how can we help you? Monthly Contents Figure 1 Head Office: Directors:

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1 how can we help you? Monthly WRAP-UP 1. Commodities Securities September 2015 Contents 1. Commodities 1.1. Gold Page Platinum Page Crude Oil Page 2 2. Bonds Page 2 3. Property Page 3 4. Preference Shares Page 4 5. Equities Page Industrials Page Financials Page Resources Page 13 Price (US$)* MTD* YTD* 1 Year* Gold % -5.9% -7.7% Platinum % -25.2% -30.5% Brent Crude % -25.3% -50.4% CRB commodity price index *All Figures to 30/09/2015 N/A -4.1% -15.7% -30.4% GOLD Dollar and the Fed the dominant force The gold price ended a volatile month lower as investors balanced global growth concerns with continued speculation around the US Federal Reserve s next move Analysts Mark Appleton Edgar Mafoko Pritu Makan Chantal Marx Tlamelo Mathakgane Alex Smith Contact us Relationship manager: Dealing desk: Website: Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Figure 1 Gold versus Platinum Source: Bloomberg Gold Price (US$/oz.) Platinum Price (US$/oz.) Despite evidence of a recovering economy, the US central bank decided to keep interest rates unchanged at its September meeting citing an uncertain global growth outlook as a reason for the decision. Some Fed officials including William Dudley and Chair Janet Yellen did later say that they still expected to raise rates this year. Head Office: 4 Merchant Place, 1 Fredman Drive, Sandton 2196 PO Box 3359, Parklands 2121 fnbsecurities@fnb.co.za Relationship Manager: Dealing Desk: Directors: H Mojalefa, PP Dreyer, R Jayrajh, W Myers, V Naidoo. Company Secretary: C Low FNB Securities (Pty) Ltd - a part of the FirstRand Group. An Authorised user of the Johannesburg Stock Exchange (JSE) and Financial Services Provider (FSP182).

2 Gold demand was boosted after several central banks including China, Russia and Kazakhstan increased their gold holdings in August. In India, gold imports are on the rise due to lower prices and expectations of robust purchases ahead of upcoming festivals and the new wedding season. The price also appeared to be supported by heightened financial market volatility in September, which may have improved demand for gold as a safe haven. While the prospect of higher interest rates in the US is likely to continue to support the US dollar, which is negative for gold, persistent concern over global growth specifically around China, may support the yellow metal price in the near term. PLATINUM Deficit gives little support The platinum price continued to fall in September touching a six and a half year low on the last day of the month. The metal came under pressure on the back of a resilient greenback, concerns over China s slowing growth and an emission scandal by German carmaker Volkswagen AG. Platinum prices slumped 8% on concern that Volkswagen scandal could potentially have an adverse impact on consumer sentiment towards diesel vehicles (more platinum is used in diesel catalysts). The German carmaker admitted that it attempted to rig US pollution tests for diesel models. Concerns about China s slowing economy continued to place pressure on the precious metal price. China s industrial output for August missed economists forecasts, while investment rose at the slowest pace in 15 years. Meanwhile, strong Eurozone vehicle sales data did little to support the price. New vehicle sales rose 12% y/y in August, as rising economic confidence encouraged purchases of new sport utility vehicles from French manufacturers Renault and Citroen and luxury producers BMW and Mercedes-Benz. The platinum market is expected to be in deficit beyond 2015, which should be price supportive. However, given the high levels of recycling, significant above ground inventories, and weak demand in key markets, platinum prices are expected to remain under pressure for the time being. OIL Stability...finally? The price of Brent crude oil recorded one of its most steady months over the past year, trading just below the $50/barrel level for most of September. Speculation of a possible drop in Saudi Arabian oil exports provided some support to prices early on in the month but in its monthly report, OPEC said it produced million barrels per day (bpd) in August (according to secondary sources), a marginal increase from July and also above its 30 million per day target. Saudi Arabia also grabbed headlines for ignoring Venezuela s calls for an energy summit which would include discussions relating to falling oil prices. This bolstered expectations that OPEC will look to maintain its strategy of letting prices fall for the remainder of the year. In the US, crude oil inventory data provided little direction while private data (Baker Hughes) showed a declining trend in the number of US oil rigs in operation. In one of its reports, the US Energy Information Administration pointed out that current low oil prices were making some oil production less profitable and subsequently revised downwards its forecasts for the country s output in Investors will likely continue to speculate over rig-count and production profiles ahead of OPEC next meeting in early December Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Figure 2 Oil Spot Price history Source: Bloomberg 2. Bonds MTD* YTD* 1 Year* ALBI -0.1% 2.7% 7.0% *All Figures to 30/09/2015 Brent Crude Oil (US$/Barrel) The SA bond market ended September more or less flat as shorter dated bonds outperformed those of a longer duration. Despite the Rand remaining under pressure against the US Dollar, bond yields were fairly stable in September. We would ascribe this to the decision by the SARB to keep interest rates on hold, concerns around the GDP growth outlook, an inflation outlook which has remained relatively stable and a flat US bond yield environment. The assumption that the recent currency weakness is not likely to have a major effect on inflation is due to a deteriorating economic growth backdrop and an inability on the part of retailers to pass on costs. As 2

3 inflation erodes the value of a fixed coupon payment, the stable inflation outlook can be seen as a comforting factor for bond investors. Another domestic positive is the pause from the SARB after hiking interest rates in July. The market has priced in about 100bps of interest rate hikes over the coming year. This we believe is a little more than we are actually likely to see. Therefore if the market starts to move closer to our view, shorter dated bonds could rally a little more. The down side risks to GDP growth next year are also a positive for shorter dated bonds as they suggest that the SARB may do even less hiking. However, for longer dated bonds the impact is less clear. On the one hand slow growth improves the relative attractiveness of a fixed yield instrument. On the other, it could place government finances under pressure and move SA closer to a sovereign credit rating downgrade. The SA bond market is also being influenced heavily by offshore factors, in particular the US Federal Reserve s monetary policy. With US data having come in a little weak recently and the Fed becoming more concerned about an emerging market slowdown, it appears as if the Fed could wait until next year to hike. Nonetheless, the US markets are currently pricing a very gradual interest rate hiking cycle from 2016 onwards. Therefore, the risk is still skewed towards a faster and steeper cycle than the market predicts. If this risk were to transpire both the US and SA bond markets are likely to sell-off as the global risk-free rate rises. However, we share the view that the Fed will be lifting rates gradually and as such we think that the SA bond market offers fair value at current levels Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 USD/ZAR Figure 3 USDZAR versus SAGB10 Source: I-net Bridge 3. Property SA 10 Year bond yield The FTSE/JSE SA listed property index added 0.8% on a total return basis in September as investors continued to assess recent earnings releases out of the sector. Bond returns were almost flat for the month with the ALBI falling 0.1% SA Listed Property Index TR Price* MTD* YTD* 1 Year* 1 Year Fwd Yield* N/A 0.8% 13.3% 25.8% 6.6% Emira % 9.7% 21.0% 8.5% Redefine % 13.0% 28.3% 7.7% Growthpoint % -2.0% 9.3% 7.2% Vukile % 6.6% 18.9% 8.5% Hyprop % 29.4% 48.2% 5.1% Investec PF % 4.1% 11.8% 8.2% Resilient % 43.8% 67.9% 4.2% Fortress A % 7.9% 11.4% 8.2% Attacq % -0.2% 9.8% N/A Rockcastle % 25.5% 50.5% 4.5% Rebosis % -7.6% 4.1% 11.6% NEPI % 27.2% 31.9% 4.5% Arrowhead A % 8.7% 31.8% 8.8% Hospitality A % -3.0% -14.2% 13.6% SA Corporate % 14.4% 27.7% 8.3% *All Figures to 30/09/2015 Companies that outperformed the benchmark in September included NEPI, Resilient and Redefine. Notable underperformers included Rebosis, Rockcastle and Growthpoint. Developer Attacq released a strong a set of results. Its key Mall of Africa (in Waterfall City) asset is expected to be completed in April 2016 and the company also announced its entry into the European property market through an acquisition in Cyprus. Balwin Properties announced its intention to list to list on the JSE. The company focuses on large scale sectional-title residential estates. In addition to its current build to sell model, the group plans to develop a rental portfolio of between R2 billion and R3 billion by Looking ahead, we expect low interest rates to prove supportive of the sector, but the yield gap to bonds may present a headwind with forward property yields of 6.5% well below 10 year government bond yields Jan-15 May-15 Sep-15 Listed Property Index TR ALBI TR Preference Share Index TR Figure 4 Return Comparison - Listed Property, ALBI, and Prefs Source: I-net Bridge 3

4 4. Preference Shares Preference Share Index Total Return (J251)* MTD* YTD* 1 Year* Current Yield** 2.2% 5.4% -0.7% 9.7% *All Figures to 30/09/2015 **Grossed up, pre-dwt (excluding African Bank) The FTSE /JSE Preference Share Index rebounded in September, bringing its year-to-date performance to a respectable 5.4%. The negative sentiment that placed the market under pressure last year is falling out of the base, as such the year-on-year performance has become less negative as well. As the preference share index has been a laggard compared to most other asset classes on a one year view, yields on these instruments have moved to attractive levels. Many of the instruments in the index offer gross yields in excess of 10%. Given the tax efficiency of preference shares, these counters are now very attractive for investors seeking an income generating asset. Moreover, we anticipate that interest rates will be gradually rising in the short term, which will add a further modest boost to yields. 5. Equities MTD* YTD* 1 Year* JSE All Share Index 0.2% 0.6% 1.5% JSE All Share Index (USD) -3.9% -15.9% -17.3% MSCI World (USD) -3.9% -7.5% -6.9% MSCI Emerging Markets -3.3% -17.2% -21.2% Australia All Ordinaries -2.9% -5.6% -5.6% Hang Seng -3.8% -11.7% -9.1% Nikkei % -0.4% 7.5% S&P % -6.7% -2.6% DAX -5.8% -1.5% 2.0% FTSE % -7.7% -8.5% *All figures to 30/09/2015, local currency unless otherwise stated Global equity markets struggled against a relatively mediocre economic backdrop over the period. While the US economic recovery remained more or less on track, retail sales slowed and industrial production contracted more than anticipated in August. Capacity utilisation also eased slightly. Non- farm payrolls were also below market expectations although the previous numbers were revised higher and the unemployment rate fell. Inflation fell on the back of lower energy prices. The Federal Reserve kept interest rates unchanged. In the Eurozone the composite PMI (including manufacturing and services) slipped slightly to a two month low in September although it remains comfortably in growth territory. Inflation moderated to 0.1% in August as a result of falling energy prices. In China the recent Caixin PMI did little to alleviate Chinese growth concerns with the index falling to a six and a half year low reading of 47.This was also somewhat below market expectations. The MSCI World Index gave back 3.9% in USD terms bringing its year to date decline to 7.5%. The S&P 500 ended 2.6% down (-6.7% year to date), the FTSE 100 (-3%) and the DAX (-5.8%) also moved lower in September. The Hang Seng lost 3.8% and the Nikkei 225 was the worst performing major index, down 8% over the month. The Japanese stock market nevertheless remains the strongest performer year to date and over a 12 month period. The JSE All Share Index managed to eke out a small gain (+0.2%) during September in rand terms, but when factoring in currency depreciation, the local bourse performed in-line with the rest of the globe. It was the only month in the third quarter in which foreigners were net sellers of the equity market. -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% -14.0% -16.0% -18.0% -20.0% Figure 5 World Indices Performances Compared Source: Bloomberg Billions 2.0% 0.0% JSE All Share Index JSE All Share Index USD MSCI World (USD) MSCI Emerging Markets YTD Figure 6 Foreign purchase value and sales value on JSE per week* Source: JSE *Week 1 was a 4 day week, week 5 was a 3 day week. 5.1 Industrials Australia Hang Seng Nikkei 225 S&P 500 Dax FTSE 100 All Ordinaries 1 Month Purchase Value Sales Value Net Value While the group of largest industrials added 5.1% over the month, the broader index fell 2.1%. The reason for 4

5 the divergence is was the relative weighting of rand hedge stocks, and more specifically SABMiller in the Industrial 25 grouping. SABMiller rallied 26.7% over the month after confirming reports that Anhauser Busch Inbev, the largest brewer in the world, was planning to make an offer for the emerging market player. The rest of the industrial space was basically negative with pharmaceuticals having another challenging month (-13.3%) and technology also coming off (-11.3%), the latter following a very weak trading update by Datatec. Healthcare (-7.8%) and general retail (-6.0%) also came off sharply. MTD* YTD* 1 Year* Industrials -2.1% -6.0% -1.6% Industrials % 10.1% 18.1% General Retail -6.0% 9.2% 23.4% Food & Drug Retail -1.3% 5.4% 26.8% Food Producers 1.5% -3.6% 11.1% Healthcare -7.8% -13.1% -0.8% Pharmaceuticals & Biotechnology -13.3% -26.3% -11.8% Construction & Materials -8.3% -37.0% -45.3% Technology -11.3% 23.5% 35.1% Telecommunications 0.4% -11.1% -15.6% Diversified -0.5% 0.3% 9.8% Consumer Services -1.1% 11.2% 32.2% Support Services -9.1% 9.3% 10.5% Travel & Leisure -3.0% -7.4% 2.1% *All figures to 30/09/ % 25% 20% 15% 10% 5% 0% -5% -10% -15% 1% Naspers (17.5%) 26.70% SABMiller (15.8%) 11.11% Richemont (12.7%) Figure 7 Indi25 Top 5 constituents performance Source: Satrix, Inet Bridge, FNB Securities 0.58% -8.78% MTN (10.3%) Sasol (6.4%) Monthly Performance Top 5 Constituents Indi 25 Industrials General TRAVEL & LEISURE One-off weakness for Taste & Spur Spur released FY15 results. HEPS fell 3.2% to cents, due to several one-offs and the impact of the GPI transaction. Comparable HEPS were up 14.3%, behind consensus forecasts (+19%). Restaurant sales increased 12.1% to R6.2 billion. Group revenue increased 3.7% to R760.1 million, with good growth in SA offset by a weak international performance. Operating profit was up 1.8% to R205.4 million. Excluding on-offs including the impact of the GPI transaction, operating profit was up 10.8%. The dividend per share was up 9.1% to 132 cents. Looking forward, current macro headwinds are anticipated to persist with the weak rand, electricity constraints, and rising operating costs highlighted as concerns. While this was a reasonable performance operationally against challenging macros, the financial result was a little disappointing especially on the international front where little benefit was forthcoming from the weak ZAR. Spur is trading on a forward PE of 15.5 times and a relatively attractive forward dividend yield of 4.5%, which, given its long term growth prospects does not appear particularly demanding. Taste Holdings released a trading statement for the interim period ended 31 August 2015 and provided an update on Starbucks, Dominos and Arthur Kaplan. Core headline earnings per share (HEPS) are expected to be between 76.7% and 123.3% lower y/y. Core HEPS excludes Dominos upfront costs and other one-offs and the headline loss per share (excluding this adjustment) is expected to be between 391% and 411% larger y/y. Core EBITDA are expected to fall to between R17 million and R18 million (1H15: R23 million) as a result of a reduction in EBITDA in the food division. Luxury goods EBITDA is expected to increase between 61% and 70% y/y. Dominos now has 63 outlets (26 corporate owned) with sales in converted stores ~60% higher than prior to conversion. The food distribution and dough manufacturing facilities in Cape Town and Johannesburg are complete and have the capacity to service over 400 Domino s outlets nationally in addition to existing outlets of other food brands. The financial impact of the Domino s roll-out is anticipated to be immaterial from FY17 onward. The group has already identified more than 150 Starbucks outlet opportunities locally. Taste is aiming to have between 12 to 15 outlets within the first 24 months from the initial store launch scheduled for early next year in Gauteng. As with the Domino s roll-out, the group will incur one-off investments costs relating to training, travel, employment, marketing, research, and IT and infrastructure costs. The financial impact of the Starbucks s roll-out is anticipated to be immaterial from FY18 onward. The Arthur Kaplan acquisition has exceeded the group s expectations in both sales and profit performance. Downward pressure on earnings was expected given the scale of the Domino s roll-out and, along with costs 5

6 associated Starbucks launch, is expected to persist to the end of FY18. The trading update on Domino s and Arthur Kaplan was positive. Taste is trading on a forward PE of 46 times, which appears expensive relative to the peer group. While we view this company as an interesting prospect over the long term, the growth plan is very ambitious and opens earnings up to significant forecast risk. RETAIL Choppies: margin contraction to be a regular feature? Choppies released FY15 results. HEPS were up 22% to thebe, in-line with trading guidance (which was very vague), and slightly ahead of market expectations (Bloomberg consensus: +18%). The dividend per share was up 6.1% to 4.51 thebe. Turnover increased 19% to BWP5.9 billion, with good growth across all the company s operating regions, notably Zimbabwe (+103%) and South Africa (+27%). Gross profit increased 20% to BWP1.2 billion, with good margin expansion out of Choppies South African operations. Operating profit increased 10.8% to BWP267 million. The operating margin was negatively impacted by a 26% increase in administrative expenses. From a segmental perspective, good margin gains in the South African business were offset by deterioration in Zimbabwe and Botswana. While finance costs rose, a lower tax charge resulted in profit after tax increasing by 11.3%. Looking ahead, management expects some pressure on sales, but that profit margins will remain healthy. The company will start operating in Zambia soon and are positive over the recent Kenyan acquisition (still subject to competition authority approval). While top line growth was very healthy and the HEPS number was in-line with expectations, the operating margin contraction was a big disappointment. Choppies is currently trading on a forward PE of 23.5 times and a forward dividend yield of 1.1%, which appears fair within the sector given its growth prospects. Cashbuild released FY15 results. Diluted HEPS improved by 33% y/y to cents, in-line with trading guidance. A final dividend of 336 cents per share was declared, 32.8% higher than the prior period. Revenue grew 13% to R7.7 billion, supported by strong growth in the South African operations (~88% of revenue) of 14.3%. Rest of Africa revenue growth came in at 8%. Operating profit increased by 30% to R465 million on the Looking forward, management was positive about the top-line trading prospects for the new financial year. The first six trading weeks since year-end saw revenue increase by 11% y/y. This was a good result given the tough economic conditions in which the counter operates, although the drop in Rest of Africa growth as well as the slow-down post-year end will be a concern. Following a fairly recent significant appreciation in price, the counter is trading on a forward PE of 20.8 times and a forward dividend yield of 2.2% which no longer appears particularly cheap. The Foschini Group released a trading update for 5M16. Sales grew 33.1% y/y, including Phase Eight. Turnover excluding Phase Eight, grew by 9.7% y/y (same store: +4.3%). Cash sales grew 14.8% and credit sales grew 5.8% as strict risk measures remained in place. Management mentioned that an improvement in the local credit cycle was visible but that conditions were expected to remain strained. Load shedding and crime-related losses were highlighted as key concerns for the group. These numbers were broadly in-line with expectations. Management also mentioned that sales growth had accelerated in the last two months of the period under consideration (+11.3% y/y). Foschini is trading on a forward PE of 17 times and a relatively attractive forward dividend yield of 4.3%. Woolworths remains our preferred pick in the sector. Mr Price released a trading update for 21 week period ended 22 August Sales grew by 9% (comparable 4.6%) with units sold increasing by 1.8% and retail selling price inflation totalling 6.6%. This represented a significant slow-down on FY15 (+15.5%) and was mostly as a result of a very weak April and May. Management ascribed the weakness to a high base, poor consumer confidence, a late start to winter, and some poor fashion calls in the junior market segment. Management expected an improved sales performance for the remainder of the financial year (off a less demanding base). The slow-down was a definite disappointment to the market and confirms our assertion that the counter has been priced for perfection for some time now. The improvement in 2H16 is welcome, however. Following yesterday s correction, Mr Price is trading on a forward PE of 18.8 times and a forward dividend yield of 3.6% which appears fair within the sector. We maintain our preference for Woolworths in this space. Holdsport released a 1H16 trading statement. HEPS werere expected to increase by between 25% and 29% y/y. A portion of the increase came on the back of a foreign exchange gain for the period, versus a forex loss in the prior comparable period. Core HEPS, which excludes the forex impact, was expected to be between 6

7 18% and 22% higher y/y, well ahead of expectations (consensus: +15). These numbers followed on from the already substantial improvement achieved in 2H15. Holdsport is trading on a forward PE of 11.3 times and a relatively attractive forward dividend yield of 4.8%. DIVERSIFIED INDUSTRIALS Imperial drops Regent Imperial announced the disposal of its insurance arm, Regent, to Hollard for R2.3 billion. Imperial previously cited its intention to dispose of Regent as a result of the changing business mix of the insurer. A large portion of Regent s revenue and profits now originate from business lines unrelated to Imperial s core operations. While the proceeds will initially be used to reduce short term debt, over the long term it will be used to fund group expansion activities. The transaction is subject to conditions precedent. The disposal makes strategic sense for Imperial and was concluded on an exit PE of 7.2 times and a priceto-nav of 1.4 times which appears reasonable. While we recognise that short term headwinds exist, Imperial does not appear particularly demanding on a forward PE of 10.1 times and a relatively attractive forward dividend yield of 4.8%. CONSTRUCTION Another strong half from Calgro Calgro M3 released a 1H16 trading statement detailing that headline earnings per share (HEPS) were expected to increase by between 19.97% and 39.98% y/y, ahead of expectations (consensus: +20%). Calgro M3 is trading on a forward PE of 12.5 times which does not appear particularly demanding, especially considering its expected growth trajectory. The company operates in an attractive space within the broader construction sector. HEALTHCARE Advanced Health SA revenue growing Advanced Health released results for the year ended 30 June HEPS fell 49% to 3.26 cents, in-line with guidance. Revenue was up 15.6% to R180.1 million. This was driven by a strong 222% increase in South Africa revenue to R23.4 million. Growth in Australia was subdued in ZAR terms (+5.5%) as a result of a weaker AUD. Gross profit was up 27.8% to R99.6 million with the margin expanding by 5.3% to 55.3% and EBITDA increased 12.0% to R35.6 million. The difference in the operational and HEPS performances came on the back of an increase in taxation, the exclusion of a fair value gain on investment properties, and a marked increase in the weighted average number of shares in issue (+84%). Looking forward, management maintained that the company was on track to fulfil its long term goals. In Australia, management would continue to drive Presmed s presence in the greater Sydney area and New South Wales. In South Africa, the company opened its third day hospital in FY15 with six more under construction. While we recognise that there is potential for the business model to work in South Africa, we expect the uptake to be a longer term story. We have a preference for Mediclinic in the sector. PHARMACEUTICALS Aspen earnings growth starting to slow... Aspen Pharmacare released FY15 results. Normalised diluted HEPS increased 15% to cents, in-line with guidance. A dividend of 216 cents per share was declared up 14.9% y/y. Revenue improved by a very strong 22% to R36.1 billion while operating profit before amortisation (EBITA) increased 19% to R9.2 billion as margins came under pressure across the board. International revenue increased 46% to R18.6 billion and EBITA was up 42% to R5.2 billion, boosted by transactions made in the prior year with margins under pressure as a result of significant USD strength. Revenue in Asia Pacific decreased by 5% to R8.1 billion and EBITA declined by 10% to R1.7 billion, due to lower sales in Australasia (-8% y/y), higher cost of goods in Australia, disposals, and the termination of licences and contract manufacturing arrangements during 2H14. South Africa revenue grew 16% to R8.6 billion driven by strong sales in Consumer (+23%) and supported by solid growth in private sector (+12%) and public sector (+14%). EBITA was up just 7% to R1.9 billion as the weaker ZAR, and higher labour and energy prices weighed on margins. In Sub-Saharan Africa, revenue was up 1% to R2.8 billion whilst EBITA decreased by 6% to R313 million due to weakening in-market currencies. Management said the group will sharpen its focus on key therapeutic areas with the objective being an improved return on investment. The group continues to seek M&A opportunities but it seems as if recent infant 7

8 nutrition talks have turned sour. Aspen also expects to realise merger synergies from recent large-scale acquisitions towards the end of FY16 with R2.5 billion in EBITA expected to be realised from these synergies by FY19. While margin pressure was worse than anticipated especially in SA and Australia, strong top-line growth in most territories as well as the quantum of merger synergies still expected were key positives. The share price was also negatively impacted by the announcement that the negotiations around another acquisition in the infant nutritional space had ceased. Aspen is trading at a forward PE of 20 times and remains our preferred counter in the sector. Ascendis Health released results for the year ended 30 June Normalised HEPS increased 31% to 94 cents, towards the upper end of guidance. The dividend per share totalled 19 cents, up 27% y/y. Group revenue was up 74% to R2.8 billion driven by organic growth of 11% and several key acquisitions (Respiratory Care Africa, Arctic Healthcare Brands and The Scientific Group) concluded over the past year. Revenue generated from foreign markets increased by 39% to R259 million, accounting for 9% of the group s total sales. Operating profit improved 69% to R362 million. The difference between operating profit and the HEPS growth number could be attributed to higher finance costs (+70%) as a result of debt taken on to make acquisitions, higher taxes paid (+82%), and an increase in the weighted average number of shares in issue (+23%). Looking forward, the group plans to focus on the acquisition of platform companies in Australia, Europe, USA and Africa. Locally, Ascendis Health is in negotiations for bolt-on acquisitions across all divisions. This was a very strong set of results especially from an operational perspective. Ascendis historic PE rating of 16.6 times appears relatively inexpensive given the company s expected growth trajectory. EDUCATION AdvTech restructures its B/S AdvTech announced its intention to undertake a renounceable rights offer of R850 million (~15.2% of unaffected market cap) in order to optimise its capital structure. This came amid a management realisation that if no additional projects outside the earmarked R3 billion rolling capex programme were undertaken, debt would increase by R200 million to R1.9 billion by CY15 as a result of standard business activity, breaching existing debt covenants. Funds raised during the equity issue are to be used to reduce and restructure current debt facilities, and fund capital projects and planned acquisitions. Management also identified acquisition opportunities above-and-beyond existing board approved projects in excess of R1 billion to pursue. The rights offer was subject to shareholder approval and other conditions precedent. This action was not entirely unexpected and the decision to undertake the rights offer seemed rational. AdvTech is trading on a historic PE of 29 times which appears fair within the sector. TECHNOLOGY Another good one from EOH EOH released results for the year ended 31 July HEPS improved 29% to 575 cents, in-line with guidance. Revenue rose 35% to R9.7 billion and was attributed to both strong organic growth (56% of revenue growth) and the impact of recent acquisitions. Operating profit was up 45.5% to R1 billion and profit before tax (PBT) increased by 42% to R951 million. A dividend of 150 cents was declared, up 25% y/y. In terms of outlook, management stated that the group will continue to develop new solutions and new lines of business while expanding its service offerings into new territories. This was a strong result and while the forward PE of around 20.8 times may appear somewhat stretched, the expected growth trajectory seems to justify the multiple. Datatec released a 1H16 trading statement. HEPS were expected to be approximately 25% lower y/y in US dollar terms. Underlying earnings per share were expected to decrease 18% to 12.0 US cents, tracking significantly behind Bloomberg consensus expectations (+55%). The reason for the miss was an increase in total foreign exchange losses to $10.6 million in 1H16 compared to $ in 1H15. The imposition of capital controls at the end of 2014 in Angola and the devaluation of the Angolan Kwanza resulted in a foreign exchange loss of $8.9 million in 1H16 for Westcon. Management has instituted a series of actions to control the exposure and reduce further losses. Despite a strong interim management statement released in July, this was a disappointing update marred by foreign exchange losses. The losses were not a reflection of the operational performance of the business and the share price reaction therefore seems overdone, especially in-light of the counter s rand hedge status. Datatec now appears to offer good value on a forward PE of 9.8 times and a relatively attractive forward dividend yield of 3.4%. 8

9 GENERAL INDUSTRIALS RCL drives Remgro HEPS gains Remgro released FY15 results. HEPS were up 20.3%, in-line with guidance. The increase came on the back of a very strong performance by RCL Foods during the period. HEPS from continuing operations rebounded from a loss of 47.7 cents in FY14 to cents amid improved trading in the poultry and sugar operations as well as a prior year foreign exchange loss in the base. Banking remained the biggest contributor to HEPS in absolute terms, followed by Healthcare, but Food, liquor and home care was the greatest contributor to growth (HEPS +92.6%). The final dividend per share was up 10% to 259 cents. Remgro s intrinsic net asset value per share was up 17.5% to R This was a good result ahead of pre-guidance expectations (consensus: +18.8%). Remgro appears to offer reasonable value on a discount to NAV of ~15%. FOOD PRODUCERS Seems resilient AVI released results for the year ended 30 June HEPS grew by 9.4% to cents, in-line with guidance. Revenue was up 9.5% to R11.24 billion, supported by higher selling prices in all categories forced on the back of significant cost pressure due to the weaker rand. A final dividend of 200 cents per share was declared, up 10.7% to 332 cents. In addition, a special dividend of 200 cents per share was declared. Operating profit improved by 11.9% to R1.92 billion mainly due to the improved management of selling and administrative expenses across the group. The operating profit margin increased from 16.7% to 17%. Snackworks revenue was up 11.4% y/y and operating profit grew by 12.4%. The division experienced strong revenue growth in Biscuits while a drop in snack sales volume was offset by higher pricing. Entyce revenue grew by 11.9% and operating profit grew by 23.2% with strong revenue growth in Tea, Coffee, and Creamer. I&J revenue was up 7.5% y/y and operating profit grew by 1.6% as growth in the division was weighed on by lower sales volumes and inconsistent catch rate during 1H15. Indigo s revenue from owned brands grew 10.6% and operating profit grew by 15.1% due to volume growth and price increases. Footwear and Apparel revenue grew by 11.2% and operating profit grew by 4.1% as margins in Spitz normalised and Green Cross margins fell due to the weaker ZAR and higher inventory levels. Management expected the constrained consumer environment to persist which could result in muted growth rates and additional price pressure given the weaker rand. Overall, the operational performance was more or less in-line with expectations with the special dividend being a positive surprise. A great concern will be the fact that revenue growth was largely driven by price increases which will likely not be sustainable going forward. AVI is not cheap on a forward PE of 19 times although its forward dividend yield of 6.1% remains relatively attractive. Clover released FY15 results. HEPS increased 69% to cents, in line with guidance. The dividend per share was up 75% to 56 cents. Revenue grew 8.6% to R9.3 billion on the back of overall average price inflation and mix changes, and new higher value yoghurt and custard sales. Overall sales volumes increased 2.8%. As expected, the adjustments to selling prices resulted in volume and market shares losses in some product categories. Low inventory levels at the start of the year, following the raw milk shortage experienced during the winter of 2014, contributed to volume and market share losses in cheese and hindered the strong volume growth achieved in UHT sales during the year. Operating profit improved 80.3% to R509.1 million and the operating profit margin improved from 3.3% to 5.5%. This was a reasonable result supported by higher selling prices although market share losses in key categories would have been a concern. The counter does not appear particularly demanding on a forward PE of 10.5 and a forward dividend yield of 2.6%. Clover continues to be an interesting prospect over the long term; although short term volatility is likely to persist. Illovo released a trading statement for 1H16 and the year ended 31 March H16 HEPS were expected to fall by between 50% and 60% y/y, worse than anticipated. FY16 HEPS were guided to fall by between 24% and 45% y/y, more or less in-line with expectations (consensus: 33%). Management ascribed the declines to the challenging conditions reported in FY15 and a further impact of the seasonal phasing of production and sales at the half year. In FY15, the company cited headwinds from challenging trading conditions in the EU, world and regional markets, as well as the impact of drought on local sugar production, as reasons for the disappointment. The 1H16 number was disappointing and 2H16 will have to be much better to reach the FY16 expectation. 9

10 The company is operating in a tough environment and we reiterate our cautious stance on the sector. Illovo appears to offer fair value on a forward PE of 11.5 times and a relatively attractive forward dividend yield of 4.3%. Tiger Brands announced the resignation of CEO Peter Matlare who would remain in the position until 31 December Mr Matlare had a challenging tenure as CEO and the initial market reaction was positive. The company has cited personal reasons for his departure which calmed our initial fears of another large one-off loss in the International or Nigerian businesses. We expect internal and external candidates to be considered with the leading internal candidate likely to Noel Doyle, the current COO. Tiger Brands appears to be reasonably priced within the sector on a forward PE of 15 times. RCL Foods released FY15 results. HEPS from continuing operations rebounded from a loss of 47.7 cents in FY14 to cent, in-line with trading guidance. The increase came on the back of improved trading in the poultry and sugar operations as well as a prior year foreign exchange loss in the base. The total dividend of 37 cents per share represented an increase of 85% y/y. Revenue was up 20.1% to R23.4 billion, largely due to the full inclusion of TSB. EBITDA increased by 98.2% to R2.224 billion with the margin expanding by 370 bps to 9.5%. While Foodcorp detracted from growth at an operating level, Rainbow and TSB both contributed strongly to the improved result. Net finance cost decreased 39.2% to R322.6 million due to the replacement of Foodcorp s historic Euro denominated debt with a cheaper local debt package. While management was looking to continue executing on the long term strategy of the business, an expectation of constrained consumer spending (for a myriad of reasons), the threat of imports on the poultry side and subdued sugar prices are expected to have a negative impact on the near term performance of the business. We already saw a substantial improvement in the interim period and 2H15 can be viewed as continuation of that momentum. Relative to the sector (food producers), RCL appears to offer fair value on a forward PE of 13.8 times. The counter demands a higher rating than commodity-type producers (poultry and sugar) due to the Foodcorp inclusion but should trade at a discount to other branded goods producers due to its hybrid structure. Quantum Foods released an FY15 trading statement. HEPS were expected to increase by at least 343% to a minimum of 49.4 cents per share (FY14: 11.2 cents per share) on the back of lower maize and soya meal prices over the period, improved egg production costs and improved efficiencies within some of the business units. The expected increase in earnings pleased the market but despite the return to profitability, the company is still exposed to input cost volatility which adds significant forecast risk to its earnings stream, and therefore the price. Sovereign Foods released a 1H16 trading statement. HEPS were expected to increase by between 210% to 230% y/y. Management previously guided for HEPS to increase by more than 155%. This was partly as a result of the reversal of a provision in respect of an electricity tariff dispute of ~26.0 cents per share (+92.5%). This still implies a ~127% increase in the half year result which was significantly ahead of expectations. We caution, however, that this is off a depressed base and the 2H15 number will be significantly harder to beat meaningfully. We remain cautious over the medium term prospects for the poultry sector. BREWERIES It all started in September SABMiller confirmed that Anheuser-Busch InBev, the largest brewer in the world, noted its intention to make an offer to acquire SABMiller. The company emphasised that no proposal had been received yet. A firm deadline for the announcement of a firm intention to make an offer (14 October 2015, 17:00) was set in place. Speculation around this deal has been circulating for a considerable time. This was the first official word of such a possibility and was met by strong share price gains both in SABMiller and Anheuser-Busch InBev. PERSONAL GOODS Richemont sales surprise to the upside Richemont released a five month sales update to 31 August Sales at constant exchange rates were up 4% y/y. This was well ahead of consensus expectations of a ~1.4% increase. Sales rose by 16% at actual exchange rates, positively impacted by a weaker EUR, as well as the strong performance of the Maisons boutiques. Retail sales were up 14% while the wholesale division experience a contraction in the top-line number (-6%). 10

11 Regionally, Europe (+26%) and Japan (+48%) delivered exceptional growth in sales at constant exchange rates. The Middle East and Africa (+2%) and the Americas (+2%) managed to grow as well while Asia Pacific experienced further weakness (-18%). European and Japanese sales benefitted from good tourist numbers, helped by the weaker EUR and YEN. In the Asia Pacific region, sales in Hong Kong and Macau were significantly lower. Mainland China saw retail sales growing in the double-digits. This was a very encouraging update with a strong number out of mainland China a particularly positive change. The numbers also implied an improvement in sales momentum from the full year with top-line growth now tracking well ahead of consensus. The sales mix (retail/wholesale) will also be supportive of margin uplift. Richemont is trading on a forward PE of 18.2 times and a forward dividend yield of 2.5%. Our long term favourable view on this counter remains intact although pressure in the Asia Pacific region is expected to persist at least in the near term. Steinhoff released results for the year ended 30 June Diluted HEPS increased 1% to cents, slightly behind expectations (consensus: +3.7%). The dividend per share was up 10% y/y to 165 cents. Headline earnings from continuing operations were up 36% y/y to R12.4 billion and exclude the impact of an increase in the weighted average number of shares in issue following the rights offer last year. Revenue from continuing operations increased 15% to R135 billion lifted by a strong performance in continental Europe (58% share of total revenue) and the African business. Europe revenue grew 6.4% to R78.5 billion, supported by a resilient German market and a strong performance by Eastern Europe (both in manufacturing and retail). The Africa business, which included Pepkor for 3 months, increased revenue by 30.5% to R40 billion. Operating profit before capital items increased by 21% to R15.3 billion. Net cash inflow from operating activities increased 26% to R20 billion. Net finance charges fell 8% y/y, in line with the group s reduction in net debt (-46% to R26 billion) arising from the foreign share placement and rights offer. Management stated that it will focus on unlocking synergies within its recent investments. The planned listing on the Frankfurt Stock Exchange is expected to increase Steinhoff s exposure to investors on the European continent. While the bottom line number may have disappointed slightly, the overall performance was positively received. A strong operational performance with better than anticipated margins was further enhanced by good balance sheet management and quality cash generation numbers. Steinhoff appears to offer fair value on a forward PE of times. 5.2 Financials MTD* YTD* 1 Year* Financials -1.7% 7.5% 19.2% Financials % 4.5% 15.4% Banks -4.5% 0.2% 16.0% Life Insurers -1.9% 6.2% 13.7% Non-life Insurers 7.4% 8.7% 11.0% Equity Investments 2.6% 7.7% 13.1% *All figures to 30/09/2015 Financials ended 1.7% lower for the month of September, with the banking sector and life insurers weighing on returns. The two largest banks by market capitalisation, FirstRand and Standard Bank gave back 7% and 5.6%, respectively while Sanlam, the second largest life insurer fell 6.25%. That came despite a stellar performance by Santam (+7.4%). Equity investment instruments (+2.6%) had a good showing with Reinet (+6.0%) coming out as the star performer in that space. 2% 1% 0% -1% -2% -3% -4% -5% -6% -7% -8% -7% FirstRand/RMBH (17.1%) -5.60% Standard Bank (16.1%) 1.12% Old Mutual (15.2%) -6.25% -1.92% Sanlam (9.7%) Investec (7.6%) Monthly Performance Top 5 Constituents Fini 15 Financials General Figure 9 Fini 15 Top 5 constituents performance Source: Satrix, I-net Bridge BANKS FirstRand expands margins (again) FirstRand released results for the year ended 30 June Diluted normalised HEPS were up 14% y/y to cents, driven by FNB (+16%) and supported by Wesbank (+10%) and RMB (+7%). The dividend per share was up 21% to 210 cents per share. The cover was reduced to the lower end of managements 1.8 times 2.2 times stated coverage range. Operating income grew 12% to R67.0 billion. Net Interest Income (NII) after impairments was up 18% to R32.8 billion with the margin improving by 2 bps to 5.07% as a result of endowment impacts even as impairments increased. Non Interest Revenue (NIR) grew 8% to R34.2 billion. Operating expenses grew 11

12 10% and income before tax was up 15% to R30.3 billion. The cost to income ratio fell 60 bps to 50.5%. Normalised ROE improved by 5 bps to 24.7% and was driven by a 6 bps improvement in ROA to 2.12%. Management noted that while the domestic franchises face some challenges, cross sell initiatives, new insurance business lines, and private equity realisations could ease some growth pressure. Over the longer term, investment management and Africa provides significant opportunity. While growth slowed, the result was more or less in-line with expectations with the continued improvement in ROE, the higher than expected dividend, a lower credit loss ratio, and positive operating jaws viewed as key positives. FirstRand is trading on a forward PE of 12.2 times and a relatively attractive forward dividend yield of 4.4% and remains one of our preferred counters in the sector. Capitec released 1H16 results. HEPS were up 25% to cents, in-line with guidance. An interim dividend per share of 375 cents was declared, up 52% y/y. The strong growth came on the back of higher loan and transaction fee income and an improved loan book performance. The drop in cover was ascribed to management s belief that the interim dividend must make up a larger portion of the total dividend. Net income was up by 23% to R4.4 billion due a slower 6% increase in the net loan impairment expense. NII grew by 16% to R4.7 billion and NIR grew 18% to R1.4 billion, driven by existing as well as new revenue streams. Operating costs increased by 21% to R2.3 billion, mainly due to higher employee costs. This was a lower growth number than the net income line which resulted in positive operating jaws. The ROE improved to 26% from 25% in 1H14. Looking ahead, management remained bullish on retail banking despite the currently unsupportive economic environment. The team said it was cautious on credit but that it will continue to grow the loan book prudently. Overall this was a strong result with the group achieving good growth in NIR and the credit book experience being favourable. The outlook statement was also surprisingly positive. Capitec is trading on a forward PE of 16.1 times and a forward dividend yield of 2.4%. We continue to prefer FirstRand, Standard Bank and Nedbank in the sector. Investec released a 1H16 pre-close brief. Revenue was expected to be moderately higher y/y and recurring income as a percentage of total operating income is expected to be 72%, down from 77% in 1H15. Operating profit was expected to be comfortably ahead of the prior year in GBP terms. Management noted that overall group results had been negatively impacted by the depreciation of the ZAR versus the GBP over the period. The international business performed well and the South African businesses delivered encouraging results given the difficult trading environment. Investec is trading on forward PE of 11.9 times and a relatively attractive forward dividend yield of 4.1% which appears fair. INSURANCE Financial markets performance halys Sanlam s run Sanlam released 1H15 results. Normalised diluted HEPS were up by 6% y/y to cents, tracking behind full year expectations (consensus: +11.8%). Net operating profit (net results from financial services) improved by 5%, supported by strong growth in Sanlam Personal Finance (+11%) and Santam (+17%). Emerging Markets (-10%) and Sanlam Investments (-2%) had a negative impact on performance and excluding on-offs, net operating profit would have increased by 11% y/y. Group equity value (EV) increased by 1.5% to cents per share. New business volumes increased by 22% y/y to R100 billion, driven by strong growth in Sanlam Personal Finance (+23%), Sanlam Investments (+23%) and Sanlam Emerging Markets (+34%). Value of new business was up 5% to R655 million driven by Emerging Markets (+13%) and Personal Finance (+13%) but dragged on by Sanlam Investments (-59%). Net fund flows fell by 65% to R6.8 billion (1H14: R19.2 billion). This was mainly due to an R11.5 billion withdrawal of funds by the Botswana Public Offices Pension Fund which resulted in a net outflow of R9 billion for the emerging markets division. At period end, the group had R2.1 billion earmarked for acquisitions with a discretionary capital balance of R4.6 billion (the balance is available for investment). This was up from R3.3 billion at year end. Excluding one-offs, this was a decent result against a challenging operating backdrop. Sanlam is trading at a premium to embedded value of 29%, (a significant reduction from the year end number). Sanlam remains one of our preferred counters in the sector. RMI Holdings released FY15 results. Diluted HEPS increased 14% to cents, more or less in-line with market expectations. The total dividend for the year came in at 116 cents per share, up 7% y/y. Divisionally, Discovery performed well (normalised earnings +17%) as mature businesses showed strong cash generation and growth in new initiatives 12