Petri Redelinghuys’ top three JSE stock picks
Petri Redelinghuys highlighted three stocks at the most recent JSE SA Stock Picks event – Sasol, Capital Appreciation, and Spar.
Redelinghuys, a trader and the founder of Herenya Capital Advisors has experience across various day trading firms, niche asset management, hedge funds, and brokerages.
He is a regular contributor to Finweek, Investors Monthly, and other financial media and frequently appears in radio and television interviews on platforms like KykNet and SAFM.
At the event, Redelinghuys selected stocks that have an excellent opportunity for growth. Notably, two of his stock picks, Sasol and Spar, have recently been under pressure.
Sasol has come under fire for its high pollution levels. It has also struggled with reduced oil output from major oil producers, with the Organization of the Petroleum Exporting Countries (OPEC) cutting production.
Spar’s interim financial results for the six months ending 31 March 2024 revealed that its turnover for its operations in Southern Africa, Ireland, South West England, and Switzerland rose by 7.9% to R77.2 billion.
Operating profit improved slightly to R1.6 billion, but net finance costs led to an 11.2% drop in profit before tax.
Although Spar has seen decent revenue growth over the last five years, growing from R54 billion in 2019 to R77.2 billion in 2024, it has not been able to convert these increased revenues into profits.
Additionally, the group’s operating expenses and debt have also increased, causing its bottom line to erode gradually.
Despite these challenges, Spar’s management remains optimistic about a stronger performance in the second half of the year.
Redelinghuys’ other stock pick, Capital Appreciation, operates in the fintech space and faces amazing potential for growth as more people on the African continent become reliant on digital currencies.
Capital Appreciation is a relatively new company on the JSE, having listed for the first time in 2015. It generated over R1 billion in revenue this year.
Redelinghuys’ stock picks are well-positioned for future growth, as they will allow investors to capitalise on currently undervalued shares and opportunities in emerging markets.
Below is an overview of Redelinghuys’ three stock picks.
Sasol
For his first stock pick, Redelinghuys highlighted Sasol, which he said went from “one of the most loved to one of the most hated shares”.
With a market cap of R79.10 billion, the company has a large presence on the JSE.
This is the third time that he has selected Sasol at a stock pick event, saying, “I think there still is an outsized opportunity in the stock.”
Recently, the company has faced scrutiny for its high pollution levels.
However, Sasol has recently made developments regarding emissions treatment, particularly at its Secunda plant, the highest polluting factory on earth in terms of SO₃ emissions.
Sasol also recently appointed a new CEO, Simon Baloyi, with effect from 1 April 2024.
Redelinghuys explained that Baloyi has done an excellent job with managing expectations around carbon emissions, and being realistic about how the company approaches those targets in the future.
He said that Sasol’s size and the number of people employed by the company, either directly or indirectly, make the situation even more complicated.
“We really, as a country, can’t afford for them to go under. So we have to find a way to work with them,” he said.
Recently, Sasol faced pressure due to the decline in the oil price. However, Redelinghuys remained optimistic about the stock.
“Our macro view is that energy prices will continue to rise, commodity prices will continue to rise, and I think Sasol is well positioned for that,” he said.
“The valuation is so cheap, you have to buy it,” he concluded.
Capital Appreciation
For his second stock pick, Redelinghuys chose Capital Appreciation.
As a relatively new share on the JSE, the company’s market cap is currently only R1.99 billion.
The financial technology company seeks to serve and partner with established and emerging financial institutions and other clients, and has deals with major South African banks, including Capitec, Standard Bank and FNB.
Redelinghuys explained that the company imports, distributes, develops technologies, and provides payment services for merchants, corporates, and banks.
He said the fintech space is really exciting, as more people on the African continent are adopting phones and moving towards digital currencies, which Redelinghuys said is going “to work really well” for Capital Appreciation.
He explained that the adoption of digital currency throughout the continent creates a huge opportunity for payment infrastructure and allows for the use of digital means of payment like cards, phones and smart devices.
“This is very much where they’re concentrated, and I think there’s a huge growth opportunity,” Redelinghuys said.
Spar
Finally, Redelinghuys chose retailer Spar, which currently has a market cap of R23.52 billion.
The group has recently struggled with rising expenses, which has put pressure on its earnings.
As part of its turnaround strategy, Spar recently sold Spar Poland to Polish retailer Specjal for R185 million. This was done to allow the company to focus on South Africa, its core market.
According to Redelinghuys, Spar will need to spend between R2.7 billion and R3.5 billion to recapitalise it, mostly by paying off the business’s debt.
The sale of this business segment is “a master class in how to admit you’re wrong”, he said.
However, he also pointed out that even though the company was constantly losing money in Poland, it still saw revenue growth.
“Now that they’ve gotten rid of Poland, I think the sky’s the limit. I think it’s going to have a huge impact.”
Once Spar has disposed of the loss-making centre, earnings from the Spar Group are really going to excel, Redelinghuys added. “They’ve basically eaten Pick n Pay’s lunch.”
“From a profitability perspective, once you get rid of the Polish business, it’s in a very good space.”
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