Bill1703
07 Nov 2017
Re: Direction ? ...... pointers ? "this I presume you mean RB could be acquired? I fail to see how this would be detrimental to the SP?!"No, YW, that would be RB on the RIGHT side of M&A... from a SP perspective, anyway.I was alluding to the Pfizer consumer health business, which they are keen to offload - RB mentioned as a likely bidder in multiple commentaries, alongside the likes of GSK. Could be $15-17bn, so a similar size to the MJ deal... RB's active interest here would not be well received by the market, so soon after the MJ deal and with mounting weight behind the charge that they seriously overpaid for MJ.Merck is also looking to divest its consumer health business, which is smaller... don't know much more than that!
Yee Wo
07 Nov 2017
Re: Direction ? ...... pointers ? "Then there is the (not unrelated) threat of further large-scale M&A hanging around... with RB not on the right side of it, of course." this I presume you mean RB could be acquired? I fail to see how this would be detrimental to the SP?!
Bill1703
06 Nov 2017
Re: Direction ? ...... pointers ? "They won't hang around here for long..." The recent price action is not encouraging... twice now in recent times it's staged a rally from new YTD lows, twice it has quickly fallen back again. Dropped to £67 in Sept, rapidly recovered towards £72, only to plunge back to near £65 last month... rebounded back above £68 quickly enough, but now it's back down in the low £65s (and falling). Both the market and peers are holding up pretty well meanwhile, and the FX rate is stabilising. So this is very RB specific, it seems - and suggests a distinct lack of buying conviction. Looks likely we will test new 12m lows, and possibly more, before it gets better...I still think MJ is key to this - the relative collapse in its profitability in H1 could weigh heavily, until evidence emerges of significant margin recovery and/or top-line growth. If they can't demonstrate this by the time of FY results, management could look pretty exposed...Then there is the (not unrelated) threat of further large-scale M&A hanging around... with RB not on the right side of it, of course.
Uncle Doug
06 Nov 2017
Re: Direction ? ...... pointers ? ...nobody knows the short term direction but in Feb 2016 it went from 61xx to 75xx in 6 months so I reckon it's way oversold right now and there's a good chance to make some money on these. We will be back in 75xx territory at some point without too much worry. Fill yer boots - you know it makes sense. They won't hang around here for long.
sage in the hills
06 Nov 2017
Direction ? ...... pointers ? .....first time at these prices sub - 6500p was Feb 2016, now revisited.SAGE
aspace
28 Oct 2017
Re: Only in May ...... MJ thrash-about Marvellous Bill, We are all in your debt for the quality of that analysis you just posted. So the key takeaways for me are that:1. RB probably overpaid for Mead Johnson, as seems to happen in most takeover situations.2. While China is experiencing a welcome baby boom, as I observed on my recent visit Mead Johnson's product Enfamil is competing against at least ten other producers. New Zealand milk is the number one preference by Chinese mothers followed by Australian milk. So (a) higher cost of milk powder ingredients and (b) pressure from competitors would explain why MJ's margins are down as recently reported. 3. Your figures and undoubtedly RB's own analysis assume no contamination scares which could completely derail the business case (or conversely help the business case if the contamination happens to a competitor). So while the baby boom should naturally help sales volumes, shareholders would wish to see projected savings (probably at head office in areas such as HR, finance, IT where we don't need duplicate functions) achieved either on a bigger scale and/or faster than originally promised, bullet-proof quality control, expansion of sales into other Asian countries. I am sure we would all much prefer to see the success of Enfamil rather than RB reputation damage and executive heads rolling for an overly-optimistic business case.
sage in the hills
27 Oct 2017
Re: Only in May ...... MJ thrash-about ....Thats brilliant Bill !!!....Coincidently, Moneyweek have a feature on RB. on page 8 this week.....but yours is much, much, better Bill.....SAGE
gamesinvestor
27 Oct 2017
Re: Are EU watching? "And not sure it's much to do with the EU.."Bill - far more than perhaps appears on the surface. This is another brick to be kicked out of the EU intgration wall and at about 16% of Spain's GDP it poses another awkward problem for the EU.RB big rebound today.More importantly Microsoft is up 7% and that's 4.5% of my wad -- so a few beers tonight Games
Bill1703
27 Oct 2017
Re: Are EU watching? "... Spain has just had a shock, as Catalonia has just declared independence. I wonder if this will impact the market reactions - so far not, but this is a big big change and in some ways a bigger shock than Brexit. Maybe we can get away from the dictatorship sooner rather than later."Yes, interesting times Games... though hardly a shock, of a Brexit scale or otherwise... haven't they wanted free of Spain for about 50 years now. And they did have a vote recently, confirming +90% support...And not sure it's much to do with the EU... is it not more like Scotland, where the locals would much rather stay with the EU but get shot of the 'Mother Country'?!!On that note... I don't think this should upset markets too much, but what would do is if old Nicola Krankie gets emboldened and decides to likewise declare independence forthwith...
gamesinvestor
27 Oct 2017
Are EU watching? At the want of not becoming all political, I guess you've seen the news that Spain has just had a shock, as Catalonia has just declared independence.I wonder if this will impact the market reactions - so far not, but this is a big big change and in some ways a bigger shock than Brexit.Maybe we can get away from the dictatorship sooner rather than later.Investing in baby food to sell to the Chinese seems like a relative safe bet from here Games
Bill1703
27 Oct 2017
Re: Only in May ...... MJ thrash-about "Ok then Bill, may be we should have a collective thrash-about, and see what we can all come up with and figure out on MJ ....."As per SITH, I have run a few numbers. In short - I hadn't fully realised (though the market has, I assume) how MJ performance has turned down since they announced the deal... which turns the implied "exit" multiples from merely high to positively stratospheric, for a business which was already flat-lining (in both sales and profits) when they announced the takeover. This fuels the accusation that they could have massively overpaid... people will correct me if I am wrong here, but I suspect this is what's really behind the recent SP weakness, rather than Korea, cyber, etc. However, if so.... it does create a low "base" from which positive MJ newsflow could drive better future SP performance. So bottom line... my previous comment, that MJ is the main "swing" factor for RB, was if anything an understatement of the situation! A few thoughts and calculations below ... as summary as I can make it without important omission, but happy to elaborate as required:We know RB paid $16.6bn equity ($17.9bn EV) for MJ, on "official" multiples of 17.4x EV/EBITDA (FY 2016), or 14.0x post projected "savings" of £200m (by end of Y3). MJ made $927m EBIT in 2016 (up 3% 'constant currency'), on sales of $3,743m (down 3% cc)... an op. margin of 25%, slightly up on the previous FY. But in H1 2017 results, RB admitted (but glossed over) that MJ margins had fallen a full 500bps in H1 2017, making EBIT of $357m (down 19% cc!) on sales of $1,797 (down 3% cc again), due to a series of issues (eg. higher milk powder prices). Only a couple of weeks of this "performance" was reflected in RB's actual H1 results... but if this is the new "exit" run-rate, it implies an "exit" price of over 22x EBITDA (or still nearly 17x AFTER projected savings!)This is what I think the market has recoiled from... understandably enough. The original plan was the deal would be EPS "accretive" in 1st FY, and "double digit" accretive by Y3 (ie. after full savings realised).. although ROIC > WACC only by Y5. And so it should be, for a purely cash/debt-funded deal... we know that a big chunk (c.$8bn) was subsequently financed by 5-10yr debt at US 3m Libor +0.56%, currently amounting to just short of 2% (though as floating-rate debt, the interest cost can and most likely will rise over time - possibly significantly).I ran a few implied EPS numbers, based on three scenarios: (I) Base-case 2016 reported MJ numbers, (II) Base-case plus the full £200m projected "savings", and (III) the lower H1 2017 profitability "run-rate". In each case I assume overall cost of deal funding 2.0-3.0% (as above), FX at the current 1.32 USD/GBP, and tax rate of 23% (current RB effective rate).The results show the following "annualised" EPS implications, on a base of RB's own reported underlying EPS for 2016: (I) EPS boost of 19-38p (accretion of 6-12%), (II) EPS boost 39-59p (+13-19%), (III) EPS boost of 0-19p (+0-6%).So, it backs up the RB view of "double digit" EPS accretion by Y3 (ie. post-savings)... I see an "annualised" boost of up to c.20%, depending on actual debt costs. But equally, if the lower H1 2017 margins/profits prove to be the more realistic base going forward, the deal "benefit" could be as little as break-even, even on very low current debt costs... with the implication that it could prove a (significantly?) value-destructive deal over time as financing costs rise (which they likely will, and indeed already are in the US).Of course, none of this allows for growing the MJ top line (and consequently profits), in line with ambitions declared at time of deal (ie. high end of 3-5% pa.) If they succeed here, and assuming debt costs remain reasonably low for the foreseeable, and - in particular - the H1 2017 performance proves a temporary blip rather than the new "base" - then MJ could eventually be generating very substantial in
Bill1703
27 Oct 2017
Re: Only in May 2017 ...... "... I have zero doubt that some time in next 12 months they will hit £70. Be interested to hear your dozen clearer cut bargains so we can do a comparison against RB in a year's time. How's VOD doing btw?"Clearer cut bargains? For me... any of IMB, ITV, MKS, WPP, WTB, probably RMG, CPI and BT too, and yes, VOD (doing just fine, holding steady around 215p, though still a decent discount to 'fair value' IMHO). And then a series of over-looked situations in the small/mid cap space, such as CNCT, GATC, BON...And that is just from the UK market... though understandable if you are looking at things from a GBP standpoint. These all offer "clearer cut" value to me, only any reasonably objective assessment (and, as always, from a total return perspective) - though of course, somewhat less than absolute "clear cut"... whether they prove, in retrospect, to be genuinely cheap and therefore actual bargains is an unknowable, only time will tell!But the same is true of RB... I suspect you are right, we will see £70 again, soon enough (possibly next week at the current rate - certainly, on the way back up decisively now). But you alarm me when you say you have "zero doubt"... not sure I've ever had "zero doubt" on anything, let alone future stock prices! Not even when VOD was down around 155p (in old money) before the VZW deal, when I was pretty (but not 100%) sure the market was missing pretty seismic. And so indeed it was...Not that the market misses much! With RB I have been digging around, and it is more than ever clear that the recent woes - but therefore also future prospects - hinge increasingly around MJ's pretty dire performance since the deal was announced. This didn't seem to register on this board, there was more chatter around the cyber attack and Korea, which I now think were largely "red herrings" - but I suspect it wasn't missed by the market (I wasn't following it closely just at that time). But more on MJ etc shortly...
IoooNo
27 Oct 2017
Phew,....... .. had finger on sell button yesterday morning, isn't life interesting!
aspace
27 Oct 2017
Re: Sliding Yes the Chinese baby boom must have been fundamental to RB's business case justification for acquiring Mead Johnson baby milk powder. I just wish I saw more Enfamil on the shelves. But what sells on the shop shelf is only part of the story as there are also online sales. The other encouraging observation that came out of my China visit last month was the increased shelf space of RB's Durex products compared to my previous visits when Chinese products dominated that part of the shelf. Durex are now providing lots of varieties and colours - seemed a bit excessive to me but I'm not complaining if that's what the customers want. When I asked my Chinese friends about which brands they were buying they were schtum and my wife told me to shut up. So I can only conclude that Durex is probably doing OK in the Chinese market based on the increased product range and shelf space.
gamesinvestor
26 Oct 2017
Re: Sliding "... I was in China recently and noticed babies and pregnant women everywhere. All because of the relaxation of the one-child policy. "RB have recognised this haven't they and they are hoping to see it grow and manage down the costs accordingly. I also have an investment in PZ Cussons who latched onto baby skin care and baby food pouches with the acquisition of Rafferty's garden which services Australia, New Zealand and China at the moment. They also have staple foods businesses in Nigeria and Indonesia which has massive markets, albeit with somewhat dodgy currency credentials (well Nigeria anyhow).Games
