Good balance sheet, net cash position with current ratio despite being a commodity type of company which supply steel pipes to the energy industry. Despite making a loss in 2016-2017, they still maintain dividends payout. Payout ratio is around ~50% at 4% yield. Due to net cash position, company has enough buffer to pay dividends every year even if free cash flow for the year is inadequate.
Global diversified business with 50% of revenue from USA. 20% in Latin america. 10% in europe, 20% in middle east and africa. <5% in Asia Pac.
Monday, October 21, 2019
Wednesday, October 16, 2019
VIAB and CBS Review
VIAB and CBS will be merged with CBS buying VIAB in all stock issue with VIAB S/H receiving 0.59625 CBS per VIAB share.
https://www.cnbc.com/2019/08/13/cbs-and-viacom-reach-merger-deal.html
The deal is expected to be closed by end 2019 subjected to approval by the free market commission in USA. This deal also ends the several years battle within the controlling shareholder. It will be run by Shari redstone and CEO will be Bob Bashi who has a good digital strategy to transform viacomCBS. For example, they have purchased pluto.tv which is >20 MM subscribers as of now.
With its slew of content, they will be able to compete with big companies like Warner, Disney, Comcast and Netflix etc. An article by forbes reported the details of this saga.
https://www.forbes.com/sites/dawnchmielewski/2019/10/02/exclusive-for-the-first-time-shari-redstone-tells-her-side-of-the-battle-to-merge-viacom-and-cbs/#7aef3b86423c
One interesting chart shows the comparison between CBSviacom and the various competitors in terms of market valve and sales. Only CBSviacom is trading near its sales value compared to the rest which is trading a high multiples.
AT&T is at 1.6x, Net Margin = 10-12% / ROE = 10-12%
Disney at 4x NM = 20% / ROE = 20%
Comcast at 2x NM = 10-12% / ROE = 16-18%
Netflix at 10x NM = 6-8% / ROE = 20-25%
CBSViacom at 1x NM = 10-12% / ROE = 25-30%
Based on the above comparison, it appears CBSvia is trading at lower multiples despite being profitable with good cash flow generation and comparable net profit margin and ROE.
If market rerate it with similar multiples, it will be easily a 100-200% return from current price and with its small size, it also becomes a good take over target to be acquired by the bigger companies such as disney or AT&T.
CBS current operating interest coverage is ~6-7x , long term debt of 9B, no short term debt and cash of 216MM. average debt interest is 4.4%. Debt is spread out till 2045 with the next 5 years debt maturity of 2B to be fully funded by cash flow of $1-2B per year. Liquidity not an issue.
VIAB current operating interest coverage is ~6x, long term debt of 8.6B, current debt of 320MM and cash of 722MM. Operating cash flow is ~2B per year while dividend payout is 400M. Debt is evenly space out until 2057 with yearly maturity of 300-500MM with every 5-10 year interval of 1B repayment. The yearly cash flow generation is able to pay down the debt. Average interest rate is 5% No issue with liquidity.
Both companies balance sheet is not stretched by any nature and the cash flow generation is adequate to finance the interest expense. With the merger, there will be synergy and cost savings which will further improve the finance.
Valuation is also not compelling. VIAB P/E ratio is less than 10 indicating future potential rerating in price. with CBS merging with VIAB, it is buying a undervalued company which in turns will boost its future share price when market rerate the combined balancesheet and earning power.
CBS is of higher valuation compared to VIAB.
Estimate VIAB intrinsic value is 32-52 versus current price of 23 which indicates high level of margin of safety. good chance to buy now for future upside.
Estimate CBS intrinsic value is 40-70 versus current price of 38.5. Either way, both company appears to be undervalued.
Buy VIAB as it is over lower valuation. Post merger, combined entity will have potential price catalyst
https://www.cnbc.com/2019/08/13/cbs-and-viacom-reach-merger-deal.html
The deal is expected to be closed by end 2019 subjected to approval by the free market commission in USA. This deal also ends the several years battle within the controlling shareholder. It will be run by Shari redstone and CEO will be Bob Bashi who has a good digital strategy to transform viacomCBS. For example, they have purchased pluto.tv which is >20 MM subscribers as of now.
With its slew of content, they will be able to compete with big companies like Warner, Disney, Comcast and Netflix etc. An article by forbes reported the details of this saga.
https://www.forbes.com/sites/dawnchmielewski/2019/10/02/exclusive-for-the-first-time-shari-redstone-tells-her-side-of-the-battle-to-merge-viacom-and-cbs/#7aef3b86423c
One interesting chart shows the comparison between CBSviacom and the various competitors in terms of market valve and sales. Only CBSviacom is trading near its sales value compared to the rest which is trading a high multiples.
AT&T is at 1.6x, Net Margin = 10-12% / ROE = 10-12%
Disney at 4x NM = 20% / ROE = 20%
Comcast at 2x NM = 10-12% / ROE = 16-18%
Netflix at 10x NM = 6-8% / ROE = 20-25%
CBSViacom at 1x NM = 10-12% / ROE = 25-30%
Based on the above comparison, it appears CBSvia is trading at lower multiples despite being profitable with good cash flow generation and comparable net profit margin and ROE.
If market rerate it with similar multiples, it will be easily a 100-200% return from current price and with its small size, it also becomes a good take over target to be acquired by the bigger companies such as disney or AT&T.
CBS current operating interest coverage is ~6-7x , long term debt of 9B, no short term debt and cash of 216MM. average debt interest is 4.4%. Debt is spread out till 2045 with the next 5 years debt maturity of 2B to be fully funded by cash flow of $1-2B per year. Liquidity not an issue.
VIAB current operating interest coverage is ~6x, long term debt of 8.6B, current debt of 320MM and cash of 722MM. Operating cash flow is ~2B per year while dividend payout is 400M. Debt is evenly space out until 2057 with yearly maturity of 300-500MM with every 5-10 year interval of 1B repayment. The yearly cash flow generation is able to pay down the debt. Average interest rate is 5% No issue with liquidity.
Both companies balance sheet is not stretched by any nature and the cash flow generation is adequate to finance the interest expense. With the merger, there will be synergy and cost savings which will further improve the finance.
Valuation is also not compelling. VIAB P/E ratio is less than 10 indicating future potential rerating in price. with CBS merging with VIAB, it is buying a undervalued company which in turns will boost its future share price when market rerate the combined balancesheet and earning power.
CBS is of higher valuation compared to VIAB.
Estimate VIAB intrinsic value is 32-52 versus current price of 23 which indicates high level of margin of safety. good chance to buy now for future upside.
Estimate CBS intrinsic value is 40-70 versus current price of 38.5. Either way, both company appears to be undervalued.
Buy VIAB as it is over lower valuation. Post merger, combined entity will have potential price catalyst
Wednesday, October 9, 2019
ABB Review
No longer Oil and Gas dominated. Review from O&G + Chemicals now makes up 14% of company's revenue. Company is positioning itself for the Electrified world with main markets in Electification, Automation, Robotics, and motion which are the future trends.
Company's customers are diversified across various industries and various geography.
Its equally split between asia, europe and americas.
In essence, it will become a proxy for global economy performance.
Operating EBITA margin around 11%
Finance expense is 200MM per year vs net income of 1200MM. Interest coverage of 6x which appears to be OK.
Cash on hand is 2.5B vs short term debt of 2.4B and long term debt of 7.9B and equity of 13B.
Negative cash flow for 1H 19 vs dividend paid out of 1.6B. Dividend sustainability is questionable.
Need to look at full year performance before further actions.
KIV.
Company's customers are diversified across various industries and various geography.
Its equally split between asia, europe and americas.
In essence, it will become a proxy for global economy performance.
Operating EBITA margin around 11%
Finance expense is 200MM per year vs net income of 1200MM. Interest coverage of 6x which appears to be OK.
Cash on hand is 2.5B vs short term debt of 2.4B and long term debt of 7.9B and equity of 13B.
Negative cash flow for 1H 19 vs dividend paid out of 1.6B. Dividend sustainability is questionable.
Need to look at full year performance before further actions.
KIV.
Sunday, October 6, 2019
HSBC Review
120 B Market Cap bank with quarterly profit of around 4B. Annual profit of 16B. P/E ratio less than 10. Cheap for a bank.
14% Tier 1 ratio. Similar to BCS. Positive JAWS indicating growing income vs declining costs. which is a good trend.
Payout ratio = 50%. Current price is $UK 6 vs NTB of $US 7. Trading close to book valve indicating market confidence in the bank vs BCS and other european banks which trade often at a big discount to book valve.
14% Tier 1 ratio. Similar to BCS. Positive JAWS indicating growing income vs declining costs. which is a good trend.
Payout ratio = 50%. Current price is $UK 6 vs NTB of $US 7. Trading close to book valve indicating market confidence in the bank vs BCS and other european banks which trade often at a big discount to book valve.
Wednesday, October 2, 2019
Aviva Review AVVIY
UK Insurer. Business in Life and General segment with main contributor from Life Insurance.
Good solvency ratio at 194% above target range of 160-180%. Stable balance sheet; upgraded to AA- by S&P. Liquidity measured by centre cash is good which support deleveraging plan.
Cost cutting in progress to reduce operating expenses and full review of group and business strategy in progress. Sold Asian operation which will yield some net returns and further boost the balance sheet strength. Net debt is current 300M vs centre cash of 2.3 B
Consistent dividend payment for last 3 years and is progressing increasing. Current yield is ~7% which is attractive.
Interest coverage is 8x based on operating profit which is healthy and show signs of increasing compared to FY18. Current price is close and slightly lower than NAV of $4.3 pound.
Low risk asset portfolio and well diversified into mainly bond and debt assets. decreasing leverage from 37% in 2016 to 29% currently, reducing interest expenses, driving higher future profit with stable and good ratings from the agency.
Debt maturity is well spaced out with average of 500-800M yearly from 2020 to 2038 onwards. Year 2021 will have 900M maturity and 1.3B maturity in 2022. Total debt on hand is ~7B vs shareholder assets of 92B. Does not appear to be overstretch in terms of leverage.
Majority of business still comes from UK. Probably affected by Brexit.
Good solvency ratio at 194% above target range of 160-180%. Stable balance sheet; upgraded to AA- by S&P. Liquidity measured by centre cash is good which support deleveraging plan.
Cost cutting in progress to reduce operating expenses and full review of group and business strategy in progress. Sold Asian operation which will yield some net returns and further boost the balance sheet strength. Net debt is current 300M vs centre cash of 2.3 B
Consistent dividend payment for last 3 years and is progressing increasing. Current yield is ~7% which is attractive.
Interest coverage is 8x based on operating profit which is healthy and show signs of increasing compared to FY18. Current price is close and slightly lower than NAV of $4.3 pound.
Low risk asset portfolio and well diversified into mainly bond and debt assets. decreasing leverage from 37% in 2016 to 29% currently, reducing interest expenses, driving higher future profit with stable and good ratings from the agency.
Debt maturity is well spaced out with average of 500-800M yearly from 2020 to 2038 onwards. Year 2021 will have 900M maturity and 1.3B maturity in 2022. Total debt on hand is ~7B vs shareholder assets of 92B. Does not appear to be overstretch in terms of leverage.
Majority of business still comes from UK. Probably affected by Brexit.
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