Friday, 1 August 2014

Valuing a stalwart like P&G

If I gave you the following data what value would you put on the company?

US$13bn+ of ebit growing a few percent a year plus US$10bn and change free cash flow yield (and a dividend/share repurchase combination greater than this)...

...and positive organic volume and pricing across-the-board:



I would suggest about a US$156bn (x12 ebit multiple) to US$200bn (5% free cash flow yield) valuation.  

Well Procter & Gamble - the company whose results the above metrics are taken from - has an EV of about US$237bn currently.  Even trying to adjust the above numbers for the 5%+ return to shareholders or future growth in line with the guidance below struggles to justify the current share price unless you really pay up for relative stability and near-term income.  


Otherwise in quite interesting news, the company is also focusing its brand portfolio a little further.  Sensible stuff along with the ongoing cost control programme...but does not really move the needle materially for me. 

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With the share pushing US$80 today my feeling is that the company remains a range-bound higher yielding bond equivalent.  Buying at US$76, selling at US$84 puts a US$80 share price right in the middle of the range.  If you hold it already or enjoy dividends then fine, otherwise better alpha scope rests elsewhere.  

4 comments:

  1. PG is in Ohio. I was a hippie in an Ohio High School and got expelled for not cutting my hair. At 18 I bought PG stock via their DRIP program and they sent back my check! Small world.

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  2. Would be interested to know the CAGR if you had made that investment aged 18...one reason why investors love the stock/value it highly I guess.

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  3. Stat of the day! This shows the power of compounding and of a successful business model. The question today is whether - more tactically - such a 'stalwart' profile is a little ahead of itself...

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