Capitec, a Core Portfolio Holding? Balwin vs. Calgro M3. (#606)

JSE Direct with Simon Brown

Overview:

In this episode of JSE Direct, Simon Brown breaks down the latest market updates, key stock analyses, and insights into the South African investment landscape. Episode highlights include discussions on property developers Calgro M3 and Balwin, Capitec’s strong performance, Purple Group’s rise, Afrimat’s challenging update, and Wilson Bailey’s long-term chart breakout. The show also covers upcoming events and Brown's views on Nvidia’s stock movement.

Property Developers: Calgro M3* vs. Balwin

• Calgro M3: Delivered a strong trading update, attributed to its flexibility in targeting lower-income segments. Calgro’s ability to adapt and scale down offerings positions it well, with potential for significant price appreciation. Trading at a low PE of 3.5, Brown argues that in a normal market, it should command a 10x PE, suggesting a fair value of around R9.
• Balwin: Struggling with higher entry price points in its developments. Despite weaker performance, there may still be value. If results improve in the future, Balwin could present a solid opportunity. Brown speculates that a delisting could be on the cards if the stock remains undervalued.

Calgro M3 weekly chart | Close 09 October 2024

Capitec: Expensive, but Resilient

• Capitec continues to outperform with robust growth, though it trades at a high PE of 27 and a price-to-book of 7.8. Despite concerns about its premium valuation, the company’s diverse ventures, from mobile services to expanding insurance offerings, make it a long-term core portfolio holding. Historical growth shows Capitec’s resilience and market leadership in the South African banking sector.

Purple Group*: A Breakout Stock

• After months of a consistent seller at 80 cents, Purple Group’s stock broke higher, reaching 98 cents before pulling back. Brown remains optimistic, particularly as trading volumes in the JSE pick up, benefiting Purple’s core business. Although trading at a high PE of 45, Brown is bullish about its prospects in a rising market.

Afrimat: A Tough Year, but Long-Term Potential

• Afrimat’s trading update indicated a sharp drop in earnings (down 75-85%), partly due to the acquisition of Lafarge, which is still loss-making. While the near-term outlook is challenging, Brown remains optimistic about Afrimat’s long-term potential, especially if South Africa enters a construction boom. He sees the stock as attractively priced for long-term investors.

Wilson Bayly Holmes-Ovcon (WBHO): A 16-Year Breakout

• Brown discusses WBHO’s impressive 17-year chart, finally breaking out after a long consolidation period. He suggests the stock could benefit from renewed local construction activity, while Afrimat remains his preferred pick in the sector due to its diversification into industrial metals.

A breakout after a 17-year consolidation is very bullish in TA. Add the fundamental underpin. I think this still has lots of room to run. pic.twitter.com/fBk5BCKtvk

— Richard Thomason (@richytee) October 9, 2024

Nvidia: Breaking New Highs

• Nvidia, another stock Brown holds, is testing all-time highs after a series of consolidations. With Nvidia's historical pattern of doubling after breaking key resistance levels, Brown remains confident in the stock's potential for further growth despite its high valuation.

Nvidia weekly chart | Close 09 October 2024

Simon Brown

* I hold ungeared positions.

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Chapters 00:00 Market Overview and Calgro M3 vs Balwin 07:11 Capitec's Performance and Future Outlook 12:43 Exploring Other Stocks: Purple Group and Afrimat 18:15 Long-term Trends: Wilson Bailey and Nvidia