Allan Gray’s Suhas Nayak on why 2022 could be a year of share buybacks, how Origin sold its interest in APLNG too cheaply, and his wariness around floats.
What sort of year are you expecting 2022 to be in terms of buybacks?
We think there are a number of companies that can and should take advantage of their healthy profits and depressed share prices by buying back their shares. Cyclical companies, in particular, should consider whether there truly are any investments that are better than the one they know the best: their own shares.
Counter-intuitively, this means that as industry input costs go up , AWAC’s margins per tonne actually increase as the costs of refining for other players go up faster than the costs for AWAC. Despite this, AWAC trades at a discount to both greenfield and brownfield capacity additions, and at about 11 times after-tax earnings at spot alumina prices, which we think are not particularly high.A is an opportunity but also a risk for investors in out-of-favour stocks.
While we were clearly early in increasing our exposure to cyclicals through 2019, we think the elastic band has stretched even further since then, and it is in this space where value can still be found. We have also changed our bank exposure recently. Westpac is now the highest weight it has ever been in the fund, which shouldn’t be surprising as it isWe are pretty wary of IPOs. We look at most of them, but haven’t bought into one for over a decade.
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