Thamsanqa Netha’s top three stock picks
Thamsanqa Netha, managing director at Shiloh Capital, recently shared his top three JSE stock picks – Stadio, Bell Equipment and WBHO – at the most recent JSE Stock Picks session.
Netha is the managing director at Shiloh Capital, a privately owned investment company focused on alternative investments.
He has a Master’s degree in Development Finance from Stellenbosch University and almost two decades of experience in the financial services sector.
He has worked at well-known financial institutions like Nedbank and the Development Bank of Southern Africa. Netha has been at Shiloh Capital since 2015.
Netha explained that his company likes investing in the real economy or tangible assets. They prefer companies and sectors that can make a tangible difference, such as engineering, agriculture, and manufacturing companies.
Therefore, his three stock picks are either in the education or manufacturing sectors.
All three of his picks are relatively small companies, which means they have high growth potential and are often undervalued.
Many smaller companies are also able to adapt to market changes more quickly than larger corporates. They tend to be more innovative, making them well-positioned to capitalise on emerging trends.
Small-cap companies also often become acquisition targets for larger firms, leading to a premium on their stock price when buyouts occur.
However, they come with some drawbacks, as smaller-cap stocks tend to experience greater price swings, making them riskier than large, established companies.
Liquidity is also a concern when investing in small caps, as these stocks often have lower trading volumes, making it more difficult to buy or sell large positions without affecting the price.
Smaller companies also tend to be less financially secure, as they lack the capital bigger companies have access to, making them more vulnerable to economic downturns and interest rate hikes.
However, Netha believes his three picks present attractive investment opportunities, with his reasons outlined below.
Stadio
Netha’s first stock pick, Stadio, is a private higher education company in South Africa with a market cap of around R5.9 billion.
Originally a spin-off from PSG’s Curro, Stadio focuses exclusively on the tertiary level, targeting individuals who might not have the means or access to traditional university institutions.
Netha said the company aims to make tertiary education more accessible to South Africans by expanding into online education and shifting away from buying physical campuses.
Stadio’s most recent trading update revealed that it expects its earnings per share to grow by up to 31.4%, bringing it to as much as 32.2 cents per share.
Netha cited three reasons why he believes Stadio makes for an attractive investment.
Firstly, the market is large and potentially growing. He said that roughly 400,000 students pass matric with degree passes every year. However, only half of them go on to study in tertiary education institutions.
Secondly, Stadio is investing more in online education, which is more scalable and profitable than brick-and-mortar universities.
Finally, he said that many government policies favour tertiary education, naming NSFAS as an example of the government’s commitment to promoting it.
Bell Equipment
Bell Equipment is an example of Netha’s interest in investing in engineering and manufacturing firms.
The company is South Africa’s only major designer, manufacturer and distributor of heavy equipment.
With a market cap of just under R4 billion and a P/E ratio of 5.1, Netha believes the company is undervalued.
He explained that he likes this company because it produces equipment for mining, construction and agriculture, which gives the company product diversification. He added that it also has a healthy balance sheet.
The manufacturer has gained international recognition for its articulated dump truck. This opens doors to international expansion, which Netha also said is beneficial for investors.
Through international expansion, the company can also diversify geographically, lowering the risk of operating in just one country.
Wilson Bayley Holmes-Ovcon (WBHO)
Wilson Bayley Holmes-Ovcon (WBHO) is a well-established construction company in South Africa and internationally, operating in countries like the United Kingdom and Australia.
It is one of South Africa’s largest construction companies with operations in construction, civil engineering, and road and earth works.
Netha said the company has a net asset value of R24.4 billion and an order book of R32 billion.
His main considerations for investing in WBHO are three-fold.
Firstly, the company stands to win good, high-quality contracts in the infrastructure space because it is well-established across various countries.
Secondly, he said the company’s commitment to building infrastructure and its capacity to execute those projects were strong considerations.
Furthermore, he added that the South African government aims to spend billions on infrastructure over the next decade, and he believes that some of these projects will be awarded to WBHO.
Lastly, he highlighted that WBHO’s integration of technology into their project management gives them a cost advantage over their competitors.
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