BROKERS’ NOTES: Buy Dipula, sell Discovery

Alex Duys, portfolio manager: Umthombo Wealth Management

Buy: Dipula Property Fund

It’s a quality SA Reit that is under the radar of most institutional investors; I say quality because as an SA Reit with retail and office exposure it is likely to be one of the only counters where the FY2024 distributable income per share is expected to exceed its 2019 income, while having a lower loan to value ratio. In other words, it’s in a better position now than it was then. Dipula’s property valuations are conservative and the portfolio requires lower maintenance than most of its peers, which is important, considering the high  interest rates and exorbitant municipal  costs landlords are facing. It’s trading at a sizeable discount to net asset value and yet can sell noncore assets in the region of NAV. It offers a compelling yield and we believe this is sustainable with modest growth.

Sell: Discovery

Considering its expensive valuation we do not share the positive market sentiment towards the business. Discovery in our view has too many ventures locally and offshore and we’d prefer a more streamlined approach. Return on capital, especially offshore, has been below expectations. IFRS17 is causing a headache for insurance firms and Discovery might be the most affected by these changes. We remain cautious of Discovery as we find its unusual accounting, combined with aggressive actuarial assumptions and elevated levels of debt, troublesome.