Thursday, 9 April 2015

WD-40 - like the product, brand and corporate ethos...but cannot buy the stock yet

Was it really three months ago that I wrote:

'WD-40 remains a great company whose brands and internal processes will reward longer-term shareholders but yesterday’s statement also is instructive on a general basis for the upcoming US corporate earnings season: foreign exchange hassles, difficult domestic comparisons, mixed international trading and cost bases that are starting to expand. Remember those blow-out results almost across the board last quarter versus consensus hopes? I don’t think we repeat it this quarter. There are still opportunities but it is time to think more like a stock picker than an index fund'


I was listening to the company's Q1 numbers after the US close yesterday and many of the above themes were still very apparent as shown below:
The most striking of these - as shown above - was on the foreign exchange side:

‘we are currently experiencing some foreign currency exchange headwinds…have transaction and translation exposure’

Interestingly in discussion the major drag was actually in the European business between euros and the British Pound.  

Otherwise one sub-theme that did strike me about the company was the real progress they were making in Asia or, as they put it: ‘the momentum we see in China is very exciting’.  Certainly you can see this in the numbers...although Asia is clearest the smallest region by sales.  


I really like the business model, profile, brand and innovation quality (some wonderful moments on the conference call observing '1 billion sales of smart straw helps innovation at great margin' and ‘we have more opportunities than execution power’) and the clarity of the 50/30/20 model below should be followed by many corporates.   

However - and as noted in January - there are still some extra 'cost of doing business' metrics, so not optimal. They also - despite ‘expecting reasonably solid second half to the year’ - pulled down some of their prospective full year hopes on the aforementioned FX issues.  

So pulling it all together - and despite the shares now being slightly below where I wrote about them in January - I like the brand, product and corporate ethos but at a prospective x15s+ EV/ebit multiple (even with a very low net debt balance sheet) there is a better price to get involved. First look something below an US$80 share price.   


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