Carmen Mpelwane has selected three value stocks as part of the JSE online stock analysis series – Foschini Group, MTN, and Thungela Resources.
Mpelwane is a popular market commentator with over a decade of experience as an equity research analyst and portfolio manager.
Currently, she is a portfolio manager at Absa Asset Management and specialises in the equity, retail, and healthcare sectors.
Commenting on the current market, Mpelwane said that the Johannesburg Stock Exchange (JSE) is fairing relatively well compared to global markets.
Mpelwane has selected three companies that she believes show good future appreciation despite a depressed market and at an attractive price.
Her stock picks, with an explanation as to why she thinks these companies are a good buy, are listed below.
The Foschini Group (TFG) is headquartered in Cape Town and offers 18 retail brands, including clothing, footwear, jewellery, sportswear, mobile phones, technology products and home stores.
Mpelwane noted that TFG had made some positive geographical diversification moves that have worked well for them.
TFG acquired 382 commercially viable JET stores in South Africa from Edcon for R385 million in 2020 – which turned out to be one of the best deals in history for the group.
TFG’s 2022 year-end financials showed that JET generated an EBIT of R512 million, 1.3 times its acquisition value in a single year.
The group’s most recent financials showed that it is the leading performer throughout the sector, with FG Africa, Australia, and the UK delivering turnover growths of 11.2%, 15.7%, and 39.9%, respectively.
Mpelwane believes that the market has not yet pulled these factors into the share price. Therefore, its current share price remains below its historical performance, offering investors a great buying opportunity.
MTN is Africa’s largest mobile network operator and provides voice, data, fintech, digital, enterprise, and wholesale services to more than 281 million customers in 19 markets.
The market has previously punished MTN for its exposure to Nigeria and other African countries like Ghana.
Despite this, Mpelwane noted that MTN’s recent financials have shown that they outperformed Telkom and Vodacom.
MTN has managed to restructure its balance sheet in Nigeria and repatriate money out of the country – which was a critical risk for the company.
Mpelwane also said that, much like any mergers and acquisitions deal, the acquirer, MTN, got the brunt of the pullback in the share price, while the target, Telkom, has rallied since the announcement.
She believes this presents an attractive price for investors to buy into MTN, considering its current performance.
MTN’s revenue increased steadily over the last five years, from R133 billion in 2017 to R183 billion in 2021.
Its balance sheet also strengthened, growing cash and cash equivalents from R16 billion to R39 billion and significantly decreasing long-term debt over the last five years.
Thungela Resources is a thermal coal production company with seven mining operations in South Africa – Zibulo, Greenside, Goedehoop, Khwezela, Mafube, Isibonelo, and Rietvlei.
Despite the Russian and Ukrainian war having negative impacts on the global economy, it has been a great benefit to coal prices.
It has propelled a more than fourfold gain in Thungela Resources shares this year.
While the company’s share price is relatively high, Mpelwane noted that Thungela is incorporating only half the current thermal coal price – making it a very cheap option with a greater upside relative to other mining stocks.
She also said that the company is an excellent option for investors looking for a great dividend yield.
Revenue for the year’s first half grew 161% to R26.2 billion, and the company declared a dividend of R60 per share. It is expected to exceed this in the second half quite significantly.
Mpelwane said this performance would likely continue given the global energy crisis – offering investors a great opportunity.