BROKERS’ NOTES: Buy Sygnia, sell Famous Brands

Mark Tobin, founder of Coffee Microcaps

BUY: Sygnia

Despite a significant run-up in the share price ahead of its upcoming results, four powerful tailwinds will continue to drive Sygnia’s performance. First, the introduction of an admin or platform fee for all accounts will, in large part, drop straight to its profits line. Second, the two-pot pension system will result in assets remaining under Sygnia investment management for longer, notwithstanding employees’ ability to withdraw a portion of their pension funds every year. Third, the secular shift from active to passive management still has a long way to go in South Africa, considering the portion of assets under passive management in global investment markets. Finally, Sygnia can still roll out multiple new passive ETFs into the market, given the breadth of ETF investment strategies offered in international markets.

SELL: Famous Brands

Famous Brands released its results recently, and there’s not much to get enthusiastic about despite the Gourmet Burger Kitchen debacle now finally behind the group. Its remaining Wimpy business in the UK continues to be a millstone around its neck. The Africa and Middle East divisions showed strong revenue growth but also increased losses. Sales were lacklustre across its network of offerings in the South African market, with some pluses and some minuses. Its logistics and retail divisions are struggling to achieve profits to compensate shareholders for the capital invested there. The vertically integrated strategy Famous Brands has long employed appears to be no longer working. No longer the growth stock it once was under previous CEO Kevin Hedderwick, it is trading at an earnings multiple of about 11 and a dividend yield of about 5.5%, which may not be enough to attract value investors to the stock.