Nestlé SA

I love many consumer-staple stocks, but these are areas that tend to flourish when folks get nervous about the economy. After all, when the economy gets weak, people cut back on vacations, not on soap. On Thursday, the Consumer Staples ETF closed at $50.25 per share. That’s a 10% drop in a few months during a largely bullish overall market.
Eddy Elfenbein (link)

 

I am searching for alternative-investments to bonds as parts of my “income portfolio”. It’s the part of my portfolio which I expect to do fine in good times an bad times (when people cut back on vacations, not on soap). A lot of Consumer Staples stocks like Unilever, Nestle, Anheuser-Busch InBev and Coca-Cola (link: illusion-of-choice) are all near their 52W-Low.

 

Lets look at Nestle

Nestle is a global company, founded in swiss in 1867. They started with milk powder for babies and are now offering everything from water, soups, icecream, dogfood, nespressso to milk powder for babies.

According to their 3Q16 Presentation (page 3) their Organic Sales Growth in CHF was 3.3%, their Real Internal Growth was 2.5%. On page 14 you can find growth split by real internal growth and pricing, shown for every operating unit separately (very interesting).

 Sales by reginon:

AMS (America) 29 bn CHF
EMENA (Europe) 20 bn CHF
AOA (Asia, Africa) 16.5 bn CHF

(Each geography includes Zones, Nestlé Waters, Nestlé Nutrition, Nestlé Professional, Nespresso, Nestlé Health Science, and Nestlé Skin Health)

Nestle & L’Oréal

Nestle owns 23,07% of the worlds largest cosmetic company L’Oréal (according to LOreal)

L’Oreal is worth about 90,3 bn. € (05.12.2016 ariva.de) so their stake is worth around 20-21 bn €.

Nestle Dividend History

Dividend History (link)

They have a nice dividend history and have risen their dividend in the last 10 Years from 0.90 CHF (2005) to 2.25 CHF (2015)

 

To sum it up, Nestle is a good diversified, resilient company in an non-cyclical business. It is also a big company which is followed much (I guess getting an information advantage here is impossible for me).

 

Nestle Valuation

There are selling for:

PE-Ratio 23
FCF-RatioDividend-Yield ~3.3%
EV/EBIT 12,7

Numbers according to yahoo finance de

This is the last year chart in EUR. As we see they are down to a 52W-Low. I am not a chart-man but I guess this doesn’t look like a feel-good-chart.

NestleChart_EURO.PNG

 

This are some historical dividend data for them

nestle-dividend

As we can see, one of the highest yields the nestle stock offered in the last 14 years was 3.6% (data from finanzen.net). This don’t make them automatically cheap, but its a good starting point.
Nestlé’s last dividend was 2,25 CHF. I except the next dividend to be 2,3 CHF for 2017. This would translate into a ~3.3% dividend yield at the moment. When looking at the upper table, it is in the “better” range.

 

Pay out Ratio

payoutratio

They say their Free Cash Flow in 2015 was 9.9 bn CHF, which is pretty similar to “Profit for the year attributable to shareholders of the parent (Net profit)” which was 9.1 bn CHF. Annual Report 2015, page 39

Debt

Data from Morningstar (link)

The yields at which these bonds are traded for range from -0,38% (Nestlé Holdings 07/18 CHF) to 2,95% (Nestlé Holdings 14/20 AUD). The highest yield I can find in USD is 2,10%, the highes yield I can find in EUR is 0,42%. (source of information)

Looks like the market expects most risk in a Nestlé (bond) investing comes from currency risk.

 

Bottom Line

I am not expecting skyrocketing results from Nestlé. I see It as a good bond-substitute with a reasonable yield (that goes up as the years  are passing by) and don’t go to much down when the market does so. Therefor I am considering changing a/some more holdings of mine into this sector (Consumer Staples). Nestle for me is a good starting point for that.

 

Disclaimer: The content contained on this site represents only the opinions of its author(s). I may hold a position in securities mentioned on this site. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. As always please do your own research!

 

Foot Locker, everything is running well

I wrote in my first article about foot locker:

Earnings per share in 2020 would be 7,19$ – I guess a stock of that quality could be sold for 15 times earnings. So that would be 107.85$ in year 2020. The price today is around 62$. That is a pretty nice upside of around 70% – not bad.

 

In my “buy” article about them I wrote:

Some more fun with numbers:

I looked at their debt situation to define a discount rate: Morningstar Debt/Bonds overview FL

They have a year 2022 – 8.5% bond outstanding which is currently trading at 4.93% yield to maturity. I assumed a 6.5% discount rate for the equity.

I calculated with the assumed sell price for the year 2020 which I see at 107,85$ (of course things could turn out quite different). I discounted this price with a rate of 6,5% and came up with a “net present value” of about 82$. (note: this calculation does not include or consider dividends).

Discount Rate
6,5%
2020 107,85
2019 100,83
2018 94,28
2017 88,15
2016 82,42
NPV 82,42
Current price 63,2
Upside 30%

Bottom line:

Considering the stock is now somewhere around 60 US$, this produces a 30% upside. So I bought a small amount.

 

Lets summarise this:

Foot Locker was at 63.0 USD when I bought it

Foot locker is now at 73.68 USD

I estimated the y2020 value of FL 107.85 USD (NPV of that was 82,42 for me)

I thought a PE of 15 would be fair

 

What happend at FL in the mean time:

The 3Q2016 reads like this:

Net income for the Company’s third quarter ended October 29, 2016 was $ 157
million, or $1.17 per share, compared with net income of $80 million, or $0.57 per share in the same period of 2015.
Nice!
Third quarter comparable – store sales increased 4.7percent.
Wow! That sounds healty!

Continue reading

Bending the odds in your Favor?

A little excursion in the world of betting:

A german Betting-Agency is offering you 100€ if you create a new account. (I don’t say which because I don’t want to promote them). Maybe there is a way to bend the odds in my favor with that. Let’s calculate the probabilities on that.

 

The terms of that offer are:

  • if you pay in 100€ you will get additionally 100€ betting money for free
  • you have to be a new customer
  • you have to bet twice on a bet with a quote of min. Quote of 3,00 (!)
  • you have 90 days time for that
  • real money and your bonus money will be accounted separately (?)
  • money you made with the bonus money can’t be transferred to the real money account (???)
  • no long-term bets

 

(???) Really, whats the point then guys? The fake money you gave me should stay in a fake account you gave me untill I have lost it on some low probability bets? Then the sunk cost fallacy kicks in and I want to win my lost money back and you have created a new customer? Really? Is that your plan? Conclusion for me: always read the fine print!

But I still want to make the math on that:

Continue reading

Some Links

Chanos: I said that shareholders think he is the messiah, but I certainly don’t. I mentioned how dumb the SolarCity acquisition was. A really distraught guy in his 30’s came up to me that night and started poking me – he was poking me – and said “you don’t understand what’s about to happen at Tesla!” I looked at him and said – no, YOU don’t understand.

Chanos: We’ve never been short Amazon except during the dot-com era. What fascinates me is that until recently Amazon had no capital employed in his business. The business went public in 1996 – the last equity offering was 2001. They’ve been FCF positive since 2002. Some of that is amortization, but net of capex and acquisitions its still good free cash flow. Why is that? He employed negative working capital. As long as the business kept growing then it works. …

From Evidence Based Investing Conference (on ValueWalk)

 

Elliott Management Sends Letter to Cognizant Technology Solutions Corporation Outlining Value-Enhancement Plan (link)

Lays out path to $80–$90+ per share

Cognizant Technology currently trades at 56,95 USD

 

Corporate tax rates table by KPMG (link)

EY-publications (aka a lot of fun with a lot of numbers) (link)
For example: / Global / Industries / Automotive (link) (link)

Continue reading

From the 2015 Coca-Cola report

Getting Ideas from the 2015 Coca-Cola Report:

 

bildschirmfoto-2016-10-21-um-23-30-49

The Peer Group Index is a self-constructed peer group of companies that are included in the Dow Jones Food and Beverage Group and the Dow Jones Tobacco Group of companies, from which the Company has been excluded. The Peer Group Index consists of the following companies:

Altria Group, Inc., Archer Daniels Midland Company, B&G Foods, Inc., Brown-Forman Corporation, Bunge Limited, Campbell Soup Company, Coca-Cola Enterprises, Inc., ConAgra Foods, Inc., Constellation Brands, Inc., Darling Ingredients Inc., Dean Foods Company, Dr Pepper Snapple Group, Inc., Flowers Foods, Inc., General Mills, Inc., The Hain Celestial Group, Inc., Herbalife Ltd., The Hershey Company, Hormel Foods Corporation, Ingredion Incorporated, The J.M. Smucker Company, Kellogg Company, Keurig Green Mountain, Inc., The Kraft Heinz Company, Lancaster Colony Corporation, Leucadia National Corporation, McCormick & Company, Inc., Mead Johnson Nutrition Company, Molson Coors Brewing Company, Mondelez International, Inc., Monster Beverage Corporation, PepsiCo, Inc., Philip Morris International Inc., Pinnacle Foods Inc., Post Holdings, Inc., Reynolds American Inc., TreeHouse Foods, Inc., Tyson Foods, Inc., and The WhiteWave Foods Company.

Companies included in the Dow Jones Food and Beverage Group and the Dow Jones Tobacco Group change periodically. This year, the groups include Pinnacle Foods Inc., which was not included in the groups last year. Additionally, the groups do not include Lorillard, Inc., which was included in the groups last year.

Update

Portfolio News:

I recently bought a small amount of Britvic shares.

I have currently an active order for whitbread plc (costa coffee and Premier Inn).

 

 

Quality Sources:

MMI from valueandopportunity.com has postet a link about a British Investment Manager – Neil Woodford. I never heard of him before. He outperformed the FTSE (see pic 2 in the article). Since I’m interested in GB now, im very happy having a new source of information about britain. The guys at Woodford-Funds even run an own blog.

The Bloomberg article mentiond on valueandopportunity (link)

Woodford Blog (link)

Portfolio at hl (link) and at morningstar (link)

Woodford at Twitter (link)

 

Note: His Top holdings are well known British Blue Chips like AstraZeneca, GlaxoSmithKline and British American Tobacco.

Some old and new links

John Malone, The Cable Cowboy

John Malone: the mystery method behind a media empire at The Telegraph (link)

Liberty Global will fold Cable & Wireless’ equity into a special stock class, LiLac, created to give direct exposure to Latin America for those investors who want it. Malone, who already owns 13pc of Cable & Wireless, will be paid in LiLac stock, while other investors in the British company will get Liberty Global shares.

Liberty Media is buying the Formula One and will be renamed into Formula One Group (see NAV on page 22) (link)

About Annual Letters

The Best Annual Letters – Article by Jason Zweig (link)

We read tons of hedge fund letters so you didn’t have to – here’s what they said about Brexit (link)

Warren Buffett and Friends

A newer Interview of Warren Buffett (link)

An Interview from December 2000 with Tom Murphy from Capital Cities/ABC, one of Warren Buffett’s biggest investments. Seems like Warren copied Murphy’s leadership-methods (link)

How to invest like… Warren Buffett’s hero Philip Carret

Phil Carret’s ’12 commandments’

  1. Never hold fewer than  10 different securities covering five different fields  of business;
  2. At least once every six months, reappraise every security held;
  3. Keep at least half the total fund in income-producing securities;
  4. Coonsider [dividend] yield the least important factor in analysing any stock;

… read more

Foot Locker

And a report on Foot Locker (link)

but the average Foot Locker brick-and-mortar visitor is between ages 14 and 25

But online sales are still less than $1 billion of the whole company’s $7.4 billion in 2015

“How Foot Locker escaped the brick-and-mortar death spiral” on yahoo (link)

Planet Wall Street

Investorfieldguide on the long-term best performing sector (link) (spoiler: consumer-staples)

Ten Insane Things We Believe On Wall Street by thereformedbroker

The Goldman Sachs second annual Back-to-School Reading List (link)