Bright Khumalo’s top 3 JSE stock picks
Bright Khumalo, a portfolio manager and analyst at Vestact Asset Management, recently picked three stocks during the JSE SA Stock Picks event: Bidcorp, CMH, and ADvTech.
Khumalo joined Vestact in 2015, focusing on locally listed shares and US companies. Vestact, founded by Paul Theron in 2002, manages R7.5 billion in assets for private clients in both rands and US dollars.
Khumalo frequently appears on investment shows, particularly Business Day TV’s Stock Watch and The Week That Was.
He is also a Dell Young Leader, a program that supports first-generation university students from low-income backgrounds.
Khumalo gained attention for documenting his 10c savings challenge on Twitter, showing how he saved nearly R7,000 in a year to inspire others to build good financial habits.
Although all of his stock picks operate in different sectors, he opted for choices that are diversified in some capacity.
Bidcorp, his first stock pick, is an international broad-line food service group with operations in 35 countries across the globe.
The company’s decentralised model ensures the business is more adaptable to changing market conditions.
Each business makes local procurement choices and decisions based on the quality and price of the local product and according to the local customers’ changing needs.
His next choice, CMH, is an investment holding company with subsidiaries that own interests in retail motor, car hire, financial services, consumables distribution, digital marketing, and workshop equipment.
The broad range of services and the fact that the company sells both new and secondhand cars offer security to investors.
ADvTech, his final choice, provides private education in three countries, including South Africa.
Its offering of strong, diversified brands makes it a great choice for investors. The company also benefits from being a well-established player in a sector that is increasingly in demand in South Africa.
Here are his three stock picks and the reasons why he likes these companies.
Bidcorp
For his first stock pick, Khumalo went with Bidcorp, which he said is “a very good business”.
The global food services distributor has a presence in both developed and emerging markets, with a market cap of R149.84 billion on the JSE.
The company operates in over 35 countries, across Africa, Australasia, the Americas, Europe and Asia.
“So, you are diversified, not just geographically, but when it comes to currency as well. There’s a big risk if you’re a company and you operate in one currency in one country,” Khumalo said.
Bidcorp runs a decentralised model, allowing local management in different geographies to operate their businesses as they see fit, provided they meet profitability and growth targets.
“Where they stand currently on the JSE, on the returns perspective, if you look at their last three years returns, they’ve done exceptionally well.”
Despite its strong performance, Bidcorp is not as expensive as you might expect.
Currently, it has a forward price-to-earnings (PE) ratio of just above 16 and a dividend yield of 3%, which is very impressive for a quality business like Bidcorp.
People often understand Bidcorp’s focus on food but may not know who its clients are. They supply hotels, schools, and any place with a canteen with fresh, frozen, and ambient produce.
Bidcorp is also recommended by Vestact, which makes it even more appealing to investors.
CMH
Next, Khumalo chose his “new favourite company” – Combined Motor Holdings (CMH).
CMH operates throughout South Africa, employs approximately 2,700 people and has been listed on the JSE since 1987.
Khumalo said CMH is a “well-run business” in the motor vehicle sector, which trades with both new and used cars.
At a market cap of R2.48 billion, CMH trades at a low forward price-to-earnings ratio of around 4.
The company also pays a solid dividend, with a historic yield of about 12% and a forward yield of 11%.
Khumalo added that this company has also seen a recent spike in interest, with its stocks rising 22% in the past three weeks.
CMH also benefits from after-sales services and, most importantly, vehicle financing, which makes the buying process easier for customers.
Additionally, CMH operates fleet and car rental businesses, including First Car Rental, which is highly regarded.
“So I like the business,” Khumalo said, adding that CMH is a very good, high-quality company with good management.
“I think it’s very cheap, it’s overlooked and I still think that the opportunity for a catalyst.”
ADvTech
Finally, Khumalo picked AdvTech, South Africa’s largest private education provider, with well-known brands that include Varsity College, Vega, and Crawford.
The business is also recommended by Vestact and currently has a market cap of R17.45 billion.
Investors who bought this stock straight out of the Covid-19 pandemic are “laughing to the bank”, Khumalo said. “I’m still very bullish on the company today.”
AdvTech operates in three countries: Kenya, where they run Crawford schools; Botswana; and South Africa, where they’re well-established and offer a range of education services from pre-primary to university.
“It is a very interesting business which we like a lot, and we still think it’s relatively cheap compared to the type of quality you’re getting when you buy this business,” Khumalo said.
“The management is also very strong in running the business and they’ve turned this business around quite nicely from post-Covid.”
The company trades at a PE ratio of 15, which is low compared to the S&P 500’s average of 21. Plus, you’re getting a dividend yield of about 2.5%, which is solid.
Their strong, diversified brands also insulate them from challenges other similar businesses face. For example, Curro had some branding challenges, but AdvTech is better protected from that due to its diversity.
Some of AdvTech’s brands, like Crawford and Trinity House, have been around since the 1970s and benefit from having that legacy.
They’re also benefiting from the growing demand for private universities, with Varsity College and Monash South Africa leading the way.
In addition, they have one of the largest online student numbers in South Africa, which is impressive for a business that’s known for being brick-and-mortar.
In addition, AdvTech operates at 99% occupancy, which means that every extra rand they make goes straight to profit.
“So we like this business a lot,” Khumalo concluded.
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