afena insightsafenacapital.com/newsletter/insight_sep15/files/assets/...8 mila mafanya deputy chief...

AFENA INSIGHTSQuarter ended September 2015

2

Quarter ended September 2015

CONTENTS

01 Business Insights

Khulekhani Dlamini ............................................................................ 3

02 Market Insights (Equity)

Mila Mafanya ...................................................................................... 7

03 Market Insights (Fixed Income)

Tsitsi Hatendi .................................................................................... 11

04 Botswana Insights

Alphonse Ndzinge ........................................................................... 16

05 Results Season: Stay Focussed

Grant Cloete ..................................................................................... 19

3

BUSINESS INSIGHTSKhulekani Dlamini

01

4

Khulekani DlaminiChief Executive Officer

“I not only use all the brains that I have,

but all I can borrow”

~ Woodrow Wilson, US President

I would like to offer warm greetings to all. This is my first engagement

within this publication from this new seat. For those of you who have seen

the Game of Thrones’ throne – this seat feels the way that one looks i.e.

powerful but challenging to sit still on for long periods. It is for this reason

that, off the bat, I would like to thank and commend my predecessor, friend

and partner, Tebogo Naledi, for having lifted as heavy as he has for as long

as he has. Under Tebogo’s stewardship, Afena is closing in on its 10th year

of having opened its doors. We are walking through this door of the ‘double

digits’ with enough scratches, experiences and new knowledge as a typical

10 year old child would.

5

BUSINESS INSIGHTS

While this journey has been nothing but bumpy, we find ourselves with over R12 billion

in AUM, covering a variety of asset classes with two operations both out in South Africa

and Botswana. We find that we share the bread that our clients and our efforts (and Mr

Market at times) yield with 32 colleagues and their families. Through our CSI initiatives,

we have reached into a few homes to try and share what little we currently have. Through

all of this, we remain mindful of just how blessed we are to be in the position to be of

service in the manner we have and further intend to be.

A special mention does need to go to those who held our hands in the early days as

funders and providers of assets for us to manage. We want to thank those who were our

colleagues and partners in the early days, toiling with us as we to aimed make our mark

on the South African financial services landscape. We want to further observe protocol

by thanking the regulators in all jurisdictions we are in for having been collaborative and

cooperative partners.

As we strike forward, we do so with renewed purpose and vigour. Our resolve and will to

serve our clients and our society has been renewed and brought sharply into focus. We

are reorganising ourselves so as to do things better, quicker and with clear intent. Within

the firm, we are making sure that there are clear lines of accountability, responsibility

and more nimble decision making. Every member of the business needs to be better

engaged so as to be able to serve our clients.

Our intent is simply to be relevant. The contractual savings space, in the jurisdictions we

operate in, runs into trillions of rands. Our ability to decide how some this capital can

generate financial and social returns, at acceptable risk, is an art and a science we intend

to continue to master by improving ourselves while inviting our intellectual betters to

join forces with us. We are also quite clear that there is a lot of collaboration, alignment

and common purpose that can be explored with our peers so as to better be part of the

change we want to see.

In the early days we categorically indicated that we followed a style agnostic investment

philosophy while valuation remained at the core of how we selected assets to invest our clients’

and personal capital. This approach remains true. As we go forward, our intent is to introduce

clarity for our clients and their intermediaries with regards to this how we implement this

investment approach and what expectations should be had with regards the returns we

generate and their commensurate volatility. This should serve to make us fit for purpose for

our clients. To date we have had investment outcomes that have not been at the levels we find

satisfactory for ourselves and ultimately, our clients. This is the clear focal point of what needs

to change and all due force and resources are being engaged to affect the change.

6

We also intend to expand our investments solutions platform, in line with our intentions to

serve our clients and generate returns at appropriate risk for them. While this will take time

to fully manifest, our current planning fully takes into cognizance the fact that we intend to be

more than a boutique. We have already seen our actively managed fixed income products see

their first full year of being in existence. While still nascent, their performance is quite strong

and allows us to further expand our platform.

Finally I would like to acknowledge our shareholders. In these challenging times, not

only have they indicated intent to support the firm; they have done so with aplomb. Our

internal shareholders continue to operate with high intent, dedication and integrity,

once again, in our endeavour to serve our clients. Our external shareholders have also

continued actively collaborating with us and showing us their support. It is with this in

mind that I would like to introduce and welcome our two non-executive directors Iqbal

Khan and Sebastian Patel. These gentlemen have outstanding financial services pedigree.

Sebastian is an actuary with a great track record at Nedbank Corporate as well as

Brimstone within the Corporate Finance space. Iqbal Khan was a Chief Operating Officer

at OMIGSA. Albeit they have been involved for only a few weeks, their impact is already

being felt. We intend to foster a great, productive and collaborative relationship going

forward. I personally would like to thank our outgoing non-executive directors, Tiloshani

Moodley and Gerhard Kotze for their great efforts and support.

Finally, as Afena Capital, we are aware that we are not only an instrument of change

locally but a part in South Africa’s ambitions at global relevance. This is a great

responsibility that we take quite seriously and a challenge that we relish. My election

to this seat is an honour, a privilege and a responsibility that I take very seriously and

intend to execute to the best of my abilities. There are challenges ahead, but with the

alignment of our clients, colleagues and shareholders, these challenges will be but

molehills on this long journey to being of service.

BUSINESS INSIGHTS

http://boutique.we/

7

MARKET INSIGHTSEQUITY

Mila Mafanya

02

8

Mila MafanyaDeputy Chief Investment Officer, Portfolio Manager

Global market correction made in China

The 3rd quarter of 2015 began in the same vein the 2nd quarter ended, with

investors focused on the continuation of the Chinese stock market crisis

following an astounding 17% collapse in prices in the last two weeks of June.

Chinese shares fell another 10.8% in the month of July with the contagion

increasingly spreading to other emerging markets which registered returns

of -6.9%.

The growing concerns over China’s slowing economy occupied the headlines during

the quarter despite countless efforts by the Chinese government to revive the economy

using monetary and fiscal means. In a last ditch effort to stimulate its economy, the

People’s Bank of China devalued their currency in August which fuelled a weakening in

neighbouring Asian currencies, a further plunge in commodity prices and a broad-based

equity market sell-off. Global equity markets fell 6.8% in dollars in August with negative

returns in all regions, sectors and countries.

9

MARKET INSIGHTS: EQUITY

By September investors were fretting over emerging market over-indebtedness amid

slowing economic growth and plummeting currencies. These concerns manifested in

further investor flows out of emerging markets, with Latin American & Asia hardest

hit; dragging equities in emerging markets as a whole down 3.0% in dollar terms in

September. With all the uncertainty over China and emerging markets, the US Federal

Reserve Bank delayed the long anticipated lift-off of interest rates during their September

sitting.

The quarter ended as the worst quarter in four years with global equities down 9.3%

in dollars dragged lower by emerging markets which closed 17.8% lower and to a lesser

extent developed market equities which fell 8.3%. The declines in emerging market

equity returns were exacerbated by weakness in emerging market currencies which

contributed almost a third of the fall in those markets posing a serious drag to hard

currency investors. The global correction in the 3rd quarter was broad-based in nature

with all regions, sectors and countries posting negative returns. Naturally, global equities

gave investors the lowest returns of the traditional asset classes with global bonds

delivering their 1st positive return quarter over the last 12 months.

SA equity market lagged largely due to rand weakness

SA equities fell 2.1% in rands during the quarter, with dollar investors

experiencing further losses due to the rand weakening by 12.1% against

the US dollar. Following on from a stable July month, the JSE ALSI buckled

with global markets in August falling 9% to lows last seen in the 1st week of

January of this year before recovering to close the quarter only down 2.1%.

In a similar manner to the global context, equities in SA delivered the lowest

return amongst the asset classes with cash and bonds returning 1.6% and

1.1% respectively.

The global backdrop of weak emerging market currencies and falling commodity prices

distinguished the winners from the losers in the quarter.

Companies with significant exposure to offshore markets, termed rand hedges, were

the standout performers with Beverages (25.1%), Tobacco (17.4%) and Steinhoff (10.3%)

leading the charge as the rand weakness took hold. SABMiller’s (SAB) outperformance

was spurred on by the emergence of details in late September of the long-speculated

acquisition of SAB by global-leading brewer ABInbev.

10

In line with the performance of resource companies in the global setting, resource

companies in SA dominated the laggards during the quarter, in light of slowing China

economic growth and declining commodity prices. Industrial metals lost 39.8% of their

value whilst platinum mining fell 26.7%. The industrial metals performance was driven

by the continued decline of Kumba Iron Ore (KIO) in an environment of lower iron

ore prices. Adding to the woes of platinum sector was the breaking of the Volkswagen

diesel scandal in late September given that platinum is the preferred metal for catalytic

converters in diesel vehicles.

Weakness in emerging market currencies also contributed to some underperformers in

the quarter which included Aspen Pharmacare (APN) and MTN. Aspen fell 18.3% in the

quarter, lagging emerging market pharmaceuticals by 22.3% on the back of disappointing

results which were hit by foreign exchange losses given the strength of the US dollar.

MTN reacted poorly post their results, falling 20% during the quarter, as investors grew

increasingly worried about the possibility of a dividend cut given their exposure to oil-

currencies where there is increased risk of not being able to repatriate cash out of those

countries.

Amongst the sectors in the JSE ALSI, property fared the best generating returns 8.8% for

the quarter, followed by industrials (0.8%) and financials (-1.1%), with resources lagging

with a decline of 17.9%.

MARKET INSIGHTS: EQUITY

11

MARKET INSIGHTSFIXED INCOME

Tsitsi Hatendi

03

12

Tsitsi HatendiFixed Income Portfolio Manager

Living through the markets in Q3 felt like being on a roller coaster. It

seems almost unfathomable that people put so much weight on whether

the Federal Reserve Bank (the FED) would hike rates or not. China did

not help matters much as the Chinese stock exchange tumbled and the

Yuan devalued; causing the FED to worry that the world’s second largest

economy might cause global destabilisation. A 25 basis point hike would

not derail the US economy but once lift off occurs, the FED would have

to be on a hiking path, so their decision not to hike in September is

understandable. Till lift-off occurs, we will continue to see volatility in equity,

bond and currency markets and low global growth does not help issues.

On the local data front, CPI dropped to 4.6% from 5% YoY in August. This was mainly on

the back of a 51c/litre cut in the petrol price and lower electricity tariff increase (off the

high base in July). With lower demand side pressures coming through, markets have a

very subdued inflation outlook for the coming months.

13

MARKET INSIGHTS: FIXED INCOME

The consumer outlook is dismal, reiterating GDP concerns from a consumption point of

view. The FNB/BER’s consumer confidence remained anaemic in Q3 2015 at -5; a slight

improvement from -15 in Q2 2015, levels worse than those last seen during the recession

in 2008/2009.

CHART: HCE (PRIVATE SECTOR SPENDING) GROWTH VS CONSUMER CONFIDENCE

Sources: SARB, BER

Vehicle sales remained weak, contracting 8.2% YoY in August versus -4.1% expected

and -6.1% previously. Vehicle sales should remain low given current market conditions,

compounded by declining business confidence and consumer sentiment. Passenger

vehicle sales growth was -8.3% YoY from -8.7% YoY in July; this is the sixth consecutive

month of declines. Vehicle exports were positive at 12.3% YoY in August, but down from

24.4% YoY in July; base effects due to Mercedes Benz’s capacity expansion will fade from

September.

HCE y/y LHS Consumer confidence RHS

9

6

3

0

-3

30

20

10

0

-10

-20

2000 2002 2004 2006 2008 2010 2012 2014

% c

hang

e Index

14


CHART: VEHICLE SALES IN CONTRACTION FOR FIVE CONSECUTIVE MONTHS

Source: NAAMSA, SBGS Analysis

Retail sales in July dropped to 3.3% YoY from 3.8% YoY. General dealers had the biggest

drop MoM at -5.6%; whilst Pharmaceuticals had the highest MoM increase at 10.2%.

YTD numbers, Hardware was most resilient at 6.3% YoY growth. While we’re not seeing

negative growth numbers in retails sales, the numbers are not robust either, and taking

more of a sideways pattern of just bumbling along.

CHART: REAL RETAIL SALES AND SACCI’S TRADE EXPECTATIONS INDEX (TEI)

Sources: Stats SA, SACCI

50

40

30

20

10

0

-10

-2-

-30

-40

-50

20

15

10

5

0

-5

-10

90

70

50

30

Jan-

07

Sep

-07

May

-08

Jan-

09

Sep

-09

May

-10

Jan-

11

Jan-

13

Sep

-11

Sep

-13

May

-12

May

-14

Jan-

15

Vehicle sales

% y

/y%

y/y

Index, sa

-8.2

2005 2007 2009 2011 2013 2015

StatsSA real retail sales growth (LHS) TEI (RHS)

15

The threat of a downgrade by Fitch on the 4th of December remains, as headlines in early

September made it clear that the rating agency sees the country’s risk increasing. Given

that they’ve had a negative outlook on SA for almost two years, the move would not come

as a surprise and should be priced into bond yields. The downgrade would bring Fitch

in line with the other two rating agencies. As for impact on the World Government Bond

Index (WGBI), only Moody’s and S&P are considered and on long-term local currency

rating, meaning it will only be an issue after a three notch downgrade from S&P and a

two notch downgrade from Moody’s.

One bright light in this sea of darkness was the current account balance which narrowed

to 3.1% versus 3.7% expected and 4.8% previously. Merchandise imports decreased by

1.4% in Q2 2015. The physical quantity of crude oil imports shrank by 31% in Q2 due

to planned maintenance shutdowns at several oil refineries. As a percentage of total

merchandise import volumes, the volume of crude oil imports receded from 11.7% in Q2

2014 to 7.3% in Q2 2015. Products such as petrol and distillate fuel increased from 4.2%

to 8.5% of overall merchandise import volumes in Q2.

CHART: CURRENT AND TRADE ACCOUNT DEFICITS AS % OF GDP

Sources: Stats SA, SACCI


Trade account

Current account of which: dividend and interest payments

2005 2006 2007 2008 2009 2010 2011 20132012 2014 2015

4

2

0

-2

-4

-6

-8

% G

DP

16

BOTSWANA INSIGHTSAlphonse Ndzinge

04

17

Alphonse NdzingeChief Investment Officer (Botswana)

The local Botswana market experienced moderately better fortunes (than

other emerging markets) with equities relatively flat (-0.4%) and bonds

returning 2.9% for the quarter. Having said that, domestic economic growth

expectations were revised downwards due to the intensification of electricity

and water shortages as well as the slowdown in demand in global markets

for our key export, diamonds.

The recent asset shifts from equities to bonds reflect a nervous market with low growth

expectations, and underline once again the importance of maintaining a diversified

investment strategy. We focus on the underlying fundamentals and long-term growth

prospects of our investments, not short-term price movements. For all the current

volatility, we accept this as the inevitable bumps along the road on the journey towards

meeting our clients’ long-term objectives.

18

BOTSWANA INSIGHTS

Domestic Fixed Income and Macro

Local bonds (FABI) had a solid quarter, rallying after the 50bps policy rate cut to post an

index return of 2.9%. The Monetary Policy Committee (MPC) meeting was held on Au-

gust 6 and the bank rate was cut to 6.0% which came as a bit of a surprise to the market.

In reaching its decision, the MPC noted the current state of the economy as well as the

domestic and external economic outlook, including the inflation forecast, suggested that

easing monetary policy is a step in the right direction, while remaining consistent with

maintaining inflation within the Bank’s medium-term objective range of 3 – 6%.

Q2 2015 GDP growth dropped to 2.5% y/y compared to 3.4% y/y for Q2 2014. Mining

value declined by 8.0% attributable to a decline in diamond and copper/nickel produc-

tion. The economy continued to be constrained by the decrease in value added by Water

& Electricity sector (down 41.1% y/y). This decline is largely attributable to the Electric-

ity sector which has been contributing negatively to the economy since Q1 2012 due to a

substantial increase in intermediate consumption.

September headline inflation printed at 2.9% on the back of lower domestic fuel prices,

modest domestic demand pressures, and benign foreign price developments. Credit

growth continued to drop with the June credit growth rate at an eight year low of 7.4%

y/y. The September Government Bond and Treasury Bill Auction reflected a similar

theme of recent auctions. The auction was oversubscribed and yet marginally under allot-

ted by the central bank. This latest auction was oversubscribed with total bids of P2.4bn

compared to available issuance and actual allotment of P800m and P788m respectively.

Fund managers focused on matching duration for longer dated liabilities for their annu-

ity books whereas commercial banks absorbed short-dated instruments for liquid asset

regulatory requirements.

The Pula was under significant pressure versus major currencies due to heightened risk

aversion for emerging markets and falling commodity prices weighing heavily on the

Rand. For the period, the Pula depreciated 7.3% against the USD and gained 6.9% versus

the Rand.

19

RESULTS SEASON: STAY FOCUSSED

Grant Cloete

05

20

Grant Cloete Head of Client Management


“Results season is here!”

Utter those words loud enough in any investment company or securities firm and watch

the faces of the analysts morph into ones of agony (or ecstasy, depending how seasoned

they already are). They know what’s coming. To these souls the task ahead will feel like

trying to offload a laden cement truck using nothing else but a teacup… Oh and it has to

be completed within five minutes.

So what is this ‘results season’?

It’s a period of the year when a barrage of company information floods the market

and one has to make sense of it all as the clock ticks away. Companies listed on stock

exchanges around the world are required to report / publicise their financial positions

within set periods after their respective financial year-ends. In some cases these

companies are required to report on a bi-annual and quarterly basis as well. Financial

year-ends for these companies tend to aggregate around the months of June and

December. As one can expect, the ensuing three months tend to be quite busy for the

investment world.

21

Understanding this Results Season phenomenon…

Much of the hype stems from Wall Street where companies generally report their

earnings to the market on a quarterly basis. In the US, this period is known as ‘Earnings

Season’ and lasts for around six weeks after each quarter-end (December, March, June,

September).

CHART: THE EARNINGS SEASON ‘HYPE’ CREATED IN THROUGH NEWS FLOW

Stories per Week Containing the Words “Earnings” or “Guidance,” Thousands

Source: LPL Research, Bloomberg

Why the big fuss?

Many industry pundits will have you believe that ‘Time’ is the enemy during these

periods. Management (Chief Executives etc.) of these listed companies, use these

windows of opportunity to communicate not only their financial results, but also new

information around products, strategic and leadership changes etc.

Faced with this new information, the investment community now needs to distil what lies

before them (read plug away at their Excel models) to arrive at a new ‘valuation’ or ‘share

price path’ of the company in question. Not too difficult you might say. Perhaps not but

when there are many companies reporting simultaneously, keyboard punching goes into

overdrive and anxiety (temporary insanity) sets in.

12

8

4

0

Dec-13 Jun-14 Dec-14


22

Typical buzz words that float about the market around report season…

These buzz words generally refer to the immediate reaction of the market to its

initial expectations of the companies’ reported earnings. Used often enough in quick

succession, these words could have the effect of influencing sentiment (read share price

performance) in a negative or positive way.

Do these results seasons increase activity in Stock Markets?

During periods of heightened investor anxiety spurred on by corporate surprises, share

prices tend to be particularly volatile. While we are not saying that earnings / results

seasons cause erratic share price behaviour, it is interesting to note that volatility spikes

tend to happen around the July-September and December-February periods South Africa

(SA) – around the time the companies report to the market.

CHART: SA VOLATILITY INDEX

Source: I-net

26%

22%

18%

14%

10%

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15


23

Some insights from our Analysts and Portfolio ManagersFrom the last results season (July 2015 to September 2015) we’ve selected a few

companies that reported during the period. Our analysts have taken time to distil the

results and formulate views of those businesses going forward. Their comments below:

Sun International (SUI) results

Allan Bothma, CFA ( Investment Analyst)

When SUI reported its FY15 earnings, the numbers were in-line with their previous

guidance but somewhat behind what the market was expecting; driven by FX losses in

Nigeria and start-up losses at the Ocean Club Casino in Panama. The SA economy is

showing no signs of any meaningful improvement in the short term, while, in Chile the

short term outlook is for lower growth than in recent years. As a result, the group expects

the subdued trading conditions, experienced in the second half of the 2015 financial year,

to continue for the year ahead.

CHART: SUI REVENUE, EBITDA AND MARGINS

Source: Company reports, Afena Capital

6000

5000

4000

3000

2000

1000

0

1H14 2H14 1H15 2H15

Revenue EBITDA EBITDA margin

Group result

28,1%

4963

1397 1488 1611 1560

52905007 5263

29,7% 29,6%

30,5%


24

CHART: SUI REVENUE SEGMENTATION

SA LATAM Management ActivitiesOther African operations


The investment case for SUI is primarily driven by a few factors namely:

• the expansion of its Latin American (LATAM) business, to create the largest LATAM

gaming company in the world, while reducing the group’s concentration risk to

South Africa, and the Western Cape specifically.

• In addition, post the Peermont transaction which would add Emperors to the stable,

SUI will look to rationalise the South African portfolio, to only have exposure to

those high quality casino assets (GrandWest, Menlyn, Emperors Palace, Boardwalk

and Sibaya) and strategic casinos.

Revenue breakdown at FY15A

10%

14%

71%

5%


25

Shoprite (SHP) resultsZahira Osman, CFA (Portfolio Manager, Investment Analyst)

Shoprite’s reported results were in-line with Afena’s expectations but somewhat behind

what the market (consensus) was expecting. While the group reported credible revenue

growth and increased market share over its competitors, the concern has been around

the ability to retain its elevated margins and profitability.

TABLE: SHP SEGMENTAL PROFITS AND MARGINS

Trading ProfitJune 2014

RmJune 2015

RmGrowth

%Margins 2014 2015

Supermarkets RSA 4 751 5 268 10.9 RSA 6.18% 6.20 %

Supermarkets Non-RSA 673 741 10.1 Other 1.44 % 1.53 %

Furniture 196 205 4.6 Non-RSA 4.55 % 4.42 %

Other Divisions 94 114 21.3 Furniture 4.90 % 4.54 %

Total 5 714 6 328 10.7 Aggregate 5.59 % 5.57 %

Source: Company presentations, Afena Capital

The group’s margins (Gross and EBIT) appear to have peaked in their 2013 Financial

Year while their returns on equity and assets are considerably lower than they were five

years ago.


26

Gross Margin

14%

20%

15%

20%

14%

20%20%21% 21%

13%

21%

15%

20% 21%

14%

19%20%

21%

18%

0.22

0.2

0.18

0.16

0.14

0.12

0.1

1998

1999

2000

2001

2002

2008

2005

2011

2014

2003

2009

2006

2012

2015

2004

2010

2007

2013

Hits

Ave

CHARTS: SHP MARGIN AND PROFITABILITY


EBIT Margin

2%

1%

0.07

0.06

0.05

0.04

0.03

0.02

0.01

0

1998

1999

2000

2001

2002

2008

2005

2011

2014

2003

2009

2006

2012

2015

2004

2010

2007

2013

Hits

Ave

4%

3%

5%

2%

5%

3%

6% 6%

4%

2%

6% 6%

2%

5%

3%

6%

4%

ROE0.45

0.40.3

0.250.2

0.150.1

0.050

1998

1999

2000

2001

2002

2008

2005

2011

2014

2003

2009

2006

2012

2015

2004

2010

2007

2013

Hits

Ave

23%

30%27%

38%

23%

33%32%

24%22%

11%

29%

24%

35%

22%

16%

37%

29%

24%27%

ROA0.14

0.12

0.1

0.08

0.06

0.04

0.02

0

1998

1999

2000

2001

2002

2008

2005

2011

2014

2003

2009

2006

2012

2015

2004

2010

2007

2013

9%

5%

9%

6%

13%

6%

11%

7%

10%

2%

9%

6%

12%

9%

4%

12%

8%

11%


27

Aveng (AEG) resultsAmber Raath (Investment Analyst)

Aveng reported a loss of 144c per share for its financial year ending 30 June 2015. Their

Construction & Engineering Africa division delivered a material loss at the operating

profit level, whilst its remaining three divisions (Construction & Engineering Australasia,

Mining and Manufacturing & Steel) all suffered declining operating margins. In the past,

Aveng had a strong cash underpin from the sale of Holcim in FY2007, which investors

appreciated as a buffer during tough economic times. Due to significant problem

contracts such as the Queensland Curtis LNG Pipeline Project that have incurred

significant cost overruns and material working capital outlays, this cash buffer has

been consistently eroded over the past seven years to the point where Aveng had to raise

almost R2bn via a convertible bond issue during FY15; whilst management have asserted

that a rights issue is not necessary at this time, it is still a point of concern for investors.

CHART: AVENG NET CASH UNDERPIN


2000

2001

2002

1H20

08

1H20

09

1H20

10

1H20

11

1H20

12

1H20

13

1H20

14

1H20

15

2H20

08

2H20

09

2H20

10

2H20

11

2H20

12

2H20

13

2H20

14

2H20

15

2008

2009

2010

2011

2012

2013

2014

2015

2005

2003

2006

2004

2007

10000

8000

6000

4000

2000

0

-2000

Aveng Net Cash R’m


28

CHART: AVENG SHARE PRICE PERFORMANCE

Source: I-Net

The Aveng share price movement is reflective of the market’s sentiment towards the

share, the sector and its prospects. With the unfavourable outlook for the construction

sector, Aveng management are attempting to stabilise the business through cauterising

and exiting unprofitable contracts and businesses.

BHP Billiton (BIL) results Shoaib Vayej, CFA (Portfolio Manager, Investment Analyst)

Billiton delivered a full year result which was slightly behind our expectations. The

performance of its petroleum business was understandably impacted by the rapid decline

in oil prices over the financial year. Billiton remains a well-diversified mining business

so while the petroleum business’ delivery was not quite as expected, there were other

parts of the business which have surprised.

AVENG LIMITEDWeekly 1999/07/04-2015/09/06

00 0402 06 0801 0503 07 09 10 1211 13 14 15

7000

6000

5000

4000

3000

2000

1000

0


29

CHART: BILLITON’S SUPERIOR MARGINS TO PEERS AS WELL AS COST IMPROVEMENT PROJECTIONS.

Source: Company reports

60

50

40

30

20

10

100

75

50

25

Leading margins through the cycle(Underlying EBITDA mrgin2, %)

Unit cost continue to fall rapidly3(US$ per copper equivalent tonne)

Significant cost improvements with more to come(index, FY12=100)

FY06 FY09 FY12 FY15

WAIO Queensland Coal Escondida Black Hawk

FY06 FY08FY07 FY09 FY10 FY12FY11 FY13 FY14 FY15

BHP Billiton Peer group range

FY12 FY15 FY16e

Grade adjusted accordingly2


30

Billiton continues to exercise measured control over its capital spend – the bulk of which

is discretionary. While product volumes are likely to dip even further as the world waits

for a recovery, the fruits of Billiton’s cost-cutting initiatives and discretionary capex

spend will help support the business’ profitability. Also, our view is that Billiton’s capital

expenditure flexibility implies that the payment of its dividends is sustainable – a view

we believe, is not shared with the broader market.

CHART: BILLITON’S DIVIDEND YIELD RELATIVE TO THE SHAREHOLDER WEIGHTED INDEX’S

Source: I-Net

So the question begs…

“Will an on-the-fly investment decision, based on new information, yield superior

portfolio performance in the end?” Well, this simply depends on the investment strategy

and whether the investor is long or short term focussed.

Yes, we acknowledge that in some cases investors are required to take immediate action

(Buy or Sell) but the ability to see through the noise and separate the wood from the trees

when it comes to frenetic periods is a skill developed over years of practice.

In the words of the karate master, “Mr Miyagi”, from the 1984 classic movie, the ‘Karate

Kid’,

“You stay focus, Daniel-son”

2005 20092007 2011 20132006 20102008 2012 2014 2015

2.42.32.22.1

21.91.81.71.61.51.41.31.21.1

10.90.80.70.60.5

Mean = 0.98

Std.Dev. = 0.37


31

GENERAL DISCLAIMERAll information, recommendations or opinions contained in this document are not intended to

provide exhaustive treatment of any subject dealt with and must be weighed solely as one factor

in any investment or other decision made by or on behalf of any user of the information contained

herein. Such user should consult its own investment or financial or other advisors before making

any decision. Whilst all care is taken by Afena Capital in the preparation of the contents hereof,

no warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability

or fitness for any particular purpose of any such recommendation or information is given or

made by Afena Capital in any form or manner whatsoever. The information in this document

is not intended to and does not constitute financial, tax, legal, investment, consulting or other

professional advice, and Afena Capital does not purport to act in any way as a financial advisor.

Afena Capital shall not be responsible and disclaims all liability for any loss, liability, damage

(whether direct or consequential) of any nature whatsoever which may be suffered as a result

of or which may be attributable, directly or indirectly, to the use of any information, opinion,

recommendation, or service contained in or provided through this document. All portfolio

performance data is calculated by Afena Capital. Performance is analysed and computed utilising

true daily weighted methodology. Where this document contains statements or information

which relate to projections, forecasts or hypothetical data, users should be advised that these are

predictions and that actual performance may differ markedly. Users should also be aware that

short term performance can be volatile and past performance is not necessarily a good indication

or guideline of future performance. As the performance of financial markets fluctuates and is not

guaranteed, an investor may not get back the full amount invested. Users should be aware that

there are inherent risks in the buying and selling of investments.

Collective Investment Schemes in Securities (unit trusts) are medium- to long-term investments.

The value of participatory interests (units) may go up or down and past performance is not

necessarily a guide to future returns. Fluctuations or movements in exchange rates may cause the

value of underlying international investments to go up or down. Unit trust prices are calculated on

a net asset value basis, which is the total market value of all assets in the portfolio including any

income accrual and less any permissible deductions from the portfolio, divided by the number of

units in issue. Permissible deductions may include management fees, brokerage, security transfer

tax, auditor’s fees, bank charges and trustee fees. Unit Trusts may borrow up to 10% of the market

value of the portfolio to bridge insufficient liquidity. A schedule of fees and charges and maximum

commissions is available from Afena Capital. Commissions and fees may be paid and if so, are

included in the overall costs. Forward pricing is used. In order to receive the price of the day, all

transactions must be received before 13h00. Afena Capital is a member of the Association for

Savings and Investments South Africa. The investor acknowledges the inherent risk associated

with the selected investments and that there are no guarantees. The investor furthermore agrees

that Afena Capital will not be liable for the consequences of market influences and consequent

changes in unit prices.

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unless she/he is a duly authorised representative. Afena Capital (Pty) Limited is an authorised

financial services provider in terms of the Financial Advisory and Intermediary Services Act No

37 of 2002. FSP number: 25033. Company Registration number: 2005/017613/07.

Afena Capital Botswana

Afena Capital South Africa

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