ABEV review

http://www.mzweb.com.br/ambev2012/web/default_en.asp?idioma=1&conta=44

One of the largest brewer in the world exposed to latin america economy growth.
Demand underpinned by growing wealth in Latin america.
balancesheet is good and not overstretch. Consistent cash flow generation.
Net cash position. 5B Reals debt vs 14B Reals cash. Current debt - 2.5B and long term debt of 2.3B.
Interest coverage is 6x on operating profit basis. Adequate. Expense can be covered by cash balance if there is shortfall. Based on cash flow statement, interest payment is 200M vs interest recieved of 250M for 1H 2019 which means company has net finance cash inflow.
Interest expense includes interest paid to banks and gains/losses on derivative/non derivative instrument which is non cash.

Debt is growing slightly from previous year though still in net cash position
Pay dividends twice a year but for 2019, there is no interim dividend. Not sure if they change to once per year instead of twice per year. This is one unknown to be confirmed.

http://www.mzweb.com.br/ambev2012/web/conteudo_en.asp?idioma=1&conta=44&tipo=43241#3

Based on their dividend policy, it is mandatory to pay out min. 40% of income as dividends.
high margin business with 38% EBITA margin ans 20% profit margin.

Anheuser-Busch InBev ons 62% of shares while market owns 28% of shares. There are some liqudity. Free Float in NYSE is 85 vs in Brazil.

Stable business exposed to growth markets. Stable dividend policy. Share price depressed for various geopolitical reasons but underlying business is still OK. Balance sheet  is sound and not stretch.

Buy when price drop further.

LYG Review

To study annual report. Appears to be undervalued based on historical statistical valuation

Tier1 ratio of 14%, similar to BCS. TNAV of 53 pence is close to current market price. Hence no significant discount from book value.

https://www.lloydsbankinggroup.com/globalassets/documents/investors/2019/2019_lbg_hy_results_presentation.pdf

Mainly a UK domestic bank. Fate tied to UK economy. Comprises of traditional banking, wealth and insurance group. The wealth group is growing fast and much faster than the market.
Decreasing Cost/Income ratio a good sign of cost controlling
Underlying loan is stable and is mainly mortgages. If UK market tank, there will be default and there will be delinquent loans.
Net interest margin around 2.9%  which is relatively stable for last 2 years.
Progressive dividend policy. To commence quarterly payout from 2020 onwards.
Dividend payout ratio is low.


Q&A from 1H2019 report
https://www.lloydsbankinggroup.com/globalassets/documents/investors/2019/2019_lbg_hy_results_faqs.pdf

Company has contingency plans for BREXIT and expect direct impact to be modest since majority of their business is within UK.
Invested in digital experience for future. Expect customer to benefits and stay on with this system.
Stress test indicate robust capital and liquidity levels.

This is a UK economy play. Best is buy after BREXIT where uncertainty is mostly gone. Or a bet towards pound recovery. Bank performance over the last few years is stable despite BREXIT foes overhanging which illustrate their current robust business strategy and model.

BCS Review

To review BCS Annual report. Appears to be undervalued based on statistical valuation history
Diversified income with 50% from UK and remaining from international. Well prepared for Brexit with Barclays Ireland up and running and can take over anytime. diversified funding sources with 60% from deposit and 7% from shareholder equity, 10% from government, remaining from debt. Income sources comes from a variety of business such as tradtional banking, credit cards, bank fees. Investment incomes make up ~10% only. So its business is tied closely to general economy and not trading. The capital structure is sound and tier 1 ratio is much higher than the minimum regulatory requirement and the stress test limit. Dividend payment is not excessive and well cover by its profit. At current price level the dividend yield is ~4.5% which is not too shabby. Company has progressive dividend policy based on profit level. Current price is depressed for a bank that is pretty sound and has move on from the 2008 GFC. Price depressed due to 2 reasons:

1) BREXIT uncertainty
2) Pounds dropping.

Item 1) and 2) are related. Once the Brexit is over, uncertainty will be gone whether UK is in EU or not. With uncertainty gone, pound will increase in value. Share price will rerate and dividend payout in terms of USD will improve also. Good entry price now.

Tier-1 ratio is inline with US peers of 13% and better than european peers of 12%
Leverage ratio is 5% versus regulatory requirement of 3.9% and stress test limit of 3.6%.
Prudently managed and trading at half of book value.

New Toyo Review

Looks interesting with recent price correction. Check it out.

Recent 2 quarters making losses. Unable to cover interest expenses with the losses. short term debt of 30M + long term debt of 40M with cash of 30M. Total equity is 200M. debt/equity around 40%. Balance sheet looking stretch. Avoid until the debt has been paid off.

Altria Review

Cigaratte company, owns Marlboro as a main brand and other non-combustible type of cigarrates such as E-Vap, IQOU, JUUL patch. Also own companies such as AB INBEV (largest beer company)/ 10% share and  cannibodiol company to take advantage of the growing legalization of marijuana in USA and various countries.

Falls under the FACTOR categories of >10 year dividends and value.

Business is sticky in nature since people are addicted to tobacco. Major risk is government policy in view of potential health risk of tobacco and marijuana.

Trend of smoking is not good as company is registering steady decline of 3-5% every year. However, the revenue still manage to stay relatively flat. If new products are able to counter the traditional products decline, company business will be better.

High margin and cash flow generation business hence supporting its consistent dividend payout which is currently near 80% of EPS.
Latest quarter interest coverage of ~8x on operating income and 6x on net profit.
Gross margin is high at 50% with net profit margin of 30%.
Management forecast 2019 EPS to be $4 which translates to a PE ratio of 10x appearing to be attractive under current rich valuation of general market. Yield is ~6-7% which is attractive.

Long term debt is 27B vs short term debt of 2B and cash holding of 1.8B. Long term assets mainly backed by investments in equity securities of 32B and goodwill/intangible assets of 17B which is easy target for impairment. Total debt/ebita is 2.8x.

Doesn't look stretch in terms of ability to pay off interest with cash generation.
Debts are pretty well stretch out with every year's payoff of 4-5B with fixed interest rate.
Operating cash flow per year is 3-6B. There is ample ability to pay off the interest requirements.

They just spent 12B to purchase JUUL which is a huge bet in future vaping industry. With recent news of people dying of vaping, it may hit on their business. JUUL is likely overvalued since it is a startup. Future impairment of goodwill is possible if JUUL does not live up to standard. This deal appears to be largely finance by debt.

Altria is a falling knive. Be careful!
https://seekingalpha.com/article/4291598-altria-falling-knife

Better think twice. Observe more first. Dont bet against secular trend. Unless the price drop is drastic enough to make it valuable. Poor steward of capital with JUUL purchase which is vastly overpaid.
Potential merger with Philip Morris may further increase their debt and weaken their balance sheet.

BTTGY Review

British Telecom stock price beaten badly. Corrected almost 50% for the past 3 years. Mainly due to potential of cutting dividend for investment in 5G network which CAPEX has been lax,.
Based on valuation model on a 75% cut in dividend, still indicate pretty attractive valuation at current price and discount to fair value is much larger than historical median of 22% indicating market is unduly punishing the stock. If Mean Reversion is true, we will expect the fair value gap to be closed. Need to look more on the annual report before committing fresh funds

Jardine Matheson Holdings

Conglomerate with exposure to greater China and Southeast Asia. Basically it’s an ETF that holds dairy farm, Jardine c&c, Hong Kong land, mandarin oriental, astra and other non listed business. It is widely diversified and take part in Everyday business which a typical economy will need such as retail property automobile finance construction hotel etc. Pays a decent dividend out of its cash flow. Current yield is 3 percent and historical trend points to a growing dividend policy. Price is corrected from recent high. Trading at below book value. 40B market cap. Not easy to fail since it is prudently managed. There is some debt but not so high. If want to buy a Jardine company, this should be the one to go.

OKP Review

https://www.drwealth.com/okp-holdings-is-undervalued/

Good analysis from Dr Wealth. Go through the annual report for more in depth understanding before taking action. Paying 5 percent yield now. Trading at less than asset value.

Classic graham style stocks. However experience with such stocks are not good as they take a long time to recover to its fair value before your patience run out. Also, when the market is correcting and tanking, its price action tends to be more volatile. Best time to buy is during depressed conditions.
Current market is not depressed enough.

Like its balance sheet strength but business nature is cyclical and project base even though they have classified road works as maintenance type which is recurring, it is still considered as project based.

We shall keep this in watchlist for future actions.

Carnival PLC CUK_CCL Review

Largest Cruise operator. Listed both in NYSE and LSE. 2 counters listed in NYSE which is CUK (ADR) and CCL. We will be looking at CUK since it is offering a higher yield and potentially without withholding tax since it is a UK listed company.

Good valuation numbers and overall score. Not yet reach 30% discount. Currently at 25%.
Entry point at $40. Need to look at its annual report for more clarity.
Currently indicating a low debt financed business with good cash flow sustaining a 4% dividend yield. Strong Moat in terms of brand recognition and huge barrier of entry (not everyone can go and buy a cruise ship easily and start competing with Carnival). Their business have various brands that cater to different market segment.

Not sure of IMO impact, potentially higher fuel cost if ship need to burn LSFO.
If general economy weaken, lesser tourist will go on cruise which is not cheap. There is sign of general economy weakening. Potentially will impact their business performance in future.
Dividend maybe cut if the FCF is not enough.
Capital intensive business though their ROE and net profit margin is respectable at teens level indicating that it is not in a low margin business.
Brexit may not have an impact to this UK listed company in view of its global operation.

In terms of historical valuation, it is trading near historical low at 26% vs 10 year median level of 22%. The lowest point is 50% in 2008/09 during GFC but thereafter rebound strongly. During that time, price drops to 20s indicating a 50% drawdown from current price. This is the worst case scenario volatility that we can expect. Even during that period, company did not make loss and still pays a dividend.

1.2B in cash, short term debt of 2B vs long term debt of 9B and shareholder equity of 24B.
Interest coverage is ~7-8x on net profit basis. Revenue increase but Onboard and fuel cost increase much more leading to lower profitability. Operating margin is ~10% while net profit margin is 7-8%.
Interest expense is 200MM versus net income of ~1.6B and dividends of 1.4B.
Operating cash flow is ~5.5B vs CAPEX of 3.5B. dividends can be financed from FCF.
Going forward, forecast CAPEX requirement is 6.7 , 5,7, 5.9, 5.3 every year from 2019 to 2022 leading to annual capacity increase of 4.5-7.3% with new ship growth.
The operating cash flow need to cover the above CAPEX requirement else more debts are required.
Current long term debt are evenly spread out from 2021 to 2030. Near term big maturity is at 2022 with 2B of debt maturity and 1.2B at 2023.
Total new ship growth capital expected is 19B from 2019 to 2023 for 5 years versus operating cash generation of ~5-6 B per year. The cash generation capability will largely finance the new ships without huge amount of debt. Dividends payout and share buybacks need to be measured/controlled to avoid taking on more debts.
New ships are larger and more efficient and replace the older fleets. Their fleet size does not increase much and stay near to 100 for the past 5 years while growing the overall passenger capacity and passenger carried which is a good sign.

Sold WDC and CPB

Sold WDC (25% gain) and CPB (12% gain). Selling winners to hold more cash in portfolio for risk mitigation against potential market pro-long correction.
Bought SNP which is beaten down and offer good dividend yields.
Actively building dividend yielding portfolio predominantly with foreign stocks with low withholding tax rates. Although this strategy appears to be weak compared to the US stock market rising while overseas market got beaten.

This is mainly due to FOREX exchange and other countries' being weaker. However, in terms of valuation, foreign markets appears to be more attractive compared to USA.

Stick to good value proposition and trust your system. Over long term, we should get meaningful returns. Don't panic in front of roller coaster ride.