Old Mutual Investment Group

Portfolio Manager, Peter Brooke, discusses rebounds and recovering stocks with The Money Show’s Bruce Whitfield

May 17, 2022 Old Mutual Investment Group
Old Mutual Investment Group
Portfolio Manager, Peter Brooke, discusses rebounds and recovering stocks with The Money Show’s Bruce Whitfield
Show Notes Transcript Chapter Markers

Following weeks in negative territory, Peter Brooke unpacks the bounce in the JSE yesterday, which was led, in part, by the recovery seen in results from Astral, Barloworld and Raubex.

Bruce Whitfield  00:00

Listening to all of that, Peter Brooke is a Portfolio Manager at the Old Mutual Investment Group. We bucked a global negative trend today, Peter Brooke, we ended up, which is nice to see, and back above 69 000, recovering some of the rapidly lost ground that we did in the first half of May. I would now just put you on - sorry Peter, we missed the most important first three seconds of what you were saying because I hadn't put you on. How much of a bounce was today and how much of a relief was it?

Peter Brooke  00:39

Um, I think it's really just a follow on from what happened in the US on Friday night, where there was a strong rebound in the NASDAQ, and we've had six weeks of down. So, the potential for a bear market rally or a bit of a bounce, I think is there because they've been steady selling, positions were light, so you get that potential for a bit of a recovery. I think in the greater scheme of things, I wouldn't read too much into it. And in fact, the interesting thing about today was just a horde of results that pulled through. 

Bruce Whitfield  01:17

A huge number of results, the big ones: Vodacom, we've touched on them. We also are going to look at Astral Foods. What stood out for you today in terms of those results because there were lots.

Peter Brooke  01:28

I think probably the interesting one is the dispersion between those companies that disappointed. So, for instance, Life Healthcare with their first stock trading statement was down 5%. And those companies that delivered a bit of a positive surprise, so Astral up five, Barloworld up five. So, very much the market is quite sensitive to delivery on results, but also just continuation of some really big numbers coming through. So, while you'll talk to Astral later, but their turnover was up 26% but their headline earnings are up 140%. And Raubex, which is one of my favorite shares, their turnover was up 31% and headline earnings up 263%. So, there's still a recovery from those Covid lows. And as those earnings come through, it does provide a little bit of a support and a base for the South African equity market.

Bruce Whitfield  02:29

But so many people going, hold on a second, Raubex is a road builder. We see no evidence of the work they do. But I mean, they're fairly small, I suppose, in the bigger scheme of things, considering the crisis of the road infrastructure destruction over the last decade or so.

Peter Brooke  02:46

They are the biggest road builder in the country. And it's really a recovery from almost low level. And the fact of the matter is that the government has started spending again, Sanral has got contracts out, and Astral is delivering - sorry, Raubex is delivering to them. And so, there is - they fixed the Beitbridge border post. There's contracts that are being delivered to. I think the one thing that is a little bit disappointing in terms of Raubex was they've also got a big book of renewable energy contracts. But none of those have come to fruition. So, this whole round five where in terms of renewable energy, not one of those who got through to financial close, which means not one of them has started shovels in the ground, helping out Raubex in the future.

Bruce Whitfield  03:36

Ja, I mean, so, it is astonishing. There is a huge disparity between those that are performing and those that aren't. But the point is in this economy, there's some companies doing really, really well. Ultron was another one, I think, with a really strong standout result.

Peter Brooke  03:53

Ja, and I think it's - a lot of the companies that are doing well, are your sort of old South African industrials that are coming through. 

Bruce Whitfield  04:09

Explain?

Peter Brooke  04:09

Just generally. So, if you think about the economy, we've got the small and mid-cap shares in South Africa where devastated over a five year plus block. But during Covid, a lot of them basically buckled down to cut costs, restructured their business, and as a result, are showing very strong recoveries. Even if you look at our manufacturing data, the Q1 GDP numbers are going to be quite good as we continue to recover. So, we've got an improvement in flow through but with a reduced cost base. And what that means is massive operating leverage in terms of the profit line, and that's one of the reasons why that sort of SA Inc, those unloved smaller companies have done so very well in the last 18 months or so. 

Bruce Whitfield  05:04

Peter Brooke, thank you. Peter is a Portfolio Manager at the Old Mutual Investment Group.  

The market in South Africa today.
The results released today.
Looking at the dispersion between those companies that disappointed and standout results.
Taking a closer look at Raubex.
How the old South African industrials are coming through.