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[TOP STORY] Two unusual companies – one local, one offshore

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SIMON BROWN: I’m chatting  now with Chantal Marx, head of research at FNB Wealth and Investments. Chantal, I appreciate the early morning time. Two stocks on you and your team’s radar – I suppose we should credit the team, rather, not just you – a local one and an offshore.

The local one is Balwin Properties. I think a lot of folks will know Balwin. They’ve been listed for a while. The share price has been lagging, but they’re an interesting little business and actually doing fairly well, although you would never tell by looking at the share price.

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CHANTAL MARX: No. If you were looking at the share price, you would think that they’ve done something wrong, and something very wrong. This stock trades at a 60% discount to its net asset value, and they’ve really shifted their business. A few years ago they were basically building apartment blocks. They were selling the apartments, but now they’re actually a rental business within there. And, importantly, they’re building out their annuity-income streams. So if you look at these big apartment complexes and the quasi estate living that Balwin sells, they now have the option for you to hire Wi-Fi from them. They’ve installed solar backup power, so you can actually buy electricity from them. They’re becoming like a utility as well, and that annuity income stream I think is really attractive longer term.

SIMON BROWN: I like that. I like the utility nature of it as well. This is an industry. There are barriers to entry – you and I could get a bakkie and try and build these, and truthfully we would never do it well. This needs that that critical scale, which they’ve got, and truthfully the years of experience which sit in the senior executive team at Balwin.

CHANTAL MARX: Absolutely. If you look at the quality of what they’re actually putting out there, I think it is way ahead of anyone else from a developer perspective. And at the cost at which they’re actually able to deliver really beautiful apartments with the granite tops and well-installed kitchens, I think that they have a first-mover advantage. But they also do things extremely cleanly and carefully. I think that, given the housing shortage that we have in South Africa, the area of the market in which they play, I think this is a stock that you can comfortably hold for the longer term.

SIMON BROWN: And my sense is the worst-case scenario perhaps is you get a delisting coming through.

The other one is a Swiss-based travel retailer. I’m not going to say the name because I’m going to get it wrong, so I’m going to leave it to you. I’d never heard of this company. They basically operate duty-free stores, which I found absolutely fascinating – airports, cruise liners, railway stations. It’s very niche, but they dominate the space.

CHANTAL MARX: Yes. It’s really cool. I think I’ll also butcher the name, but I’m going to give it a go: Dufry.

SIMON BROWN:  Works for me.

CHANTAL MARX: It’s a play on ‘duty free’. ‘Du-free’ I think is the right way to pronounce it. It is a Swiss-listed company. And, as you mentioned, they specialise in duty-free shops. Now, if you look at what has been happening in international travel globally, it has picked up quite nicely; but we are still not close to levels that we were [at] pre-Covid.

You’ve also had China reopen its borders more recently, [with] Chinese travel set to rebound. I do think that last-minute shopping or that browsing or that ‘Argh, I can’t leave the Toblerone’ will probably support this company as global travel continues to rebound. The stock has already done a little bit, but I think that there’s still something in it. It probably won’t be the best performer in your portfolio this year, but I don’t think it’s going to be the worst performer either. Something probably in the middle road because we are in the middle of that recovery cycle for this company.

SIMON BROWN: Yes. That’s just it. You’ve got retail, but you’ve got retail on travel and, as you point out, travel is recovering. There might be some stumbles over the year, recessions and worries around that, but post pandemic we are out there and travelling. And to your point on the Toblerone – it’s that captive market. I’ve been stuck at airports for protracted periods. It’s not always because my flight is delayed, sometimes I’m just early or it’s a connecting flight or something. And [in] those stores people are shopping up a storm. I scratch my head sometimes, but sometimes I’m that person too.

CHANTAL MARX: I’m not a duty-free shopper either, but my sister is. So someone in my direct family comes here every single year or two, and brings 50 Toblerones, and M&Ms in a little tin. She has also bought herself some perfume and a pair of Ray-Bans for no apparent reason. I think it’s just that waiting around that makes people want to do something, and they end up shopping. Some of these items are high-cost items. We are joking about the Toblerone. But you can buy very high-priced items as well. You can buy luxury handbags, for example, where the margins are actually quite good, I reckon, particularly if you consider how expensive things are at airports.

SIMON BROWN:  I just remembered my sister-in-law is a shopper there as well. The deep irony is she lives in Cognac, [a town] in France, yet she buys cognac at the duty-free to bring to everyone South Africa. I scratch my head every time, but then I just enjoy the cognac.

We’ll leave it there. I appreciate the time. Chantal Marx, head of research at FNB Wealth and Investments.

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