BROKERS’ NOTES: Buy Ethos, sell Distell

Buy: Ethos

Ethos is trading at a discount to NAV of about 50%.  The biggest component of its business is Optasia — a mobile fintech company, which represents about 25% of Ethos’s NAV alone. If you believe that mobile telephony is dying and the future of those businesses lies in fintech, then Optasia gives you the cleanest, smartest entry into that market, whereas the old cellphone companies will battle to maintain their growth trajectory. You’ve already seen Vodacom and MTN pivot into financial services, but you have to sell a lot of financial services to offset margin compression elsewhere. 

Sell: Distell

Let’s say you are a Distell or Mediclinic shareholder.  You’re about to be forced out of your beloved holdings — but you could redirect the proceeds into Remgro. You’d be selling both of those at lofty multiples to buy a discounted entry into a company that will own both, with more mojo to boot. Starting with the FirstRand unbundling, there’s a clear strategy to unlock the discount to NAV at which it trades and a focus on assets that they can add value to. I like that attitude and I trust them as allocators of capital. There are some good assets in there and a dealmaking skill set that you are not going to find in a Bidvest, say.

Graeme Körner, founder: Körner Perspective