Friday, 24 January 2014

Kimberly-Clark - good numbers but still waiting for a sub US$100 print to buy

On a pretty large down day for the markets, it is always interesting to see which shares are actually UP.  One of those is the consumer tissues and sanitation company Kimberly-Clark.  I have written about the company before (link here) but never quite found the right time or prevailing level to invest in the shares.  That's a shame as the shares are back near one-year highs as shown below.   


I thought there were three interesting aspects about the numbers.  First, Q4 volumes were better than for 2013 overall.  Not too many global companies are saying that.  Pricing remained positive too. 
 
Put that with 10% growth (which was 'slightly above top-end of long-term target')...
 
...and 4-7% anticipated growth this year plus an equivalent of 6% of market cap returned to investors (via the dividend and the share buyback), you can see why investors have bought into the story.  Growth may be slower sequentially in 2014 but for a company that guided cautiously in 2013, there will still be a residual hope that they will again put a double digit EPS gain on the table.  Finally - as talked about at the link above - the company is probably creating value via spinning off its healthcare unit.  With net debt to ebitda currently around x1.5 only, the balance sheet is in good order. 
 


So what price all this?  Plugging in the above the shares are currently trading on just over x13 EV/ebit.  I respect the model but I really only want to pay a x12 EV/ebit multiple for this business.  This comes out at US$98 which I interpret as the share being an interesting buy sub US$100.  Maybe that is a bit mean but I think that is a good risk-reward level to start building a position (and an easy one to remember). 
 

 

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