EXECUTIVE SUMMARY
If we had to sum up the year 2020 in one word. we would say without hesitation "VOLATILITY". Faced with the Covid-19 crisis. the MASI index underwent the fastest correction in its history. losing more than 28% of its valuation within just 18 trading sessions. However. this unprecedented volatility was not as penalizing for investors. This created great investment opportunities through a catch-up in market performance of more than 25% since the Q2-2020.
At the start of this year. the question which arises is the following: "how to approach the year 2021. especially since the stock market recovered more than 90% of its correction induced by the Covid shock?".
Today. we cope with three realities. The first one concerns the lack of visibility regarding the profile of the economic recovery. The second one is a growing scarcity of investments with attractive yield. The third one is linked to the emergence of debt risk within corporates.
In this context. we are placing the cash generation at the heart of our investment strategy in 2021. Transforming its results into cash-flow. is the only reality allowing to ensure a sustainable return for the Shareholder and a strong resilience for the company. To this end. the cash-conversion ratio that we used assesses the ability of a company to convert its revenue into operating cash-flow.
Our analysis of the stock market over the period 2019-2022 takes place in two phases :
- First of all. we identify the companies having a capacity to defend a high level of cash-conversion thanks especially to the resilience of their margin level and the good control of their WCR ;
- Secondly. we make sure that this generation of cash has a positive impact on Shareholder remuneration through improving the creation of economic value and the dividend. In fact. the stock market remains particularly efficient with regard to these two indicators.
At the end of our analysis. we end up with a portfolio of 8 stocks. These would best meet our invest-ment theme which deals with cash generation. During the period 2020-2022. our portfolio displays an average cash-conversion ratio of 79%. an improvement in the creation of economic value and an important cash-up effect of dividend allowing to offer a target D/Y of 5.6%. This return level is 2.6 times higher than that of the Moroccan bond market.
According to our understanding of the Moroccan market’s expectations. we believe that investors will have no complex in paying a valuation premium for this profile of stocks. This conviction rein-forces the target return(1) of our portfolio. which according to our expectations will amount to 26% over the period 2021-2022.
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