BROKERS’ NOTES: Buy Absa, sell Thungela
Mark du Toit of OysterCatcher Investments on what the smart money is doing
Mark du Toit, portfolio manager: OysterCatcher Investments
Absa’s share price has underperformed its peer group this year and shows relative value. The bank, released from its Barclays shackles, can now plot its own destiny under the capable leadership of CEO Arrie Rautenbach. The strong corporate banking business is underappreciated by the market and recent BA900 regulatory reporting shows it is continuing to grow both retail and corporate deposits. The bank has the opportunity to improve operational efficiency in its South African business and also grow in its chosen African geographies, while paying a comfortable 8% dividend yield.
Cooling thermal coal prices coupled with poor rail performance is a tough economic environment for coal producer Thungela. Mining companies such as Thungela have a high fixed cost base and when the revenue line comes under pressure, earnings and shareholder returns decline. The management team has shown good capital discipline in the past, but will be tested if coal prices return to more normalised levels of $75/t vs the present $110/t.
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