BROKERS’ NOTES: Buy TFG, avoid PGM miners

Mark du Toit, portfolio manager: OysterCatcher Investments

Buy: TFG

South African apparel retailers are at the bottom of the earnings cycle. We expect there to be less impact from load-shedding in the coming years and retail margins to improve. TFG’s share price is trading on a depressed earnings multiple. In time earnings will improve and grow, and we expect the share price to reflect that. TFG also has a fair amount of earnings diversification with its Australasia and UK businesses. Management is focused on improving margins and growing earnings, and the acquisition of Jet was well timed. This business is well positioned to grow earnings off a depressed base, plus you get a 4% dividend yield to enhance your return.

Avoid: PGM miners

The price of the basket of platinum group metals (PGMs) hasn’t recovered since falling sharply last year. The recent Platinum Week conference got some investors excited, but platinum and palladium prices have since retreated. China is focused on growing the battery electric vehicle market, which doesn’t use PGMs, and Russia continues to produce palladium and sell directly to China, keeping the spot price depressed. Platinum’s prospects are rosier in the medium term, but it’s unlikely that prices will rise until the usage of hydrogen increases. The share prices of South African PGM miners have fallen and will continue to be weak until more mine supply of the metals is reduced.