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Stefan Ampenberger (1908 - 1983), detail from “The Red Sun”, oil on board, Sanlam Art Collection. Stefan Ampenberger (1908 - 1983), detail from “The Red Sun”, oil on board, Sanlam Art Collection. FIA Meeting 16 October 2012

FIA Meeting

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FIA Meeting. 16 October 2012. Economic reality. IFO world economic climate survey. Recent trends/themes. Cheap shares became cheaper. and relatively expensive shares remained expensive. Global laggards cheap and underperforming. Global equities sideways but volatile. - PowerPoint PPT Presentation

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Page 1: FIA Meeting

Stefan Ampenberger (1908 - 1983), detail from “The Red Sun”, oil on board, Sanlam Art Collection.Stefan Ampenberger (1908 - 1983), detail from “The Red Sun”, oil on board, Sanlam Art Collection.

FIA Meeting16 October 2012

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Economic reality

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IFO world economic climate survey

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Recent trends/themes

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Cheap shares became cheaper

and relatively expensive shares remained expensive

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Global laggards cheap and underperforming

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Global equities sideways but volatile

Asset performance driven by risk-off or risk-on

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Globally: risk-on and risk-off dictating

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Correlation can remain high for sustained periods

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All about expectations

Policy measures and earnings expectations

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Earnings expectations – 2012

Source: JP Morgan

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Where do we invest OPM?

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Common answer...

In assets where the value appreciate

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US bonds – multi-year bull market

Source: I-Net

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US bonds – multi-year bull market

Source: I-Net

Global Sovereigns do not p

rovide the rig

ht answer

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Global Equities

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Pattern

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Sideways with short cycles

Source: I-Net

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Price

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Valuation – methodologies differ

Source: Case Shiller

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US equities – valuation from all angles

Valuation Metric Current Value

Long term Ave

Avg. Since 1991

Trailing PE 16.3 15.5 25.3

Normalised PE 24.3 18.0 29.7

Forward PE 15.4 14.9 23.7

Forward DY 2.3 4.5 2.1

ERP 4.11 4.23 0.99

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US equities multi-year lows versus bonds

Source: Case Shiller

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US equities multi-year lows versus bonds

Source: Case Shiller

Preferred Asset class

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... and property?

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Expectations look reasonable

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A local update

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Macro context

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SA GDP – trend heading in the wrong direction

Source: I-Net

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Rand weakness – SA unique problems

Source: I-Net

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Pattern

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JSE All Share – cyclical bull market

Source: I-Net

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Price

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ALSI valuation, fair but...

Source: I-Net, SPI

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The value dilemma in SA

Sector/Share FY1 Consensus Earnings growth

FY1 spot earnings growth

Gold sector 32% 42%

Platinum sector 23% -51%

Sasol -3% 37%

Anglo American 3% -15%

Billiton -1% -12%

Resource Sector 6% -5%

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Commodity prices – visible response to tough environment

Source: I-Net

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Copper – very muted response

Source: I-Net

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FINDI earnings – lower PMI suggest pressure

Source: I-Net

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Case for positive but subdued returns

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A few share thoughts

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Share A – R2 to R155

Source: I-Net

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MTN – investment case summary 9-Oct-2012

• Diversified portfolio of businesses in growing economies

• Penetration levels are low

• Attractive dividend yield with an outlook for increased

dividend pay-outs

• Strong balance sheet with R7.7bn as at 30 June 2012

• Current price of R151 is a discount to our fair value of

R175

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MTN – diversified portfolio in growing economies

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MTN – capex and cash profile

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Share B – a clear winner

R5

R162

Source: I-Net

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Shoprite – a winner but priced accordingly

Source: Bloomberg

Price to sales ratio

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Shoprite’s success story

Source: Bloomberg

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Share C – should we forget about this one?

Source: I-Net

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Astral – quality in tough industry

• Delivering through the cycle returns of circa 30%.

• Through the cycle intrinsic value R200.

• Trading around R100

• Delivered high quality earnings

• Good dividend payer historic dividend yield of 7.9%.

• 10 year average dividend yield is above 6%.

• Expected 2012FY dividend yield of 6.3% in extremely tough operating environment

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Astral – look through the cycle

• The short term results expected to be poor

• regional oversupply

• increasing imports from Brazil

• high input cost inflation

• FMCG retail sector playing the producers off against each other.

• Medium term balance likely to return

• weaker producers out

• demand catches up with supply

• possible increase in tariffs on imports

• input costs pressures moderate

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Astral – play on “normal” margins

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Astral operating profit margins

Feed

Overall

Poultry

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Conclusion

• Tough macro environment

• No long term alternative – embrace risk

• Equities likely to move modestly higher – volatile

• Property remain important building block

• Volatility a friend rather than enemy of long term investors