Lupo di mare
19 Feb 2018
Re: The Big Brands - Wonderful Buy Backs... Thank you so much for that information, Bill.I rather feel that you missed the point of my post.Wotever.
Bill1703
19 Feb 2018
Re: The Big Brands - Wonderful Buy Backs... "Correct, that's why it's an illusion..."Given that I currently rely on dividends for a large part of my current income, I really don't know how I'm going to break this to my bank manager... As a shareholder, you don't own a fixed proportion (or percentage) of the capital of a business - 'cos the business can change this without you having any say in it (often, without you even knowing it). Yes, there are some checks and balances - eg. rights issues, where you have to be at least offered the chance to buy an appropriate portion of new equity - but the capital base can still change significantly over time without requiring rights issues.However, you do own a fixed number of shares, and there is nothing a company can do to change arbitrarily the overall value of these - all else equal, naturally. Yes, they can change the nominal value of these shares (eg. a share consolidation or split), but the total value of your holding would remain the same (again, all else equal). So it follows... the total dividend paid to you on this fixed number of shares is what matters to you, and any other shareholder - first and last. The actual quantum of dividend paid out by a business is not your concern, and has no direct impact on the value of your holding or your total returns from the same...You can see this clearly in stocks paying (either now or previously) a large part of their "dividends" as scrip divis (Shell being a classic case study). So what matters? The total amount paid out in dividends by the business... or the dividend per share payable on your holding? If it was the former, you'd be forgiven for thinking that the dividend was being cut significantly in some years... but it ain't, so you aren't!
Bill1703
19 Feb 2018
Re: The Big Brands - Wonderful Buy Backs... "Guys, surely it is the amount paid out in divis that counts, not the divi per share."Counts to whom, Lupo? For the individual shareholder, the only thing that matters is the quantum of his/her dividend, as part of their total return... and for that calculation, it is divi per share that is relevant, not the overall amount paid out by a company.With the latter, the equity base can often change a lot over time, either increasing (through rights and/or other share issues, big or small) or decreasing (through share buy-backs etc)... but movements in a corporate equity base are relatively incidental to an individual shareholder, unless and until they buy more shares (or sell part of their holding).Lest we forget, there is no intrinsic "value" in dividends paid out as opposed to the equivalent capital being retained in the business, all else equal... you receive cash as a dividend, and your shares are marked "ex-dividend" by an equal amount. So, what matters for the calculation of the ex-dividend impact? Dividend per share, NOT the total amount paid out by a business....
gamesinvestor
19 Feb 2018
Re: The Big Brands - Wonderful Buy Backs... Correct, that's why it's an illusion.Games
Lupo di mare
19 Feb 2018
Re: The Big Brands - Wonderful Buy Backs... Guys, surely it is the amount paid out in divis that counts, not the divi per share.Lupo, the conciliator and not invested in RB. I have considered investing here in past years, but something always held me back - apart from the rating. Now it's fallen back, I don't want it (reasons amply stated today). Such is lif
tradingup
19 Feb 2018
ENOUGH'S ENOUGH! Just hope Mr.Kapoor won't be looking for another pay rise just yet.
Bill1703
19 Feb 2018
Re: Views "Yet revenues should increase 13-14% and margins should rise . If this happens earnings should increase substantially . Also the splitting h into two business units to me suggest. Hygiene will be sold off or de- merged at some point as they push further into health where margins and pricing power is stronger ."VMB - most of this revenue increase is from full year consolidation of MJN, and it looks like margins will go down, not up this year - as per the effective "warning" today, albeit quantification is lacking (see earlier broker comment, forecasting a 50bps margin decline vs the consensus forecast of -10bps).I agree on Hygiene - and possibly sooner than later? Selling it may be the only way they can make the possible Pfizer Consumer deal work, given the current balance sheet... "I suspect all the doom mongers will he proved wrong again after a couple of updates . Strategically MJ makes great sense - getting them great exposure to China ."I suspect you are right - but also as you imply, it could take at least a couple of updates for visibility and confidence to improve. In the meantime, the concern that they will pay too much for the Pfizer business, plus the associated funding issues, will weigh on sentiment... I argued earlier that the latter could see the SP below £60, it now looks like we might well get there very much sooner than later. I know a number of commentators have questioned the strategic rationale for MJN (see also earlier broker comment), though I am more agnostic. But I also know that the charge of overpaying for a big deal can weigh heavily on a stock for a long time indeed, irrespective of the strategic justification - and RB are now open to that charge. FWIW the strategic rationale for buying the Pfizer unit looks stronger to me - if they could have their time again, I wonder if they'd now steer clear of MJN and spend "their" money on the latter instead? Anyway... hindsight is a wonderful thing. It's probably a Buy now - as long as one is relatively relaxed about not necessarily buying at the bottom...
valuemanbuyer
19 Feb 2018
Views I’ve held these for seven years and done v well . The share s re weak due to missing forecasts and low-key lfl sales going forward. Yet revenues should increase 13-14% and margins should rise . If this happens earnings should increase substantially . Also the splitting h into two business units to me suggest. Hygiene will be sold off or de- merged at some point as they push further into health where margins and pricing power is stronger . I suspect all the doom mongers will he proved wrong again after a couple of updates . Strategically MJ makes great sense - getting them great exposure to China . Rem ember it’s still the most profitable consumer business in the world ( margin wise) so they know what they’re doing . I think the corner has been turned.
Bill1703
19 Feb 2018
Re: The Big Brands - Wonderful Buy Backs... "Not harsh at all in my view, since if you are reducing the number of shares in issue, it is indeed an illusion that the dividend is increasing by a certain % as stated at the time of issue in the company announcement - when in fact if you do the mathematics back to the pre-diluted number of shares in issue, the increase is even smaller or non existent... So illusion it certainly is."Nope, an illusion it certainly is not... if the company says it is increasing the dividend PER SHARE by 7%, then your dividend "cheque" (or current day equivalent) will be up 7%. Reality, not illusion... real hard cash you can spend or reinvest, whatever you prefer.It would only be illusion in either of two alternative cases: First, if the company increases shares in issue (eg. in a rights issue), and then subsequently says the total dividend is up x%, whereas the value of your dividend as an individual shareholder would be up by less than x%, if indeed it is up at all (and assuming an unchanged holding). But companies (for that very good reason) tend to declare dividends on a per share basis, not total quantum. And second, if the company changes the number of shares you hold (eg. with a consolidation) and then declares a dividend per share increase, without adjusting for the consolidation... in which case the increase in the value of your dividend will NOT be in line with the company declaration. That would be an "illusion"... and I am aware of a couple of such cases, though they are rare in practice, particularly so these days.
gamesinvestor
19 Feb 2018
Re: The Big Brands - Wonderful Buy Backs... ""Albeit a trifle harsh to say "illusion" of dividend growth""Not harsh at all in my view, since if you are reducing the number of shares in issue, it is indeed an illusion that the dividend is increasing by a certain % as stated at the time of issue in the company announcement - when in fact if you do the mathematics back to the pre-diluted number of shares in issue, the increase is even smaller or non existent.So illusion it certainly is.Games
Bill1703
19 Feb 2018
Re: The Big Brands - Wonderful Buy Backs... "... but for all the potential ... adjustments... the numbers are all falling, so something is wrong somewhere.... and I think it's more telling is that in a period (the last stand out 10 years) of printed money ... each and everyone of them, except Kimberley, has relied on savaging the payout ratio to maintain the illusion of dividend growth."Yes, Games, I will grant you, the consistency of the broad picture probably has at least some statistical significance and demands further scrutiny... and I would say you are probably onto something with your payout ratio point. Albeit a trifle harsh to say "illusion" of dividend growth - any individual shareholder would say the "actuality" - but it does beg questions about the sustainability thereof, etc. "That tells you a lot I think, it tells you that when that music stops, the P/E ratio's of all these companies are on the way down."Only, their P/E ratios have been on the way up for a while now (eg. the past couple of years), to well above historical mean levels - albeit they are coming down now, for at least some (RB, ULVR). But I guess you would say the music hasn't stopped yet..."... these companies have employed modern day managers, who's trick is to make sure they get well paid... they have all bought back the stock in their companies to assist their EPS linked remuneration packages."You old cynic, you! I would say, it was probably a more valid accusation in the 'bad old days', and possibly even 10 years ago - but these days, we're seeing more and more cases where multi-level composite packages are linked to various indicators and metrics (not just financial) as opposed to EPS, which is increasingly only a minor component of many. Though again, this may still be less true of the US, which tends to lag in such areas, and it is also in the US where buy-backs have been most heavily employed... which (I am sure you would say) may not be a coincidence!And.... we do have to ask, what are we paying for, and what behaviour are we actually encouraging (wittingly or not)? Take the RB CEO, fabulously well rewarded by anyone's standards (aside from perhaps Sir Martin's....) - yet he has just presided over a £13bn deal where it looks like he spent at least a couple of £bn too much, and now might well be about to launch into another deal of broadly similar size. If he gets it right, he will doubtless be even more richly rewarded... if he gets it wrong, he'll be pensioned off (and that's one gold-plated pension) with the pleasure of getting to spend more time with his money (or our money, as you may prefer to see it)... Assymetric risk and reward... nice work if you can get it! And so... what chance he will suddenly show financial discipline now when he's been already showered with cash for failing to do so before? Forget buy-backs and packages linked to EPS... how do we get our business leaders to treat our money like it's their own??
gamesinvestor
19 Feb 2018
Re: The Big Brands - Wonderful Buy Backs.... """Also and I think it's more telling is that in a period (the last stand out 10 years) of printed money and asset boosts by QE, and artificially low interest rates -- each and everyone of them, except Kimberley, has relied on savaging the payout ratio to maintain the illusion of dividend growth.""And something else I missed -- as most, and again I haven't analysed it, of these companies have employed modern day managers, who's trick is to make sure they get well paid, very well payed, they have all bought back the stock in their companies to assist their EPS linked remuneration packages.In doing so, you'd assume that the payout ratio would ease because there are fewer stocks in issue to spread the spoils over -- so it makes the rapid and big increases in payout ratio's look even more dangerous.Games
Bill1703
19 Feb 2018
Brokers on RB FY results Edited highlights below - one much more damning than the other: RBC"Q4 like-for-like sales growth of 2.0% was in line with the company compiled consensus of 2.1%. Likewise EBIT of £3,122m (consensus £3,145m) and EPS of 316.9 pence (consensus 318.9). Management has acknowledged the benefit of a strong start to the flu season in Q4’s results, which in our view had been widely anticipated. Mead Johnson delivered +3% organic sales growth in Q4, up from +1% in Q3, which we think was a good performance. Synergy expectations for Mead Johnson have been increased to $300m from $250m. Like-for-like sales growth in Q4 was ‘volume led’. We are concerned at the lack of value growth which, in our view, has been a crucial element of RB’s historic success. We wonder to what extent this, in addition to the formation of RB 2.0 – the separate Health and Hygiene/Home business units – plays a part in management’s expectation of ‘some specific factors impacting margin’ for 2018. Consensus is for margins to decline by 10 basis points; RBC’s forecast is for 50 basis points of margin decline in 2018, which we feel is more realistic. Like-for-like sales growth guidance of 2-3% is in line with consensus forecast of 2.8%. Finally, there is (unsurprisingly, in our opinion) no reference to RB’s interest, or lack thereof, in acquiring Pfizer’s Consumer Health business.We are not convinced the acquisition of Mead Johnson works strategically, operationally or financially, and if it does it comes with a higher level of risk than anything RB has acquired before given the size of the transaction. We expect a continuation of the recent slowdown in RB's growth rate given the company's exposure to uninspiring categories as well as innovation and pricing fatigue. Underperform."CITI"This set of results may not reassure yet, and confirms some of the pressure the group is facing as several of its categories see changing economics and as management deals with the aftermath of 2016-17 one-offs. However, beyond a foreseeable tough H1, we see optionality increasing throughout the year, for a stock still at a discount to peers..."
Bill1703
19 Feb 2018
Re: Pricy and overhyped ? "17-18x forward may be interesting... Mentioned last year to be careful of some mean reversion on PE for RB."Essential - yes, I've been warning of mean reversion here for many months. And now we have it - albeit the "E" part of the equation has been falling almost as fast as the "P" part, and it looks like it'll have to come down once again... so the swing from "expensive" to prima-facie "cheap" is not as clear-cut as the SP alone might suggest.The thing about mean reversion, as foreshadowed many times on here, is it can happen very quickly, and just when you least expect it. And it doesn't necessarily happen in orderly and even synch across the board. The 'mean reversion' warning was also levelled at ULVR and DGE... and now it has come to pass at the former, but much less so at the latter. I mean no ill-will to loyal DGE holders, but it must be very vulnerable to even small misssteps. I agree, c.18x forward P/E is interesting for RB... but not necessarily compelling, given the near-term challenges and trajectory. If they emerge "victorious" from the Pfizer auction (remember Pyrrhus?!) - which is at least 40% probability IMHO - then I think this goes below £60, at least in the short term. How big the rights issue for a c.£10bn deal when your balance sheet is already 3.3x ND/EBITDA? At least £5bn I would say (12% of current market cap) ...
Bill1703
19 Feb 2018
Re: FY Results "That sounds a bit like like claiming success, justified or not... Fixed cost changes are a worry, they were supposed to be going the other way... The picture is one of a business which was in very poor shape at takeover and will take time to recover, that became clear at H1. So did RB overpay? On current view, yes..."HE - yep, inescapable IMHO. How much of FY17 performance did RB know about when they announced the deal... and if they did, why'd they pay the price they did??Rather too much evidence of 'spin' vs substance here, I'm afraid - and not for the first time with RB - reading the up-front bullet-point "highlights" gives a somewhat different impression than the meat of the full statement. Anyone can buy a business, by throwing other people's money at it... you can buy revenues, you can even buy profits, but it's a different story when it comes to delivering value from it. And talking of 'spin'... there is scope to be alarmed by the trumpeting of the fact that Consumer Health is now over 50% of the group. Sounds like a management preparing the ground for another big "strategic" deal in Consumer Health? And as we all know, "strategic" merely translates as "over-priced", more often than not... So who gets the Pfizer biz? The one who parades their ambitions and scale in Consumer Health... or the other (GSK) who has recently heavily downplayed the same in the list of their current priorities? As Oscar Wilde might say, to get one big deal wrong might be regarded as misfortune... to get two wrong looks like carelessness. If they don't get the Pfizer deal right, then the (fabulously well rewarded) CEO is history, and who knows what the next man/woman may think - and may find...
