Wednesday, 21 October 2015

Earnings catch-up: Europe (Whitbread, Syngenta, ABB)

So many numbers out over the last couple of has been hard to keep up especially as I have been putting the finishing touches to a couple of presentations.  A few thoughts however first on European stocks and then American ones.

Whitbread numbers were pretty solid.  Unfortunately the shares in the Premier Inns and Costa Coffee operator never fell to levels that were compelling enough for me as detailed in my extensive write-ups back in 2013 (link here).

As written up outside of Financial Orbit published output I became very cautious in the £50s zone but what to think here in the upper £40s following a reiteration of their core medium-term targets?

Clearly this is still a company (albeit soon under a new CEO) which is firing on all cylinders.  One quick slide on the core Premier Inns... 

...and Costa Coffee units.  Impressive customer satisfaction levels.

So with c. a 25% growth in capacity for both core units in the UK (even before international expansion efforts - which appear to be progressing fine) is a reasonable blue sky profitability (say) a third higher than today?

That would put prospective profitability nearer £700m and with an EV (non lease adjusted) of over £9bn there is a little bit of potential upside on a (say) x14 EV/ebit multiple.  

Of course this is on something like a perfect execution and of course the company has to deal with various challenges including the UK Living Wage (inducing the first coffee price rise for a few years at Costa). 

In short, today the opportunity for Whitbread investment initially lays sub £45 with a double up at £40 in my view.  I have noted down the levels. 

On Twitter I noted earlier concerning Syngenta that: 

Too right time for new leadership. Failed re bid. Shares should like this " CEO to step down "

The c. 6% rise in the share price today brings us back approximately to the CHF330 under which I noted that I thought the shares were cheap (link here). Syngenta remains a strong hold at prevailing in my view.  I know the Syngenta Chairman has come out (as per this piece on Seeking Alpha) saying that the resignation of Mike Mack 'did not arise from a difference over the company's strategy or its rejection of MON's takeover offer' but surely he knew the writing was on the wall.  

Now what Syngenta needs to do is refocus on fundamentals, hit those cost cutting and cash flow generation targets and with a fairer wind from underlying agricultural demand - and not such a dogmatic attitude on M&A - a CHF400 share price is plausible. 

Staying in Switzerland, the stand-out chart for me from the ABB numbers was this one citing 'continued hard weather sailing': 

Certainly the lack of order progression geographically is notable but a book-to-bill of over x1 and a cash conversion in excess of 100% has its own signalling reward.  The key positive is the continued turnaround plan centred on cost cutting.  

I was too early in calling the shares a 'buy' a year ago (link here) but this high teens CHF share price double bottom is opportunistic.  I bought more stock at the height of the Swiss franc revaluation in January/February this year and my instinct is that with the shares currently trading at a barely double digit static EV/ebit valuation and a well-covered 4%+ dividend yield (plus buyback), ABB is a thematic longer cycle industrial business to believe in.  You can imagine what the switch chart with GE (link here for my latest research on that name, which I am still a buyer on) looks like. 

1 comment:

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