Five industry experts have selected five companies and Exchange-Traded Funds (ETF) as part of FNB Wealth and Investments’ top stock picks for 2023 – Mondi, Shoprite, Bidcorp, Glencore, and Balwin Properties.
Top professionals in the investment world selected these stocks, including Chantal Marx, FNB head of investments research, and FNB analysts Sithembile Bopela, Pritu Makan, Jalpa Bhoolia, and Hashmeel Suka.
Together, these professionals have over a decade of experience in investment research and analysis for FNB Wealth and investments.
Commenting on the current market environment, Marx said that risks are still rife as the war in Ukraine continues, China’s policy implementation remains haphazard, and inflation stays elevated.
She added that, locally, the growth outlook had been tempered by continued and intensifying load shedding, which will undoubtedly impact company profitability and balance sheets – depending on whether they become self-reliant.
The five stocks you should consider buying right now, with an explanation for why these investment professionals find these stocks attractive, are listed below.
Mondi (MNP)
Mondi is an international paper and packaging group with production operations in over 30 countries. The group’s critical processes are in central Europe and South Africa.
Mondi had a large operation in Russia, and therefore, the stock derated substantially in the wake of the country’s invasion of Ukraine in 2022, Marx said.
However, Mondi has begun the process of selling its assets in Russia. In December 2022, Mondi announced the sale of its three Russian packaging converting operations for a consideration of RUB1.6 billion (€24 million), at a loss of between €70 million to €80 million.
While disappointing relative to carrying value, these assets have been priced at zero by the market, and therefore, any cash accruing to the company will be viewed as positive. There is also a likelihood that this cash could be returned to shareholders as dividends, Marx added.
Mondi runs a very clean and efficient operation. It is resilient to economic cyclicality by focusing on corrugated boxes, primarily used in defensive sectors such as food and beverages.
According to Marx, the company operates in low-cost regions with access to low-cost wood. Paper prices are less volatile than metal or soft commodity prices, making its revenue more defensive than other resource companies.
“Mondi is trading at a smaller premium than its peers relative to history. It also trades well below its historical average forward Price-to-Earnings (PE) and Earnings before interest, taxes, depreciation, and amortisation (EBITDA) multiples. I think the counter offers decent, long-term defensive value at current levels,” said Marx.
Shoprite (SHP)
Shoprite is Africa’s most significant fast-moving consumer goods (FMCG) retailer. The group has an extensive geographic footprint with a presence in several African countries through brands including Shoprite, Checkers, Usave, OK, House & Home and Hungry Lion.
Shoprite boasts strong market dominance in South African formal retail, with notable gains experienced over the last five years.
“The development and successful implementation of Checkers Sixty60 shows innovation and agility to changing market dynamics and execution success. The sustained growth of Checkers Sixty60 and the on-demand grocery delivery app has allowed the group to monetise digital and alternate revenue stream opportunities,” said Bopela.
Bopela added that recent results were strong, with double-digit sales growth despite challenging base effects.
While unprecedented load shedding in South Africa has taken a toll on the group’s expenses, with diesel expenses for the quarter being significantly higher, the group has managed to curb disruptions and continue to trade due to its solar and generator investment programme, she added.
“Overall, the business remains operationally sound, boasting a strong balance sheet and is highly cash generative. From a valuation perspective, Shoprite offers fair value on a forward PE of 20.1 times and a forward dividend yield of 2.9%, complemented by a strong growth profile and defensive business model,” said Bopela.
Bidcorp (BID)
Bidcorp is a market-leading food service product distributor that operates across the food and ingredient manufacturing sectors, such as catering, hospitality, leisure, baked products, poultry, meat, seafood, and processing.
According to Makan, the group has a well-diversified client base and businesses across developed and emerging geographies at different life cycles. Bidcorp is not overly exposed to any specific client or category, boasting healthy diversification across the portfolio.
She added that Bidcorp has also seen solid momentum following the easing of Covid-19 restrictions and supply chain headwinds, with an expected recovery in China creating further growth opportunities. Margins have also remained resilient, which is noteworthy given the current inflationary environment, as most businesses were able to pass through inflation increases.
Makan said that continued recovery in travel, leisure and conferencing sectors could also provide a near-term boost.
“The company remains financially strong with relatively low levels of gearing and a robust business model with solid diversification and defensive characteristics. Bidcorp is trading on a forward PE of 18 times, below its average historical rating of 20 times,” she said.
Glencore (GLN)
Glencore is one of the world’s largest global diversified resource companies. The group produces and markets metals, minerals, and agricultural and energy products.
According to Bhoolia, Glencore has a well-diversified commodity mix, including iron ore, coal, copper, zinc, nickel, and cobalt.
She added that the group recently signed a 15-year agreement with recycling technology firm ACE Green Recycling – which will supply recycled lead and battery metal-based end products from recycled lithium-ion batteries. This expands the group’s commodity basket, allowing it to ride the high-demand lithium battery wave.
Glencore’s supply chain focus makes it more of a defensive business than a pure commodity play, and vital commodities such as coal and oil could aid cash flows medium term, Bhoolia said. The group will continue working towards decarbonisation while using its solid cash flow generation from the “old” business to fund “new” business ideas, i.e., coal to lithium.
“Glencore had a great run last year, but we still believe there is room for upside potential, especially considering the Chinese economy’s play on the commodity sector. The company is committed to returning cash to shareholders, which means that the potential for capital growth is complimented by an attractive forward dividend yield of 9.6%,” she said.
Balwin Properties (BWN)
Balwin operates as a real estate property development firm in South Africa, specialising in constructing and renting apartment complexes and lifestyle estates. The company also offers after-sales services, including fibre to the home (FTTH), solar energy and insurance.
Balwin’s portfolio currently consists of 97 developments and over 47 000 apartments. It is the largest sectional title developer in South Africa.
According to Suka, Balwin targets high-growth metropolitan areas in South Africa and has a long-term development pipeline (~45 000 apartments) in such locations. Hence, it is well-positioned to address the lack of quality and affordable housing in the low and middle-income markets.
He also noted that the high industry entry barriers are an added benefit for the company.
“Fundamentally speaking, the company has been performing well – in its 1H23 results, it reported accelerated growth in both headline earnings per share (+47%) and revenue (+20%), driven by increased unit sales and higher selling prices. Input costs have been well controlled, and the overall balance sheet position is strong,” said Suka.
“Currently, the stock is trading at R3.03, a 61% discount to Net Asset Value (R7.71). The counter is trading on a historical PE ratio of 3.42 times, which looks attractive compared to its five-year average rating and medium-term growth profile,” he added.
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