BROKERS’ NOTES: Buy Investec, sell Clicks

Buy: Investec

This specialist financial services business has gone through a measured restructuring process and is now a less complicated and more focused banking and wealth business. The management team has done well to navigate the sell-down of the shareholding in Ninety One, the divestment from Investec Property Fund (now called the Burstone Group) and the merger of the Investec Wealth & Investment (UK) business with Rathbones. The group’s strategy is one of growth, which includes doubling the retail banking business by extending the offering to IT professionals, expanding the business banking business and growing the UK high net worth client business. The share price has underperformed recently and offers an attractive opportunity to own a business that is growing earnings and pays an attractive 6% dividend yield.

Sell: Clicks

The health, home and beauty retailer is a great company, but the share comes at too high a price. The earnings multiple of 31 reflects an expectation of accelerated growth, but it is more likely that growth will moderate due to increased competition (not least from ambitious rival Dis-Chem) and less opportunity to roll out new stores (from 930 stores now to a targeted 1,200 — which requires opening 40 to 50 stores per year). The business does have exceptional return metrics and a robust balance sheet, and warrants a premium valuation relative to its South African and emerging-market pharma peers. But as the earnings growth rate slows the market will start to reprice the share accordingly.