Stefan Ampenberger (1908 - 1983), detail from “The Red Sun”, oil on board, Sanlam Art Collection.Stefan Ampenberger (1908 - 1983), detail from “The Red Sun”, oil on board, Sanlam Art Collection.

FIA Meeting16 October 2012

Economic reality

IFO world economic climate survey

Recent trends/themes

Cheap shares became cheaper

and relatively expensive shares remained expensive

Global laggards cheap and underperforming

Global equities sideways but volatile

Asset performance driven by risk-off or risk-on

Globally: risk-on and risk-off dictating

Correlation can remain high for sustained periods

All about expectations

Policy measures and earnings expectations

Earnings expectations – 2012

Source: JP Morgan

Where do we invest OPM?

Common answer...

In assets where the value appreciate

US bonds – multi-year bull market

Source: I-Net

US bonds – multi-year bull market

Source: I-Net

Global Sovereigns do not p

rovide the rig

ht answer

Global Equities

Pattern

Sideways with short cycles

Source: I-Net

Price

Valuation – methodologies differ

Source: Case Shiller

US equities – valuation from all angles

Valuation Metric Current Value

Long term Ave

Avg. Since 1991

Trailing PE 16.3 15.5 25.3

Normalised PE 24.3 18.0 29.7

Forward PE 15.4 14.9 23.7

Forward DY 2.3 4.5 2.1

ERP 4.11 4.23 0.99

US equities multi-year lows versus bonds

Source: Case Shiller

US equities multi-year lows versus bonds

Source: Case Shiller

Preferred Asset class

... and property?

Expectations look reasonable

A local update

Macro context

SA GDP – trend heading in the wrong direction

Source: I-Net

Rand weakness – SA unique problems

Source: I-Net

Pattern

JSE All Share – cyclical bull market

Source: I-Net

Price

ALSI valuation, fair but...

Source: I-Net, SPI

The value dilemma in SA

Sector/Share FY1 Consensus Earnings growth

FY1 spot earnings growth

Gold sector 32% 42%

Platinum sector 23% -51%

Sasol -3% 37%

Anglo American 3% -15%

Billiton -1% -12%

Resource Sector 6% -5%

Commodity prices – visible response to tough environment

Source: I-Net

Copper – very muted response

Source: I-Net

FINDI earnings – lower PMI suggest pressure

Source: I-Net

Case for positive but subdued returns

A few share thoughts

Share A – R2 to R155

Source: I-Net

MTN – investment case summary 9-Oct-2012

• Diversified portfolio of businesses in growing economies

• Penetration levels are low

• Attractive dividend yield with an outlook for increased

dividend pay-outs

• Strong balance sheet with R7.7bn as at 30 June 2012

• Current price of R151 is a discount to our fair value of

R175

MTN – diversified portfolio in growing economies

MTN – capex and cash profile

Share B – a clear winner

R5

R162

Source: I-Net

Shoprite – a winner but priced accordingly

Source: Bloomberg

Price to sales ratio

Shoprite’s success story

Source: Bloomberg

Share C – should we forget about this one?

Source: I-Net

Astral – quality in tough industry

• Delivering through the cycle returns of circa 30%.

• Through the cycle intrinsic value R200.

• Trading around R100

• Delivered high quality earnings

• Good dividend payer historic dividend yield of 7.9%.

• 10 year average dividend yield is above 6%.

• Expected 2012FY dividend yield of 6.3% in extremely tough operating environment

Astral – look through the cycle

• The short term results expected to be poor

• regional oversupply

• increasing imports from Brazil

• high input cost inflation

• FMCG retail sector playing the producers off against each other.

• Medium term balance likely to return

• weaker producers out

• demand catches up with supply

• possible increase in tariffs on imports

• input costs pressures moderate

Astral – play on “normal” margins

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Astral operating profit margins

Feed

Overall

Poultry

Conclusion

• Tough macro environment

• No long term alternative – embrace risk

• Equities likely to move modestly higher – volatile

• Property remain important building block

• Volatility a friend rather than enemy of long term investors