Monthly WRAP-UP. 1. Commodities. Securities. Analysts. Contact us. GOLD Mixed signals from Fed stimulates safe haven flow. October 2015.

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1 how can we help you? Monthly WRAP-UP 1. Commodities Securities October 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 3 5. Equities Page Industrials Page Financials Page Resources Page 9 Price (US$)* MTD* YTD* 1 Year* Gold % -3.6% -2.7% Platinum % -18.4% -20.4% Brent Crude % -24.3% -44.9% CRB commodity price index *All Figures to 31/10/2015 N/A 1.0% -14.9% -28.1% GOLD Mixed signals from Fed stimulates safe haven flow The gold price ended higher in October, in-line with other precious metals as anxious investors fled to safe haven assets ahead of the US Federal Reserve s policy meeting Analysts Mark Appleton Edgar Mafoko Pritu Makan Chantal Marx Tlamelo Mathakgane Alex Smith Contact us Relationship manager: Dealing desk: Website: Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Figure 1 Gold versus Platinum Source: Bloomberg Gold Price (US$/oz.) Platinum Price (US$/oz.) Despite evidence of a recovering economy, the US central bank decided to keep interest rates unchanged at its October meeting but opened the door for rate hike in December. The Federal Reserve s case to raise hike was further supported by strong labour data. US unemployment rate fell to 5% in October, the lowest rate since early 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 also boosted after a report showed that central banks in Russia and China increased their gold holdings in September. In India, gold demand jumped 13% between July and September period as consumers bought the yellow metal in advance for the festive and wedding season to take advantage of low prices. 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, as well as demand factors may offer some support. PLATINUM Same drivers as gold in October The platinum price staged a recovery in October as investors migrated from riskier equities to safe haven assets amid growing global uncertainties. Demand for metal was further bolstered by bargain hunters taking advantage of the metal price at lower levels. In Europe, Volkswagen AG saw sales dip following an emission scandal. However the overall car markets in the region remains buoyant, growing 9.7% in September. Renault increased sales by 9.4% in the third quarter and Ford and Opel/Vauxhall performed slightly better. Growth concerns continued to weigh on the metal price after China central bank unexpectedly cut interest rates by 0.25% and data showed that Japan s the economy contracted more than expected in the third quarter. 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 Waiting for OPEC The price of Brent crude oil was little changed at the end of October despite Russia announcing its willingness to meet with both OPEC and non-opec producers, to tackle various issues affecting the crude oil market. Nevertheless, concerns over persistent crude oversupply as well as a strengthening US dollar weighed on prices for most of the month. While there was little evidence of the global supply easing in the month, the US Energy Information Administration (EIA) said it expected global oil demand to expand in 2016 with non-opec supply expected to fall. On a dull note, the meeting between OPEC and non-opec members came to a close without any resolutions on output cuts as the fight for a larger market share looks set to continue. Venezuela echoed calls for cuts in production from all major producers and also called on OPEC to restore a price band mechanism, with a $70/barrel price floor. However comments from Saudi Arabia s Oil Minister that only the market can decide prices suggested that OPEC s policy leader has no interest in returning to a price support strategy. Investors will now continue to speculate ahead of OPEC s next policy meeting in early December where the divided organisation will have to make an important resolution: fight for a larger market share which threatens to drag prices down in the short term or trim production to boost prices Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Figure 2 Oil Spot Price history Source: Bloomberg 2. Bonds MTD* YTD* 1 Year* ALBI 1.3% 4.0% 4.8% *All Figures to 31/10/2015 Brent Crude Oil (US$/Barrel) The SA bond market rallied in October to end the month 1.3% higher on a total return basis. The news flow during October was bond positive because US economic data came in a little weaker than expected, resulting in expectations of a US rate hike being pushed out well into Meanwhile, domestic inflation risks moderated on the margin as oil prices came down and university fee increases for 2016 were capped at 0%. It has been a tough year for bonds with a gain of only 4% recorded since the end of Gradually rising yields across the curve have resulted in small capital losses, which have partially offset the benefit of above inflation interest returns. Going forward it looks as if it will be more of the same as yields are expected to lift modestly in line with rising domestic inflation and gradual upward pressure on US interest rates. With single digit positive returns likely over the coming year we believe a neutral stance on bonds is advisable. 2

3 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 SA Generic 10 Year Government Bond Yield USDZAR Redefine International s distribution increased 1.5% in GBP terms. Investors will now look ahead to upcoming earnings releases from companies including Redefine, Investec Property, Arrowhead, as well recent listing Indluplace for a gauge on the resilience of the sector given the challenging macroeconomic environment. Counters that outperformed the benchmark include Rebosis and Rockcastle. Industry heavyweights Redefine and Growthpoint were notable underperformers losing 1.20% and 1.09% respectively. Figure 3 USDZAR versus SAGB10 Source: I-net Bridge 3. Property SA Listed Property Index TR Price* MTD* YTD* 1 Year* 1 Year Fwd Yield* N/A 2.1% 15.6% 20.2% 6.5% Emira % 14.0% 23.3% 8.5% Redefine % 11.7% 23.6% 7.9% Growthpoint % -3.0% -0.3% 7.5% Vukile % 10.7% 12.0% 8.5% Hyprop % 34.3% 36.0% 5.0% Investec PF % 3.4% 8.1% 8.4% Resilient % 51.0% 55.8% 4.0% Fortress A % 5.9% -0.5% 8.6% Attacq % -0.7% 1.8% N/A Rockcastle % 36.8% 60.3% 4.3% Rebosis % 2.4% 9.6% 11.2% NEPI % 31.2% 32.8% 4.0% Arrowhead A % 11.9% 30.9% 8.7% Hospitality A % -1.6% -21.0% 13.7% SA Corporate % 16.9% 20.1% 8.6% *All Figures to 31/10/2015 The FTSE/JSE SA Listed Property index was up 2.1% in October on a total return basis as prospects of a low for longer interest rate environment proved to be the dominant influencing factor underpinning strong global equity and property markets over the month. There was little in terms of news flow in the sector although new listings continued to grab investors attention. South Africa s largest self-storage property fund and brand, Stor-Age, announced its intentions to list on the JSE. Rebosis and Redefine International kicked-off the new reporting period for the sector. Rebosis reported fullyear distribution growth of 11%, driven by strong returns from its UK investment in New Frontier Properties. The SA listed property sector is trading on a forward yield of around 6.5%, which is below 10 year Government bond yields. 4. Preference Shares Preference Share Index Total Return (J251)* MTD* YTD* 1 Year* Current Yield** -1.4% 3.9% 1.3% 9.9% *All Figures to 31/10/2015 **Grossed up, pre-dwt (excluding African Bank) Following a strong performance over the past few months, the JSE preference share index lost a little ground in October. The 1.4% decline during October brought the current yield on the index to an elevated level of 9.9% on a weighted average basis. This is a very attractive yield for a tax efficient asset class. Even the counters with strong fundamentals and good credit ratings are offering a yield in the region of 9%, while the counters with relatively lower credit ratings can be acquired at a yield of 11% and slightly higher. Adding to the attraction of these instruments is the current low interest rate environment, which implies that alternatives income generating assets offer relatively lower rates (especially once tax is factored in). Furthermore, the low and rising interest rate environment is good for those counters that are prime rate linked as their dividends will increase as a fixed proportion of any future interest rate hikes Dec-14 Apr-15 Aug-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 Notwithstanding these positive fundamentals, low levels of liquidity and possible regulatory challenges have kept share prices in check and could continue to do over the short term. These counters are therefore better suited to longer term, income seeking investors rather than those looking for a speculative investment. 5. Equities MTD* YTD* 1 Year* JSE All Share Index 7.4% 8.1% 8.2% JSE All Share Index (USD) 0.2% -16.4% -20.3% MSCI World (USD) 7.8% -0.2% -0.1% MSCI Emerging Markets 7.0% -11.3% -16.6% Australia All Ordinaries 4.5% -1.4% -0.5% Hang Seng 8.6% -4.1% -5.7% Nikkei % 9.4% 16.3% S&P % 1.0% 3.0% DAX 12.3% 10.7% 16.3% FTSE % -3.1% -2.8% *All figures to 31/10/2015, local currency unless otherwise stated The prospect of a low for longer interest rate environment proved to be the dominant influencing factor underpinning strong global equity and property markets over the month. Quite perversely the catalyst for the market recovery was a much worse than anticipated non-farm payrolls report out of the US. With doubt creeping in as to the strength of the US economy, expectations of the timing of interest rate hikes were pushed out. The local equity market was assisted by the marked depreciation of the ZAR relative to the US$ with the JSE All Share Index recording a 7.4% gain for the month, in-line with the world index and emerging market index. In US$ terms, the local bourse added just 0.2% and is still deep in the red year to date. 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% JSE All Share Index JSE All Share Index USD MSCI World (USD) MSCI Emerging Markets Australia Hang Seng Nikkei 225 S&P 500 Dax FTSE 100 All Ordinaries Billions Figure 6 Foreign purchase value and sales value on JSE per week* Source: JSE *Week 5 was a one day week. Billions Industrials MTD* YTD* 1 Year* Industrials 6.8% 0.4% -0.6% Industrials % 19.4% 23.1% General Retail 6.7% 16.6% 20.9% Food & Drug Retail -0.4% 5.0% 14.6% Food Producers 3.8% 0.0% 12.5% Healthcare 8.1% -6.1% -1.3% Pharmaceuticals & Biotechnology % -21.5% -19.2% Construction & Materials 4.2% -34.4% -40.0% Technology 0.4% 24.0% 25.9% Telecommunications -7.6% -17.9% -24.0% Diversified 7.6% 7.9% 8.1% Consumer Services 12.3% 24.9% 35.3% Support Services -5.8% 2.9% 0.0% Travel & Leisure 3.6% -4.1% 0.3% *All figures to 31/10/2015 Purchase Value Sales Value Net Value Purchase Value Sales Value Net Value Figure 7 Foreign purchase value and sales value on JSE - last three months Source: JSE Figure 5 World Indices Performances Compared Source: Bloomberg 4 YTD 1 Month The industrials sector gained 6.8% in October, supported by strong moves among large cap rand hedge stocks, and another big jump by SABMiller after the board of that company agreed with the Anheuser- Busch Inbev board on the principle terms of a proposed merger between the two entities. Healthcare stocks were also up strongly with Mediclinic leading the

5 charge after that company announced a proposed reverse takeover of prominent UAE hospital group, Al Noor. Consumer services also had a good month, adding 12.3% to bring the sub-sector s year to date gains to 24.9%. Telecommunications had a very poor month, despite good gains from Vodacom and Telkom as MTN was sold off after news of a $5.2 billion fine against MTN Nigeria broke. 20% 15% 10% 5% 0% -5% -10% -15% 9% SABMiller (18.9%) 17% Naspers (17.4%) 10.79% Richemont (13.6%) Figure 8 Indi25 Top 5 constituents performance Source: Satrix, Inet Bridge, FNB Securities % MTN (7.9%) 7.95% British American Tobacco (5.8%) Monthly Performance Top 5 Constituents Indi 25 Industrials General TELECOMS MTN gets a HUUUUGE fine MTN s Nigerian fine dominated news flow in the telecoms space in October. The company confirmed during the month that the Nigerian Communications Commission (NCC) had imposed a fine of ~US$5.2 billion on MTN Nigeria. The fine relates to the timing of the disconnection of 5.1 million unregistered MTN Nigeria subscribers disconnected in August and September and is based on a fine of N per unregistered subscriber. MTN Nigeria said it was in discussions with the NCC to resolve the matter in recognition of the circumstances that prevailed with regard to these subscribers. This was a very concerning announcement which and highlighted the uncertain regulatory environment in Nigeria. The size of the fine relative to the apparent transgression supports the notion that the Nigerian government could be looking for other avenues of revenue generation in light of depressed fiscal revenues following the dramatic fall in oil prices over the last year. The company would more than likely contest the fine, especially in-light of its size, but it will likely be met with equal vigour from authorities which could result in an extended negotiation process. This development will intensify uncertainty surrounding the counter in the short term and could instil fear over the safety of the dividend stream. MTN is now trading on a forward PE of 11.8 times and a relatively attractive forward dividend yield of 8.3%. We caution that, depending on how this situation pans out, earnings and dividend downgrades could be a possibility. BREWERIES Mega beer maker on the horizon After an initial squabble between the two entities, the Boards of AB InBev and SABMiller announced that they had reached agreement in principle on the key terms of a possible recommended offer to be made by AB InBev for the entire issued and to be issued share capital of SABMiller. SABMiller shareholders would receive 44 per share in cash (premium of 50% to the unaffected share price on 14/09/2015), with a partial share alternative (PSA) available for approximately 41% of the SABMiller shares. The PSA will consist of unlisted shares and in cash per SABMiller share, equivalent to (premium of approximately 33% to the unaffected share price on 14/09/2015) In addition SABMiller shareholders would be entitled to any dividends declared or paid by SABMiller in the ordinary course in respect of 1H16 and 2H16. AB InBev would also agree to a reverse break fee of USD 3 billion payable to SABMiller in the event that the transaction fails to close as a result of the failure to obtain regulatory clearances or the approval of AB InBev shareholders. A formal transaction with similar terms was put on the table early in November. The transaction remains subject to shareholder approval and the receipt of antitrust and regulatory approvals. The deal multiple of 17 times EV/EBITDA seems fair from an SAB shareholder perspective although minority investors will have to independently buy shares in the combined entity and will not have the option to take shares. From an AB Inbev perspective, the potential synergy gains are significant. SABMiller still trades at a discount to the combined offer price, likely pricing in the declining odds of the deal not going through. HEALTHCARE Mediclinic to boost UAE exposure Remgro and Mediclinic announced that the board of Al Noor and the independent board of Mediclinic reached agreement on the terms of a recommended combination of their respective businesses. The combination would be implemented through a reverse takeover under which Al Noor will acquire MDC. Shareholders would receive new Al Noor shares per MDC share held as well as the interim dividend. Al Noor shareholders would receive a special dividend of 3.28 per share and the option to tender their shares for 8.32 per share (total consideration 11.60). On completion Al Noor will be renamed Mediclinic International Plc with a primary listing on the LSE and a secondary listing on the JSE, and possibly the Namibian Stock Exchange. 5

6 The enlarged group will be the third largest private healthcare provider in South Africa, the largest in the UAE and the largest private medical network in Switzerland (on a revenue basis). The enlarged group had pro-forma revenue of $4 billion for the fiscal period 2014/15, comprising 46% from Switzerland, 31% from South Africa and 23% from the UAE. Mediclinic shareholders will end up owning between 84% and 93% of the combined group. Mediclinic expects the combination to be earnings neutral to Mediclinic shareholders in the first full year of consolidation and accretive thereafter. The cash payments to Al Noor shareholders will be facilitated through a combination of debt ( 400 million) and equity subscribed for by Remgro ( 600 million). The transaction is subject to shareholder approval from both companies and irrevocable undertakings have been received from 34.3% of Al Noor s shareholder base and 42.6% of Mediclinic s shareholder base (Remgro). Strategically this deal makes sense and while the purchase EV/EBITDA of ~21 times historic and deal PE of ~25.4 times historic implies a dilutive impact on a proforma historic basis, management s assertion that it will be earnings neutral in year 1 and accretive thereafter brings us more comfort. Mediclinic s forward PE of 20.8 times appears to be justified by its anticipated growth trajectory and the counter remains our preferred stock in the sector. TOBACCO Another solid result from BATS British American Tobacco released an interim management statement for the nine months ended 30 September Revenue declined 6.5% but was up 4.2% on a constant currency basis, driven by continued strong pricing and partially offset by negative geographic mix, growth in low price segment in key markets, and a difficult pricing environment in Australia. Volume was up 0.4% q/q in 3Q15 but fell 1.8% 9m/9m, with higher volumes in many markets, including Turkey, Bangladesh, Iran, Kazakhstan, Denmark offset by declines in Brazil, Russia, Egypt, Vietnam, and Italy. The 9m/9m drop was at a lower rate than the general market indicative of further market share gains. Global Drive Brands cigarette volume increased by 7.2%, driven by strong gains by Rothmans (+43.5%), Dunhill (+4.7%) and Lucky Strike (+3.4%). Management said it expected the trading environment to remain challenging and for currency impacts to persist for the time being. The statement was more or less in line with expectations. 6 Market share gains generally and strong volume growth in Global Drive Brands were key positives. British American Tobacco appears to offer fair value on a forward PE of 18.4 times and a relatively attractive forward dividend yield of 4.0%. RETAIL Other Income lets PIK down Pick n Pay released results for the 26 week period ended 31 August HEPS were up 23.4% y/y to cents, towards the upper end of guidance, but tracking behind full year market expectations. Turnover grew 8.5% y/y (1H14: +6.1%) to R34.9 billion while maintaining a gross profit margin of 17.7%. The strong sales growth came as a result of a good balance between sales from new stores and improved likefor-like growth of 4.4%. Internal selling price inflation came in at 3% which was well below CPI-food inflation of 4.8%. Trading profit improved by 19.7% to R462.8 million with the margin expanding by 10 basis points y/y to 1.3%. The trading margin contracted from the FY15 number (1.9%). Profit before tax (PBT) grew by 23% to R451 million and the PBT margin expanded by 20 basis points to 1.3%. Management attributed the improvement to better working capital management which strengthened cash balances and supported a further reduction in long-term debt (net interest: -23.3% y/y). Whilst the Africa division reported strong revenue growth of 13%, profit growth fell by 14.4% due to challenging trading conditions in Zambia and the effects of adverse currency movements. An interim dividend of cents per share was declared, up 23.5% y/y. Overall, this was a strong result given the difficult market conditions and highly competitive environment in which the counter operates. The gross margin failed to expand and the operating margin disappointed as a result of lower other income. It was encouraging that the actual trading performance of the core operations did not contribute to the disappointment. While the forward PE of 24.4 times appears relatively full, the earnings growth trajectory appears to justify this rating. Shoprite released an operational update for the three months to September Turnover grew 6.7% y/y. Internal food inflation fell from 6% to 3.4% RSA Supermarkets grew sales by 4.9% as the Shoprite chain came under pressure due to the challenges faced at the lower end of the market in particular. Non- RSA Supermarkets achieved turnover growth of 12.8% (18.6% in constant currency terms). According to management, performance was negatively influenced by fewer store openings y/y. The company expects significantly more store openings y/y for next nine months of the financial year. In terms of outlook, management said it remained optimistic in the medium term, with double digit sales growth already

7 experienced for October. While top-line growth was significantly slower compared to last year, the impact of less store openings and lower internal inflation likely had a significant impact on this number. Real organic growth was probably still positive (albeit marginally) for the period with weakness in SA offset by Africa ex-sa. Nevertheless, these numbers seem to suggest that Shoprite lost some market share during the period something to be monitored closely. Management s relatively upbeat outlook and talk of significantly more store openings should result in topline growth accelerating in the last three quarters of the year and we believe it is too early to pull back FY earnings numbers. While we maintain our preference for Pick n Pay in the sector, following significant share price weakness, Shoprite no longer appears demanding on a forward PE of ~16.8 times. Clicks Group released results for the full year ended 31 August Diluted HEPS increased 14% y/y to cents, in-line with full-year expectations (consensus: +13.5%). Group revenue increased 15.3% y/y to R22.1 billion, driven by a strong performance from UPD (+21.6%) and supported by solid retail sales (+10.4%). Clicks (+10.9%; 7.9% like -for-like) and the Body Shop (+12.7%) experienced strong sales growth while Musica sales grew marginally by 2.3%. Selling price inflation was maintained at 4% for the period. Operating profit rose 14.6% to R1.4 billion as lowermargin UPD grew at a faster rate than retail. The retail business improved its operating margin by 30 basis points to 7.8%. UPD s operating margin fell by 10 basis points to 2.5%. The total dividend came in at 235 cents per share (+23.7%). While strong real organic growth was impressive, margins would likely continue to contract as the UPD business gains further traction. We also remain concerned over the health of the South African consumer and will continue our measured approach to the sector. Clicks does not appear particularly cheap on a forward PE of 24.5 times and a dividend yield of 2.4%. Holdsport released results for the six months ended 31 August Core HEPS increased 27.1% to 221 cents, in-line with guidance. Sales increased 11.9% to R758 million (6.4% like-for-like, inflation 8.9%), driven by strong sales growth in all divisions expect Performance Brands: Sportsmans Warehouse +10% (8.7% like-for-like). Outdoor Warehouse +23.4% (16.5% like-for-like). Performance Brand sales -14.6%. Operating profit increased 25.2% to R123.7 million. An interim dividend of 120 cents per share (+41.2%) was declared. While positive growth in Sportsmans Warehouse and a better performance by Outdoor Warehouse is welcomed, we remain cautious on the medium term prospects for the company for time being especially in light of further consumer pressure locally. Holdsport is trading on a forward PE of times and a relatively attractive forward dividend yield of 4.92%. DIVERSIFIED INDUSTRIALS Imperial still cleaning up portfolio Imperial Holdings announced the disposal of its 65% stake in Neska, a European based shipping operating specialist, to minority shareholder Häfen und Güterverkehr Köln for 75 million. Imperial believes that Neska is facing growing competition from established players with more scale, a better market positioning and pricing power and as a result Neska s growth prospects under Imperial s ownership are limited. The proceeds from the proposed transaction will be invested in expansion of the group s core businesses while initially reducing short term debt. The disposal makes strategic sense for Imperial as it continues to divest from non-core businesses and clean up its business model. The transaction will be concluded on a price-to-ebit multiple of ~10.4 times which appears attractive. While we recognise that short term headwinds exist, Imperial does not appear particularly demanding on a forward PE of 10.2 times and a relatively attractive forward dividend yield of 4.7%. Altron released interim results for the six months ended 31 August The group reported a headline loss per share of 64 cents, down 189% y/y, and in-line with guidance. Revenue fell 8% to R10.5 billion, weighed on by Altech (-10.9%) and Powertech (-14.4%). EBITDA fell 53% amid a weak performance from Altech (-109.6%) and Powertech (-85.3%). The majority of divisions within Altech and Powertech experienced sizable drops in EBITDA. The loss before tax fell by approximately 872% to R447 million (1H14: -R46 million) mainly due to a R152 million goodwill impairment and R50 million worth of impairments for intangible assets. While management noted that conditions for the rest of the year are expected to remain challenging, the group will focus on restructuring initiatives which will most likely manifest in the following reporting period. On current consensus numbers, Altron does not 7

8 appear particularly demanding on a forward PE of 4.4 times and a relatively attractive forward dividend yield of 10.24%, although we expect further earnings downgrades to alter these numbers substantially. CONSTRUCTION Mixed results Midcap darling Calgro M3 released results for the six months ended 31 August Headline earnings per share were up 29.98% y/y to cents, inline with trading guidance. Revenue was up 39.10% y/y to R573.1 million, supported by strong growth in construction and infrastructure development (+58.6%) which made up for the fall in land and development sales (-40.7%). Gross profit increased 43.9% to R119 million while operating profit grew by 9.5% to R63 million. Gross profit margin increased slightly to 20.76% (1H15: 20.07%) as a result of achieving a better mix between infrastructure installation and top structure construction. This tends to vary between different periods. Operating profit and the effective tax rate was negatively affected by the valuation of the previous cash settled share appreciation rights scheme (SAR) for members who opted not to convert to the new equity settled executive share scheme and the additional expense of the executive share scheme. Both of these numbers were impacted by a higher share price. The project pipeline remained in excess of R19 billion, due to sales price escalation, although no new projects were added over the period as management focused on implementing the current pipeline. Overall this was a positive result given the environment in which the company operates. Calgro M3 is trading on a forward PE of 13.5 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. In the not-so-attractive civils space, Stefanutti and Raubex released worse-than-anticipated trading statements for the six months ended 31 August For Stefanutti, HEPS were expected to be between 0% and 15% higher y/y, tracking behind full year expectations (consensus: +20%). While Raubex HEPS were expected to be between 0% and 10% higher, this was also tracking behind full year expectations (+17% y/y). We maintain our near term cautious stance on the construction sector. TRAVEL & LEISURE Taste raises money to roll out Starbucks Taste Holdings released results for the six months ended 31 August 2015 and announced a R226.4 million rights offer. Core headline earnings per share fell to 0.1 cents in-line with guidance. Core earnings excluded onceoff costs and revenues relating to among others, the launching of the Domino s brand and related costs. Core revenue increased 51% to R455.9 million, owing to a larger number of corporate owned stores. System wide sales grew 7.2% to R800 million. 53 Domino s Pizza outlets were opened during the period, and as the market well knows, the exclusive rights to develop Starbucks in SSA was also secured. Core EBITDA fell 25% to R17.5 million. The 66% increase in the luxury goods division core EBITDA was offset by a weaker performance by the food division. Management conceded that weak consumer sentiment, low disposable income growth (real and forecast) and rising inflation are expected to remain headwinds. 2H16 will see the company readying itself for the Starbucks launch next year, shifting gear in Domino s from rollouts and conversions to driving sales growth, and executing on some of the Arthur Kaplan opportunities on offer (to name but a few). Downward pressure on earnings was expected given the scale of the Domino s roll-out and, along with costs associated Starbucks launch, is expected to persist to the end of FY18. The company also announced its intention to raise ~R226 million through a renounceable rights offer in a ratio 1:4 at R3 per share. The rights offer price represented a 18% discount to the closing price on October 12th (theoretical ex-rights price). The purpose of the rights offer was to realise several opportunities including: The development and launch of Starbucks in South Africa. Taste plans to open between 12 and 15 outlets within the first 24 months from the first store opening (1H16). One-off and capex costs are expected to be ~R137 million. Expanding the Arthur Kaplan footprint through opening new premium watch and jewellery outlets, refurbishing three existing outlets, placing new premium watch brands into existing outlets, and acquiring and converting attractively valued independent jewellers operating in the same consumer segment. The company has received commitments from certain shareholders to follow their rights and apply for excess rights which will constitute in excess of 70% of the rights 8

9 offer shares. In order to maintain financial exposure to this counter, shareholders will have to sell 85% of the rights and use the proceeds to take up 15% of the rights. The rights offer was not entirely unexpected as the company will need more capital to fund the Starbucks roll-out. Taste is trading on a forward PE of 44.3 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. Famous Brands released results for the six months ended 31 August Diluted HEPS were up 14% y/y to 240 cents, well ahead of full year expectations (consensus: +8.3% y/y). Group revenue increased 27% y/y to R1.99 billion on the back of strong revenue growth from Supply Chain (+33% y/y to R1.58 billion). Franchising revenue grew 7% y/y to R321 million. Operating profit rose 14% to R347 million and the margin fell to 17.4% (1H13: 19.3%), mainly due to lower margins in the logistics business (within supply chain). Margins here were influenced by the initial setup costs of commissioning the new Crown Mines DC, which will take on the Gauteng s previously outsourced frozen and chilled product basket. The dividend per share came in at 190 cents, up 23% y/y. Despite current challenges, management would continue to focus on growth strategies as outlined at the beginning of the year. This was an upbeat result with firm revenue growth recorded in all divisions, and pressure on the operating margin likely to be short-lived. Famous Brands is trading on a forward PE of 24 times and while this appears relatively full the expected growth trajectory seems to justify this rating. STAFFING LRA impacts Adcorp Adcorp released results for the six months ended 31 August HEPS decreased 17% y/y to cents per share, in-line with guidance. This came despite a 23% improvement in revenue to R7.8 billion due to the inclusion of recent acquisitions (Kelly Group and Dare). Normalised EBITDA was up 2% to R304.6 million the margin fell to 3.9% (1H14: 4.7%) on the back of lower blue and white collar staffing volumes, including a disappointing performance from the training division and a higher expense ratio attributable to the inclusion of Kelly. Within South Africa, the passing of the new Labour Relations Act (LRA) initially led to a high degree of uncertainty however clarity on the new law has now been provided and has consequently improved future prospects. Volumes have stabilized at ~20% lower than before the introduction of the LRA. An interim dividend of 60 cents per share was declared, flat y/y. Overall, the result was in line with expectations although the clarity provided on the impact of the new LRA is a positive. We remain cognisant of strained labour market conditions in South Africa which still contributes to the bulk of revenue and profits. The difficult employment environment is expected to persist and we will therefore not be getting involved in this sector. TECHNOLOGY Datatec numbers trailing expectations Datatec released results for the six months ended 31 August HEPS fell 25% to 12.0 US cents. Underlying earnings per share fell 8.8% to 16.6 US cents. This was in-line with guidance, but tracking behind full year expectations (+28% in US$ terms). The strong US dollar along with foreign exchange losses at Westcon Angola resulted in a lower EM contribution to revenue and earnings. Group revenue rose 10.1% to US$3.3 billion reflecting a 12.0% increase in Westcon revenue and growth of 5.2% in Logicalis. EBITDA fell 10.5% to US$80.6 million amid lower gross margins, higher foreign exchange losses and restructuring costs. The EBITDA margin fell to 2.5% (1H15: 3.0%). The dividend was maintained at 8 US cents per share. Management said it expected the on-going restructuring of Westcon s EMEA business and the overhaul of the IT network integration unit at Logicalis UK to negatively impact profitability over the full year but that it would position Datatec for a better financial performance in the future. The result may also be dragged on by continued weakness of emerging market currencies relative to the US Dollar. While this weakness was well guided for, we expect FY16 earnings numbers to be downgraded on the back of this result. Datatec nevertheless appears to offer good value on a forward PE of 9.8 times and a relatively forward dividend yield of 4.1%. LUXURY GOODS Richemont to record oneoff accounting gain Richemont announced that the merger of Net-A- Porter Group with YOOX was completed on October 2nd and will generate a significant one-off, non-cash, accounting gain for FY16. The gain will be reported as a profit from discontinued operations. The amount of the pre- and post-tax accounting gain was estimated by the company to be between EUR610 million and EUR670 million. 9

10 This number translates to a one-off ~48% increase in net profit. We will be more interested in the underlying operating performance and to see if good sales momentum in the first five months of the year persists and translates to the bottom line. Richemont is trading on a forward PE of 19.1 times and a forward dividend yield of 2.4%. 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 medium term. FOOD PRODUCERS Better results out of poultry producers Sovereign Foods released results for the six months ended 31 August HEPS increased 219% to 89.6 cents, in-line with guidance. The HEPS number included a post-taxation amount of R19.5 million or 26.0 cents per share in respect of credits received from the local municipality as settlement for a dispute around electricity tariffs. Revenue was up 2% to R831.5 million; the strong market conditions in 1Q16 weakened in the 2Q16 due to high import volumes and lower international poultry prices. Sales volume fell 8% y/y weighed on by a 4% decline in live mass, lower abattoir yields and an increase in value added product. The number of birds processed increased by 4% y/y. Selling prices grew by 10% y/y. Feed cost decreased 6% per tonne and nonfeed cost grew by 6% per unit. As a result, the EBITDA margin improved from 6.0% to 13.4% (10.1% excluding the once-off credit). While this was a very strong result, we caution that this is off a depressed base and the 2H15 number will be significantly harder to beat meaningfully, especially when considering the likelihood of significant input cost pressure both in feed and non-feed ahead. Astral released a general trading update for the period ended 30 September HEPS were expected to increase by at least 120% y/y, in-line with market expectations (consensus: %), due to a strong performance during first half of the year which continued into the third quarter. The company experienced some headwinds during the fourth quarter, mainly owing to: Depressed consumer demand Excessive imports of bone-in chicken portions from the European union Higher maize prices as a result of adverse weather conditions While the headline number was in line with expectations, input cost volatility adds significant forecast risk to this counter and in light of the recent increase in the maize price, we remain cautious on the medium term prospects of the sector as a whole. Pioneer Food Group released a voluntary trading update and earnings guidance for the year ended 30 September HEPS were expected to increase by between 13.8% and 17.8% y/y, tracking behind market expectations (consensus: +40%). HEPS on an adjusted basis (adjusted for BEE charge), however, were guided to increase by between 28.8% and 32.5% y/y. Group revenue was up 6% y/y (7% excluding Pepsi and Biscuits) with core categories recording firm volume and turnover growth, however this was a slowdown compared to the prior full year, mainly due to a weaker 4Q15, maize deflation and increased competition. Operating profit before items of a capital nature on an adjusted basis were expected to increase by between 26.3% and 29.9% y/y. Severe cost-push was off-set by a focus on cost control and extracting efficiencies across the value chain, supporting margins. While the adjusted HEPS number was in-line with expectations, the top-line number was weak. This was concerning given that cost push will likely continue to persist amid significant administered cost increases and rising soft commodity prices with drought conditions locally anticipated to continue into the fall season. As a result operating leverage could subside. Pioneer Food Group is trading on a relatively demanding forward PE of times and a forward dividend yield of 2.3%. 5.2 Financials MTD* YTD* 1 Year* Financials 6.9% 15.0% 19.4% Financials % 12.2% 15.7% Banks 6.5% 6.7% 12.4% Life Insurers 9.7% 16.5% 18.9% Non-life Insurers -1.3% 7.3% 12.9% Equity Investments 6.2% 14.4% 16.8% *All figures to 31/10/ % 14% 12% 10% 8% 6% 4% 2% 0% 14% Old Mutual (16.1%) 6.61% Standard Bank (14.1%) 5.7% FirstRand/RMBH (13.0%) 4.52% 8.29% Sanlam (8.9%) Investec (5.5%) Monthly Performance Top 5 Constituents Fini 15 Financials General Figure 9 Fini 15 Top 5 constituents performance Source: Satrix, I-net Bridge 10

11 The financial sector gained 6.9% in the month, and similar to industrials was supported by strong moves in high market cap stocks. Among the life insurers, Old Mutual led the way, gaining 13.6%. Most of the banks were strong but Capitec rallied a massive 20% and Investec was also strong, adding 8.3% for the month. Santam struggled as unstable weather patterns across the country sparked fears over possible underwriting margin pressure should agriculture-related claims rise. EQUITY INVESTMENTS Brait cleans up Brait announced that it had disposed of the 200 million Steinhoff shares received in the Pepkor deal for R16 billion and that the company had acquired an additional 38% in Iceland Foods for GBP172 million to bring its stake to 57%. The disposal of thee Steinhoff shares was not unexpected since the minority holding was outside of Brait s strategy to acquire majority ownership in unlisted companies. The proceeds will be used to pay down R14.2 billion in debt obligations with the balance used for investing activities and capital management. The Iceland Foods transaction will be settled using the proceeds generated from the recent GBP350 million convertible bond issue. Both transactions make strategic sense with the Steinhoff disposal concluded more or less at market value and the Iceland Foods acquisition made at a slight premium to NAV but a 0.26 times Price to Sales ratio, which does not look too expensive. Brait is trading on a premium to NAV of 25% which given where it has traded at in the past, does not appear expensive. PSG Group released results for the six months ended 31 August Recurring headline earnings increased by 42% to 355 cents per share. The strong number came on the back of good performances by its underlying investments, most notably Capitec and PSG Konsult. Although Curro exhibited strong recurring headline earnings growth, the contribution was still relatively small within the broader PSG stable. During the period, PSG raised R267 million in cash through the issue of shares by means of a private placement, invested R438 million in cash in the Curro rights offer to fund further expansion. The interim dividend increased by 82% to 100 cents per share. Management remained confident that the investment portfolio should continue yielding above average returns in future. The premium to its sum-of-the-parts value of 27% looks a little stretched (the company has historically traded at a discount because most of its underlying investments are listed). Reinet released a net asset value (NAV) statement as at 30 September The NAV of million, was down 1.4% from 30 June 2015 and up 11.9% from 30 September The rand was weaker versus the euro over the last quarter and is also significantly weaker y/y. Reinet is trading at a discount to NAV of 24%. This has narrowed over the last 3 months. This trend is expected to persist as the fund continues to diversify its asset base. FINANCIAL SERVICES Another solid performance by Konsult PSG Konsult released results for the six months ended 31 August HEPS were up 28% to 14.7 cents and recurring HEPS up 26% also to 14.7 cents, in-line with guidance. HEPS was driven for the most part by a strong performance by Asset Management (+37%), and Wealth (+28%). Insure HEPS grew 16% y/y. Total income grew 13.8% to R1.74 billion. Wealth revenue (external) increased 10.3% to R962 million, Asset Management income (external) was up 15.1% to R200 million, and Insure revenue grew 19.4% to R579 million. Assets under management were up 17% to R151 billion and assets under administration increased 21% to R321 billion with both Wealth and Asset Management performing well. The dividend per share was up 10% to 4 cents. Looking forward, management noted that while current market circumstances were uncertain and volatility had returned to investment markets the company is confident it can continue to build its client franchise through focusing on products, platforms and client service excellence. This was a solid performance against a very challenging macro-economic backdrop and the continued market share gains are viewed as especially promising. PSG Konsult is trading on a forward PE of 19.6 times and forward dividend yield of 3%. While this is regarded as being relatively demanding, the earnings growth trajectory remains robust which somewhat justifies this rating. ASSET MANAGEMENT Coro HEPS to fall in-line with expectations Coronation released a voluntary trading update and updated AUM. Diluted headline earnings per share (HEPS) are expected to be between 5% and 15% 11

12 lower, in-line with expectations (consensus: -10%). Management ascribed the fall in earnings to the cyclical nature of market returns and fund management performance. AUM as at 30 September 2015 was R610 billion, down 4.1% q/q and up 3.7% y/y. The fall in HEPS was not surprising given the relative weakness in global equity markets as well as the expectation of lower performance fees. Coronation is trading on a relatively attractive forward dividend yield of 7.8%. 5.3 Resources MTD* YTD* 1 Year* Resources 5.9% -16.9% -25.5% Resources % -15.7% -25.1% Gold Mining 11.5% -8.2% 10.0% Platinum Mining 7.9% -46.5% -47.6% *All figures to 31/10/2015 The resources sector benefited from risk off sentiment, a weak ZAR, and bargain hunting in October. The overall sector gained 5.9% with both gold mining and platinum mining making good gains as the combination of higher metal prices and a depreciating local currency heightened investor interest in precious metal producers. The broader resources sector is still priced 17% lower than at the end of last year as the demand pressures and supply gluts forced metal prices to levels last seen in % 50% 40% 30% 20% 10% 0% 6% BHP Billiton (57.7%) 0.7% Anglo American (9.0%) 7.5% AngloGold (11.0%) 48.4% GOLD Deals struck, targets identified 6.0% Sibanye (3.7%) AngloPlat (5.8%) Monthly Performance Top Five Constituents (Resi 10, % Weight) Resources 10 Resources Index Figure 10 Resi 10: Top 5 constituents performance Source: Satrix, I-net Bridge All the majors but Sibanye had concluded wage deals by the end of the month as negotiations between AMCU and management deadlocked while AngloGold Ashanti and Harmony Gold announced the conclusion of wage deals with NUM, Solidarity and UASA extending to the entire workforce of both companies. Pan African Resources also successfully concluded wage agreements at both its South African gold mining operations. Sibanye did, however, move another step closer to becoming a diversified player as the miner announced a cash offer of USD per share (R2.66) for the entire issued share capital of Aquarius Platinum during the month. The offer represented a premium of 62% to Aquarius volume-weighted average share price of R1.64 over the 30 days prior to the announcement and 56% to Aquarius closing price of R1.70 on October 5th (the day before the announcement). The R4 billion transaction will be debt funded. An acquisition facility had already been arranged. The Aquarius Board resolved unanimously to recommend that Aquarius shareholders vote in favour of the transaction. The offer came less than a month after Sibanye agreed to acquire Amplats Rustenburg platinum operations and signals intent on behalf of the company to become a substantial platinum player. Aquarius has good quality, low cost assets, which should be a good addition to the Rustenburg mines. The acquisition will be concluded on a Price-to-Sales ratio of 0.84 times and an EBITDA multiple of 4.3 times, which appears reasonable for Sibanye. Later in the month, Sibanye also released a trading statement for FY15 and an operating update for the quarter ended 30 September HEPS were expected to be down by more than 20% y/y, tracking behind market expectations (-11% y/y). Gold production increased 3% q/q on the back of an improvement at Beatrix and Cooke. Output was adversely impacted in the 3Q15 by two fires at the Kloof mine and seismic activity at Driefontein. Production fell 3.3% y/y to oz. All in sustaining cost (AISC) increased 9.4% q/q and 2.9% y/y in ZAR terms to R /kg. In USD terms, AISC fell 4.5% q/q and 9.8% y/y to $1 007/oz. Gold production for FY15 was forecast to be between 4% and 6% lower than original guidance on the back of operational disruptions. We continue to avoid the sector. PLATINUM Recoveries off a low base Along with most of the sector, the target of Sibanye s affections, Aquarius Platinum released production numbers for 1Q16. Attributable production from operating mines increased 5% q/q and 8% y/y a good result as Mimosa reached record quarterly production and Kroondal delivered solid output. Production in Zimbabwe climbed 40% q/q and 112% y/y (base effects). Group revenue decreased 34.7% to US$40.3 million on the back of significantly lower US dollar PGM prices. Unit cost per PGM ounce decreased 1% to R9123 per PGM ounce in line with increased 12