Stock picks for 2017: two market commentators’ selections

Simon Brown and Anthea Gardener decide on possible top performers this year.

SIKI MGABADELI: This whole week we are going to be getting stock picks from our regular market commentators to get a sense about which companies they are going to be watching this year that they are expecting to do well. So Anthea Gardner, MD of Cartesian Capital is still with us and Simon Brown, founder of JustOneLap, joins us now.

Simon, thanks so much for your time today. You’ve got two – and we’ll start with Woolies.

SIMON BROWN: Good evening, Siki. Woolies is currently trading at just under R70. It’s on a forward price earnings of about 14. That’s assuming they can do 6 or 8% growth for their full year to end-June. I think they certainly can. I think a forward PE of 14-odd for Woolies is very, very cheap. Historically we haven’t seen that for Woolies since just past the crisis of 2008/09. So I’ve been buying it since R82.50/share; but below R70 I think it’s going to be one of the top performers in 2017. I think R100 in that stock is quite possible.

SIKI MGABADELI: Okay, I’ll be watching. Tongaat was your second one.

SIMON BROWN: Tongaat benefits from the rain. Their starch is boring and fairly predictable. Their property is lumpy; in the last set of results property was down. That has come back – that’s just a timing issue. Rain means they will get more sugar out of the ground. They will see global prices come down a bit as the rain comes off, so I think we are going to see fairly good numbers out of Tongaat over the next year. At about R130 I think it’s got at least 20% upside for the year.

SIKI MGABADELI: Alright. Thanks, Simon, we’ll leave it there. We are going to be marking those stock picks and checking on them towards the end of the year.

Anthea, You’ve got Richemont as the first one.

ANTHEA GARDNER: I’ve got two stocks that are very unloved at the moment.

SIKI MGABADELI: And they are both rand hedges.

ANTHEA GARDNER: They are. If Dawie Roodt was right and we are seeing a stronger rand, then I’ll be wrong, because I am expecting a weaker rand.

First of all, Richemont – you know it’s been the darling of the market for decades, and last year it was down 15%. Really, there were two problems here. One was global luxury-goods consumption and the second was that the company itself saw a decline in profit margins. Revenue in fact at their last results presentation was down 12% year on year, which is very disappoint9ing. But I’m under the impression that there is going to be a turnaround in this company. The old CEO and CFO stepped down. Johann Rupert stepped up and said “I’m taking the reins again,” basically. “I’m rejigging this. I’ve decided there are things to be done” – and [he’s] getting on with it. They’ve said they are not going to do anything in the way of mergers and acquisitions or any kind of corporate activity, even though they are sitting on a huge pile of cash. Part of that is one buying some stock back from the retailers, where they feel like Cartier watches, for example, is a big one; they feel that it’s overstocked. They are doing an inventory buy-back. And then you are also already seeing some kind of change in the trends. So you are seeing some of the brands already changing, especially the leather goods, the pens or the writing material. I’m hoping for a turnaround. I might be a bit early. I’m worried about that, I admit. I generally do tend to wait until I’ve decided that it’s the stock I’m going to into completely. But it is a stock I believe in and it’s a management team I believe in, so I’m choosing Richemont as one of my top picks.


ANTHEA GARDNER: Aspen again – a couple of issues. One is Venezuela, which they’ve now completely written off. And then they also sold the Australian generics business, which cost then 4.5% on their turnover. But those are now done. So what I’m looking for is synergies to come out of their two anaesthetics portfolios that they bought from AstraZeneca and GlaxoSmithKline. They already delivered R300m last year and, if they can – as management has promised – deliver another R500m to R1bn, you are looking at an earnings growth of 30% for the next two financial years. There is nothing wrong with a stock that can deliver that.

SIKI MGABADELI: We’ll leave it there. Thanks so much. Anthea Gardner is MD of Cartesian Capital.


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