Monthly WRAP-UP. Index. Securities. 1. Commodities Gold Page Platinum Page Brent Crude Oil Page 2. 2.

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1 how can we help you? Monthly WRAP-UP Securities August 2013 Index 1. Commodities 1.1. Gold Page Platinum Page Brent Crude Oil Page 2 2. Bonds Page 2 3. Property Page 3 4. Preference Shares Page 3 5. Equities Page Industrials Page Financials Page Resources Page 11 Head Office: 5 Merchant Place, 9 Fredman Drive, Sandton 2196 PO Box 3359, Parklands 2121 info@fnbsecurities.co.za Relationship Manager: Dealing Desk: Toll Free Trading: Directors: BR Smit, JA van Staden, E Zeki, EJ van Rensburg, R Jayrajh. Company Secretary: BW Unser FNB Securities (Pty) Ltd, member of the JSE and an authorised financial services and credit provider (NCRCP4007). Part of the FirstRand Group.

2 1. Commodities Price (US$)* MTD* YTD* 1 Year* Gold % -16.7% -17.5% Platinum % -1.1% -1.1% Brent Crude % 1.4% -1.3% CRB commodity price Index *All Figures to 30/08/2013 N/A 2.5% -1.3% -6.0% GOLD Short positions being reduced The gold price extended gains in August after rebounding in July from a large price decline in June. The gold price has turned out to be more resilient than many investors had anticipated earlier this year. From the beginning of the second quarter of 2013 exchange traded fund (ETF) holdings in gold have declined by over 20%. Many investors also built short positions in the US gold derivative market, the value of which more than doubled between April and July as they bet on further price declines. However, price advances since the beginning of July have seen almost half of these short positions being unwound and while ETF demand has continued to decline (albeit slowly) over the past two months, physical demand in response to softer prices has been more than sufficient to push the price back above $1400 per ounce. Over the near term speculation over the timing and duration of Federal Reserve asset purchase tapering is likely to create volatility in the gold market. However, geo-political concerns centred around a possible military attack on Syria may provide support for gold as it is seen as a general safe haven in times of political or economic instability the fore once again with workers in the mining sector threatening to down tools. Concerns over production are likely to remain supportive of the price in the near term as wage negotiations in South Africa are currently being concluded. OIL Syria threats lead to a price spike The price of brent crude oil surged in August as an additional geo-political risk premium was reflected in the price. Oil prices began an ascent in July following a violent coup d état in Egypt which raised doubts over whether oil carrying vessels will be able to freely travel through the Suez Canal. More recently, an alleged chemical weapon attack by the Syrian government on rebel forces has prompted the US and UK to call for a UN intervention in the country and may result in airstrikes on Syria by a Western coalition. Apart from geopolitical tensions oil prices were supported by upbeat economic data from the US and China. In particular many analysts now believe that China s commodity hungry economy has started to stabilise after a disconcerting slowdown in the first half of the year. We believe that oil prices will remain volatile over the near term and could be subject to upward pressure if an attack on Syria is launched. This coupled with recent Rand weakness suggests that a petrol price hike in October is likely Brent crude oil spot (USD) Brent crude oil spot (ZAR) (RHS) Figure 2 US dollar price of Brent Crude Oil versus Rand Price Source: Bloomberg Gold Spot USD Figure 1 Gold Spot versus Platinum Spot Source: Bloomberg Platinum Spot USD 2. Bonds PLATINUM Industrial action supports the price The spot price of platinum moved up to a four month high as it broke through the $1550 per ounce level in August. The metal used widely in industrial applications was buoyed by upbeat manufacturing data from the three largest economic blocs in the world: the US, Europe and China. Supply side issues also exerted upward pressure on prices as industrial action in South Africa came to MTD* YTD* 1 Year* ALBI -0.6% -2.0% 1.6% *All Figures to 30/08/2013 The JSE All Bond Index (ALBI) fell for a fourth consecutive month in August and closed at the lowest level since October Nominal bonds suffered a steep sell-off due to two major factors. The first is the steep rise in global bond yields and in particular those of 2

3 the US. The US 10 year bond yield has increased from a recent low of 1.62% in May 2013 to a two year high of 2.9% in August. Investors expect a certain yield premium above the virtually riskless US government bond yields to compensate them for investing in emerging markets like South Africa. Therefore the increased yield that investors are able to get from US bonds has resulted in a sell-off in emerging market debt. This remains a key concern in the short term as the US Federal Reserve hasn t even begun tapering asset purchases yet; simple talk of tapering has been enough to drive these massive price moves. However, the market is forward looking and the adjustment brings markets in line with a more realistic view of future Fed policy, in other words bond yields in the US were at unsustainably low levels. The second factor affecting bonds in August was the 0.8 percentage point increase in consumer price inflation to 6.3% (year-on-year) for July. This is the first breach above the South African Reserve Bank target range (3% - 6%) since April We do not expect inflation to remain above 6% in the fourth quarter of 2013 or indeed at any point in 2014, however the weak currency has raised concerns about a potential inflation spike in the near term. Inflation reduces the real return offered by a nominal bond and therefore bond prices need to fall so that yields can rise to compensate investors for the higher expected inflation rate. The upside risks to inflation have prompted the forward rate agreement (FRA) market to price in up to 200 basis points (2 percentage points) worth of interest rate hikes over the next two years. The combination of inflation concerns and expected monetary policy tightening in response to this, along with rising global bond yields has placed the domestic bond market under pressure. However, we believe that much of the bad news is already in the price and we believe that the markets view on inflation and interest rate hikes is overly bearish. Therefore following months of warnings on potential weakness in the local bond market, a measure of value appears to have been restored to this asset class. In the near term there is likely to be further volatility, but with longer term bonds offering a yield well in excess of our projection for longer run inflation, we expect positive total returns on a medium to long term basis Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 R157 bond (maturity 2015) R2023 (maturity 2023) R186 (maturity 2026) Figure 3 Selected South African Government Bond Yields Source: Bloomberg 3. Property SA Listed Property Index TR Price* MTD* YTD* 1 Year* 1 Year Fwd Yield* N/A -3.5% 0.6% 0.0% 7.6% Emira % 1.8% 11.4% 8.5% Redefine % 1.0% 2.3% 8.0% Growthpoint % -0.1% -8.2% 6.9% Vukile % -7.3% -15.5% 9.6% Hyprop % 0.2% 2.2% 6.5% Capital % -1.6% -3.5% 8.0% Resilient % -0.1% 5.0% 6.0% Fortress A % 4.8% 6.0% 8.1% Acucap % -4.0% -7.0% 8.2% Fountainhead % -7.7% -3.8% 8.2% Rebosis % 9.1% 8.0% 9.2% Sycom % -11.7% -10.8% 8.4% Arrowhead A % 7.7% 8.2% 8.9% Hospitality A % 13.3% 16.2% 8.6% SA Corporate % 9.3% 15.7% 8.5% *All Figures to 30/08/2013 The return on the FTSE /JSE SA Listed Property Index fell into negative territory for a second straight month in August. Virtually all of 2013 s earlier gains (amounting to over 20%) have been reversed since late May as the move up in bond yields has kept property stocks under pressure. In a similar fashion to bonds, property stocks appeared to offer unrealistically low yields earlier this year as investors were paying a large premium for defensive yield generating assets. However, in contrast to bonds we remain cautious on property as the sector yield is substantially below that of longer dated bonds. This suggests that in the absence of a move down in bond yields, property yields are likely to move up and therefore performance may be constrained in the short term. 4. Preference Shares Preference Share Index Total Return (J251)* *All Figures to 30/08/2013 **Grossed up, pre-dwt MTD* YTD* 1 Year* Current Yield** -0.9% -3.2% -0.1% 8.0% Preference shares suffered further losses in August, which drove the total return index down near its lowest point in the last 12 months. The substantial rise in bond yields recently may have increased the attractiveness of 3

4 bonds relative to preference shares. Bonds are however not perfect substitutes for preference shares due to their different tax treatment (bonds pay interest, preference shares pay dividends) and due to the fact that the dividend on preference shares is linked to the prime interest rate, while bonds pay a fixed coupon rate on the face value. Nevertheless, both are popular with investors seeking relatively high levels of income. A second factor which we believe has been weighing on the preference share market for some time is a possible increase in the amount of tax levied on dividends. The weak nature of the economy presently has added to the speculation that government will be raising taxes (in one way or another) in order to cover a likely shortfall in revenue this year. Despite these issues we remain of the view that preference shares offer value to investors seeking a tax efficient, income generating asset. 5. Equities 4 MTD* YTD* 1 Year* JSE All Share Index 2.3% 7.6% 19.3% JSE All Share Index (USD) MSCI World Index (US$) MSCI Emerging Markets Index (USD) -1.9% -12.0% -2.5% -2.3% 10.0% 15.1% -1.9% -11.9% -1.9% Australian All Ordinaries -3.0% -4.5% 2.1% S&P % 14.5% 16.1% Hang Seng -0.7% -4.1% 11.5% Nikkei % 28.8% 51.5% German Dax -2.1% 6.4% 16.2% FTSE % 8.7% 12.3% *All figures to 30/08/2013, Local currency unless otherwise stated In Rand terms, the JSE added 2.3% in August bringing its year to date gain to 7.6%. In US dollar terms the local bourse followed emerging market lower in August, shedding 1.9%. The JSE is now down 12% this year in dollar terms and has provided a negative return to dollar based investors over the last twelve months. Developed world markets took strain in August with the S&P 500, the FTSE 100 and the Australian All Ordinaries pulling back in excess of 3% over the month. The commodities based Australian market is down 4.5% year to date whilst the US market continues to outperform global markets, having added 14.5% thus far (relative to the MSCI World Index, +10%) Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 FTSE /JSE All Share Index MSCI World Index (US$) S&P 500 Figure 4 Selected World Indices Source: I-net Bridge 5.1 Industrials MTD* YTD* 1 Year* Industrials 0.7% 10.9% 21.7% Industrial % 21.2% 36.6% Telecommunications 1.5% 7.8% 22.2% Food Producers -5.4% -3.4% 7.5% Pharmaceuticals 6.3% 35.6% 56.2% General Retailers -1.8% -14.8% -5.1% Food Retailers -2.5% -17.9% -3.3% Travel and Leisure -2.7% 16.5% 32.5% Construction -0.4% -3.3% 12.1% *All figures to 30/08/2013 Industrials took a back seat in August as Resources surged ahead. The index added 0.7% to bring its year to date gain to 10.9%. The larger cap industrials added 1.6%. Pharmaceuticals performed well, gaining 6.3% as Aspen rallied 7.8% after it released a trading statement that beat expectations. Food producers experienced a difficult month. The sector lost 5.4% as the two largest players, Tiger Brands and AVI, pulled back 8.2% and 6%, respectively. RETAIL Mixed results FTSE /JSE All Share Index (USD) MSCI Emerging Markets Index (USD) Cashbuild released a fourth quarter operational update for the period ending 30 June Revenue came in 8% higher y/y buoyed by new and existing stores which contributed 3% and 5% to revenue growth, respectively. South Africa contributed 88% to revenue, with Botswana (4%), Swaziland (4%), Lesotho (3%) and Namibia (1%) making up the balance. Full year revenue grew 3%. Depressed gross profit margins coupled with selling price inflation that continues to track behind cost inflation poses a near term risk. Furthermore, we remain concerned over the health of middle and low LSM consumers in South Africa, as well as its operations outside South Africa which continue to perform below expectations. We maintain our cautious stance on this counter.

5 The Spar Group and service station operator Shell have formed a partnership to open Spar Express stores throughout petrol stations in the country. The first flagship store opened in Germiston in the month. According to Spar, similar Shell-Spar agreements in offshore countries such as Austria and Germany are in existence. Spar is testing the waters of the forecourt business with the rollout of three or four Spar Express stores in Gauteng over nine months. The forecourt retail market has become increasingly competitive, and while Spar s debut is seen as positive for the group, market commentators are sceptical over whether this will be a game changer for the Group. Lewis released an AGM update for the first quarter ended 30 June Merchandise sales growth for the period was in line with 1Q13 whilst revenue was 4.7% higher owing to an increase in financial services income amid higher levels of credit sales and longer dated contracts. Debtor costs for the period totalled R156.6 million which amounts to 2.7% of net debtors, in line with 1Q13. Trading remained challenging with continued uncertainty in the labour market and rising unemployment fuelling the cautious outlook of consumers in the group s target market. Management expects current trading conditions to continue for the remainder of the financial year. Whilst Lewis offers an attractive forward dividend yield of 9%, there is considerable forecast risk associated with this counter given its high exposure to lending amongst mid- and low LSM consumers. Shoprite Holdings released results for the year ended 30 June Headline earnings per share increased 11.3% to 675 cents, which was behind expectations. Turnover increased 12.1% to R92.75 billion and operating profit increased 15.6% to R5.39 billion. This margin expansion was ahead of expectations and was driven by both South African and ex-sa operations. South African Supermarkets (76% sales, 84% operating profit) saw sales increase 9.8% with internal inflation averaging 4.7%. Operating profit margin expanded 23 basis points. Ex-South Africa Supermarkets (13% sales, 11% operating profit) grew turnover by 27.9% (15.3% same store) in ZAR terms and 21.2% in constant currency terms. Operating profit margin expanded 50 basis points. The Group opened 114 stores. An expected 171 (47 ex-sa) stores will be opened in FY14. The Group plans to invest in ensuring price leadership in FY14, which may put margins under pressure. Shoprite also expects to gain sufficient critical mass in Nigeria in FY14 to support an in-country distribution centre. While we are encouraged by the African expansion story, we do not regard Shoprite as particularly cheap. Mr Price released a trading update for the 18 weeks ended 3 August The retailer recorded total sales growth of 14% and comparable store sales growth of 9.1% y/y. Selling price inflation for the period was 7.4%, indicative of higher cost pass through to consumers amid a weak rand environment, and implies that organic growth fell to 1.7% (prior year: 4.8%). Apparel (72.0% of sales) achieved sales growth of 14.8% (like-for-like +8.8%; selling price inflation +6.4%). The Home Division achieved sales growth of 12.2% (like-for-like +9.7% selling price inflation + 9.8%). This was a reasonable update amidst a challenging macroeconomic backdrop. Massmart released results for the 26 weeks ended 23 June Diluted headline earnings per share (HEPS) increased 52% y/y to cents, largely due to positive exchange rate swings. Excluding foreign exchange, diluted HEPS fell 9%, which was significantly below market expectations. Sales increased 8.9% (5.5% likefor-like) and product inflation came in at 2.9%. Massdiscounters (Game & DionWired) total sales grew 9% (3.7% like-for-like, 0.5% inflation). Masswarehouse (Makro) total sales grew 13.7% (6.9% like-for-like, 2.6% inflation). Massbuild total sales increased 9% (9% like-for-like, 3.1% inflation). Experienced cost drag of R19.7 million from the opening of the first Massbuild regional distribution centre. Masscash totals sales increased 5.6% (4.2% like for like, 4.6% inflation). The company cited that lower income brands experienced a weaker trading period than higher income brands. The cash position deteriorated from R1.64 billion in December 2012 to R1.02 billion. JD Group released results for the year ended 30 June Headline earnings per share fell 10% on a comparable basis, which was below expectations. Revenue increased 7.8% y/y as retail revenue climbed 5.1% to R27.4 billion, Consumer Finance revenue jumped 25.7% to R4.8 billion, and Automotive revenue increased 8% to R15.5 billion. Operating profit fell 31% to R1.03 billion. The dividend was maintained at 232 cents per share. We remain concerned over the health of the low LSM consumer as well as this counter s exposure to the lowend lending market. We expect forecasts to be pulled back on the back of this result. Truworths released results for the year ended 30 June Fully diluted headline earnings per share increased 12.2% y/y on a comparable basis, which was marginally behind expectations. Sales increased 12.9% y/y on a comparable basis (7.8% like-for-like) with product inflation averaging 2% over the period. Operating profit increased 6% to R3.4 billion. Trading space increased 8.1% over the prior 53-week period-end, ending at 604 (FY12: 569). This includes 5

6 40 new stores ex-south Africa (FY12: 29) following the opening of new stores in Lesotho (4), Zambia (3), Ghana (2) and Nigeria (2). The Group recorded market share gains in both ladies wear (21.7% from 21.2%), and menswear (22.6% from 22.4%). Group credit sales grew by 9% and credit sales contributed 72% (FY12: 73%) to retail sales for the period. Net bad debt as a percentage of gross trade receivables grew to 10.4% (FY12: 7.9%). In terms of outlook, the company expressed concern over the current credit environment in South Africa and the weaker rand dollar exchange rate. Steinhoff Holdings released a trading statement for the year ended 30 June Headline earnings per share are expected to be between 20% and 25% higher than in the prior comparable period. This was better than expected. Steinhoff does not appear particularly demanding on a forward PE of 8.3 times. Woolworths released results for the 53 weeks ended 30 June Adjusted headline earnings per share increased 30% (28% over 52 week period), in-line with its most recent trading guidance. Turnover grew 23.2%, boosted by the inclusion of Witchery in 2Q13: Woolworths Clothing sales grew 13.7% (12.3% over 52 weeks; like-for-like 9.3%; price movement 7.1%). Woolworths General Merchandise sales grew 9.2% (52-weeks 7.2%; like-for-like 3%). Food sales grew 15.4% (52-weeks 13.3%; price movement 7.6%; like-for-like 10%). Country Road (with the acquisition of Witchery) saw sales increase 68.5% in Australian dollar terms (90.8% in ZAR). Comparable sales in Australasia increased 12.0%. The overall debtors book grew 15.8% y/y, with an impairment rate unchanged from June 2012 at 1.9%. Profit before tax increased 27.1% as gross margins expanded in both the South African and Australian clothing businesses, benefiting from improved sourcing. A final dividend of 148 cents was declared (up 17.6%). Management noted that trading for the first eight weeks of the FY14 was line with expectations both in South Africa and Australia. This is an impressive result; however, this appears to be reflected in the price. Woolworths is trading on a forward PE of 16.5 times and a relatively attractive forward dividend yield of 4.3%. Popular discount Scandinavian clothing giant, H&M plans to open its first clothing store in South African in Stores are set to open in Johannesburg and Cape Town and will be the Swedish retailer s first foray into Sub- Saharan Africa. H&M is the largest retailer in the world (just behind Spain s Inditex) and plays in the low pricehigh quality market, similar to Australia s Cotton On. PHARMACEUTICALS Aspen continues boom Aspen released a trading statement for the year ended 30 June Diluted normalised headline earnings per share are expected to increase by between 26% and 33% over the prior comparable period, which exceeded expectations (consensus: +25%). Aspen remains our preferred pick in the sector. TECHNOLOGY EOH continues to impress EOH Holdings released a trading statement for the year ended 31 July Headline earnings per share are expected to be between 30% and 35% higher than in the prior comparable period-better than what the market expected. While its superior growth trajectory appears to be reflected in its price, EOH continues to exceed expectations. FOOD PRODUCERS Clover guidance modest Clover Industries released a voluntary trading statement for the year ended 30 June Headline earnings per share (HEPS) are expected to be between 0% and 5% higher than in the prior comparable period. This was better than expected and signals a marked improvement in the second half of the financial year (1H13 HEPS fell 33.5% y/y). The improvement was mostly due to the implementation of selling price increases to the market during January 2013, reduced promotional activities following the selling price increases, cost saving initiatives, and exchange rate profits made by certain African subsidiaries. While Clover appears to be an interesting prospect over the long term, short run earnings are expected to remain under pressure due to its near term streamlining and development project pipeline. We are optimistic that production efficiencies will translate into wider margins upon the completion of project CieloBlu and we are also positive on the expansion of its African Footprint. RCL Foods (Rainbow Chicken) released results for the year ended 30 June Headline earnings per share fell 94.8% to 4.6 cents per share. This was towards the poorer end of its recent guidance. This number was severely impacted by Foodcorp s funding costs and an effective tax rate of 113.5%. Revenue increased 28.7% to R10.1 billion, mainly as a result of the inclusion of Foodcorp for two months of the year. On the poultry side, the company cited high levels of imports and record feed raw material input costs as the major contributors to profit erosion, with some major product lines being sold below cost. Management does not expect these problems to be resolved in the near term and stated that if there is not a notable improvement in operating margins within the next 12 months an impairment of assets will become necessary. 6

7 Country Bird released results for the year ended 30 June Headline earnings per share increased 2%, buffered by its exposure to the rest of Africa (Botswana, the DRC, Malawi, Mozambique, Namibia, Zambia and Zimbabwe). Ex-SA operating profit grew 125% to R64.6 million, contributing 49% to group operating profit. The South African feed operation also performed well, with operating profit increasing 62% to R98.1 million. The South African poultry business performed poorly, in-line with the rest of the market, recording an operating loss of R24.7 million. TELECOMS MTN helped by weak Rand MTN Group released results for the interim period ended 30 June Headline earnings per share increased 22% to 654 cents, which was within its guided range. Reported financial results were positively affected by a 16.3% weakening of the rand versus the US dollar. Revenue increased 9.8% to R65.25 billion as group subscribers increased 6.5% to million. Organic revenue growth came in at 1.9%. Growth was negatively impacted by reduced tariffs in South Africa and Nigeria. The Large OpCo Cluster and the Small OpCo Cluster reported strong growth of 9.7% and 24.7% y/y respectively. The company expects improved organic growth in revenue and EBITDA in 2H13. We continue to view MTN in a favourable light. EDUCATION Curro upswing persists Curro released results for the six months ended 30 June 2013, which was in line with its most recent trading guidance. Diluted headline earnings per share improved to 5.2 cents from a loss of 1.9 cents in the prior comparable period. Revenue jumped 91% y/y to R308.7 million as learner numbers increased 76% to EBITDA increased 178% to R51 million. Cash generated improved to R31 million from R8.4 million in the prior comparable period. Conceptually, Curro is trading in an attractive space and the counter is expected to follow a relatively steep growth trajectory going forward. PAPER & PACKAGING Strong growth for Mpact Mpact released results for the six months ended 30 June 2013 that came in ahead of market expectations. Headline earnings per share grew 25% y/y to 76.2 cps. Revenue increased 9.7% y/y to R3.5 billion due to volume growth in the Plastics business and higher average selling prices. External sales volumes were 2.5% higher than in the prior comparable period. Underlying operating profit was 6.1% up to R236 million. An interim gross cash dividend of 22 cents was declared (1H12: 20 cents). The dividend was a slight miss and may be indicative of near term expansion plans. DIVERSIFIED Imperial beats expectations Imperial Holdings released results for the year ended 30 June Headline earnings per share exceeded market expectations, increasing 15% to 1804 cents. Revenue increased 14% to R92.4 billion. Operating profit increased 8% to R6.1 billion. Logistics revenue grew 21% to R33.6 billion. Operating profit increased 11%. Automotive and Industrial revenue grew 11% to R57.6 billion. Operating profit grew 5%. Financial services revenue increased 6% to R4.2 billion. Operating profit increased 22%. Operating profit from international activities (excluding South Africa) increased to 21% of the group result from 17% in The company expects the SA Logistics environment to remain challenging. Prospects in the rest of Africa are good. Imperial also expects tougher trading conditions in the new motor vehicle market during the year ahead. The used car market is expected to improve. This was a decent result against a tough macroeconomic backdrop. Super Group released results for the year ended 30 June Headline earnings per share increased by 18.6% y/y to cents for the period under review which surpassed market expectations. Group revenue was up 14.8% y/y at R11.72 billion with the rise attributed to an increase in new business within the Group s existing businesses Operating profit increased to R1.134 billion in 2013 from R930 million in The Group improved its operating margin to 9.7% as a result of stringent focus on operational efficiencies and cost controls. This company operates in the car dealership and logistics space. We are not particularly upbeat over earnings growth prospects over the short to medium term. Super Group represents fair value at current levels. Bidvest released results for the year ended June Normalised headline earnings per share increased by 15.4% to cents - ahead of market expectations. Revenue grew 14.9% y/y to R153.4 billion, driven by strong growth in Europe and the Asia Pacific region. The company also gained from a weaker rand exchange rate on a reported basis. Trading profit was up 9.4% to R7.7 billion. Trading margin decreased to 5%, impacted by the relatively higher contribution from lower margin businesses such as automotive retail and a marked decline in trading profit 7

8 in several foreign operations. Group investments performed well, buoyed by the full year contribution from the 34.8% equity accounted interest in Mvelaserve Limited and the much improved performance of Comair. In June 2013, the Competition Commission approved the takeover of Home of Living Brands (formerly Amalgamated Appliances). The Group also made a number of smaller acquisitions throughout the year. The company declared a dividend per share of 720 cents a gain of 15.8% on the prior year. Overall, this was a solid set of results. Bidvest appears to offer fair value on a forward PE of 14 times. The exit of the last remaining privately owned competitor airline helped to restore seat occupancy to prior year levels. Cash generation was strong and resulted in a cash balance of R778 million at year end. A 10 cents per share dividend was declared. Management remains cautious regarding the strength of the domestic market, particularly in light of relatively weak GDP growth forecasts. The company is positive, however, that it will continue to benefit from new levels of efficiency as well as the delivery of a four more new aircraft in We remain cautious on the highly cyclical nature of the airline industry as well as its relatively high sensitivity to the exchange rate and oil prices. TRAVEL & LEISURE City Lodge focuses on Africa City Lodge Holdings released results for the year ended 30 June 2013 that came towards the upper end of its corresponding trading guidance. Revenue increased 11% to R975.9 million due to the higher average occupancies and an increase in room rates and normalised diluted headline earnings per share increased 31% to cents. The 104-room Town Lodge Gaborone opened in mid- May and management cited early trading as encouraging. Additional expansion investigations are continuing in the rest of East Africa (it already has an operation in Kenya) and in several SADC countries. Management stated that the upward trend in occupancies continued into the first six weeks of the current financial year. This was a good result for City Lodge and we are positive on the company s Africa expansion plans. Comair released significantly improved results for the year ended 30 June Diluted headline earnings per share jumped from 3.8 cents in FY12 to 47.8 cents. The result reflects the realisation of several turnaround strategies implemented at the end of The first phase involved a freeze on all non-critical costs, as well as a headcount and salary freeze to January In the second phase the company implemented a new enterprise system platform in June 2012, and took delivery of four new Boeing aircraft towards the end of the calendar year. The third phase is the optimisation the use of the enterprise system platform. Thus far, the platform has delivered substantial improvements in revenue integrity, inventory management and optimised ticket pricing, as well as improved productivity. The new generation Boeing aircraft have resulted in a considerable reduction in the fuel burn per seat as well as a fall in maintenance down time. Turnover increased by 29%, mostly as result of increased ticket prices in response to exchange rate related cost inflation, as well as improved inventory management. 8 CONSTRUCTION Aveng drops the ball Aveng released a trading statement and operational update for the year ended 30 June Headline earnings per share were expected to decline by up to 10%. This was significantly below expectations (consensus: +116%). The primary reason for the material deterioration in 2H13 was higher losses from Grinaker LTA. The Group s two-year order book decreased 6% from 31 December 2012 to R37.4 billion as at 30 June We expect forecasts to be pulled back on the back of this statement. The company also announced the resignation of Group CEO Roger Jardine effective 31 August Mr. Jardine was at the helm of the company for the last five years. Mr. Jardine noted that this was the ideal time to step down since the Competition Commission Fast Track Settlement process was now complete. He noted that the Competition Commission investigation had been very taxing particularly in dealing with matters that occurred before his appointment. We are unsure about Mr. Jardines reasoning behind his resignation. PPC announced the acquisition of Safika Cement Holdings. The company entered into the agreement to purchase a controlling equity stake in the entity for a cash consideration of R350 million. Safika is a local blended cement producer, which boasts brands including IDM Best Build, Castle and Spar Build-It. This is a complementary acquisition for PPC, however the transaction is still subject to approval by the regulatory authorities as well as the conclusion of PPC s diligence process. Group Five released results for the year ended 30 June Fully diluted headline earnings per share increased 157% to 296 cents which was toward the upper end of its most recent guidance and better than what the market

9 was expecting. The operating margin improved from 3.8% to 5%. The results included costs for a new BBBEE transaction concluded in 2H13, an upward pension fund valuation adjustment, provision for a potential competition commission penalty and close out costs for its Middle East and Construction Materials businesses. The Competition Commission communicated its intent to fine the group for four incidences of collusion. The company said that it had found no evidence of such collusion. The company s order book stood at R4.79 billion with R815 million expected to come through in FY14 (14% growth). Basil Read released results for the six months ended 30 June Headline earning per share increased 196% to cents per share, which was in line with the most recent trading guidance. Revenue increased 11.1% y/y to R3.0 billion. Operating profit rebounded to R80.3 million from a loss of R14.3 million in the prior comparable period. The group s cash position improved 30% to R1.3 billion from R1 billion, which was largely a result of proceeds from the sale of TWP Holdings in the period (869.6 million). Management indicated that the company continued to be negatively affected by a challenging trading environment, persistent labour unrest and a slow public sector project roll out. Management cited the lack of tender activity in the mining sector as a concern however significant work planned by parastatals and increasing opportunities in Africa remain encouraging. The order book increased by 19.6% from December 2012 and now stands at R12.2 billion. Master Drilling released interim results for the period ended 30 June Fully diluted headline earnings per share increased 59% to USc 5.15, which was better than expected. Revenue grew 18% to $54 million: Revenue from exploration drilling fell 31% y/y to $6.9 million, but was fully offset by growth in production drilling of 32% y/y to $47 million. 68% of revenue was generated in Latin America, with just under 20% generated in South Africa. Gold was the biggest contributor to revenue (24%), followed by copper (18%) and platinum at (16%). Operating profits grew 73% to $11.7million. Operating margins improved from 14.8% to 21.8%. The order book stood at $213 million as at 30 June 2013 with a fouryear horizon. Murray & Roberts released results for the year ended 30 June Headline earnings per share improved to 186 cents per share, in-line with its most recent trading guidance. Revenue increased 9% to R34.6 billion. Cash generation improved and the net cash position stood at R4.3 billion from R1.2 billion as at the end of The order book stood at R46.1 billion as at year end. Clough contributed strongly to the groups result and Murray & Roberts has proposed an acquisition of the remainder of this business it does not already own. Management remain concerned over the state of industrial relations in South Africa. The company did note, however, that it expects the Groups positive earnings trend to continue in the medium- to long term, driven mainly by its international operations. We continue to avoid the construction sector. Wilson Bayly Holmes released a trading statement for the six months ended 30 June 2013 that disappointed the market. Headline earnings per share are expected to be between 5% and 10% lower than the prior comparable period. The reduction in earnings is primarily due to additional provisioning for the Competition Commission penalty to the sum of R311.3 million, the tax treatment thereof and margin dilution in Australia as a result of three challenging projects. We remain concerned over the large scale construction companies given a lack of civil infrastructure projects and persistent pressure on margins. We continue to avoid the sector. MEDIA Tencent pushes on Naspers subsidiary Tencent Holdings released second quarter results that were broadly in-line with expectations. Revenue grew 37% to CNY14.4 billion and adjusted net income grew 23% y/y to CNY4.15 billion. The company has experienced margin pressure due to increased investment into their mobile platform. Tencent is arguably the best play on China s mobile internet market and remains a key value driver for Naspers going forward. 5.2 Financials MTD* YTD* 1 Year* Financial -0.9% 4.8% 15.5% Financial % 4.9% 16.6% Banks 1.9% -2.8% 8.3% Life Insurance Companies -2.6% 14.8% 32.5% Investment Companies -1.0% 24.1% 33.5% *All figures to 30/08/2013 Financials retreated 0.9% in August as insurance companies gave up 2.8% following a strong run up year to date. RMI pulled back 4.2% and Santam gave up just over 1% as concerns over short term insurance underwriting margins resurfaced. This followed a disappointing set of interim results by Santam. Discovery also pulled back sharply after releasing a full year trading statement in the final week of the month that fell short of expectations. Banks experienced a better month, adding 1.9% in August with Nedbank adding 6%, Standard Bank gaining 3.7% and African Bank jumping 10.6%. 9

10 BANKS African Bank makes changes African Bank released a quarterly operational update for the third quarter ended 30 June 2013 and made several strategic announcements. Management noted that the operating environment remained challenging, both for credit and furniture retail. The company announced several strategic initiatives including: Improving the yield/risk relationship. Enhanced collection activities through additional resource commitment. A review of Ellerines strategic fit. A R4 billion strengthening of its capital base via an equity raise. While this equity raising will strengthen the balance sheet, it will be highly dilutive. The rights issue is seen as a positive from a preference shareholder perspective as there is likely to be less pressure on dividends. While the potential disposal of Ellerines is encouraging, uncertainty exists on what value will be realised on the asset. We remain concerned about the unsecured lending sector and the health of the South African mid to low-income consumer and we continue to avoid this counter. Investec released an interim management statement for the three month period to June Total operating income was 4% higher y/y and operating costs also increased 4% y/y. Third party assets under management decreased 4% to GBP105.8 billion or 1% on a currency neutral basis over the quarter. Overall results were impacted by the depreciation of the average ZAR/GBP exchange rate of approximately 13%. The counter is trading on a forward PE of 10.6 times and a forward dividend yield of 4.8% and we continue to prefer FirstRand and Nedbank in the financial services sector. Nedbank released results for the six months ended 30 June Diluted headline earnings per share increased 12.6% to 831 cents which was in line with expectations. Non-Interest revenue grew 15.4% to R9.54 billion. This was for the most part a result of a 14.2% increase in fee and commission income and 15.4% growth in insurance income. Trading income was up 1.6%. Net interest income fell 4.9% which was disappointing. Cost growth of 8.3% was commendable. An interim dividend of 390 cents per share was declared (up 14.7%). Management kept its full year expectations largely unchanged, but guided for the credit loss ratio to come in above what was initially anticipated. Nedbank appears relatively undemanding on a forward PE of 9 times and an attractive forward dividend yield of 5.5%. Standard Bank released results for the interim period ending 30 June Diluted headline earnings per share increased 10% to 502 cents a disappointment to the market (full year consensus: +13.2%). Earnings growth was subdued in South Africa (+9%), strong in Africa (+27%) and flat for international. Revenue grew 23% on the back of net interest income growth of 20%. Non-interest revenue grew by just 7%. The credit loss ratio was higher than expected at 1.17%, deteriorating from 0.92% at year-end The dividend of 233 cents represents a 10% increase, in-line with earnings, but below expectations. Standard Bank also announced that it is in advanced talks to sell its London commodity trading business to its biggest shareholder, Industrial and Commercial Bank of China (ICBC). ICBC holds a 20.1% stake in Standard Bank. Standard Bank sold its Argentinian business to ICBC last year. The bank said in November it planned to cut up to 15% of its London staff to save $100 million. INSURANCE Sanlam statement excites Sanlam released a trading statement for the six months to 30 June Normalised headline earnings per share are expected to be up by between 30% and 40%. This outperformance is in part due to exceptional items, including certain one off positive investment revaluations of some R200 million in the current reporting period and the discontinuance of STC following its replacement with a dividend withholding tax. Sanlam appears to offer fair value on a price to embedded value of 1.25 times and remains our preferred pick in the sector. Liberty Holdings released results for the six month ended 30 June Normalised headline earnings per share increased 6% to cents which was better than expected (full year consensus: -12%). Assets under management grew 16.9% to R504 billion as net cash inflows into the asset management business jumped 66.3% to R9 billion. Embedded value grew 12.3% to R Liberty is trading on a premium to embedded value of 1.6% and an attractive forward dividend yield of 5.2%. Old Mutual released results for the six months ended 30 June Diluted headline earnings per share increased 12.6% y/y to 58.4 pence which exceeded expectations. Funds under management were up 9% in constant currency to GBP289.3 billion. An interim dividend per share of 2.1 pence was declared, which represents a 20% increase compared to 1H12. Old mutual is trading on a price to embedded value of about 1 times. Clientele released results for the year ended 30 June Diluted headline earnings per share increased by 15% to cents. This was in-line with its most recent trading guidance. Revenue increased 2% to R1.22 billion as the company experienced a marked improvement in new business volumes in 2H13 (+40% over 1H13). Operating profit improved by 13% to R293 million. The dividend increased by 10% on the prior year. Clientele is trading at a premium to embedded value of 26%. 10

11 Discovery released a trading statement for the year ended 30 June Headline earnings per share were expected to be between 0% and 10% lower. Normalised headline earnings per share were expected to be between 15% and 25% higher than in the corresponding period in Normalised headline earnings excluded the accounting impact of the Standard Life Healthcare acquisition, the recapture of reinsurance and accounting for a puttable non-controlling interest financial liability. Excluding one-offs, the statement was in-line with expectations (consensus: +18%). Santam released results for the six months ended 30 June Diluted headline earnings per share fell 12.5% to 363 cents. The underwriting margin deteriorated from 6.1% in 1H12 to 1.3% amid challenging difficult underwriting conditions. The crop insurance business was adversely impacted by hail damage to summer crops in the Eastern region of South Africa and drought insurance input claims in the Central and Western regions. An increase in claim severity was experienced and further impacted by higher motor repair costs, and an increase in theft related claims. Cash generation was significantly impacted by the settlement of 2012 catastrophe event claims. An interim dividend of 242 cents per share was declared (+5%). 5.3 Resources MTD* YTD* 1 Year* Resources 7.5% -2.7% 10.4% Resource % -1.8% 11.2% Gold Miners 4.0% -42.2% -40.3% Platinum Miners 16.2% -15.0% 0.9% *All figures to 30/08/2013 Resources continued to perform well after gaining 9.2% in July. The sector added 7.5% to narrow its year to date fall to just 2.7%. Platinum miners rallied 16.2% after Northam, Royal Bafokeng and Aquarius released credible results. Gold stocks gained a conservative 4% as concerns over strike action in the sector intensified. OIL, GAS & CHEMICALS Sasol impresses Sasol released a trading statement for the year ended 30 June Headline earnings per share are expected to increase by between 20% and 30% which was better than anticipated (consensus: +14%). The strong financial results were underpinned by higher than anticipated Sasol Synfuels production volumes. The bottom line was negatively impacted by impairments on the Sasol Wax business and on the Arya Sasol Polymer Company (which has since been disposed of). Later in the month the company announced the resignation of CFO Christine Ramon from all directorship and offices she holds at Sasol effective 9 September. This was a surprising announcement. In the interim, Sasol has appointed Paul Victor as acting CFO. Victor has been with Sasol for 13 years and currently is Executive: Group Finance. Sasol is regarded as offering fair value on a forward PE of 9.8 and an attractive forward dividend yield of 4.1%. PLATINUM Bafokeng does well Royal Bafokeng Platinum released results for the six months ended 30 June Headline earnings per share increased 103% to R0.872/share, in-line with expectations. Production increased 1.1% as overall head grade increased 5.8% and tonnes of ore milled fell 3.9%. Unit cost increased 7.8% but due to higher recoveries, cash cost per platinum ounce increased by only 1.3%. Capital expenditure fell 14.6% as the company reduced replacement cost and stay in business capital significantly. This, coupled with higher cash inflows has seen cash balance increase. The cash flow positive nature of this business (especially at depressed PGM prices) may go some way to relieve its extended capex burden over the next two to three years. The company also continues to benefit from solid labour relations. Aquarius Platinum released results for the year ended 30 June The headline loss narrowed to $61 million (FY12: headline loss $154 million) which was marginally ahead of expectations. Group attributable production, excluding operations on care and maintenance, increased 13% to PGM ounces. The average Rand basket price was up 7% y/y while average unit cash costs fell by 19% y/y to $912 per 4E ounce. Mine EBITDA increased by 145% to $70 million (FY12: $29 million). The group cash balance improved to $103 million from $83 million at the end of 1H13. Management warned that it expects difficult operating conditions and low metal prices to continue into FY14. Northam released results for the year ended 30 June Headline earnings per share increased by 69% to cents. This was towards the upper end of its most recent guidance, which at the time was significantly better than what the market was expecting. Tonnes mined increased 9% to 2.12Mt but head grade declined 4% which management stated was due to poor mining control. Group revenue increased 20% to R4.4 billion as the average PGM basket price increased 8% in rand terms. Operating profit rose 79% to R608 million as a result of operating costs increasing by just 8%. Zondereinde continued its recovery and Booysendal was successfully commissioned. At the end of June, the group had net debt of R1.25 billion (FY12: R70 million net cash), although its cash flow position improved. In light of labour and market 11

12 uncertainties and the debt position, the final dividend payment was passed. Impala Platinum released results for the year ended 30 June Headline earnings per share fell 52% from 685 to 330 cents per share, in-line with its most recent guidance. The decrease in HEPS was attributed to above inflation cost increases, a R1.3 billion impairment of longterm receivables, and a poor operating performance at the Lease. Revenue was up 9% y/y to R30 billion as gross refined platinum production grew 9% to 1.58 million ounces. Group unit costs jumped 23% y/y to R per platinum ounce due to above inflation wage and power cost increases, combined with lower production. A final dividend of 95 cents was declared. We remain concerned over Impala s balance sheet resilience. Lonmin announced that it signed an employee recognition agreement with the Association of Mineworkers and Construction Union (AMCU). The agreement formally recognises AMCU as the majority union at Lonmin, and acknowledges the rights and obligations which accompany that status in South African labour law. This was expected to bring some relief to tensions at the Rustenburg mines, however, smaller unions Solidarity, UASA and NUM have expressed dissatisfaction with the new agreement, citing that it was outside mining stability accord brokered by deputy President Kgalema Mothlantle. We continue to avoid the sector. GOLD Worries over Harmony s cash Harmony Gold Mining Company released results for the fourth quarter and year ended 30 June Headline earnings per share fell 92% to 47 SA cents. This was below expectations and included the reversal of a Hidden Valley deferred tax asset of R547 million (126 cents per share), losses related to the temporary closure at Kusasalethu, and retrenchment costs. Gold production increased 12% q/q but fell 2% y/y. Cash operating costs decreased by 9% q/q to US$1 156/oz. and increased 5% y/yto US$1 154/ oz. We are concerned over Harmony s deteriorating cash position - the company recorded a net cash outflow of just over R1 billion. No final dividend was declared. AngloGold Ashanti reported a second quarter headline loss of 35 US cents per share. This was below expectations and mainly due to a $144 million inventory write down. Production increased 4% q/q to ounces and costs were flat q/q at $898 per oz., in-line with its most recent trading guidance. The company announced a strategic review that aims to save R1.1 billion in costs and capital expenditure. No second-quarter dividend was declared given the volatile environment. AngloGold Ashanti expects third quarter production of between and 1 million oz. and per unit cost of between $860 and $890 per oz. We continue to avoid the gold sector. Sibanye Gold released results for the six months ended 30 June Headline earnings per share came in at 156 cents which was in-line with expectations. Operating profit increased 63% to R3.3 billion compared to 2H12. Production fell 5% versus 1H12 and total notional cash expenditure increased 13% from 1H12 to R /kg. The company has moved from being the second highest all-in cost SA producer in 2012 to the lowest cost producer for the period, with an all-in cost of US$1 215/oz. A cash position of R2.1 billion has been built up, reducing net debt from R3.9 billion as at 31 December 2012 to R1.9 billion although no maiden dividend was declared. Later in the month, the company announced the acquisition of a 74% stake in Gold One s West Rand Cooke operations. The transaction will be settled by way of 150 million newly issued Sibanye Gold shares (17% of total share capital). This represents a transaction value of about R1.5 billion. Management has indicated that the acquisition is expected to be earnings and cash flow accretive for the group on a per share basis, once completed. This appears to be a good deal for Sibanye Gold and although this counter holds speculative potential, we remain concerned over management transparency. Pan African Resources released a trading statement and operational update for the year ended 30 June Headline earnings per share (HEPS), calculated in ZAR, are expected to be between 16% and 26% higher than in the prior comparable period. This is regarded as a good performance amidst a challenging economic backdrop. Gold Fields released second quarter and half year results. The company reported a headline loss per share of 105 cents, down from a profit of 34 cents per share in the prior quarter. The loss has been attributed to several impairment charges. Attributable Group production for the June 2013 quarter came in 5% lower q/q at oz. as a result of strike action at Tarwa and Damang in Ghana. Revenue declined 21% q/q to R6.038 billion due to this lower production number as well as a lower average US dollar gold price. Total cash costs came in 1.5% higher at R per kilogram. Group production stood at ounces to date, supportive of the to 1.9 million ounce production guidance for the full year. An interim dividend was not declared. We continue to avoid the gold sector. 12