BROKERS’ NOTES: Buy Quilter, sell Bidvest

Mark du Toit, co-founder: OysterCatcher Investments 

BUY: Quilter 

The opportunity for Quilter has been created because there’s a new worry about the UK’s macroeconomic situation.

Yes, the cost of living has increased quickly but we do see inflation being brought back under control and the long-term savings market hasn’t materially changed. Quilter’s share price has been caught up in this whole sell-off and on our bottom-up valuation process this looks like a good entry point. Quilter is the second-largest advisory business in the UK, so there’s still room for it to grow market share; it has enough scale so it’s not under threat. It’s going to have tailwinds from global markets now as we reach the end of the rate hiking cycle, and as assets grow it earns higher fees. It also pays a nice dividend — the full-year dividend yield is 5.3% and it’s trading on a p:e of 10. We believe that should be 16.

SELL: Bidvest 

It’s a great company — a big industrial business in South Africa. Its earnings are still dominated by the South African businesses. Currently it’s growing offshore earnings but the acquisitions it’s making have lower returns than its current business, so earnings will be diluted by M&A activity. The group is growing earnings at 7% a year and it trades on a forward dividend yield of 6.3% but we think the business will be constrained by the local economy. Given that the overseas acquisitions are going to be expensive we don’t see them generating good long-term returns.