News and views:
sectors and shares

Shoprite: a quiet revolution

Since our exit from Shoprite in August 2022, the share has lagged meaningfully, underperforming the market by 39% over the three years despite solid operational execution. However, the recent pullback has created an attractive opportunity to reintroduce Shoprite into our clients’ portfolios.

The medium-term story is no longer just about sales growth, but also about profits outpacing revenue. Shoprite has widened its trading margin to 5.9% (SA at 6.5%), driven by operational and supply chain efficiencies and growing digital leverage. Higher-margin alternative revenue streams – media, data monetisation, Petshop Science and Uniq Clothing – are scaling fast, strengthening resilience and earnings quality. Crucially, these levers enable Shoprite to reinvest in price, reinforcing its leadership and deepening its competitive moat.

Shoprite has tightened its portfolio, exiting Africa operations while retaining Southern African Development Community regions – currencies are largely rand-linked and close enough for effective management control – and progressing the disposal of the furniture business. This strategic pruning refocuses the group on its core South African supermarkets. With a clear path to returns of ~15% per year (including a ~3% dividend yield), and upside optionality from Sixty60 and new verticals, we believe the market hasn’t fully appreciated a business whose profit engine has quietly turned on.

Aspen: a ‘show-me’ story

Aspen’s latest results to June 2025 are a clear reminder of the risk of overpromising and underdelivering. For the past five years the Aspen story has hinged on the expected growth of the group’s manufacturing division. But reality has lagged the narrative. While Commercial Pharma remains steady, generates the bulk of earnings, and is geographically diversified, it’s not a high-growth engine unless it makes acquisitions.

The strategic bet on sterile manufacturing capacity in South Africa and France has yet to pay off. The broad investment thesis through 2024 and the early part of 2025 was centred on manufacturing capacity utilisation increases from expected contract wins. However, a key contract dispute at the French facility – driven by the near-collapse of its largest client – has left capacity idle.

With sentiment bruised, the market is unlikely to reward forward-looking guidance until it’s backed by delivery. While we see medium-term upside for the stock, it is likely to play out over years rather than months. For now, Aspen is a ‘show-me’ story: stable but not yet trusted to surprise on the upside.

Bidcorp: core holding – global appetite

Bidcorp’s financial year 2025 results reinforce its standing as a global growth compounder with reach, resilience and runway. Headline earnings per share in constant currency rose 10%, trading profit climbed 9%, and operating margins ticked up to 5.5%. Cash conversion exceeded 100%, while net debt remains minimal at just 0.4 times earnings before interest, tax, depreciation and amortisation (EBITDA) – giving the group ample firepower for reinvestment and acquisitions. This is a business built for long-term, high-quality growth.

Regionally, scale and diversification continue to pay off. The UK led with double-digit profit growth, driven by strong volumes in hospitality and contract catering, alongside margin-enhancing acquisitions. Europe’s recovery was broad-based – Spain, Portugal, the Netherlands and Poland all delivered, benefiting from tourism recovery and new contract wins. South Africa, Brazil and Southeast Asia remained resilient. Australia continued to deliver strong margins despite New Zealand’s recession. Latin America and the Middle East offer upside optionality.

With structural growth in global dining-out trends, a decentralised model that aligns incentives, and around 90% of earnings derived from hard-currency markets, Bidcorp remains a core holding. Management’s target of ~10% constant-currency growth per year looks realistic, and as one of the few large-scale global players outside the US, it may eventually attract strategic interest. The market still underappreciates its full value – we don’t.

Bidvest: resilience amid pressure

Bidvest’s financial year 2025 results showed resilience amid pressure. Freight and Commercial Products remain under strain but appear near cyclical lows. Services – both South African and international – continued to outperform. Cash conversion held strong at 95%, supporting manageable leverage at 2.2 times net debt to EBITDA. Debt maturities have been extended and treasury risk proactively reduced.

Return on invested capital sits at 14%, well above the group’s weighted average cost of capital, confirming value creation. Importantly, capital-light international services now make up 27% of group operating profit, with a clear path towards 35-50%. This mix shift could unlock a structural re-rating as Bidvest evolves from a local cyclical to a global growth story.

Domestically, infrastructure policy targets a rise in gross fixed capital formation from 14% to 30% of gross domestic product (GDP) by 2030. This supports long-term industrial demand and recovery in Freight and Commercial Products. With best-in-class cash generation, a decentralised model and optionality from both global expansion and undervalued local assets, Bidvest is well positioned for above-GDP growth and potential strategic interest – from the market or beyond.

Nvidia: another bumper quarter

With a market value north of US$4 trillion, Nvidia continues to set records as artificial intelligence (AI) data centre investment surges. Second-quarter revenue jumped 56% year on year to US$47 billion, with data centres contributing US$41 billion, and earnings reached US$26.4 billion. Full-year expectations sit near US$110 billion – over 10 times what the company delivered just three years ago.

The core question is sustainability. Nvidia’s edge lies in its speed to market and its proprietary CUDA software platform, which locks customers into its hardware. Yet risks are building: major customers are increasingly investing in their own chips (Nvidia earns gross margins of more than 70%), and a potential oversupply of AI data centres could trigger capital expenditure pullbacks and stalled growth. At around 48 times trailing 12-month earnings, the current valuation leaves little room for error.

In our portfolios, we’ve captured the upside of AI data-centre growth through an investment in TSMC, which manufactures most of Nvidia’s leading-edge chips. We view TSMC as offering both a more attractive valuation and a broader set of end-markets: alongside indirect exposure to Nvidia’s success, it stands to benefit from the wider spread of AI into personal devices and humanoid robotics, as well as from rising chip intensity in cars, PCs and mobile phones.

Zoetis: global leader in animal health

In August, we initiated a position in Zoetis, the world’s leading animal health company. Spun out of Pfizer in 2013, Zoetis develops and markets medicines for both pets and livestock. The animal health industry, while smaller than human pharmaceuticals, is structurally attractive: limited generic competition, cash-based sales, and a lighter regulatory burden.

Zoetis has been reshaping its portfolio towards the pet segment, where the economic upside is greatest. Rising spending on pets – and the emotional bond owners have with them – support stronger pricing power in pet health drugs. With unmatched scale and focus, Zoetis enjoys a competitive edge that peers struggle to replicate.

After materially underperforming global equities by ~72% since late 2021, Zoetis now trades at more compelling levels, with a 4% free cash flow yield and a forward price-to-earnings ratio back to its decade-ago range. In our view, the derating over the past four years offered us an attractive entry point into this high-quality growth compounder.

Alphabet: trimming after the rally

Alphabet has been a core holding for over a decade, delivering exceptional earnings growth over this period. This year, positive news flow and strong momentum in its search advertising and Google Cloud businesses drove the stock to new all-time highs. We added to our position earlier in the year when the stock was under pressure from legal overhangs, but after a 50% rally from the April lows, we trimmed exposure in August.

The rally was supported by favourable legal rulings, including confirmation that Google can continue paying Apple to use Alphabet’s Gemini functionality. Gemini is Google’s family of advanced, multimodal AI models and an AI-powered assistant that can understand and generate text, code, audio, images and video. It is increasingly embedded into Google’s own ecosystem, from Gmail to Docs. The court also rejected calls for Google to divest its Chrome browser, removing another overhang.

In our view, much of the negative news was already discounted when we added to this name earlier in the year, but after the share price rally, valuation is now more closely aligned to intrinsic value.

NetEase: investing for the long game

We invested in NetEase four years ago, and the company has delivered a total shareholder return of close to 50%, compounding at over 10% per year. As one of China’s leading internet technology firms, NetEase operates across gaming, e-commerce, online media and innovative services. Its core strength lies in online game development, where it remains a leader in scale and execution.

Recent conversations with the company’s investor relations team highlighted its disciplined, investment-driven culture. Management is refocusing on the home market, divesting most of its overseas studios to concentrate resources where it has the deepest competitive advantages. NetEase is founder-led and highly research-driven and allocates capital with long-term discipline – traits consistent with other successful Chinese technology businesses.

With over 17 000 software engineers, NetEase runs one of the most productive game development engines in the industry. The scale, efficiency and depth of its talent pool give us confidence in the strength of its pipeline and its ability to sustain leadership in Chinese gaming. We continue to view it as a high-quality compounder.