This Week:
In Speciality Finance, Finweek chooses Grand Parade Investments (GPL).
Grand Parade Investments is “worth a flutter,” says Marc Hasenfuss in Finweek. In his view the small cap share has morphed from a purely investment company to an operational play: Grand Parade is leveraging its holdings in strategic gambling assets to best effect! The company’s main asset is an effective 34% stake in SunWest, a subsidiary of Sun International and holder of the GrandWest casino management contract. Shareholders looking for a sure thing will struggle to find a more attractive opportunity. Writes Hasenfuss: “Net asset value stands at 389c/share, meaning the share price is offering a most enticing discount of 40%.” Current price: 240c.
In the Marine Transportation sector, Finweek chooses Grindrod Limited (GND)
MoneyWeek SA included Grindrod Limited in our Gamble of the Week column last week. This week Finweek’s Sikonathi Mantshantsha says “long-term investors can dabble in the share at its current rand-strength wary 1686c/ share.” Market analysts like the counter because of prospects in the world’s emerging economies. They say China’s two-digit GDP growth and record low global interest rates are fuel for global trade – good news for companies in the international shipping business. Grindrod is more attractive than most of its listed peers due to its ecent diversification into logistics (snapping up port assets) and road transport (petrochemical road transport). At a price-to-earnings of 9.4 times Grindrod isn’t historically cheap, but it’s worth accumulating on a longer view. Current price: 1664c
In General Mining, Financial Mail chooses Coal of Africa Limited (CZA)
It hasn’t been plain sailing for local coal producers. In recent years they’ve had to weather recession, deal with policy inconsistencies at the country’s biggest coal consumer (Eskom) and struggle to secure export quotas at the Richards Bay Coal Terminal. Coal of Africa’s share price suffered a big hit recently after the market got wind of logistical and technical problems with coal production. And somehow the group managed to turn a 218% surge in turnover into a loss of A$113.8m in the latest financial year. But all is not lost. According to Charolotte Mathews of the Financial Mail: “Though investors have fled the shares, projects are good and there’s potential for recovery.” Current price: 933c
In the Heavy Construction sector, Financial Mail chooses Sanyati Holdings (SAN).
South Africa’s small cap sector is chock full of value shares. Construction minor Sanyati is a case in point. The company is changing hands at around 42c/share and trades off a price-to-earnings multiple of just 3.5times. Management recently announced headline earnings per share would be 40% higher for the half-year to 31 August 2010. This follows an impressive R1.99bn revenue and R103m operating profit in its latest full year. The earnings are coming off a low base, but at its current valuation the company is unlikely to slide further. And that, says Larry Claasen of the Financial Mail, makes Sanyati “definitely worth a closer look.” Buy. 42c
In Consumer Finance, Finweek advises against Blue Financial Services (BFS).
Blue Financial Services isn’t half the company it used to be. After taking small cap investors on the typical start-up rollercoaster ride it deposited them in penny share territory without so much as an apology. Now it’s up to Mayibuye, a financial services firm, to sort things out. The unlisted company will apparently refinance Blue Financial Services – but only by way of a post-takeover recapitalisation effort. It’s a typical zero money down rescue which results in almost total obliteration of shareholder value. That’s why financial journalist Marc Ashton writes: “We wouldn’t touch this rescue effort with a barge pole!” Current price: 14c
In General Mining, Financial Mail advises against Sallies Limited (SAL).
Sallies’ has finally admitted that “its goose is well and truly cooked,” opines Jamie Carr in this week’s Diamonds & Dogs column. A gold miner back in the early 1990s – Sallies morphed into a fluorspar producer, producing acid-grade product for the export market. But the strong rand has knocked holes in its latest results. “The market wobbled and the rand muscled up,” writes Carr, “leaving Sallies with an empty order book and no option but to raise the white flag and mothball its operations.” Shareholders will have to adopt a “wait and see” stance to see whether the remaining capital keeps the wheels turning until production can resume. Current price: 11c
In Banking, Financial Mail places Capitec Bank Holdings (CPI) on the watchlist.
Investors have been chasing Capitec higher as they realise the appeal of a bank that’s doing things differently. The small bank has been signing up thousands of customers in the low and mid-income markets with its low fee and longer banking hour offering. We wonder how long it will take South Africa’s big four banks to notice… Unfortunately Capitec is starting to look a trifle expensive. “Capitec trades at almost double the PE of the banking sector,” writes Stephen Cranston in the Financial Mail. Although the company continues to grow its loan book (+73% over the past year) and reduce its loan arrears (to just 4.6%) the share is no longer a bargain. Hold. Current price: 14750c
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