may more than one would have missed the title of the commentary, but it is curious, this company until recently enclosed to some extent in its corporate name to the heart of its business and its brands, ie sugar and milk as the other part is normal. Well today is no more sugar and milk, after the preliminary agreement reached with the French group Lactalis, ceased to exist.
therefore recommend to their managers with a change of name that corresponds to the current strategy of your business. I'm not going to give ideas as these are charged, do not you think?.
But it's not the name of the company that brings me to publish this comment. Until recently it was more or less clear what price was reasonable to be and another not, can that many of you do, too. The situation has changed and I think it requires a reflection on the situation of the company and the valuation that the market for it.
The capitalization of the company at 8 / 3 was of 2094 mill / Euros with a share price of 13.61.
Considering these data and recently published results for the year 2009, we can obtain various ratios:
• The PER taking into account the ongoing business benefit (ie not including the results of the sugar business and of course capital gain from the sale thereof) would be 15.4. If we consider the overall result this ratio would fall to 11.6.
• THE EV / EBITDA is 8.6 times. This ratio would then 9 after the sale of milk. Assuming that is not invested the proceeds from the sale of new business.
• The market is paying for the company just under 11 times operating cash flows in 2009.
also worth noting that following the sale of dairy business, the company is left with 2 rice and pasta businesses, in both occupies an important position worldwide and revenues are also highly diversified, not depending on where despite SPAIN its strong presence weighted income below 30%.
But the question is, Is it interesting to be in the company?.
To situate ourselves, we also consider what has already commented:
1) The company has agreed a sale price of the dairy business which means multiplying by 11 the average EBITDA last 3 years.
2) If we apply this ratio to businesses that currently the company would obtain a price per share of 16.5 Euros environment. Please note that the company will go from having a net debt to have a net cash position.
sure many of you are thinking of 13.6 to 16.5 is almost 3 euros or whatever it is the same just over 20%. Should we go then?. This decision must be taken before UDS but reflect on the following:
a) What will the company do?, You going to reduce its size or going to invest?.
b) All indications are that at least part of the sale is going to spend to buy new business, but what that business?.
In other words we are dealing with a company that is not face value but there are going to experience moments of uncertainty.
Clearly we are dealing with experienced management and seems to know how to manage, but I wonder Was the investment in the dairy business and was too late to enter it?; The answer is complicated but the truth is that they have known monetize and sell at a reasonable price.
is a time for me to be careful if you are not staying out unless the potential and thus increase the safety margin that I demand, otherwise you just prefer to see the sale and Decisions are made a posteriori. For those who already believe that any price in the vicinity of 15 should make us settle and wait.
As always, remember that I have not tried to make a decision but only to try to guide them in managing risk within what I mean by financial security.
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