SA equities proved to be remarkably resilient in 2020 with the JSE all share index posting a 4.1% annual gain despite a year of unprecedented challenges that included sovereign credit downgrades, the deepest economic slump since the Great Depression and the onslaught of a global pandemic.
At its worst point last year the JSE was down 33.5% by March 19, but recovered spectacularly to the end the year higher. While 2021 thus far shows no sign of a rapid recovery from the pandemic, all investors worth their salt know there is always opportunity amid chaos, as evidenced by the JSE reaching a record high on Friday.
Business Day spoke to some of SA’s best-known investment gurus to see what stocks they believe could help pandemic-proof your investment portfolio. Here’s what they say:
ITALTILE
Italtile rose 13% last year making it one of the few shares that ended 2020 better than where it started. Despite a three-month lockdown that shut its manufacturing and retail operations, Italtile managed to weather the storm.
One of the unlikely consequences of the pandemic has been an unexpected home improvement boom as housebound consumers embarked on renovations to stave off boredom. Record low interest rates also spurred many renters to purchase their first homes, all of which plays to Italtile’s strengths.
Tracy Brodziak, portfolio manager at Old Mutual Equities, says the company is one of her picks for the year ahead. “Italtile is a company that could benefit not only because it benefits from the home improvement trend but also because it is engaged in import substitution, which is a good place to be in a world of supply chain disruption,” she says. “It is also backwardly integrated with its retail offering.”
TRELLIDOR
Though its share price dropped 28% in 2020, Trellidor is another counter that potentially offers some defensive properties in an economy ravaged by Covid-19.
The wave of home improvement and first-time home ownership could well buffer the company, which manufactures security gates, burglar bars, blinds and shutters. That may not be evident in Trellidor’s results for the year, with the company saying on September 14 that headline earnings per share would be 55%-75% lower in the 12 months to end-June 2020. However, it appears to be shrugging that off with the share price having rallied 57% since the start of November.
It also recently finalised a deal to acquire its UK product distributor, Really Secure Company UK, for R33.4m. That could position it well for European expansion, though investors may want to watch those ambitions given how poorly SA businesses have fared in developed markets.
Keith McLachlan, an independent investor and market analyst, says Trellidor is an underrated stock that could materially surprise to the upside.
“There’s been a lot of activity in the property market post lockdown, particularly in the R1m to R2m space. One of the first things people do when they buy a new property is make security upgrades or add new blinds and shutters, which should be a general tailwind for a company like Trellidor,” says McLachlan. “If the infrastructure boom happens as anticipated that could add further fuel to the fire for Trellidor, especially towards the later end of next year.”
BANKS
SA banks have been hard hit by Covid-19 with bad debt provisions spiking and debt payment holidays decimating earnings. Share prices have thus suffered with Standard Bank losing just shy of a quarter of its value last year and both Absa and FirstRand down almost 20%. Investec slumped almost 38% while Capitec’s share price ended 2020 about where it started after earlier suffering a big sell-off.
But Wayne McCurrie, a portfolio manager at FNB Wealth & Investments, says these depressed valuations make banks one of the better bets for SA value investors prepared to wait for a general recovery. “The general share market doesn’t offer much value right now because of valuations,” says McCurrie. “But if you ask me for a sector I’d go with the big banks — they are very cheap.”
EQUITES PROPERTY FUND
Listed property suffered hugely in 2020 as level 5 lockdown restrictions shut restaurants and reduced footfall at some the nation’s biggest malls. A cascade of corporate failures also combined with a pandemic-induced shift to a new work-from-home business model to reduce demand for office space. Blue chip property counter Growthpoint lost 43% of its value last year while rival Redefine fell 56%. Attacq slumped 60% while Arrowhead dropped 39%.
However, there was one bright spot in the form of Equites Property Fund, which experienced a comparatively mild 13.2% drop in 2020. The share is perhaps the best defensive listed property stock in SA thanks to its focus on logistics warehousing solutions, which act as a buffer in economic downturns because even in recessions goods still need to be transported countrywide. It also has operations in SA and the UK, which helps hedge against a weak rand.
“Listed property is trading at a 15% yield and a 40% discount to net asset value,” says McCurrie. “That makes it a classic deep-value investing play, especially if things come right in the economy. But it is risky and you need to have a long-term investment horizon as it could be five or 10 years before you realise returns.”
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