Wednesday, 11 November 2015

Company earnings thoughts today: Sainsbury's and Carlsberg

Busy day...but I have had my eyes on a few companies around the world.

Sainsbury's had a funny day as a chart of today's London trading session shows:

Headlines from the first half numbers today would probably highlight the double digit fall in profitability and (the already cited) 20% cut in the dividend:

And then there is the fall in like-for-like sales still...despite clear growth in the company's convenience and online divisions.  

And despite progress too in the banking division, cost cuts and cash flow generation the lease adjusted net debt ratio has become more burdensome.  

So with a reluctant supermarket consumer still (despite some continued good comments about competing with the discounters / much narrower gap etc.)  Still are profits going to go up materially shorter-term?  Caught between competition and price investments, not really.

So what price do you pay?  Around x10 EV/ebit and a 5%+ dividend yield.  That doesn't sound terrible absolute value.  

You just need a bit of confidence/positive sentiment.  For Sainsbury's that sub 250p zone reflects this.  Close to an interesting level after today's fall.  

Turning to Carlsberg. I noted back in August (link here) that:

'If you factor in the new 'organic operating profit' to decline slightly then Carlsberg will end the year generating around a DKK8bn operating profit (with probably over DKK5bn in free cash).  That puts the company's EV/ebit prospective rating around x14 with a free cash flow of around 4.2% (current dividend yield c. 1.7%).  That's not super cheap...but given the low sentiment towards emerging market and related companies currently it is getting there especially given Carlsberg's good brands.  

You know what I am going to conclude?  If you can buy (at least for a trade) Carlsberg shares below DKK500 you should - just as I noted a year ago'

The shares bounced today well above the DKK500 fact briefly todayit touched the DKK600 level.  

Fast FT noted that:
Carlsberg shareholders have cheered the Danish brewer's move to slash 15 per cent of its workforce, pushing the shares up almost 8 per cent despite a heavy third quarter loss.
The company was whacked by a $1.1bn write-down, mainly on assets in Russia, where the economy has contracted, and China, where growth is slowing.
Progress was actually quite reasonable.  Not in volumes...but especially in price-mix and free cash flow generation (which has blasted through my earlier target): 

Even though Eastern Europe/Russia remained a difficult area to operate in:

And that DKK500 buy price level?  Put a prospective x12 EV/ebit rating on the stock and that suggests below a DKK550 level is of interest. 

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