...and concluded that:
'For me - and just because of the brands - I would pay around x12 EV/ebit which brings us to an interesting level below US$47 which is funnily enough around the level of the 2014 YTD low. That's the level to be flagged otherwise even for dividend hunters I would look elsewhere'.
Did we get an opportunity at that level? Actually, no. In fact investors have achieved a 10%+ return since then.
So did I miss anything with General Mills? Looking at today's results...there are good and bad parts with the results:
Any results appraisal that starts with 'mixed performance' is not going to be stunning (and 'consumer-first efforts') is just another way of saying there's a bit of pricing pressure (generally)...
...and so unsurprisingly the key sales/operating profits lines were somewhat dull, although some cost cutting helped push the EPS line to a low single digit level:
So an easy case of a dull growing big consumer staple at a big multiple because it has lots of brands that people know and hence is 'safe'? Well...maybe not. Ignoring the exogenous determined FX impact line I actually was quite impressed with the volume and price/mix progression in Q4.
Similarly individual product divisional progress was across-the-board sequentially better:
Undoubtedly some product evolutions have helped but also I believe the continued growth of the convenience channel (wholly consistent with the strong performance of 'snacks') was a contributor here. Note too the performance of the international business on a constant FX basis: that augers well and again reflects product evolution plus the continued positive bedding down of the cereals jv with Nestle.
Dividend progression / continued share buybacks also helped with the investment story. With the dividend yield pushing 3% and adding back the share repurchases gives a total proportional return to shareholders of around 5%. Not too shabby.
So was I a bit too conservative regarding General Mills? Well let's not forget that their fiscal 2016 guidance remains a low single digit operating profits guidance. So even adjusting for probably a more favourable FX environment too my prospective EV/ebit value for their fiscal 2016 is still in the x13s. That does not feel cheap - even with the shareholder remuneration.
Admittedly waiting for c. US$47 is a touch too conservative now but around US$50 is the first time I will be looking at General Mills' stock as a potential long - and above US$60 as a potential short (to join my positions in Kelloggs and Campbell Soup).