The JSE managed to keep its head over water for most of 2018, with a modest positive cumulative return in September. However, the last part of the year proved to be particularly difficult, with the JSE All Share index (Alsi) falling by 13.1% over the period from three months to the end of November, before experiencing a relief summing up in December. All in all, Alsi dropped by 8.5% in 2018, while the weighted shareholder index (Swix) fell 11.7% over 12 months.
Investors in local shares were not alone, as 2018 was a tough year for stock investors around the world. Measured in local currencies, global capital markets recorded an average decline of 7.2% in 2018, with few countries reporting gains. The British market loaded with Brexit fell 9.4%, and the German DAX, caught in the Trump's trade war with China, fell by 19.3%. The only markets that had positive effects – including Saudi Arabia, Russia and Brazil – had a common factor: oil.
After we have gone through the hard yard, it is unlikely that the sale of the stock results in attractive market and market valuations. So, so that you can complement your portfolio by trading the world's equity index of 13.5 times in advance or with a German equity instrument offering a dividend yield of 3.5% in euros, you can also look at certain stocks that offer great growth potential. Below are three of our best ideas for 2019.
1. Altaba: Alibi alternative
Altaba, quoted on the NASDAQ, is an attractive vehicle for entry into Chinese Alibaba. Altaba result of Verizon acquisition of all Internet companies owned by Yahoo !. Time to Yahoo! of an investment holding company holding shares in Alibaba and Yahoo! Japan. Then Yahoo! is renamed in Altab – with a name indicating that it is "an alternative way of holding Alibaba." This "residual" business, with a market capitalization of $ 38 billion, is traded with a sharp discount on the net asset value (NAV) of two basic Asian funds.
Since Taiwanese-American entrepreneur Jerry Yang founded Yahoo! In 1994, the company built the habit of investing excess cash in different entities. This involved buying a $ 1 billion share in Jack Ma's Alibaba in 2005. At that time it was considered a rather counter-inviting. Fast forward to 2012, however, when Yahoo! sold 50% of its stake in Alib for $ 7.6 billion, and the vision of the original investment became apparent.
Alibaba is now a highly profitable Chinese e-commerce, retail and technology business. An example of his incredible pulling power was Alibaba's $ 32 billion sale on Singles Day (November 11) in 2018, surpassing Black Friday and Cyber Monday together.
Altaba, another fundraiser, Yahoo! Japan, founded in January 1996 with SoftBank to establish the first Internet portal in Japan. Profitable since its foundation, Yahoo! Japan has shown a stable growth of $ 480 million in operating profit last year. More importantly, the entity has turned into a large technology-based three-pillar corporation, including media and content business; e-commerce business; and data center operations. In essence, Yahoo! Japan is the most modern, technologically based company with a diverse and growing source of income.
Investors can acquire two excellent properties on which Altaba is based at just $ 61.00, representing a 23.1% NAV discount of $ 76.28. Alibaba has reached its peak of $ 210 and is currently trading at a significantly lower price of $ 146 due to a recent emerging market. This is an excellent opportunity to buy a very profitable and fast-growing Chinese internet giant. Acquiring the same with a further discount via Altaba adds a significant sweetener.
2. Sabry: a secret JSE performer
Sabvest is an investment holding company that has been listed on the stock exchange since 1988. The company has an exceptionally long-term record investment, earning a shareholder's return of 54 times more in its 30-year history under the cruel eye of the founder Christopher Seabrook. Despite this incredible long-term result, Sabvest is largely unknown to South African investors and is flying below the radar.
The actual influence of Sabvest has been recorded in the long-term strength of its compensation: from listing, NAV's company has grown by more than 50 times, while the JSE has grown to factor 25 times. Over the past decade, a period characterized by capital market volatility and weak local economy, Sabvest's annual growth rate of 21.9% is an astonishing annual result and well ahead of the broad market. The investment in the amount of HRK 12,500 in Sabvest in 2008 would amount to 100,000 RM.
However, Sabvest was historically a non-liquid stock, which contributed to a 30% discount on NAV. However, recently, the corporate action resulted in a 36.8% share of total issued equity capital, which increased the company's free turnover from around 20% to approximately 60%. In addition, Sabvest is in the process of changing the incentive scheme for the manager's reward when it reduces the discount to NAV, which further aligns their interests with the interests of the shareholder. The investment strategy is geared towards NAV growth of 15% per annum, and is supported by a 10% dividend annually growth.
There is a long runway for a company that will continue to open and increase intrinsic value, and conservatively calculate Sabvest's investment portfolio worth R55.80. The current market price of R39.50 makes a plausible investment case.
3. Telkom: Here's a new number
Telkom is the leading provider of Information and Communication Technology (ICT) in South Africa, offering fixed, mobile, data and information technology services. The company trades to 10.5 times earnings with 5.6% dividend yield. Telkom shows attributes of similar utility in terms of performance, with a return on assets of 9.2% per annum and a return on equity of 11.7% per annum. It makes a reasonable investment.
Of particular interest, however, is Telkom's fundamental portfolio of assets held by an entity called Gyro. Gyro's affiliates manage Telkom's portfolio of 1,332 real estate, including offices, customer centers, residential buildings, land plots and 6,500 masts and towers. Effectively, Gyro is a mega trust real estate investment (REIT) with a market value of 24 billion R, which is equivalent to three quarters of Telkoma's market capitalization of 31.6 billion Rn. We expect this portfolio to be individually listed next year. This separation would be a significant capital recognition for shareholders, freeing R45.00 from property assets in order to increase the current market price of R64.00
Ultimately, if you use a new year opportunity to evaluate and re-balance your portfolio, we believe that adding these three stocks to your holding could be a good year.
Dr. Adrian Saville is Executive Director of Cannon Asset Manager.