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FIA Meeting

FIA Meeting. 16 October 2012. Economic reality. IFO world economic climate survey. Recent trends/themes. Cheap shares became cheaper. and relatively expensive shares remained expensive. Global laggards cheap and underperforming. Global equities sideways but volatile.

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FIA Meeting

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  1. FIA Meeting 16 October 2012

  2. Economic reality

  3. IFO world economic climate survey

  4. Recent trends/themes

  5. Cheap shares became cheaper and relatively expensive shares remained expensive

  6. Global laggards cheap and underperforming

  7. Global equities sideways but volatile Asset performance driven by risk-off or risk-on

  8. Globally: risk-on and risk-off dictating

  9. Correlation can remain high for sustained periods

  10. All about expectations Policy measures and earnings expectations

  11. Earnings expectations – 2012 Source: JP Morgan

  12. Where do we invest OPM?

  13. Common answer... In assets where the value appreciate

  14. US bonds – multi-year bull market Source: I-Net

  15. US bonds – multi-year bull market Global Sovereigns do not provide the right answer Source: I-Net

  16. Global Equities

  17. Pattern

  18. Sideways with short cycles Source: I-Net

  19. Price

  20. Valuation – methodologies differ Source: Case Shiller

  21. US equities – valuation from all angles

  22. US equities multi-year lows versus bonds Source: Case Shiller

  23. US equities multi-year lows versus bonds Preferred Asset class Source: Case Shiller

  24. ... and property?

  25. Expectations look reasonable

  26. A local update

  27. Macro context

  28. SA GDP – trend heading in the wrong direction Source: I-Net

  29. Rand weakness – SA unique problems Source: I-Net

  30. Pattern

  31. JSE All Share – cyclical bull market Source: I-Net

  32. Price

  33. ALSI valuation, fair but... Source: I-Net, SPI

  34. The value dilemma in SA

  35. Commodity prices – visible response to tough environment Source: I-Net

  36. Copper – very muted response Source: I-Net

  37. FINDI earnings – lower PMI suggest pressure Source: I-Net

  38. Case for positive but subdued returns

  39. A few share thoughts

  40. Share A – R2 to R155 Source: I-Net

  41. MTN – investment case summary 9-Oct-2012 • Diversified portfolio of businesses in growing economies • Penetration levels are low • Attractive dividend yield with an outlook for increased dividend pay-outs • Strong balance sheet with R7.7bn as at 30 June 2012 • Current price of R151 is a discount to our fair value of R175

  42. MTN – diversified portfolio in growing economies

  43. MTN – capex and cash profile

  44. Share B – a clear winner R162 R5 Source: I-Net

  45. Shoprite – a winner but priced accordingly Price to sales ratio Source: Bloomberg

  46. Shoprite’s success story Source: Bloomberg

  47. Share C – should we forget about this one? Source: I-Net

  48. Astral – quality in tough industry • Delivering through the cycle returns of circa 30%. • Through the cycle intrinsic value R200. • Trading around R100 • Delivered high quality earnings • Good dividend payer historic dividend yield of 7.9%. • 10 year average dividend yield is above 6%. • Expected 2012FY dividend yield of 6.3% in extremely tough operating environment

  49. Astral – look through the cycle • The short term results expected to be poor • regional oversupply • increasing imports from Brazil • high input cost inflation • FMCG retail sector playing the producers off against each other. • Medium term balance likely to return • weaker producers out • demand catches up with supply • possible increase in tariffs on imports • input costs pressures moderate

  50. Astral – play on “normal” margins

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