BROKERS’ NOTES: Buy Reinet, sell Truworths

Rowan Williams, portfolio manager: Nitrogen fund managers 

BUY: Reinet 

We’re looking to reduce our exposure to the South African economy and the rand so we are going for a rand hedge — Reinet. It’s a bellwether investment holding company and it’s still trading at a big discount to NAV. It’s a cheap entry point to get exposure to British American Tobacco, and we still like the medium-term prospects for Pension Corp, which is exposed to the UK life insurance sector. And then there’s the private equity exposure, which is the balance of the portfolio; it also appears attractive and has delivered good returns. So you get a basket of assets at a fairly significant discount. 

SELL: Truworths

We are still selling Truworths. It looks cosmetically cheap but it’s squarely exposed to the South African consumer and continues with a fairly outdated business model of selling fashion on credit. The latest results overall looked good but Truworths Africa continues to go backwards, notwithstanding the increase in the percentage of credit sales. It had cost pressures, and margins went backwards … this was masked by a recovery in the UK business. But the UK consumer is coming under pressure and the South African consumer is definitely under pressure. We’ve already seen a slowdown in local sales over the first seven weeks of the financial year. There’s also a risk that the higher credit sales will lead to increased bad debts.