Bright Khumalo, a portfolio manager and analyst at Vestact Asset Management, selected three stocks during a recent JSE SA Stock Picks event – Coronation, Stadio, and Naspers.
Khumalo joined Vestact in 2015 as a portfolio manager and analyst of locally listed shares and companies listed in the United States.
Vestact, founded in 2002 by Paul Theron, is an active investment management firm that manages assets on behalf of private clients in both rands and US Dollars.
The company has shown exceptional growth and currently has R7.5 billion in assets under management (AUM).
Khumalo regularly appears on investment and business shows and is well-known as a host and guest on Business Day TV’s Stock Watch and The Week That Was.
He is also a Dell Young Leader, a program the Michael and Susan Dell Foundation started to help first-generation university students from low-income backgrounds.
Famously, Khumalo saved nearly R7,000 a year through a 10c challenge he documented on his Twitter profile to encourage other South Africans to build a habit of saving money.
Commenting on the South African stock market, he said everything looks doom and gloom in South Africa, which makes local equities cheap compared to their offshore counterparts.
The negative news is also priced into local equities already. Thus, long-term investors who can look past short-term influences will be rewarded handsomely in the long run.
Here are his three stock picks with details on why he likes these companies.
Coronation Fund Managers
Coronation’s share price has declined 65% in the last five years due to its stagnating levels of assets under management and, more recently, its tax battle with SARS.
Khumalo says you “want to invest in an asset manager when things aren’t looking good”, particularly if the trouble is temporary.
This drives down the share price, giving the share a more attractive valuation.
Coronation is fundamentally a good business with asset management requiring minimal capital expenditure to grow and operate.
Khumalo stressed that he is a long-term investor and that Coronation’s share price will only rebound in a year or two after it has settled its tax affairs and the market has started to perform.
When the market rebounds, Coronation stands to benefit with its assets under management rising and with that comes additional income through standard fees and performance fees.
This will drive solid returns for shareholders over the long term.
Similarly to Coronation, Stadio’s share price has recently declined, giving it a more attractive valuation.
The company is “not as expensive as it used to be”, and management, since its unbundling from Curro, has been good with it consistently meeting its targets.
Stadio also operates in a sector with consistent demand for its services, with university attendance on increasing in South Africa.
The company can capitalise on this growth without spending heavily as it offers blended learning – online courses and in-person – which means that the size of its physical premises does not limit its expansion.
Stadio meets the demand for vocational training in South Africa, with government institutions increasingly unable to provide quality vocational programmes.
Importantly, Stadio does this while also offering traditional degrees.
Khumalo says that Stadio is poised for sustained growth through its diverse offering, good management, and attractive valuation.
Investing in Naspers, for Khumalo, is mainly “a play on Tencent”.
Tencent has lagged behind other technology companies in share price performance over the last three years, giving it an attractive valuation relative to its peers.
The Chinese technology giant’s turnaround strategy is also starting to bear fruit, with regulators approving its new online games and reducing their intense scrutiny of the firm.
The reopening of China will also boost income from Tencent’s payment services, with tourists and locals increasing their spending.
Another reason for investing in Naspers is their share buy-back programme which will lift the share price in the near term and increase one’s holding in the company without investing more capital.