BROKERS’ NOTES: Buy Richemont, sell BHP

Jacques Pretorius,The Swiss luxury goods company offers good value after the release of its annual results. Chair Johann Rupert was conservative in his outlook for sales for the current fiscal year. As a result, the share price has declined considerably and is trading at a forward p:e of 17. We think this is overdone. Though sales in China, one of Richemont’s largest markets, declined in the previous financial year, we foresee that this will change. Richemont is a solid cash flow generator.

We expect the rand to weaken somewhat as the commodity rally comes to an end, which makes Richemont a good rand hedge.BHP is a good-quality mining stock and its valuation is evidence of this. The company trades at a forward p:e of 6.8 and a historic p:e of 8.1. As central banks around the world tighten monetary policy, economic growth in many countries is bound to slow down soon. This will have an impact on the demand for, and price of, commodities. We see mining companies as riskier now.

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