Here are the companies set to win big in 2025

South African banks are set to benefit from improved economic growth in the country, with lending set to pick up and interest rates remaining elevated, boosting profits. 

This is feedback from the managers of Coronation’s R27.69 billion Top 20 Fund, Nicholas Stein and Neville Chester, who outlined some of the changes they made to the fund’s investments in the last quarter of 2024. 

The last quarter of the year saw heightened volatility due to the US election in November and the potential impact of Donald Trump’s stated policy positions on the global economy. 

This volatility was exacerbated by significant changes to the interest rate outlook in the US as economic data pointed to a much stronger American economy. 

As a result, the US dollar strengthened significantly towards the end of 2024 and emerging market currencies, including the rand, weakened. 

The local market was buffeted by these major macro moves, resulting in the rand, bond markets, and equities all finishing weaker in the quarter. 

However, Stein and Chester said that this did not take too much shine off what was a great year overall for most markets in South Africa. 

This volatility gave them the chance to reposition their portfolios to benefit from an expected improvement in economic activity in South Africa. 

Stein and Chester expect local banks to be the first beneficiaries of an improved South African economic performance. 

As economic performance improves in South Africa, commercial lending is expected to rise as businesses look for capital to expand their operations. 

This will also be driven by large corporates continuing to invest in alternative energy sources to save money from increased electricity tariffs or reduce their businesses’ carbon footprint. 

A pick-up in commercial lending can already be seen in data from the Reserve Bank. Lending to businesses has also risen faster than retail lending as households remain under immense financial pressure. 

Stein and Chester also explained that the Reserve Bank’s cautious approach to interest rate cuts and the likelihood that rates will remain higher for longer will continue to drive bank profitability. 

The slow rate-cutting cycle has seen banks’ earnings remain at elevated levels and crucially supports a higher return on equity as banks with large endowments. 

The banks are well capitalised, still paying out good dividends to shareholders, and should all be able to deliver at least mid-single-digit earnings growth in the year ahead, Stein and Chester said.

As a result, they have added to their positions in the banking sector. The most recent factsheet for the Top 20 Fund reveals a significant position in Standard Bank, Nedbank, and Investec. 

On the other end of the spectrum, Stein and Chester cut their positions in resources to free up increased investments in industrials and financials. 

In particular, they cut their holding in coal-mining giant Exxaro, which has been a long-held position in the fund and produced good returns due to the company’s strong cash generation. 

However, the prospect of the company misallocating capital under pressure to buy assets outside of its existing businesses has become a significant risk. 

This is coupled with leadership instability at the miner, with suspended CEO Nombasa Tsengwa fighting to retain her position. 

In December, Tsengwa was placed on precautionary suspension with immediate effect, pending the outcome of an independent investigation into allegations related to workplace conduct and governance practice. 

Stein and Chester also reduced their exposure to Sasol in this period despite the very cheap valuation, as we are no longer particularly bullish on the oil price, which is necessary to drive earnings at the company.

The funds from these sales were used to invest in new positions in Woolworths and Vodacom, with the declines in the companies’ share price making them very attractive. 

Vodacom operates the largest network in South Africa and also owns a stake in the very successful Safaricom business in Kenya, which operates M-Pesa, the pre-eminent African mobile money business. 

It has also recently purchased a controlling stake in Vodafone Egypt. While South Africa is a mature market, it does generate robust cash flows, and the growth opportunities in markets like Kenya and Egypt offer potential growth vectors for the company. 

Egypt, in particular now that its currency has been allowed to float, is an attractive market for Vodacom to generate decent returns. 

Woolworths has seen its food and groceries business continue to do well in South Africa, defending its market share in a very competitive market. 

However, Its clothing business has been the main drag on performance in Australia and South Africa. 

Significant investment is being channelled into the South African business to deliver better products and availability, which should then result in the business stabilising its market share and returning to growth. 

The market has derated the business substantially, especially when you look at the rating of the other FMCG businesses and against the more successful fashion retailers in the local market. 

With management progressing a turnaround in the fashion business and the potential benefits from an easing interest rate cycle, Stein and Chester think the retailer is well positioned to outperform from here.