Chantal Marx, Pritu Makan, Sithembile Bopela, Zimele Mbanjwa, Motheo Tlhagale and Khumbulani Kunene
Reunert (RLO)
Reunert manages several businesses focused on services, electronics and electrical engineering. Established in 1888 by pioneers Theodore Reunert and Otto Lenz, the group has played a role in the South African economy for more than a century. The group was listed on the JSE in 1948 and primarily operates in South Africa, with smaller operations in Australia, Lesotho, Sweden, the US, Zambia and Zimbabwe.
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The company has strong market positioning with exposure to strong growth in the renewable energy sector, defence and cybersecurity as well as the telecom and satellite sector.
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Renuert has well-diversified businesses with sound long-term prospects and is gaining strong traction with positive international exposure.
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Reunert has a very strong balance sheet, which has provided scope for the company to take advantage of attractive acquisition opportunities.
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The company is one of the very few listed South African industrial companies with significant defence and renewable energy exposure.
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Reunert delivered a disappointing set of results for FY24, with both top- and bottom-line growth coming in behind expectations. Revenue development lost momentum compared to the half-year point (1H25: +7%) as a solid performance from both the ICT and Electrical Engineering segments was dragged by a weaker performance in Applied Electronics. Cash generation remained solid, and the Defence Cluster (within AE) experienced strong sequential growth. However, the battery storage market faced challenges, as previously communicated, due to oversupply and reduced load-shedding, leading to a decline in the residential and small commercial sectors.
Management's outlook statement was cautiously optimistic, with further growth expected in the upcoming year (weighted towards 2H25). The company is well-run with good ROE, strong cash generation, and a high dividend yield (6.8% 12-month forward).
Reunert is trading on a forward PE of 7.8 times, which is a notable discount relative to its history.
Curro Holdings (COH)
Curro Holdings is an education group that develops, acquires, and manages private schools in South Africa. The company operates schools that offer education from preschool to grade 12, aiming to provide a balance between academic, sport and cultural activities.
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The group has one of the leading independent school networks in South Africa that offers a range of options for learners seeking independent schooling.
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Learner volume growth is expected over time, particularly due to rapid urbanisation and short falls in the state system.
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The company has also secured diversified revenue streams through its several brand offerings and boasts a strong brand presence. Complementary services offer further earnings and cash flow enhancement.
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Curro is highly cash generative with a high-quality development and acquisition trail, which bodes well for future prospects and expansion.
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The group delivered resilient FY24 financial results, however, there was a slowdown in growth over the second half as consumer spend remained constrained, with group's enrolments having not yet benefitted from moderating inflation and the gradual easing of interest rates over the last few months. That being said, cashflows remained strong during the 2024 financial year, supporting the group's healthy financial position.
Looking ahead, free cash flow is expected to continue improving amid lower capital expenditure as the business matures. We would have to see learner numbers increase to start seeing a more sizable improvement in profitability and to drive cash generated from operations as well.
We are still positive on the long-term prospects of this sector and the company, with current levels being attractive as an entry point. Curro is trading on a forward PE of 8.7 times, which is well below its long-term average rating.
Spear (SEA)
Spear is the only regionally focused REIT listed on the JSE that predominantly invests in high-quality income-generating assets across all sectors in the Western Cape. The company obtains its diversification through investing in high-quality Western Cape assets that generate strong and sustainable cash flows within the industrial, convenience retail, commercial and mixed-use sectors.
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Since listing on the JSE as a specialist REIT eight years ago, Spear has steadily grown its portfolio and currently has ~39 assets, comprising of a well-balanced mix of industrial (59%), commercial (27%) and retail (14%) assets, with the total portfolio being valued at ~R5.3 billion.
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The total gross lettable area (GLA) of the portfolio is 499 284 m2, which is let to 513 tenants divided into 41% A-grade, 49% B-grade, 5% C-grade tenants and 5% vacant ranging from JSE-listed entities to small or medium enterprises.
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The strong property fundamentals of the Western Cape in conjunction with Spear's high-quality assets in sought-after locations, strong tenant covenants, and active asset management approach have consistently empowered the business to deliver outcomes of value creation and profitability.
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Management's in-depth knowledge and proximity to the assets provides a more proactive approach, and together with an acute understanding of the Western Cape real estate environment, makes the company a true regional specialist priding itself on its hands-on asset management approach.
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In line with the group's mission statement, Spear has maintained its reputation as a consistent dividend-paying income fund, focused on operating with a strong balance sheet and delivering on its income statement objectives despite tough trading conditions.
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In 1H25 results, group revenue grew 6.3% (like-for-like: +9.5%) as strong leasing activity led to an improvement in vacancies with solid in-force escalations providing further support. Net property operating profit was up 1.9% (like-for-like: +9.5%), supported by robust expense management in a very difficult trading environment and improved cost recoveries. Growth was impacted by the severe impact of recent Cape storms.
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For FY25, management has guided for distributable income per share growth of between 2% and 4% higher, with a payout ratio at 95%.
The geographically specialised portfolio gives Spear the opportunity to focus on hands-on asset, tenant and portfolio management in the Western Cape. As a result, the portfolio presents stable income over the short, medium and long term with several redevelopment opportunities that will allow for organic growth and increase of income in the portfolio.
Spear is trading on a forward distribution yield of ~9% and a 14% discount to net asset value (NAV), which appears reasonably attractive. The portfolio remains well placed to deliver on its strategic initiatives, with the group continuing to benefit from the strong return-to-office which has supported letting momentum, semigration, localisation and the commencement of an interest rate tapering cycle in South Africa, all of which will have cascading benefits to landlords and tenants alike as overhead cost pressures start to show signs of relief.
WeBuyCars (WBC)
WeBuyCars (WBC) is one of the largest used-vehicle dealers in South Africa. Currently backed by 16 vehicle supermarkets, 83 buying pods, over 3 000 employees as well as ~381 professional buyers, WBC now moves more than 14 000 vehicles (predominantly nine years or older) through its operations per month. The company's offering includes passenger and commercial vehicles, motorcycles, trailers, caravans, and even boats.
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In addition to its strong physical presence across all nine provinces, the company boasts an impressive online platform. The WeBuyCars website averaged ~7 million monthly visits with 2.3 million unique visitors in FY24.
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The company utilises its proprietary technology and valuation tools (incorporating big data, machine learning, and AI) to determine a fair and objective acquisition price. Together with its buying-staff expertise, it can provide reasonable quotes to sellers (in short turnaround times), which are often converted into fulfilled sales.
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This technology is also used to accurately price its inventory, maintaining optimal margins and efficient churn. A key feature of its data-driven technology is that vehicle valuations are not necessarily static but are able to adapt to changing market fundamentals in real time.
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Management plans to expand the company's footprint by adding further capacity of ~2 000 vehicles between FY25/26. Key to this strategy will be identifying suitable locations that can accommodate large foot-traffic, but where the market is still relatively untapped. These plans for growth are consistent with the company's targets of achieving ~23% market share and selling around 23 000 vehicles per month by FY28.
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Market share gains have been rapid as individuals are continuously making use of trusted platforms such as WBC (or similar aggregators) to sell their vehicles safely and conveniently, at decent prices.
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In a recent trading statement for the interim period ended 31 March 2025, core headline earnings saw robust double-digit growth likely bolstered by a continuation of the solid performance seen in the prior year on the back of improved volumes, higher average selling prices, operational efficiencies, higher inventory turns, and cost efficiencies through economies of scale.
Cyclical and macro dynamics are in favour of WBC's business model. TransUnion reported in its latest (4Q24) South Africa Vehicle Pricing Index report that used-vehicle financing continues to outpace new-vehicle financing by a factor of 1.6. Indeed, although new-vehicle sales in South Africa have begun to pick up, used vehicles continues to see growth. The used-vehicle market in South Africa is a lot more defensive than the new-vehicle segment. Over the last decade, South Africa's vehicle "parc" has continued to grow despite a reduction in new-vehicle sales. WBC accounts for 10% to 12% of used-car registrations.
WeBuyCars is trading on a forward PE of 15 times, which still seems undemanding given its expected medium-term growth trajectory.
4Sight Holdings (4SI)
4Sight is a technology firm specialising in digital transformation. Harnessing technologies such as Artificial Intelligence (AI), Machine Learning (ML), big data analytics, and the Internet of Things (IoT), 4Sight caters to diverse sectors including telecommunications, mining, manufacturing, and financial services.
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A cornerstone of 4Sight's strategy is the development of proprietary technology, enabling it to remain competitive in a dynamic tech landscape. By integrating acquired technologies and fostering synergies across its business units, 4Sight aims to deliver comprehensive, scalable solutions tailored to evolving client needs.
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4Sight offers a wide range of digital transformation solutions that feeds into some major technological themes, including AI, IoT, big data analytics, and cloud services. Being this diversified also helps meet a wide spectrum of requirements from clients.
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The company prioritises environmental, social, and governance (ESG) imperatives, particularly evident in their offerings for the mining sector, which heavily prioritise sustainability.
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With the increasing demand for digital transformation solutions across industries, 4Sight has significant opportunities to expand its market reach both domestically and internationally.
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4Sight has established strategic partnerships with leading technology providers like Microsoft, Sage, Nozomi Networks, and Acronis, allowing them to offer cutting-edge solutions and enhance their market position.
4Sight Holdings is well-positioned for continued growth, driven by its strong portfolio in digital transformation technologies like AI, IoT, and big data analytics. The company's focus on expanding into new markets, including French-speaking Africa and the Asia-Pacific region underscores its growth outlook. 4Sight's strategic investments in proprietary technology and partnerships support a positive outlook.
From a valuation perspective, 4Sight's ROE has shown encouraging progress, increasing from 5% in FY20 to 11% in FY24. Its forward-looking strategy, centred on innovation and market expansion, positions the company to deliver strong long-term returns (above 30% medium term). Presently, the stock is trading around R0.74, well below our calculated fair value of R1.14.
