https://kohls.gcs-web.com/static-files/69bb5ef4-94be-4108-9565-ea19aa1e76d8
Low valuation due to retail doom. Company is still making money and forecast EPS is $4.5 for 2019.
Debt is not excessive with interest coverage of ~4x based o operating profit and 6x on op cash.
Debt is eventually spaced out with next debt maturity of 530MM in 2023, 650MM in 2025 and the next big one is 427MM at 2045. In between is small amount maturity which can be handled by its cash holdings. total long term debt is 1.8B vs cash of 0.5B and equity of 5.3B. 9M operating cash flow is already 1B indicating its strong cash generation ability. Company is also actively paying down debt and engaging in the digital transformation which will pay fruits in future. The revenue drop is stablised but profit is lowered due to these investment.
Current valuation is not compelling and is a good entry point. Property and fix assets is 7B indicating a good source for unlocking value should management decide to sell off their assets.
Dividend payout is ~60% on net profit with yield of ~5% which is attractive.
Showing posts with label US Stocks. Show all posts
Showing posts with label US Stocks. Show all posts
Monday, January 13, 2020
DTEGY DEUTSCHE Telecom Review
https://www.telekom.com/en/investor-relations/publications/financial-results-2019#559390
Net debt: EUR 78.8 B which increase 42% a year ago mainly due to accounting principle change not because of company taking in new debt.
9M Operating Profit = 7.6B vs interest net expense of 1.8B
Interest coverage = 4x vs 5x in 2018 --> worsening financing ability
9M Operating Cash flow = 17.5B and FCF = 7.5B
Dividends Payout = 3.5B --> Coverage ratio is good. Not overpaying S/H. Dividend safety is high.
Interest coverage in terms of FCF and Operating Cash flow is much higher.
Overall no financing issues. Ability to pay banks and S/H is there.
Total Cash on Balancesheet = 6.4B vs ST Debt = 14B and LT Debt = 55B and LT Lease = 16B
20B debt expire within 5 years while 35B will expire beyond 5 years. No near term liquidity crunch as company's cash generation ability is there.
Net debt: EUR 78.8 B which increase 42% a year ago mainly due to accounting principle change not because of company taking in new debt.
9M Operating Profit = 7.6B vs interest net expense of 1.8B
Interest coverage = 4x vs 5x in 2018 --> worsening financing ability
9M Operating Cash flow = 17.5B and FCF = 7.5B
Dividends Payout = 3.5B --> Coverage ratio is good. Not overpaying S/H. Dividend safety is high.
Interest coverage in terms of FCF and Operating Cash flow is much higher.
Overall no financing issues. Ability to pay banks and S/H is there.
Total Cash on Balancesheet = 6.4B vs ST Debt = 14B and LT Debt = 55B and LT Lease = 16B
20B debt expire within 5 years while 35B will expire beyond 5 years. No near term liquidity crunch as company's cash generation ability is there.
Monday, December 9, 2019
PHI (PLDT) Review
http://www.pldt.com/docs/default-source/presentations/2019/9m2019-presentation_final.pdf?sfvrsn=0
Share price keep tanking despite profitability. Market cap of ~4.5 B vs net debt of 2.9B. Debt is equally space out yearly with ~10% matured every year. Cash balance is 0.5B vs gross debt of 3.5B.
Interest payment is ~170MM annually based on 4.8% average interest rate. Net debt/ EBITDA is 2x indicating EBIDTA is 1.45B and interest coverage of 8.5x which is healthy.
The debt covenant of Net debt/Ebidta is 3x which will be raised to 4x after company seek for waiver for future debt raised for CAPEX spending. Currently, there is a big margin to hit the limit.
Debt/Equity is high and > 1. Company bonds is currently investment grade.
Dividend yield is 6.9% based on morningstar quote indicating 300MM of dividend payment with market cap of 4.5B.
2019 CAPEX is 78B peso which is 1.6B USD which is higher than is EBIDTA. Based on 2011-2019, total CAPEX spent is 369B peso which is 7.4B and roughly 0.9B per year.
Assuming the same level of CAPEX spending going forward and an annual EBIDTA of 1.45B, Free cash flow is 0.55B and minus off interest expense, there is ~400MM available for dividend payout.
If the CAPEX investment leads to higher EBIDTA generation (high margin of ~50%), we can expect the dividend to be sustained or increased in future. current yield looks attractive based on the growth rate and PE ratio of 12x and Market cap/EBIDTA of 3-4x is not compelling.
Annual debt maturity is ~400MM. Company need to maintain the debt level or payoff with increase EBIDTA from its CAPEX.
Share price keep tanking despite profitability. Market cap of ~4.5 B vs net debt of 2.9B. Debt is equally space out yearly with ~10% matured every year. Cash balance is 0.5B vs gross debt of 3.5B.
Interest payment is ~170MM annually based on 4.8% average interest rate. Net debt/ EBITDA is 2x indicating EBIDTA is 1.45B and interest coverage of 8.5x which is healthy.
The debt covenant of Net debt/Ebidta is 3x which will be raised to 4x after company seek for waiver for future debt raised for CAPEX spending. Currently, there is a big margin to hit the limit.
Debt/Equity is high and > 1. Company bonds is currently investment grade.
Dividend yield is 6.9% based on morningstar quote indicating 300MM of dividend payment with market cap of 4.5B.
2019 CAPEX is 78B peso which is 1.6B USD which is higher than is EBIDTA. Based on 2011-2019, total CAPEX spent is 369B peso which is 7.4B and roughly 0.9B per year.
Assuming the same level of CAPEX spending going forward and an annual EBIDTA of 1.45B, Free cash flow is 0.55B and minus off interest expense, there is ~400MM available for dividend payout.
If the CAPEX investment leads to higher EBIDTA generation (high margin of ~50%), we can expect the dividend to be sustained or increased in future. current yield looks attractive based on the growth rate and PE ratio of 12x and Market cap/EBIDTA of 3-4x is not compelling.
Annual debt maturity is ~400MM. Company need to maintain the debt level or payoff with increase EBIDTA from its CAPEX.
Friday, November 29, 2019
TRIP Review
Online travel review company. Derive revenue from hotel bookings and advertisment placed on the websites.
Good balance sheet and cash generation capability with high ebitda margin. Not paying dividend yet.
Profitability is good though low net profit margin due to high investment and depreciation cost. Most of the cost is on marketing and general administration cost.
Marginal cost is low as it is website based business.
High P/E ratio but low P/Cash flow ratios indicating its cash generation capability.
Fair value is estimated to be ~$45 indicating low valuation based on current price.
Good entry point although no dividend paid for holding the stock.
Good balance sheet and cash generation capability with high ebitda margin. Not paying dividend yet.
Profitability is good though low net profit margin due to high investment and depreciation cost. Most of the cost is on marketing and general administration cost.
Marginal cost is low as it is website based business.
High P/E ratio but low P/Cash flow ratios indicating its cash generation capability.
Fair value is estimated to be ~$45 indicating low valuation based on current price.
Good entry point although no dividend paid for holding the stock.
Tuesday, November 26, 2019
Macy's M Review
Hammered by the market.
https://www.barrons.com/articles/macys-stock-plunged-after-the-department-store-chain-reported-a-huge-earnings-miss-51565790916
https://www.fool.com/investing/2019/08/26/macys-stock-could-triple-over-the-next-few-years.aspx
https://content-az.equisolve.net/_036737fe772bd81ce2af3dfcdcbbe121/macysinc/db/490/5730/file/Q3+2019+Balance+Sheets.pdf
https://www.macysinc.com/investors/financial-information/financial-results
Debt and coverage ratio still in tact, no signs of liquidity crunch. Company still making money with low valuation. P/E less than 8x which is attractive. Various initiatives in place for future growth.
Actively paring down debt also. Future has higher chance of being brighter than gloomier. Buy a stake at current weakness.
https://www.barrons.com/articles/macys-stock-plunged-after-the-department-store-chain-reported-a-huge-earnings-miss-51565790916
https://www.fool.com/investing/2019/08/26/macys-stock-could-triple-over-the-next-few-years.aspx
https://content-az.equisolve.net/_036737fe772bd81ce2af3dfcdcbbe121/macysinc/db/490/5730/file/Q3+2019+Balance+Sheets.pdf
https://www.macysinc.com/investors/financial-information/financial-results
Debt and coverage ratio still in tact, no signs of liquidity crunch. Company still making money with low valuation. P/E less than 8x which is attractive. Various initiatives in place for future growth.
Actively paring down debt also. Future has higher chance of being brighter than gloomier. Buy a stake at current weakness.
ALB Review
Free cash flow by 2021. Current debt/equity is ~50%. Interest coverage is ~10x which is good.
CAPEX for Lithium mines for future demand in battery. Post 2021 when the mines are up and running, the cash will flow in.
Consistent dividend payout for the last 25 years. Balance sheet is slightly leverage but not excessive and appears to be typical. Debt maturity is not very stretch out. Total debt is ~1.7B with 1B maturing within next 3 years.
As long as future electrification of global economy is on the way, demand of lithium will continue and pin company's growth which is no1 in the market. There are other business in catalyst and bromine market which they are No2. Those business has lower EBITA margin than lithum but is still good at >20% while lithium is close to 30%.
For a commodity company, the overall margin of >10% appears to be good.
2019 2Q report
https://investors.albemarle.com/static-files/85bbe6f3-47e7-4df4-9825-8396d65305a0
CAPEX for Lithium mines for future demand in battery. Post 2021 when the mines are up and running, the cash will flow in.
Consistent dividend payout for the last 25 years. Balance sheet is slightly leverage but not excessive and appears to be typical. Debt maturity is not very stretch out. Total debt is ~1.7B with 1B maturing within next 3 years.
As long as future electrification of global economy is on the way, demand of lithium will continue and pin company's growth which is no1 in the market. There are other business in catalyst and bromine market which they are No2. Those business has lower EBITA margin than lithum but is still good at >20% while lithium is close to 30%.
For a commodity company, the overall margin of >10% appears to be good.
2019 2Q report
https://investors.albemarle.com/static-files/85bbe6f3-47e7-4df4-9825-8396d65305a0
Monday, October 21, 2019
TS Review
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.
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.
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.
Sunday, September 29, 2019
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.
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.
Tuesday, September 24, 2019
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.
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.
Friday, September 20, 2019
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.
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.
Wednesday, September 18, 2019
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
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
Sunday, September 1, 2019
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.
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.
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.
Monday, August 26, 2019
Sinopec (SNP) Review
Appears to be low valuation with low debt ratio. Net cash position (167MM RMB cash vs 120 debt) compared to general oil and gas company. High interest coverage ratio > 10x, (20x for Ebita/expense) No indebtness and liquidity issue.
Good cash flow generation. OPS cash is 2x of net profit. CAPEX is ~0.5x of OP cash indicating good free cash flow generation. Dividend payment is sustainable as it is close to or lower than FCF.
Payout ratio based on net profit is > 50% and dividend payout is consistently growing.
A good trend is company's debt level has been gradually decreasing with company consistently pay down debt resulting in lower finance expense and free up more cash for returning to shareholders.
Yield is ~7% based on listing in HKEX.
Business covers the whole supply chain from upstream exploration to refining to pet-chem, sales and distribution.
Oil and gas exploration is losing money while other segments are making money
1Q 2019, E&P swing to positive. Other sectors remain positive growth while refining business register negative growth with lower refining margin as experienced globally. One good thing is they also manage the cost well with lower operating cost. Overall still making money.
They register negative operating cash flow and increase debt to finance CAPEX. Balance sheet is still sound. However, if this continues, it will be a red flag.
New accounting standards applied also. Appears to be one-time for some of the costs.
In short, company appears to be defensive still.
State-own company with >70% shares
Dividend pay out history:
Assuming $5 payout per year, the yield will be close to 8-9% which is attractive.
The numbers are quite good indicating low valuation based on historical P/E, dividend, P/B, P/cash ratios as well as DCM and earning power valuation models.
Main reason for price correction is due to trade war concerns with USA. Things may get nasty.
Worst case scenario, chinese companies maybe sanctioned and listing in USA maybe affected. vs potential price rerating when the situation improves.
The assumption that company will continue to pay does not depend on company performance only. Need to consider political factors as well.
Share price may test 2014 low point at $40 indicating a ~30% drawdown. Be prepare to endure the volatility should we enter a position soon.
https://www.dividend.com/dividend-stocks/basic-materials/independent-oil-and-gas/snp-china-petroleum-and-chemical-corp/
Good cash flow generation. OPS cash is 2x of net profit. CAPEX is ~0.5x of OP cash indicating good free cash flow generation. Dividend payment is sustainable as it is close to or lower than FCF.
Payout ratio based on net profit is > 50% and dividend payout is consistently growing.
A good trend is company's debt level has been gradually decreasing with company consistently pay down debt resulting in lower finance expense and free up more cash for returning to shareholders.
Yield is ~7% based on listing in HKEX.
Business covers the whole supply chain from upstream exploration to refining to pet-chem, sales and distribution.
Oil and gas exploration is losing money while other segments are making money
1Q 2019, E&P swing to positive. Other sectors remain positive growth while refining business register negative growth with lower refining margin as experienced globally. One good thing is they also manage the cost well with lower operating cost. Overall still making money.
They register negative operating cash flow and increase debt to finance CAPEX. Balance sheet is still sound. However, if this continues, it will be a red flag.
New accounting standards applied also. Appears to be one-time for some of the costs.
In short, company appears to be defensive still.
State-own company with >70% shares
Dividend pay out history:
Assuming $5 payout per year, the yield will be close to 8-9% which is attractive.
The numbers are quite good indicating low valuation based on historical P/E, dividend, P/B, P/cash ratios as well as DCM and earning power valuation models.
Main reason for price correction is due to trade war concerns with USA. Things may get nasty.
Worst case scenario, chinese companies maybe sanctioned and listing in USA maybe affected. vs potential price rerating when the situation improves.
The assumption that company will continue to pay does not depend on company performance only. Need to consider political factors as well.
Share price may test 2014 low point at $40 indicating a ~30% drawdown. Be prepare to endure the volatility should we enter a position soon.
| 2019-05-31 | $3.4697 | |
| 2018-09-05 | $2.0821 | |
| 2018-05-24 | $5.6345 | |
| 2017-09-18 | $1.3313 | |
| 2017-07-14 | $2.2222 |
https://www.dividend.com/dividend-stocks/basic-materials/independent-oil-and-gas/snp-china-petroleum-and-chemical-corp/
Wednesday, July 31, 2019
CHU China Unicom --> Observe / 23% discount
China telco with low debt/equity relative to typical telco.
Free cash flow generation is good with low dividend payout ratio indicating future potential for higher dividend payout.
Share price is beaten till its multi-year lows.
CAPEX to invest on mobile network and other necessary infrastructure is largely financed from FCF instead of debt indicating prudent management and sustainability.
2018 finance income is larger than interest cost. If dont consider finance income, the interest coverage on net profit basis is 6x, 50x on OP Cash basis and 25x on FCF basis. This indicates business has little liquidity risk as it can largely finance its debt.
Long term bank loan is 3B RMB and short term bank loan is 15B RMB + corporate bond of 16B RMB versus cash balance of 30B RMB. The bonds will expire in 2019. There are some liquidity strain if company cannot find cash to pay off the bonds.
Annual dividend payout is 4.1B indicates very low payout ratio at current yield of <2%. Room for future increase is high.
Company actively paydown debt leading to lower debt.equity ratio and lower finance cost with better interest coverage ratio.
Free cash flow is 40B per year vs short term loan of 15B. In terms ability to repay debt, the company is in good shape, they can repay debt easily even after paying the dividends.
Currently is undervalued by not deep enough. Wait until beyond 30%. discount.
Free cash flow generation is good with low dividend payout ratio indicating future potential for higher dividend payout.
Share price is beaten till its multi-year lows.
CAPEX to invest on mobile network and other necessary infrastructure is largely financed from FCF instead of debt indicating prudent management and sustainability.
2018 finance income is larger than interest cost. If dont consider finance income, the interest coverage on net profit basis is 6x, 50x on OP Cash basis and 25x on FCF basis. This indicates business has little liquidity risk as it can largely finance its debt.
Long term bank loan is 3B RMB and short term bank loan is 15B RMB + corporate bond of 16B RMB versus cash balance of 30B RMB. The bonds will expire in 2019. There are some liquidity strain if company cannot find cash to pay off the bonds.
Annual dividend payout is 4.1B indicates very low payout ratio at current yield of <2%. Room for future increase is high.
Company actively paydown debt leading to lower debt.equity ratio and lower finance cost with better interest coverage ratio.
Free cash flow is 40B per year vs short term loan of 15B. In terms ability to repay debt, the company is in good shape, they can repay debt easily even after paying the dividends.
Currently is undervalued by not deep enough. Wait until beyond 30%. discount.
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