Reports

CEE-ing Opportunity

September 2019

A consistently soft domestic economic environment has pushed several South African listed property counters to seek out higher growth opportunities abroad. Central Eastern Europe (CEE) has emerged as a favoured destination for the allocation of South African capital with over 40% of the domestically listed property sector exposed to the region as at June 2019. Following a site visit to Romania and Poland we explore the key factors at play in the CEE office and retail sectors and compare these to the South African market.

Battening Down the Hatches

November 2018

British American Tobacco (and to a lesser extent its proxy, Reinet) has been a cornerstone of Tantalum’s equity portfolios for much of the last seven years and we have twice before written investment reports on the company. We would like to take the opportunity to update our investors on our investment thesis and outlook going forward.

Tobacco: Appendix 1 - Prior Research Pieces

For our reader’s convenience we provide this appendix summarising our prior quarterlies; together with a brief summary from UBS on tobacco dynamics over the past two decades.

Tobacco: Appendix 2 - Exploring Alternatives to Cigarettes

Closed vaping systems (25% of the 2017 NGP market) use a heating coil to bring e-liquid to a boiling point creating a vapour which is inhaled. A closed system comprises a battery and a liquid cartridge. Cig-a-likes are designed to look like a cigarette and mostly operate automatically (you don’t need to press a button to inhale as is the case with open systems. Pod systems represent the next iteration of cig-a-likes, being more convenient and less tied to the form of a cigarette.

Battle of the Banks

July 2018

Bank valuations have fallen back to levels in line with the ANC elective conference on December 20th last year. The positive sentiment and resultant share price rally across South African shares most geared to an improving domestic economic and political outlook benefitted the banks as they too re-rated on “Ramaphoria”. Relative US Dollar strength and resultant emerging market weakness since late March and early April this year, combined with land reform, mining charter finalisation and the need for structural reform within the State Owned Enterprises (SOE) has provided the backdrop for weaker price action amongst the banks and financials in general. While business and consumer confidence has received a notable boost post the 2017 lows, corporate results in 2018 continue to highlight limited green shoots in the underlying economy.

The Sky is Blue

April 2018

At Tantalum Capital, we like investing in businesses with leading and defendable market positions. Concentrated industries with few competitors tend to earn good returns, and, given a fair entry price, often make for superior long-term investments. The investment cliché of looking for the widest possible “moat” around the business, defending itself against competitive attack, is obvious. As is the desire to pay a low price, the so-called “margin of safety”. However, opportunities to invest like this are generally only possible opportunistically, when the market has misunderstood (or forgotten) these industries’ strengths and long-term prospects. Intuitively, the telecommunications (“telco”) industry exhibits attractive moat characteristics: a limited number of competitors, technical barriers to entry, high fixed costs and high capital investment. In this newsletter we explore the telco investment proposition in more detail, and explain the thinking behind our underweight telco stance for most of the last two years, together with our reasons for recently investing in Blue Label Telecoms (BLU).

Acute Aquisitions & Healthy Growth

31 December 2017

The rise of Aspen Pharmacare is widely hailed as one of South Africa's most impressive corporate success stories to date. From humble beginnings operating out of a house in Durban, Aspen has grown into one of the largest pharmaceutical companies in the Southern Hemisphere, with its products sold in over 150 countries across the globe.

Is your credit line secure?

30 September 2017

A cornerstone of functional markets is the principal of being rewarded for risk taken. The higher the risk is, the higher the reward needs to be to entice investors to invest their funds. In the credit markets, high-yield bonds are synonymous with risky assets, whereas investment-grade bonds are lower yielding, as investors are willing to receive a smaller return on their investment because of the low probability of a loss in the principal or non-payment of interest – known in credit as “default”.

Mining Shares: Prospecting for Profit

30 June 2017

Investing in mining equities is notoriously difficult. In valuing these shares, the key factor in forecasting profits is the underlying commodity price assumption. History has shown commodity prices to be cyclical in nature and quite difficult to predict with much reliability.

Appetising Returns

31 March 2017

One of the largest positive contributors to performance in Tantalum’s Equity bearing portfolios during the first quarter of 2017 has been Bidcorp. Additionally, outside the gains from commodity shares, the value unlock from the Bidcorp unbundling was a material contributor to equity returns during 2016.

Has the money dried up?

31 December 2016

South Africa is currently recovering from one of the worst droughts in its history, with 2016 having received the lowest rainfall since record keeping commenced in 1904. This, along with other company specific factors, has resulted in high levels of volatility in the diversified food producer counters. In this note we discuss the impact of the drought on soft commodity prices, consider the timeline to recovery and finally evaluate whether the quality food producer stocks are still attractive investments at current levels.

Under the Knife

30 September 2016

From a high-level perspective, it’s easy to appreciate the investment appeal of the private healthcare industry as the sector benefits from a range of favourable longer term dynamics. In emerging markets, rising living standards and a higher disease burden underpin demand. In developed markets, these trends are coupled with ageing demographics, and overburdened state health systems.

A Phoenix Without the Ashes?

30 June 2016

This quarter we revisit one of the strongest performers in the Tantalum portfolios over the last year. British American Tobacco (BAT ) has been a core holding in our equity basket, representing up to 10% of equity at times (in combination with the Rupert controlled investment company, Reinet).

Making Mobile Matter

30 March 2016

Naspers has been an exceptional investment over the last decade, but now polarises opinion amongst South African investors. Some expect the share to be another “ten bagger”, while others confidently predict that it will collapse in a heap.

Brewing Up a Global Beer Giant

31 December 2015

After years of speculation, Anheuser-Busch InBev's (ABI) formal offer of US$106bn to acquire 100% of SABMiller’s (SAB) share capital, signals the end of SAB’s quest for dominance in the global brewing space.

SA Banks: Value or Wrapped in Red Tape

30 September 2015

There is little doubt that in the years leading up to the Global Financial Crisis (GFC) the world’s largest banks were highly leveraged, under-capitalised and poorly regulated.

Sending a Strong Signal

30 June 2015

As part of the investment process at Tantalum Capital, we extract tremendous value from comparing and contrasting companies listed in South Africa with their international peers. In the case of Vodafone, apart from gaining valuable insights into Vodacom and the potential future evolution of the South African Telecommunications (Telco) market, we unearthed a great investment opportunity.

Shopping in a Storm

31 March, 2015

The past twelve months have proved to be challenging for most of the South African apparel retailers. They have had to navigate their way through difficult trading conditions, with the consumer caught in a storm of financial headwinds.

Black Gold? Or Sludge?

31 December, 2014

The rapid deflation in the price of crude oil since October has grabbed headlines around the world. Oil is such a key component of the energy complex that its price impacts on our daily lives in many different ways.

Smoking Out a Winning Investment

30 September, 2014

Historians attribute the earliest human consumption of tobacco to the Mayan civilisations of Central America between 5000 and 3000 BC. Tobacco smoking formed an important part of Mayan religious rites with ancient carvings in ruined temples showing priests smoking a tube pipe.

Platinum Mining: Golden Goose or Lame Duck?

30 June, 2014

It has indeed been a tough 2014 for the South African (SA) mining industry. With the Marikana massacre still fresh in the collective memory, (and the Farlam Inquiry still in the news), the industry has been faced with further wide-scale labour disruption.

Sunset Times?

31 March, 2014

Dinner table conversations have, over recent years, frequently highlighted changing reading habits and praised or lamented the rise and use of iPads, tablets, Kindles and general online content.

Is Talk Becoming Cheap?

31 December, 2013

The South African Telecommunications industry has been the subject of considerable news flow over the past quarter.

Are the Odds in your Favour?

4 October, 2013

Why do people gamble? Over the years physiological, personality, cognitive and other theories have tried to answer this question; whatever that answer may be the simple reality is that gambling has and always will be a part of any society, whether in a regulated or illegal form.

Hotels: Suite Nothings or Sleep Easies?

30 June, 2013

The local hotel industry is finally showing signs of life again after a few difficult years, with trends in occupancy and rates moving up with

increasing momentum.

Resource Relationships

March, 2013

Given popular supply/demand economic theory, one would expect that the absolute and relative pricing of resources should, to some extent, be determined by the availability or scarcity of the various resources.

Sugar Nature's Gold

31 March, 2013

The origins of sugar date back to New Guinea, the Pacific Island nation whose people were the first to domesticate sugarcane from around 8000BC. Cultivation of the plant then spread along human migration routes to South East Asia, China and later to India, who were the first to produce sugar crystals via the boiling of cane juice.

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