BROKERS’ NOTES: Buy FirstRand, avoid the PGM carnage
Mark du Toit of OysterCatcher Investments on what the smart money is doing
Mark du Toit, portfolio manager at OysterCatcher Investments
The recent share price weakness presents a buying opportunity. FirstRand is a quality business and the leadership changes highlight the depth of the management team within the group. Its focus on generating economic profit within the business will lead to superior capital allocation decisions. The business will continue to grow earnings faster than nominal GDP and continue to accrete capital with a forward dividend yield of 6.5%.
SELL: PGM miners
The price of the platinum group metals (PGMs) basket has fallen sharply this year and the outlook remains poor. Palladium is in oversupply due to worldwide lower sales of diesel vehicles, coupled with continued flow of the metal from Russia to China. Rhodium is also in oversupply after a change in the manufacturing process used by Chinese glass fibre manufacturers. Platinum’s prospects are rosier in the medium term, but prices are unlikely to rise until hydrogen usage increases. Share prices of South African PGM miners have fallen and will continue to be weak until platinum moves into a supply deficit.
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