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. 

Embedded image permalink

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.  


  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.

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

  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...