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I am doubling down on these 5 DEEPLY UNDERVALUED JSE shares.

May 26, 2024
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These 5 JSE companies are trading at very low valuations, showing positive prospects.

I have been buying these names heavily the past few weeks as I believe they are undervalued and showing good prospects for growth.
 

1. Santova Logistics

Share Price R8.10

Market Cap R1.1 billion

Why I believe it is undervalued

  • PE ratio 5.55
  • Stock buybacks- Santova is building the vakue per share through stock buybacks. They are not currently paying a dividend, but prefer stock buybacks. Personally, I love this. I will write an article on stock buybacks soon.
  • Cash generated from operations increased by 45.5% in 6-month period ending August
  • Debt to equity 5.3% which is very low & improved a lot recently
  • Operating margin 45.7%
  • Globally diversified (70.3% offshore earnings)
  • Huge industry (Logistics & Supply chain solutions)
  • New potential unlocked in the US (A-Link freight acquisition in 2022)
  • ROIC 26.04% which is really high. This is one of Warren Buffets most important metrics. Return on Invested Capital
  • Return on Equity 28.2%
  • Santova has a lot of organic growth. They start small with new acquisitions & partnerships, then they expand and grow organically.

Bearish Arguments

  • Shipping rates have come down, which could impact Santovas margins
  • Difficult to deeply understand their product.
  • Global economic slowdown which could lead to less demand for logistic services

 

2. Argent

Share Price R14.85

Market Cap R832 million

Industrial holding company owning companies like: American Shutters, Xpanda, Fluid Transfer Group, Fuel Proof, Jet Master, Castor and Ladders, Phoenix Steel & many more

Why I believe it is undervalued:

  • Stock buybacks taking place
  • Dividend yield 5.86%
  • PE ratio 3.99
  • UK prospects looking good
  • Positive prospects with order backlog looking healthy
  • Insider buying- The latest one being at R15 a share, for a total value of R750 000.
  • Argent got rid of non-performing assets & doubled down on the cash flow generating assets.
  • Trading at a discount to Net Asset Value

 

3. Master Drilling

Share price R13.99

Market Cap R2.1 Billion

Why I believe it is undervalued

  • PE Ratio 4.79
  • Big MOAT- They have a vergy large market share & fleet. It will be very difficult for new entrants to compete with them at this scale.
  • Dividend yield 2.32%
  • Huge product backlog
  • Supply problem, not demand (Personally I love this)
  • Global diversification
  • Resource diversification

 

4. Caxton

Share Price R10.05

Market Cap R3.64

Why I believe it is undervalued

Paul Roux will cover Caxton in the near future on the FinMeup account

  • Cash, Cash & more Cash- Caxton is sitting on A LOT of cash
  • Low PE of 6.65
  • Dividend Yield of 4.98%
  • Good trading statement published last week with positive earnings growth
  • The world is turning green, which also means people are moving away grom plastic. What is a great alternative for plastic packaging? Paper. Caxton is in a great position to benefit from this position
  • Very limited downside risk due to their strong cash position and low valuation

 

5. Kaap Agri

Share price R40.50

Market Cap R3 Billion

Why I believe they are undervalued

  • PE Ratio 7.3- Compared to other retailers, this is extremely cheap. Its not exactly the same, but Shoprite is trading at 21 PE, Woolies 19 PE, Pick n Pay 15.7 PE. 
  • Dividend Yield 4.1%
  • Insider buying- Insider have been buying non-top. Not huge amounts, but money is money & insiders have been placing their bets on their own company, which is always a positive sign.
  • Attractive valuation & dividend
  • Solid management with great track record
  • PEG acquisition presents a lot of profitable growth going forward.
  • Consistant historic revenue & earnings growth 

 

Disclaimer: This is not financial advice. Always do your own research. This is my personal opiniom and what I am doing with my own money. 


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