Shares for consumer stocks such as Nestle, Dutch Lady Milk Industries, British American Tobacco (BAT), Guinness Anchor and Carlsberg Brewery have all being doing well of late, out-performing the benchmark FBM KLCI. We believe one of the key reasons behind increased investor interest in these stocks is the persistent volatility in the global financial market as well as uncertainties over the economic outlook for 2012.
News of a generous special interim dividend from Guinness would have reinforced the attraction for these traditionally defensive, high-yielding stocks. With the market outlook still hazy and bank deposit rates unlikely to see any major upward movements in the near to medium term, stocks with higher than market average yields will understandably be more appealing.
Special dividend spurs Guinness’ share price
Guinness announced a special net interim dividend of 60 sen per share this month. The company is sitting on a fairly big pile of cash — totaling some RM164 million at end-September. Distributing some of this money back to shareholders is not unexpected, particularly in view of the limited options for fresh acquisitions and the relatively cheap borrowing costs currently.
Indeed, companies with strong balance sheet and steady cash flow from operations, such as DiGi and BAT, have, in recent years, been actively shrinking their shareholders’ funds, optimising their debt-equity ratios and boosting returns to equity. Guinness shares will trade ex-entitlement for the special dividend on Jan 9, 2012.
Operationally, the company has also been doing well. Turnover was up 9.6% to RM1.49 billion while net profit increased by an outsized 18.8% to RM181.4 million in FYJune11. And in the latest 1QFY12, turnover grew a strong 21.3% over the previous corresponding quarter while net profit rose 42.7% to RM55.2 million over the same period.
Guinness attributed the strong topline growth to higher industry volumes sales, selling prices as well as market share gains. Sales may also have been boosted by speculative activities in the run up to the Budget 2012. The brewery industry was spared from any tax hikes this year, which bodes well for sales growth going forward.
The company’s stable of brand names, including Tiger, Guinness and Heineken, registered double-digit growth. It is estimated to have roughly 60% share of the local beer and stout market, up from roughly 46% a decade back, and the company believes that Tiger is now the largest beer brand in the country in terms of both volume and value sales. Margins were also boosted by improved efficiency and cost savings measures, including moves to restructure its distribution channels in 4QFY11.
We estimate earnings to total roughly RM190.8 million and RM200.9 million in FY12 and FY13, respectively. Over the past five years, Guinness’ dividend payout has averaged at a high 88%. Assuming a similar payout going forward, the company’s “regular” dividends are estimated at roughly 56 sen to 60 sen per share in FY12-FY13, respectively, based on our earnings forecast. That translates into net yields of 8.8% (including the 60 sen per share special dividend) and 4.6% for the two years at the prevailing share price of RM13.10.
On the other hand, valuations are on the high side. Following the recent price surge, Guinness’ shares are now trading at roughly 20.7 and 19.7 times our estimated earnings for FY12-FY13. Thus, whilst yields should provide support to its share price, further upside may be more limited in the near term.
Carlsberg shares rose in tandem
News of Guinness’ special dividend and share price gains have also sent prices for Carlsberg Brewery Malaysia sharply higher.
Like Guinness, Carlsberg too reported a good set of earnings for the latest quarter ended September 2011. Turnover grew 21.9% year-on-year (y-o-y) to RM401.7 million, with double-digit growth registered for both the domestic and Singapore operations. For the nine-month period, turnover was up 10.8% over the previous corresponding period.
Net profit, meanwhile, was up a stronger 43.3% y-o-y to RM48.8 million in 3Q11 and 25.4% y-o-y to RM128.8 million for the first nine months of the year. Margins rebounded in the latest quarter following higher-than-usual advertising and promotional expenses as well as additional costs for the new bottle packaging related to the company’s global rebranding exercise in 2Q11. The better margins this year may also be attributed, in part, to synergies from the company’s acquisition of Carlsberg Singapore.
Aside from growth of its flagship Carlsberg beer brand, the company also expects strong demand for its wide range of premium brands, such as Hoegaarden and Kronenbourg, to be a key driver for future growth.
We estimate net profit to total some RM156.1 million this year, up 17% from a year ago, equivalent to 51 sen per share. Looking ahead, we expect profit to grow further to about RM158.3 million in 2012.
The more modest growth expectations for next year is based on the assumption of higher raw material prices such as malt barley, and weaker ringgit exchange rate, which would be partly offset by the 3% to 4% increase in selling prices since April 2011.
At the prevailing price of RM8.40, Carlsberg’s shares are trading at lower valuations than Guinness — at roughly 16.5 and 16.2 times 2011-2012, respectively.
Although Carlsberg’s balance sheet is not as strong as that of Guinness’ — it had net debt totalling RM11.5 million at end-September — gearing is only a marginal 2%. In the absence of major capex going forward and steady cash flow from operations, the company is well able to afford a high dividend payout ratio.
Carlsberg paid out all of its earnings in 2010. But assuming a lower 70% payout ratio for 2011-2012, gross dividends are estimated to total 47.6 sen to 48.3 sen per share for the two years. That would still earn shareholders decent net yields of about 4.3% at the current share price.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, December 23, 2011.
News of a generous special interim dividend from Guinness would have reinforced the attraction for these traditionally defensive, high-yielding stocks. With the market outlook still hazy and bank deposit rates unlikely to see any major upward movements in the near to medium term, stocks with higher than market average yields will understandably be more appealing.
Special dividend spurs Guinness’ share price
Guinness announced a special net interim dividend of 60 sen per share this month. The company is sitting on a fairly big pile of cash — totaling some RM164 million at end-September. Distributing some of this money back to shareholders is not unexpected, particularly in view of the limited options for fresh acquisitions and the relatively cheap borrowing costs currently.
Indeed, companies with strong balance sheet and steady cash flow from operations, such as DiGi and BAT, have, in recent years, been actively shrinking their shareholders’ funds, optimising their debt-equity ratios and boosting returns to equity. Guinness shares will trade ex-entitlement for the special dividend on Jan 9, 2012.
Operationally, the company has also been doing well. Turnover was up 9.6% to RM1.49 billion while net profit increased by an outsized 18.8% to RM181.4 million in FYJune11. And in the latest 1QFY12, turnover grew a strong 21.3% over the previous corresponding quarter while net profit rose 42.7% to RM55.2 million over the same period.
Guinness attributed the strong topline growth to higher industry volumes sales, selling prices as well as market share gains. Sales may also have been boosted by speculative activities in the run up to the Budget 2012. The brewery industry was spared from any tax hikes this year, which bodes well for sales growth going forward.
The company’s stable of brand names, including Tiger, Guinness and Heineken, registered double-digit growth. It is estimated to have roughly 60% share of the local beer and stout market, up from roughly 46% a decade back, and the company believes that Tiger is now the largest beer brand in the country in terms of both volume and value sales. Margins were also boosted by improved efficiency and cost savings measures, including moves to restructure its distribution channels in 4QFY11.
We estimate earnings to total roughly RM190.8 million and RM200.9 million in FY12 and FY13, respectively. Over the past five years, Guinness’ dividend payout has averaged at a high 88%. Assuming a similar payout going forward, the company’s “regular” dividends are estimated at roughly 56 sen to 60 sen per share in FY12-FY13, respectively, based on our earnings forecast. That translates into net yields of 8.8% (including the 60 sen per share special dividend) and 4.6% for the two years at the prevailing share price of RM13.10.
On the other hand, valuations are on the high side. Following the recent price surge, Guinness’ shares are now trading at roughly 20.7 and 19.7 times our estimated earnings for FY12-FY13. Thus, whilst yields should provide support to its share price, further upside may be more limited in the near term.
Carlsberg shares rose in tandem
News of Guinness’ special dividend and share price gains have also sent prices for Carlsberg Brewery Malaysia sharply higher.
Like Guinness, Carlsberg too reported a good set of earnings for the latest quarter ended September 2011. Turnover grew 21.9% year-on-year (y-o-y) to RM401.7 million, with double-digit growth registered for both the domestic and Singapore operations. For the nine-month period, turnover was up 10.8% over the previous corresponding period.
Net profit, meanwhile, was up a stronger 43.3% y-o-y to RM48.8 million in 3Q11 and 25.4% y-o-y to RM128.8 million for the first nine months of the year. Margins rebounded in the latest quarter following higher-than-usual advertising and promotional expenses as well as additional costs for the new bottle packaging related to the company’s global rebranding exercise in 2Q11. The better margins this year may also be attributed, in part, to synergies from the company’s acquisition of Carlsberg Singapore.
Aside from growth of its flagship Carlsberg beer brand, the company also expects strong demand for its wide range of premium brands, such as Hoegaarden and Kronenbourg, to be a key driver for future growth.
We estimate net profit to total some RM156.1 million this year, up 17% from a year ago, equivalent to 51 sen per share. Looking ahead, we expect profit to grow further to about RM158.3 million in 2012.
The more modest growth expectations for next year is based on the assumption of higher raw material prices such as malt barley, and weaker ringgit exchange rate, which would be partly offset by the 3% to 4% increase in selling prices since April 2011.
At the prevailing price of RM8.40, Carlsberg’s shares are trading at lower valuations than Guinness — at roughly 16.5 and 16.2 times 2011-2012, respectively.
Although Carlsberg’s balance sheet is not as strong as that of Guinness’ — it had net debt totalling RM11.5 million at end-September — gearing is only a marginal 2%. In the absence of major capex going forward and steady cash flow from operations, the company is well able to afford a high dividend payout ratio.
Carlsberg paid out all of its earnings in 2010. But assuming a lower 70% payout ratio for 2011-2012, gross dividends are estimated to total 47.6 sen to 48.3 sen per share for the two years. That would still earn shareholders decent net yields of about 4.3% at the current share price.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, December 23, 2011.
