Three JSE companies Petri Redelinghuys is betting on

Petri Redelinghuys identified his three favourite JSE shares as Hulamin, Barloworld and Pan African Resources

Redilinghuys was one of four guests at the most recent JSE SA Stock Picks event, a quarterly event where the JSE invites market commentators and analysts to present their three favourite stocks listed on the exchange.

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 other financial-related media, including radio and television interviews on KykNet, SAfm and more.

At the JSE SA Stock Picks event, Redelinghuys outlined his three JSE stock picks.

Hulamin

Hulamin is a South African aluminium semi-fabricator and supplier, supplying a significant portion of the world’s ultra-high-end aluminium products.

Hulamin’s share price has been on a downward trajectory since around 2007, leaving most investors bearish. In the past year, the share value has fallen by 10.98%.

According to Redelinghuys, the company has been challenged by “South Africa risk” – unique problems associated with operating in the country. This encompasses inconsistent electricity and water supply, as well as pressure on the local steel manufacturing industry.

In recent years, Hulamin has shifted its focus onto higher margin products such as rolled aluminium and cutting down on less profitable product lines.

“They’ve shown their ability to contain costs, making them an agile, adaptable business,” said Redelinghuys.

He explained that the higher commodity prices projected over the next five to 10 years mean Hulamin is well-positioned to service the market.

Further adding to the stock appeal is that its share price is currently significantly suppressed, trading at around R3.

“It’s really been hammered over the years. This was once a R32 share, and I think there’s quite a bit of upside,” Redelinghuys said.

Hulamin’s share price has fallen by over 10% in the past year, and its price-to-earnings ratio sits at a low 3.61.

Barloworld

Barloworld is an industrial processing, distribution and services company founded in South Africa.

Redelinghuys explained that the industrial equipment and machinery suppliers for mines and the automotive sector have been strained in recent years, leaving Barloworld with diminished revenue.

However, he said South Africa’s stagnant economy means the Reserve Bank will likely cut interest rates this year.

“If that is the case, I think we will see a sharp recovery in the automotive and mining sectors,” said Redelinghuys.

Barloworld’s share price currently sits at around R62. Redelinguys pointed out that the share price has only dropped below R70 a handful of times, and usually only for short periods of time.

“I think that it offers a high probability entry point if you’re a medium to long-term investor,” he said.

“We might not necessarily catch the low, but under R70 is going to be a good price over the long run.”

Barloworld is currently trading at a price-to-earnings ratio of 5.92, and its share price has dropped by 28% in the past year.

Pan African Resources

Of his three stock picks, Redelinghuys was most bullish about mid-sized gold producer Pan African Resources because “things are looking fairly rosy for the gold price”, he explained.

The high gold price means Pan African Resources is likely to pay substantial dividends in years to come.

The company recently announced a new project to increase its gold production by 50%. This is a significant expansion of operations, which the company’s CEO says will bring down costs substantially.

Redelinghuys praised the company for being future-minded, saying they have a young and dynamic management team. An early adopter of solar PV, the company also invests heavily in renewable energy.

He highlighted Jubilee Metals Group as a comparable investment, which he has favoured over Pan African Resources in the past. However, he warned that Jubilee may be a take-over target for Pan African Resources.

Pan African Resources’s share price has grown by over 200% in the past five years and currently sits at a price-to-earnings ratio of just over 7.