By Chantal Marx, Pritu Makan, Sithembile Bopela, Zimele Mbanjwa, Motheo Tlhagale, Khumbulani Kunene
The Bidvest Group (BVT)
The Bidvest Group is a service, trading and distribution company focused mainly on South Africa. The company specialises in services including cleaning, security, landscaping, indoor plants and flowers, and travel; Private sector freight management; Commercial, which involves the manufacturing and distribution of electrical products, office stationery, office furniture, packaging closures and catering equipment; and Automotive retail, among others.
Year-to-date, Bidvest has sold off ~10% amid heightened pessimism surrounding local and offshore macro events. However, these headwinds have not resulted in any major earnings downgrades with major sell side research houses recently reiterating their buy recommendations. This is mainly because Bidvest remains an attractive play in a period of continued macro uncertainty given its resilient history, particularly during 2022, 2023 and 2024 where its portfolio proved very defensive despite labour shortages, elevated levels of inflation, macro headwinds and volatile interest rates
On the local front, lower interest rates and inflation are anticipated to ease constraints on consumers, boosting prospects for medium-term growth. Offshore, geoeconomic fragmentation and elevated policy uncertainty make for tough economic backdrops and sizeable labour-related increases will need to be recovered from customers; however, Bidvest remains very capable of offsetting these headwinds through its defensive operations.
Overall, management remains confident in the group's clearly defined strategy and that the diverse portfolio of businesses, as a collective, can successfully navigate through the ongoing changes in the global trading environment. Bidvest is trading on a forward PE of 11.3 times, below its long-term average rating. We retain our favourable long-term view of this counter.
Richemont (CFR)
Richemont is Swiss luxury goods holding company that owns several of the world's leading brands in the field of luxury goods such as jewellery, luxury watches and writing instruments, with a view of long-term development of successful international brands. Brands include Cartier, Alfred Dunhill, Montblanc, Lancel, and Van Cleef & Arpels. Additionally, its unique and diverse portfolio also includes leading online distributors that are focused on expert curation and technological innovation to deliver the highest standards of service.
The share has come under pressure recently (-22.6% over the last six months) due to concerns surrounding tariffs and the impact of higher precious metal prices, providing an attractive entry point for long-term investors. While these global uncertainties have resulted in sector-wide weakness across the luxury space, the jewellery category, to which Richemont is over indexed, has been resilient and remains a standout performer. In addition, high-end luxury brands are best placed to defend margins by passing on US tariff costs to consumers via price hikes while certain brands are also leaning towards cost cuts as a partial offset. Overall, Richemont is also likely to benefit from continued high levels of international travel (excluding the US) and an eventual improvement in the Chinese economy.
Richemont is trading on a forward PE of 22 times, below its long-term average and at a discount to peers. We think that risks to current consensus revenue and earnings are to the upside and that the company should demand a premium rating relative to peers due to the strength of its jewellery maisons and overexposure to the category generally.
Pepkor (PPH)
Pepkor is the leading non-grocery retailer in South Africa. The company is the market leader in several categories including Apparel and Footwear, and Electronics and Appliances. Pepkor owns and operates several household names including PEP, Ackermans, Bradlows, Rochester, Incredible Connection, HiFi Corporation and Tekkie Town.
Pepkor's growth prospects remain attractive over the medium term as the company continues to capture market share amid an ongoing shift in consumer needs towards value and discount seeking behaviour as well as downtrading. This has been even more pronounced post-Covid 19 as employment conditions have remained challenging, inflation was elevated for a prolonged period (resulting in restrictive interest rates) and growth has been low.
Growth tailwinds seem to have shifted, with lower interest rates and inflation providing a tailwind to households. We are also positive on the company's continued push in Fintech and specifically the leveraging of its financial services proposition into the traditional retail business. Amid the current uncertain global tariff environment, South Africa potentially stands to benefit from increased global product supply capacity. In line with the group's disciplined approach to maintaining consistent gross profit
margins in retail brands such as PEP and Ackermans, any benefits realised will be reinvested in price and value - this is beneficial for customers and will further strengthen Pepkor's customer value proposition. The company also remains focused on strengthening its core retail brands, successfully integrating recent acquisitions (House & Home, OK Furniture, Choice Clothing, Legit, Swagga, Style and Boardmans), and tightly managing costs.
Pepkor is currently trading at a forward PE of 15.5 times, reflecting a premium to both its peers and its long-term average. This elevated valuation can be justified by the company's solid fundamentals and positive growth outlook.
The Foschini Group (TFG)
The Foschini Group (TFG) is an investment holding company with a core business focus on retail and financial services. The group comprises several brands trading throughout southern Africa offering a prominent lifestyle range of household name brands including Foschini, @Home, Sterns, Totalsports, Sportscene and Jet, among others. The group also owns Phase Eight and Whistles in the United Kingdom (UK), and RAG in Australia.
Continued business investment into key strategic initiatives to further strengthen its differentiated business model, seek out strategic adjacencies and high-quality acquisitions, and work towards improving its balance sheet and capturing market share, provide a positive base for the group's longer-term growth prospects.
TFG is trading on a forward PE of 8.9 times, which appears undemanding relative to its history and peers. We continue to regard the stock as attractive from a longer-term perspective.
Mondi (MNP)
Mondi is an international paper and packaging group, with production operations across 100 production sites in over 30 countries. The group's key operations are in central Europe, North America, and South Africa. Mondi is a market leader in the production of corrugated packaging in Europe and a global leader in the production of kraft paper and paper bags as well as a leader in uncoated fine paper in certain regions. Its diversity of products offers optionality to customers as it provides sustainable packaging in the form of paper, plastic, or hybrid solutions.
Global packaging demand is estimated at ~$1 trillion a year, with the European market (where Mondi is over-indexed) accounting for ~24%, and North America accounting for ~23% (where the company also has meaningful exposure). Paper and plasticbased packaging accounts for ~80% of overall demand. Indeed, capacity for continued growth remains positive for Mondi given the robust addressable market and access to the biggest markets for its products. Its exposure to the faster growing packaging segments of corrugated (paper-based) and flexible (paper, plastic and hybrid-based) packaging puts it in an advantageous position.
Mondi seems to offer fair value on a forward PE of 11.7 times, which is still undemanding. The company is also trading at a discount to its peers where it has historically traded at a premium.
