Tuesday, December 24, 2013

20 Year Investment as envisaged in 2013

Maybe this post should be on my notebook as a  mind-map instead of a post.

I have been trying to replay the scenario in my mind over and over, at-least few thousand times in the past 1-2 months as to what should be one's biggest financial investment, all debt free and leaders for over 25 years in their region. 

Unilever Nepal (9% div yield, 10 PE), GSK Bangladesh (2-3% Div Yield, 25PE), Crown Paints Kenya (3% Div Yield, 10 PE), Steamships Trading (4% Yield, 17 PE). There is Gillette Pakistan where it is hard to open SCRA (Special Convertible Rupee Account) for non-institutions. Akzo Nobel (Worlds largest Paint Company http://www.wpcia.org/news/2012report.html) is selling for a song at just 10 times earnings in Pakistan too.

Based on adjusted population I feel the maximum potential to expand is with GSK Bangladesh followed by Akzo Nobel Pakistan. Chances of lowest loss are with Unilever Nepal and GSK Bangladesh.

Many random probabilities run through the mind making final choice harder. Bangladesh has a precarious balance with sea level but 2.5% of worlds population offering a global 130 Billion USD company at 800 Crores INR. This is cheap on global average by about 31 times. Seemingly cheap Unilever Nepal is only 7 times undervalued. If Bangladesh merely reaches mid point/average of world price appreciation can be 31 fold over next 20 years. Nepal has no such issues with rising sea level snowballed by global warming but is home to only 0.5% of worlds population. (Am I the the brutal Capitalist silently praying for increased fertility rate ?)

130 Billion USD (GSK) * 2.5% Bangladesh population =  25,000 crores. (Current market cap 800 Crores INR) (Remember we are not expecting Bangladesh, Nepal, Pakistan, India to become economic equivalent of West but just world average). 31 times undervalued

Some companies may have exhausted their easy potential. eg: Unilever India.

120 Billion USD (Global Unilever) * 17% India population = 122,000 crores (Current market cap 122,000 Crores INR), i.e. already at world average. Not undervalued

206 Billion USD (Global Nestle)  * 17% India population = 210,000 crores ( Current market cap of 52,000 crores INR). 4 times undervalued

One would tend to think that at this rate Nestle globally at 206 Billion USD is relatively cheaper (in India at 52,000 Crores) to Unilever in terms of its potential.

120 Billion USD (Global Unilever) * 0.5% Nepal population = 3600 Crores (Current market cap 500 Crores INR). 7 times undervalued

Some companies may quite look expensive at 45 times earnings but need not necessarily be. eg: RECKITT BENCKISER Bangladesh is undervalued on population adjusted metric by 30 times as well. I believe it to have greater latent potential but not much growth as yet . I prefer consumer brands to prescription pharma - natural tendency to consume for a life time vs fickleness of regulator and lawsuits. GSK has made it clear that it would operate only 6-7 large brands whereas RECKITT is building more muscle in consumer category with 19 power brands. Interesting interview http://businesstoday.intoday.in/story/reckitt-benckiser-global-ceo-rakesh-kapoor-interview/1/191047.html

RECKITT is actually growing much rapidly in rest of the world relative to GSK but Bangladesh is not yet its focus. 

Number of times undervalued is only one part of the equation. Others are:

Absence of other leaders that have not yet entered the market

Seriousness of company to expand

Dividend Yield, prefer 70-100% payout ratio, small countries should be marketing outlets

Royalty (In India Unilever extracts profit in two ways, by dividend and royalty, not so in Nepal, all profits are extracted via Dividends !! Hence if you become a co-owner you get Royalty + Dividends in Dividend Payout, hence the 21% NPM of Unilever Nepal more than anywhere else)

Nestle or Agro Tech like food companies do not translate into like for like comparison due to varying foods habits of India vs West.

Tendency of company to acquire smaller companies and build assets

Market  Cap / Sales (GSK Pharma India 9 times, GSK Consumer India 6 times, GSK Global 4 times, GSK Bangladesh 1.5 times)

Then, there are googlies like Press Corp Malawi with a very diversified portfolio but dividend payout ratio is only 10% http://www.presscorp.com/

Although Malawi Kawach has depreciated 50% against USD in the last one year,results are astounding

They have tripled this year alone, still available at 10 times earnings. Inflation has reached 20%



Only 11 banks have a licence to operate in Malawi opposed to 100s of them in similar sized countries

Nice to have a problem of plenty for a change. Mind yearns for what isn't yet owned. I want Akzo Nobel just because account has not yet opened in Pakistan. A story comes to mind. Its about a young boy's interest for an ugly dog belonging to a neighbour. He kept  demanding for it despite offers of other pets with better appearance from his parents. Moral in his own words: ’Attachment is blinding. It lends an imaginary halo of attractiveness to the object of desire’ 

Saturday, December 21, 2013

Timing is important | GSK Consumer India - 10 years of negative returns

Its primarily NOT doing that it more important in terms of timing rather than clockwork precision of sports. 

Discipline of not buying for months, years, decades unless the price is right instead of buying it at the lowest possible price.

GSK is 130 Billion USD company globally even bigger than Unilever in terms of market cap. It dominates product niches yet what did GSK Consumer return between 1999 - 2009 ? negative 25% as opposed to Sensex returns of 600%.

10 Years of no growth in share price

 10 Years of below average growth in earnings

4 years of mediocre growth

Since 2009, no wonders have been accomplished. A mediocre 18% CAGR of sales. Extreme shortage of ideas, desperation amongst investors led to PE rerating to 40 times earnings. EPS in the past 4 years has only doubled yet the stock returned 8 fold.

So, making abnormal amounts money has three possible dimensions, EPS growth, PE re-rating and a potentially favourable exchange rate. First two are almost a requirement.

Monday, December 16, 2013

Multigenerational Investing Idea #4 and possibly #5

In continuation of investing in stocks for a lifetime (multi-generational investing), I have done sufficient research to bejewel Glaxo Smithkline Bangladesh with multi-generational proposition.

Previous Ideas that I am most confident about are Steamships Trading Company and Unilever Nepal. Gillette Pakistan is great but investing is hard for non-institutions. GSK Bangladesh isn't fourth in ranking, just numerical sequence in the series of posts. Again, any citizen the world over can invest in this opportunity. It does not appear cheap on the face of it in PE terms but super cheap in Markep Cap / Sales,  global average parameters and potential to expand.



Recently read about a person living out of trailer, unbeknownst to anyone had been acquiring Coca Cola shares for 10-15 years in 1980s. If you can go back to a country that looks like 1970s, you run a similar risk of getting rich.

Just when I thought I had found the best stocks ever and ready to invest in them for next 10-15 years, yet another opportunity falls into the lap with effortless ease. This might well again be the best opportunity to invest and surpass any other idea. Corporate Governance is unquestionable. Annual Report is a delight to read. A subsidiary of Heineken and franchisee of Coca Cola in Rwanda could well qualify for a multi-generational  investing idea. Available at 22 times annual earnings, not super cheap but not expensive either.  Feast your eyes on the Bralirwa's Annual Report

When was the last time you read, "Company has introduced a brand recently, which is now #3 position in the country, just after the first two brands also owned by us".

Recent Press Release from Bralirwa:

Underpinning this performance has been Bralirwa Ltd’s portfolio of brands.
1. Turbo King has been established in a short time as Rwanda’s number three beer brand behind our Mutzig and Primus

2. In the International Premium, segment our Heineken volumes doubled.
3. In soft drinks the appeal of our Coca Cola brands continues to drive sales growth.

Anyone should be able to invest in Rwanda through Stanbic Kenya.

PS: Invested in GSK Bangladesh, not yet in Bralirwa Ltd.

When Statistics Lie

Saw today a front page of report titled Motilal Wealth Creation Study. An abnormal amount
of national time and energy is spent on analyzing past successful stocks and funds.

I had recommended TTK Prestige in 2009 at 150 Rs here (not that I am always correct) and then again in 2012 downgraded to sell at 3200 Rs here and choose RS Software at 45 Rs instead. My argument was was that TTK Prestige would have to reach 12,000 Rs to deliver 3 bags and RS Software would have to rise from 45 Rs to 180 Rs.

Since 2010 songs in praise of TTK were penned and reached a deafening resonance by 2012.

Unfortunately, eulogies were written for winning stocks but investor continued to be deluded in chase of 95% CAGR. 

So called Loser Stock returns 3 bags

Super Hero returns single digit returns

 Alpha returns are unlikely to be made where the puck has already been.

Tuesday, December 10, 2013

Near Monopolies


East African Breweries Ltd is an exceptionally impressive company. Listed in Kenya on Nairobi Stock Exchange, open to all investors world over, with majority holding by DIAGEO, sells at 5 times sales, 4 Billion USD market cap. 800 Million USD revenues, 33 times earnings.

ROE of 100%.

That is how stocks should trade, even in country like Kenya with every circumstance against the grain, blue chip like this are 4-5 times revenues, just like other emerging markets. Nothing special about BRIC. Whats super cheap is Gillette Pakistan at 13 times earnings or Unilever Nepal, or GSK Bangladesh 1.5 times sales and also the unrealised potential.



Most of top tier in India is 4-8 times sales. Pendulum swung too far in cases like GSK Pharma India at 8 times sales with nothing to show on growth report card. I am too intoxicated to buy GSK Pharma, because perhaps I was not born in Japan and not used to 0% rate of interest. So, stocks for them need to trade at 1% dividend yield, useful to know how they think ! At the other extreme the world is either undecided or trying to imitate and pull trigger only after five other funds have bought. Second one fits that description.

Pressman Corporation is the best conglomerate of Malawi, need to investigate more.

The business interests are wide ranging with dominant position in each business, Carlsberg Beer, Coca-cola franchise, Bank, Fisheries, Energy, Telecom, Real Estate, Trading and much more. This company is ditto as Tata Sons or Steamships Trading Company PNG.

Quality of Management and Annual report is outstanding. Company contributes to 10% of GDP of Malawi with 300 Million in Revenues and 25 Million USD profits. Available at only 2 times earnings. Since the conglomerate is a Bank as well Debt/Equity ratio does not compare with FMCG companies. In India, Nigeria, or New Zealand I am certain this would trade at 45 times earnings.


Disclosure: Not invested in Press Corp or East African Breweries as yet, vested interest in rest of the stocks mentioned.