May 2018 Flashcards
1
Q
Vitasoy - steward - why entrust clients money with them?
A
- 80 year track record of fair treatment of all stakeholders and a continued focus on providing affordable nutrition to the masses.
- known them for the last twenty years so have challenged them on stewardship continually
- winston Lo the only one involved in the business
- professional management team - roberto is ex coke who has hired people from kraft and Unilever - shut down us operation
- strong set of values and believe in what they are doing - focus on making the right products in the right way
2
Q
Vitasoy - positioning
A
- well positioned to benefit from a want for nutritional, healthy products that are friendlier to the environment
- soymilk for example is 10x more water efficient (gallon per ton), 17x more land efficient (lbs per acre) and 10x cheaper than beef (per lbs)
- planet can’t support an emerging Asian middle class that wants to eat more meat
3
Q
Vitasoy franchise
A
- resilient sales - grew through SARs and GFC
- strong brand - gross margins - mid 40s to low 50s despite growing in markets with powerful retailers and soy inflation
- market share - 50% in HK, 24% in Australia and 6% in China
- net margin - 18% in Oz and HK, 12% in China
- returns - helped by scale and growing margins ROIC above 20% incremental capital even higher despite opening new factories.
4
Q
Vitasoy - Financials
A
- historically conservative with internal cash flows covering he majority of investment
- cash flows resilient to economic cycles and SARS
- working capital efficacy improving as they grow outside oz and HK
5
Q
Vitasoy - Opportunities
A
China - growing market share In fragmented market, taking share away from milk, growing consumption (12 litres per cap in HK VS 3 in China)
South east Asia - JV with universal robina
- margins and returns to increase with scale - aligned with the government
6
Q
Vitasoy - engagement
A
Product portfolio - less sugar
Board quality - more woman and FMCG experience
7
Q
Pigeon - description
A
A leader in products focused at Baby care including bottles, nipple, breast pumps and other accessories . A one stop shop for new mothers and fathers.
Market cap - 5.6 billion
8
Q
Pigeon - idea
A
- looking for companies with similar characteristics to other successful investments we have made, long term stewards using cash flows flows from a mature market to expand into high potential martets
9
Q
Pigeon - why do we trust them to protect and grow capital
A
- The founding Nakata family continues to own 10% with a family representative as advisor to the board - their only source of wealth
- 60 year track record of taking a broad stakeholder approach and a continued focus on what they are good at - didn’t diversify
- cut their teeth in a market with falling brith rates and deflation
- open culture - started exporting in the 60s and will hire and empower locals to run business - again unjapamese - and key to their success in China and new markets
10
Q
Pigeon - how will they go about protecting and growing capital?
A
- strong franchise in Japan - market share of between 40% and 80% (since the 60s) in their markets which has been growing over last ten.
- High barriers to entry seen in their gross margins of 45% and the fact that both P&g and j&j tried and failed to enter the market.
- helped by sixty year of innovation and a focus on brand building trough word of mouth.
- china 50% market share or top end and 25% of total - more profitable than Japan thanks to scale and costs.
- very efficient in the capital they spend - 14% net margin and fast asset turn produce a 43% return on investment
- building a market in India and Indonesia in a similar manner to china - slowly, building partnership and the brand - fifteen years behind
- capes is 75% aboard
11
Q
Financials
A
- good capital allocators
- continue to keep cash on the balance sheet - 40% of assets
- improving working capital as they grow - made mistakes in china
- pay taxs in line with their geographic exposure
12
Q
Opportunities
A
- have continued to grow despite the number of births falling in Japan per year
- china - 17m, India 27m, indo 5 million
- India and china currently 2% of china sales and growing 30% and 16% respectively
13
Q
Positioning
A
- breastfeeding makes the world healthier, smarter and more equal.
14
Q
China - our evolving business
A
Exposure now -
15
Q
CSL - stake in blood fractionator
- leading provider of plasma derived therapies for rare and serious diseases
A
- spend $350m last year buying 80% from a company called Humanwell Healthcare
- already the largest importer or albumin - but restrictions of blood products- been operator there for 20 years
- gives csl access to the fast growing plasma market - 15%yoy where consumption per capita is half albumin, 15x less immune and 60x less for haemophilia. Market worth 3bn bs US of 9bn
16
Q
AIA - one of Asia leading life insurance companies with over 100 years experience and brand building in china
A
- china - a large a fast growing market for them - scale and branding helps with profitability
- conservative with products, reputation and balance sheet (fixed income and a third of the impairments vs peers in 2018)
- structural growth in the form of growing middle class, increasing prevalence of lifestyle disease and poor public safety net and consumption per capita of $125 vs $1700 in US
17
Q
Hong Kong and china gas
Hong and Chinese gas utility
A
- a Stewart investor company - long term perspective and using cash flows from mature markets to invest in. a larger and more profitable market
- now one of leading gas companies on the mainland - aligned with the government but in increased political pressure and weakening quality of earnings
- valuations now very full 25x, 4x book and 2% yield, net debt
18
Q
Dairy farm - regional retailer owned by the Jardine family and with a new CEO who turned around coles in Aus - where me met him
A
- focusing on growing their Chinese business
- Yonghui - also owned by JD and tencent - become the third largest retailer in China based on their focus for fresh food
- growing 20% you
19
Q
President chain stores
- leading convenience operator in Taiwan, the Philippines and with the drain hose for shanghai 24m) and zeijiang (54m) vs Taiwan 24m
A
- currently loss making in both these regions but increasing investment and are proven operators
- very selective in who they hand franchises to - long term view
- now have 2.600 stores in the Philippines
- not considered in sell side research
20
Q
Delta
- manufacturer of power supplies and components for consumer PC with history of evolution
A
- has been investing in automation and electric vehicles for the last ten years
- doubled what they spend on R&d which is paying off with growing gross margins
- long term structural growth in these businesses
- will be roughly 20% of sales next years
- been too much focus on the older business and the pressure of margins as they invest.
- now 15x p/e and 2x book - net cash
21
Q
Ck hutch
- globally diversified conglomerate in retail, ports, infrastructure and telecoms
A
- since gfc - moved toward more resilient business in countries with rule of law and democratic instructions
- sold ports and property in china and HK
- proven ability to take countercyclical view
- sold ports in 2006 and sold aircraft leasing last year
