In the current environment we’re looking for more defensive stocks, and BAT offers some of the characteristics we look for. It has a good balance sheet, it generates cash, you could say it has pricing power in tobacco. The most recent set of results shows that losses for its new-generation products business have been significantly reduced. This division has got to a point where you can scale up, and it’s the growth-orientated part of the business.
SA has high inflation and fuel costs, interest rates are going up and we’re worried about South Africans’ disposable incomes. One of the discretionary purchases is clothing, so we’re worried about how that will filter through in the next six to 12 months. Pepkor is more exposed to the lower-income consumer, and in the group it has the building supplies business, which is again something we’d be concerned about given the trends we’ve seen among competitors such as Cashbuild.
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