking at the stocks you should be watching for this year. We are chatting now to Nkareng Mpobane; she is portfolio manager at Ashburton Investments.
   Nkareng, thanks so much for your time today. Let’s just go back to 2014. Was it everything you expected on the market?

NKARENG MPOBANE: The market overall closed the year up around 10% on December 31. And I must say that the big disappointment, which thankfully we were underweight, was in resources, which is what dragged the market down overall. But the big winners have been the financial stocks, which is also how we positioned our portfolio. So I guess our views played in our favour over the year.
   But ja, it has been a very volatile time and we are expecting further volatility perhaps into 2015.

SIKI MGABADELI: All right. So, before we get into the specific stock picks that you try for 2015, what criteria do you use when you are looking at the stocks to watch and the sectors to watch?

NKARENG MPOBANE: One of the stocks I will be talking about presents quite defensive qualities and we would probably look to be in those stocks that give you the defensive qualities because, as we mentioned at the start, we are expecting volatility to persist into 2015. So you want companies that offer not just sector diversification but also geographic diversification, so that not all their earnings are derived from South Africa but have footprints in other regions as well.

SIKI MGABADELI: All right. So what is that stock?

NKARENG MPOBANE: That will be Bidvest. We are buyers of Bidvest at the moment. And, as I mentioned, that has the two attractive qualities of sectoral and geographic diversification. And the group, as you know, operates in various industries, so we are looking at the automotive industry, financial services, food services and really also the South African consumer – they have quite a big exposure to that. The South African consumer has come under pressure in 2014 and we expect the consumer to remain under pressure. So we like the foodservices division in Bidvest, which is primarily in Europe. And also obviously given that earnings there would be in euro, a weakening rand against the euro obviously presents support for earnings in rand terms. So we like that currency tailwind as well that comes through in Bidvest’s earnings.

SIKI MGABADELI: Another one you are watching is Naspers.

NKARENG MPOBANE: Yes, that’s right. This one obviously is quite different from the discussion we’ve just had around Bidvest, where we talked about its defensive qualities. Naspers is not really that kind of story. It’s a very strong growth story and this is why we have bought into it. We have previously held it in the portfolio. We are just maybe topping up on our existing holdings. And the main reason for that has been the announcement in November, where Naspers entered into a JV agreement with Schibsted. Schibsted has other agreements with other smaller players in their online platform businesses.
   Now what is going on in these businesses is that these companies are obviously spending a lot of money on marketing in order to gain market share, and charging a very small amount for the customer to use the platform. In other cases they were charging nothing at all. The agreement allows for all these companies to come in as one, therefore they are not fighting each other for market share because they are now one company, so that allows them to cut back a lot on the spending on marketing. And then because they are now market leaders in those areas they are able to charge a proper fee for customers to use the platform. So now they are beginning to monetise the whole online platform story and that has seen a rerating in this share quite significantly since the announcement. So that’s one of the reasons we like it.

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