Friday, 31 January 2014

LVMH, Novo Nordisk and Royal Dutch Shell - key presentation pack charts

It really was a 'Super Thursday' for corporate earnings around the world.  Given Friday is going to be another busy corporate data day, some summary thoughts on three large cap and interesting European names. 

LVMH came out with their numbers after the Thursday European markets close.  The chart looks wonderfully primed for something to happen, with the shares close to 1 year lows.  Both times in 2013 that the shares were around Euro120, there was an opportunity for investors to make a return.

This was the key chart from the presentation document.  At one level the immediate reaction is 'Asia: where is the problem' and the company's comments about a still-difficult European market backs this up.  BUT whilst revenues were up 8% during the last year, profit was just up 2% hindered by FX and other factors. 

Valuation-wise, a 4.5% free cash flow yield and x11s EV/ebit ratio (using FY13 numbers) is exhibiting value.  The backdrop is not easy...but for a branded luxury business with LVMH's history, that Euro120 level is again of interest to investors.

Stronger earnings momentum was exhibited by Novo Nordisk but, as per the chart below, note the difference between operating profits and (the undoubtedly more reported) EPS.  From a quality perspective, I prefer to use the former...

Even with some slightly tempered enthusiasm from the company's FY14 guidance of 5%+ operating profits growth (again hindered by FX issues), strategically diabetes and related is a growth market.  Novo Nordisk's market share continues to impress.
Post a recent share split, life has got more confusing for Novo Nordisk share watchers but a sub DKK200 share price (currently DKK211) would be equivalent to a 5% free cash flow yield.  That is an interesting level to watch and each DKK20 down is an augmentation level.
Less dynamic is Royal Dutch Shell.  The corporate malaise they have suffered in the last three years is captured perfectly by this chart...declining earnings and cash flow generation means the company has now moved into adding to its net debt (admittedly post acquisitions, buy backs etc)

This matters because the near 5% yield attracts many investors.  The yield augmentation over the past 13 years has been impressive...but the importance of the March strategic day is clear to me for this trend to continue. 

Royal Dutch Shell also has a very unusual - and narrow range - share price chart.  The recent warning has not stopped it moving to nearer the top of the last year range: that's the building optimism ahead of the March meeting.  For new capital, at the moment, I would await at least a sub 2200p level.

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