Petri Redelinghuys identified three ‘dirty assets’ at the recent JSE SA Stock Picks event – AngloGold Ashanti, Sasol, and Thungela Resources.
Redelinghuys is a trader and the founder of Herenya Capital Advisors with experience in various professional day trading firms, niche asset management, hedge fund firms, and brokerages.
He regularly contributes to Finweek, Investors Monthly and various other forms of financial-related media, including regular radio and television interviews on KykNet, SAFM and more.
At the JSE SA Stock Picks event, Redelinghuys chose “dirty”, higher risk assets that are “not as popular with the ESG crowd”.
Below are Redelinghuys’ three stock picks.
Redelinghuys emphasised the importance of commodities in the South African economy. He said before the Anglo group’s unbundling, the company accounted for around 20% of South Africa’s GDP and 60% of the JSE.
Since then, AngloGold has been broken up into little pieces, with its gold mining business being spun out as AngloGold Ashanti.
The company no longer owns any gold mines in South Africa and has streamlined itself into a multinational gold miner.
In addition, the company recently decided to move its primary listing from the JSE to the New York Stock Exchange.
Redelinghuys said this was done for two reasons.
The first reason is that gold miners operating overseas that are listed in South Africa trade at around a 25% discount compared to gold miners listed on US stock exchanges.
“So the rationale is that they want to try to unlock value for shareholders and get a more fair valuation in a more liquid market with easier access to capital,” he explained.
Redelinghuys sees this move as a “value-unlock play” for AngloGold.
In addition, according to Redelinghuys. “if we are correct about our assumptions of what will happen over the next 12 to 24 months, gold is going to be a good place to be”.
He refers to gold’s reputation as a “safe haven asset” that investors turn to when the economy is struggling and other asset classes are not performing well. This pushes the gold price up in difficult times.
Redelinghuys said gold miners are geared to the price of gold and can generally contain their costs relatively well. Therefore, if the gold price increases, these companies’ profits increase.
In addition, the restructuring of AngloGold and its move to a primary market where the listing is more liquid could unlock more value for the company.
Redelinghuys already foresees a 25% upside from this move, as it will also put buying pressure on the stock.
Another benefit of AngloGold is that it is a potential takeover target for Barrick Gold, the world’s largest gold producer.
If this were to happen, “then the sky is the limit” for AngloGold’s growth, he said.
Redelinghuys said investing in AngloGold Ashainti is a higher-risk move, “but there’s a lot of value and safety in the fact that this listing change has happened”.
AngloGold Ashanti is currently trading at a P/E of 194.66 times on the JSE, with a share price of R342.56.
For his second stock pick, Redelinghuys chose “the stock everyone loves to hate” – Sasol.
Sasol has recently come under scrutiny for its high pollution levels, with its Secunda plant being the highest polluting factory on earth in terms of SO₃ emissions.
“If they can’t get that plant to run more cleanly, they will have to do a phased shut-down, which is not a great outlook for Sasol, and they might have challenges with collieries losing water licences,” he said.
Therefore, the company faces many challenges, but its strength could lie in the oil market.
The oil market is seeing a reduction in oil output from major oil producers, with the Organization of the Petroleum Exporting Countries (OPEC) cutting production.
Redelinghuys said the market recently swung from an oil supply surplus to a deficit, creating a shortage that is set to last as the market continues to see support for production cuts from OPEC.
Therefore, for the oil price, “up is the way to go”, he said.
Redelinghuys acknowledged that the world is undergoing a green transition but said it is still far away from having a 100% green energy supply.
Currently, green energy only contributes 2% of the global energy mix, and oil and coal are “still doing the heavy lifting”.
Redelinghuys said there is short-term, upward pressure on the oil price as the northern hemisphere is moving into winter.
In addition, when comparing Sasol to its global peers, the company is undervalued by around 30% and is lagging behind large energy players. However, if the oil price stays above $90, Sasol could play “catch-up”.
Sasol’s overhead challenges make it a risky investment, and Redelinghuys said the holding period for this stock would be around 3 to 6 months.
Sasol is currently trading at a P/E of 18.84 times and a share price of R250.46.
Redelinghuys said Thungela Resources performed extremely well last year but suffered in 2023 when the coal price collapsed following a warm winter in the northern hemisphere.
He said the company faces a number of challenges, including the low coal price and railroad issues due to Transnet’s collapse.
However, Redlinghuys believes that even if the railroad issues persist but the coal price recovers, Thungela could still perform very well.
He said Europe has been recommissioning some of its coal-fired power stations, meaning the continent is buying more coal.
In addition, increasing demand for coal will also come through soon as the northern hemisphere enters winter.
“No one is better positioned to take advantage of energy prices, particularly coal prices than someone like Thungela Resources,” he said.
“Coal is going to be around for quite some time. And until that time, Thungela is going to make a lot of money.”
Thungela also recently bought a large stake in an Australian mining company, meaning its production capacity is expanding.
Redlinghuys said this investment is a riskier play and would consider a holding period of around 6 to 12 months.
Thungela Resources is currently trading at a PE of 1.98 with a share price of R158.65.