Bank of America Securities says Clicks was the most sought-after company by foreign investors in terms of meeting requests
The Bank of America Securities says its Sun City investor conference this month broke all previous records in terms of investor attendance.
Of the 376 investors that took part, 44% were from offshore jurisdictions.Foreigners are interested in growth stocks like Clicks and Shoprite but the global shift towards value stocks in 2020 is benefiting more SA companies.
South Africa may not be top of the list for investors to put their money for the long haul, but foreigners are paying attention to several companies that have shown resilience during this Covid-19 pandemic.
According to the Bank of America Securities, which hosted its 22^nd annual Sun City conference earlier this month, there was record attendance this year from investors wanting meetings with the 63 South African corporates that participated in the investor meetings.
This year's and 2020 conferences were held virtually and almost half of the investors that attended were from offshore and some of the companies discussed during the Sun City conference were BofAS clients.
Paul Steegers, head of SA equity research at the Bank of America Shoprite had most meeting requests from investors followed by Mr Price and Naspers-Prosus. There was also a lot of interest in Woolworths, Aspen, and Bidvest.
From foreign investors, Clicks was the most sought-after company in terms of meeting requests. Shoprite, Mr Price, Naspers-Prosus, and Discovery were also in the top five companies attracting the attention of foreign investors.
John Morris, SA strategist at BofA Securities said foreign investors were attracted to growth stocks which is why Clicks which already has 75% foreign ownership was number one.
Double the interest
The participation rate by investors was double the previous record ever at Sun City," said Morris. Of the 166 foreign investors, he said 39% were from the Americas, 49% were from Europe and 12% were from Asia-Pacific. The representation of investors from the Americas was higher than usual as the virtual nature of the conference meant that many investors who had never flown out to Sun City before could now participate from the comfort of their homes. Morris said when it comes to what foreigners bought in the past two weeks, during and after the conference the biggest purchases – in terms of free float and not the Rand value – were for Royal Bafokeng Platinum, Mr Price, Vodacom, MTN, and Naspers-Prosus.
The increased interest from investors may not be surprising to some market watchers as many SA companies have performed better than initially anticipated when the virus first hit our shores. Steegers pointed out many companies' balance sheets remained very robust as their relentless focus on working capital resulted in strong cash flows which some were boosted by the number of right issues that took place in 2020.
Consumers have proven to be more resilient than initially expected to the benefit of retailers, thanks to lower interest rates and other government support measures while companies in the resources sector are reaping the benefits of higher commodity prices. For the financial companies at the conference, Steegers said it looked like the worst was behind them now.
SA benefiting from the global stock-picking shift
Morris said while foreign investors liked growth sticks like Clicks, the global shift from growth to value stocks in 2020 has also benefitted many other local companies as the SA equity market's strong point is value when one takes Naspers out of the equation.
"I think the meetings at the conference confirmed our views that South Africa is in a good place to benefit from global recovery," said Morris. BofA Securities has adjusted its global growth forecast upward. It is now expecting the US real GDP to grow by 7% this year and SA's to grow by 3.8%, growth rates that are above its initial forecasts and market consensus.
Morris said this global recovery coupled with rising bond yields was expected to support investments into emerging markets and value stocks. It would also help keep metal prices high for longer which is great news for SA given the mining sector's contribution to the economy.
Restructuring the economy could attract more investors
However, many foreign investors looking to pile up on emerging market stocks are still underweight in South Africa. Morris said the problem remains the structural concerns that affect SA's ability to grow beyond 2% to 3%.
The fiscal drag caused by state-owned companies that frequently need a capital injection from the government, the unreliable electricity supply, and other fiscal headaches like the growing budget deficit and expectations that National Treasury will make some concessions on the public wage bill.
Morris said the problem was that SA was not pursuing structural reforms that could suddenly push its GDP growth from the current potential 2% something worth noticing like 4% to 5% growth.
"The problem for South Africa is we can't say we are reforming. If we reform, the foreigners will come here like there's no tomorrow because we are cheap if you look at our [price earnings ratios]. Investors don't see South Africa for the long haul outside of the growth names that cando well regardless," said Morris.