Friday, October 11, 2013

Long Term Stock - #1 Paint Company in Kenya, Uganda and Tanzania

As trillions of dollars are chasing the opportunities at the speed of light, this results in drying up on obvious bargains amongst market leaders.

Above normal returns, then can be made in industries which are neglected, geographies that are considered unsafe, companies below a certain size/revenue threshold, or markets where trillions of dollars are not allowed to come in. If money is allowed to flow freely, then even in countries with abject poverty, leading stocks trade at 40+ PE multiple.

You may have appreciated numerous 100 year charts with breakdown of equity CAGR returns segmented by market cap. And, that companies with greatest market cap perform almost predictably below mid cap, which are further out flanked by small caps. What skips the instant analysis is that Large cap are dozens, mid cap in scores, and small caps in hundreds. That is, 100 out of 500 midcaps may have been decimated, which no longer feature in any 100 year chart. If you invested in 20 small caps out of which 10 did not survive, then then personal returns as elucidated by charts would prove to be a mirage. Therefore, one needs to diversify to a larger extent with small/mid caps.

For an investor with 10 stock portfolio, either conviction in small cap has to be unshakable (which is always the case when one begins investing :)), as a general guideline one should invest in leaders in an industry niche or geography for long term investing. Wouldn't it be better though - if a leader is also available at small cap valuations. If not in India or New Zealand, who cares.

-----------------------------------------------------------------------------------------------

Enough is said about raising opportunity cost. Any foreign investor is able to invest freely in Kenya. In India you get leading paint company (Asian Paints) at a market cap of 5 times annual revenues and even #2 and #3 players (Akzo and Berger) at 2 times annual revenues.

Crown Paints Kenya (www.crownpaints.co.ke) (formerly Berger Kenya), similar in stature in product line, industry offerings, present in Decorative, Industrial, Commercial, Marine and more segments is available 1 time annual revenues.

- #1 company in the Country
- Now also rapidly expanding in Uganda, Tanzania and other East African countries.
- Promoted by Crown Paints of UK, (www.crownpaint.co.uk), now a part of 200 year old Danish Hempel Group, #2 worldwide in Marine Paints www.hempel.com
- Available at 10 PE ratio
- With no Debt
- Cash flows as good as Net profits
- With much room for improvement in profit margins
- With products from Crown, Dupont and Hempel

Five year performance:

100% returns in 2012 and over 57% in 2013 until September


















Financial dissection, so dear to an analysts heart can be downloaded and broken down in threadbare detail from here.
Something you may not have read in any Indian annual report for years now, because such magnitude of inefficiency and disequilibrium does not exist in Indian companies, such as 9% productivity growth in one year that Crown experienced.

Risks: Geography and Currency Risk.

Disclosure: I and my family/friends may have positions here