South African rand strengthens following the State of the Nation Address

Analyst thesis

Our recommendation is based on:

• Alphabet is successfully defending its core advertising and search engine businesses by evolving keyword-based search into conversational intent. The integration of Gemini into Search not only protects the Group's competitive position; it expands it by surfacing higher-value, targeted ads within artificial intelligence (AI) overviews.

• YouTube is undergoing a long‑term shift. Short videos (shorts) and connected TV (CTV) viewing help brands reach vast audiences and build awareness, while new shopping features allow viewers to purchase products directly from the videos. Together, this helps YouTube turn attention into sales and helps boost advertising revenue.

• Google Cloud remains the primary growth accelerator, fuelled by a $240 billion backlog. The current surge in AI workload demand is expected to unwind into a mature, high-margin utility phase by 2028.

• Alphabet has raised its 2026 CAPEX guidance to $185 billion, signalling a strong commitment to realising AI-driven gains. However, this raises concerns over the headwind to free cash flow and the time pressure to justify substantial spending and near-term returns on investment. 

Analyst thesis

Our recommendation is based on:

• Diversified portfolio with structural balance: RTX’s ~46% commercial and ~54% defence revenue mix provides earnings resilience across cycles. Core platforms support high switching costs and durable franchise value across the three segments, each generating roughly $28–$30 billion in revenue over the past year.

• Record backlog supports multi-year coverage: RTX ended FY25 with a ~$268 billion backlog (+23% YoY) and 1.56x book-to-bill, reflecting strong order momentum. Exposure to long-cycle defence programs and multi-year OEM and aftermarket contracts underpins revenue visibility and operating leverage.

• Secular defence and aftermarket tailwinds: Rising NATO and European defence commitments support missile and munitions demand, while Pratt & Whitney’s 4,000+ GTF installed base and fleet ageing dynamics drive high-single-digit aftermarket growth and margin expansion.

• Valuation limits near-term upside: Following strong share price performance over the past year, RTX trades at ~29–30x forward earnings, a premium relative to legacy defence contractors. The current multiple suggests the market has largely priced in the company's backlog strength and secular growth tailwinds, leaving limited room for further upside re-rating.

Analyst thesis

Our recommendation is based on:

• Diversified franchise with leading market positions: FirstRand operates through FNB, RMB, and WesBank, providing balanced revenue streams across retail, commercial and corporate segments, primarily in South Africa (SA) with selective international exposure. The diversified portfolio of franchises generates recurring cash flows, captures selective higher margin opportunities, and provides exposure to secured lending, collectively supporting resilient earnings through economic cycles.
• Digital leadership driving growth and efficiency: FNB’s digital capabilities, including nav» Money and core banking modernisation with Fiserv, drive customer acquisition, engagement and operating leverage. Over 80% of retail transactions are digital, reinforcing a durable competitive advantage.
• Strong capital generation and disciplined returns: FirstRand maintains robust capital ratios and ROE above 20%, supporting attractive dividend payouts, while funding growth initiatives.
• Macro headwinds limit near-term upside: SA’s low GDP growth, intensifying competition, elevated unemployment, and pressure on disposable income constrain credit demand and asset quality.