Page 177 - Profile's Unit Trusts & Collective Investments - March 2025

Fund Manager Interviews

Are equity markets in general overpriced? Do you anticipate a significant correction or will
the bull-run continue?
We think that South African and Emerging Market equities in general remain deeply
undervalued, currently trading near a four-decade low relative to US stocks. While the current
period of Emerging Market underperformance has persisted for an extended period, the cycle is not
dissimilar to what we have seen in the past. In South Africa in particular, the initial euphoria post
formation of the GNU has somewhat settled. Despite this, we believe the outlook has markedly
improved, which will play out in economic data and market valuations over time.

Could you identify three shares that fall within your universe that you think will perform well
in the medium term?
Southern Sun is the largest hotel operator in South Africa, owning and/or operating over

20% of domestic hotel rooms. The business has a favourable portfolio for capturing
international tourism and conferencing business, overweighted towards high-end offerings,
and with a significant exposure to Cape Town and the conference centre nodes. Along with
further scope for recovery against the pre-pandemic base, we see substantial opportunity for
ongoing tourism growth, supported by government initiatives to ease visa requirements, a
recovery in flight capacity, and the rising popularity of local destinations among international
travellers. Despite the strong outlook and quality of the business, the shares continue to
trade at a single-digit multiple of operating earnings, and a fraction of replacement cost.
Remgro, controlled by the Rupert family, holds an investment portfolio of high-quality
assets with exposure across sectors including healthcare, financial services, telecoms,
consumer products and industrial industries. The intrinsic value of the underlying assets,
much of it reinforced by listed valuations, adds up to around double the current market cap,
representing an elevated discount when compared to its history. Although our investment
case is not contingent on a value unlock, we have in recent years seen significant
value-unlocking transactions undertaken by other investment vehicles associated with the
Rupert family.
Connecting the themes of hospitality and value unlock, Mandarin Oriental is a

Singapore-listed, globally-recognised hospitality brand, operating a portfolio of 41 luxury
hotels (as well as homes and residences) across 26 countries. The company is undergoing a
transformation, unlocking value through the disposal of its owned property portfolio, while
aggressively pursuing growth in the capital-light, high return hotel management
business. We think the value of the owned properties could alone yield proceeds equal to a
multiple of the current market cap, while the number of managed hotels is set to double over
the next few years. As is typical across our investment universe, the company has zero
sell-side analyst coverage.

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