Monday, May 28, 2018

2018 Dividend List - Part 3

The third part of this year's list consist of consumer names that we know really well. P&G, Harley Davidson, Unilever, Kellogg, Pepsico, Campbell Soup and our very own Thai Beverage. These are truly global household names and we should really have some in our portfolios. It is very rare for them to be featured here, all in the same year. Again, this is a reflection of the market's one sided view that internet, gaming and FAANGs will conquer the world and become Masters of the Universe!

Dividend List Part 3 of 4

On the flipside, non-tech stocks are now deemed next to worthless and hence we see all these great names all being screened out - a rare phenomenon. Some of these names might have issues, for example, Kellogg and P&G had been mismanaged for years and hence seeing very slow growth. But they are still compounders, both stocks had compounded at low single digits for a few years and if and when they find the impetus to improve, usually with a maverick CEO at the helm again and pushing for change, the stock would again become high single digit compounders.

In our own beloved Singapore market, we have Thai Beverage. This is one powerhouse that has compounded seriously. In 2010, Thai Beverage had a S$5bn revenue and S$450m in net profit. Its market cap was S$7bn and it was ranked somewhere in the teens or even in the twenties in terms of market cap. In 2018, it is forecasted to generate S$9bn in revenue and S$1.2bn in net profit, a 3x increase since 2010. Its market cap hit S$24bn at its peak and it became the largest foreign stock listed on the SGX. With restructuring of its group including F&N and its businesses in IndoChina, there could be further upside, The stock trades at c.5% FCF yield today with FCF at S$1bn and market cap at $21bn.

The stock worth highlighting today though is Campbell Soup. The slide below taken from Campbell's investor presentation deck tells the story well. Campbell today is not just a soup company. While that business segment (American Simple Meals and Beverages) contributes the bulk of operating earnings and has the highest margins, the actual Campbell soup business is pretty small. The segment itself includes sauces and dips with brands like Prego and Pace. It also has organic drinks, energy beverages and other brands acquired over the years. With its portfolio of brands, Campbell dominates the American simple meal and soup market which explains its 26% operating margin.

Campbell Soup Businesses

The two other segments are the future growth engines. Campbell has done extensive survey and research showing that the US consumer (and likely global consumers) are going for more organic and more fresh meals but at the same time, they are also snacking more, albeit with "healthier" snacks like better-for-you biscuits and potato chips. Hence the two segments: Global Biscuit and Snacks as well as Campbell Fresh are seeing strong growth that would provide the compounding effect for Campbell. The market thinks that this would take a lot of time, given that these segments are smaller and also lower margins. But that is exactly where a value investor comes in, when others are fearful!

As this post was in the writing, the stock crashed more than 10% as its CEO Denise Morrison resigned, taking responsibility for failed M&As that she conducted in the past few years, including paying almost $5bn for Synder's Lance. She was also criticized for pursuing contradictory strategies of growing fresh and healthy food while buying more snacks companies. Well, we all love to eat healthy but we just can't give up on potato chips and doritos right? So, Denise was right. But I guess she got played out by politics or was just plain unlucky. Meanwhile, the new CEO Keith McLoughlin and new COO Luca Mignini announced a new restructuring to overhaul the company, focusing on new growth segments (which likely include snacks too!). To this end, the company will form an "accelerator unit" to target selling healthy food (and snacks) via e-commerce.

Restructure, overhaul and upgrade are some of the best investment stories around. The next few months would provide important data points to see if Campbell's plan is really working. The downside is that it fails, but because the stock is so cheap, it would likely just stay flat, although it could be a value trap for a few years. But if the restructuring works, this stock would be up 50-100%! Huat Ah!

This author does not own Campbell yet!

Thursday, May 17, 2018

Chart #11: Ikigai

Renamed Chart Of The Month to simply Chart. This one today is an important one. We are talking about ikigai.


Another way to put it - ikigai is the cross section of your values, the things you like to do and the things that you are good at.

To supplement, here's 10 ways to better stay in ikigai:

1. Stay active and don’t retire
2. Leave urgency behind and adopt a slower pace of life
3. Only eat until you are 80 per cent full
4. Surround yourself with good friends
5. Get in shape through daily, gentle exercise
6. Smile and acknowledge people around you
7. Reconnect with nature
8. Give thanks to anything that brightens our day and makes us feel alive.
9. Live in the moment
10. Follow your ikigai

Thursday, May 10, 2018

Malaysia Boleh!

"Boleh" means "can" or "able to" in Malay.

What a historic day for Malaysia! Dr Mahathir trashed Najib with a snap of his fingers gloved in his infinity gauntlet neatly decorated with the coalition of infinity stones: DAP, PKR, PNA, PPBN and Warisan Sabah. His Alliance of Hope, Pakatan Harapan and its partners convincingly defeated Najib's Barisan Nasional (BN) with 122 seats vs his nemesis' 79 seats. Mahathir's win ended one of the longest reign for a democratic ruling party and renewed hope that Malaysia can one! (i.e. Malaysia can achieve what it wants to achieve.)

Under Najib, Malaysia really suffered with the ringgit falling to a third in value relative to the SGD - one Malaysia ringgit is only worth 33 Singapore cents. The exchange rate was 1:1 in 1965. Also, the market cap of KLCI is at USD 269 billion vs Singapore's STI at USD 440 billion. Given that a lot of its listed stocks are also locked in cross-shareholdings, Khazanah and banks, Malaysia's free float is even smaller at a mere USD 84 billion. This is a tenth of a fruit and smaller than the smallest FAANG which is Netflix at USD 144bn. FAANG stands for Facebook, Amazon, Apple - the abovementioned fruit, Netflix and Google.

The last decade was truly dark for our beloved neighbour.

Ironically, it was partly Mahathir's own doing as he was the one who picked Najib to be the Prime Minister after he sent another of his prodigy, Anwar, to jail. Now he is trying to team up with Anwar by asking the King for a pardon so that Anwar can stand in elections, win a seat and then be Prime Minister. This sounds like a plot from Marvel when your past enemy, who was actually your friend, joins your hero alliance in order to defeat a bigger enemy whom you yourself created. 

Malaysia in a Marvel Plot?

With the country at its brink, real life heroes really assembled to save their Motherland. Teachers, waitresses, workers, drivers in Singapore took leave to rush home to vote. In fact, Malaysians all over the world came to the rescue, dipping their index finger in blood, swearing on their lives to save the country. We hear stories of how everyone beat all odds in order to stop Najib. Strangers car pooling to go home despite vote forms being sent out too late. Vigilantes appeared in front of voting booths to prevent random black boxes with rigged votes getting smuggled in again. It was an epic battle against evil and an amazing race against time. But Malaysians did it!

Malaysia Boleh! 

But Najib is not going down without a fight. It is rumoured that he participated in intense negotiations with other smaller partners in the coalition to coerce them to swing to his side. Candidates are being offered 20 million ringgit each to jump to BN. If he succeeds, he might still hang on to his PM role. After all, his life is at stake - he might get strapped in dynamites and then get blown to bits. Meanwhile, Mahathir declared bank holidays to prevent money being siphoned out of the country. Hopefully, in the end, the democratic process will work, Najib gets justice served and all our Malaysian friends didn't fly, rush, drive back in vain.

Back to the stock market, since Malaysia is closed, nothing much is going on. The ringgit meanwhile weakened after strengthening before the election. With talks of abolishing GST and re-introducing fuel subsidies, investors are also worried about the country's fiscal situation. But never fear, Dr Mahathir is back. Just the face of this legend supposedly made Najib and his cronies squirm like vampires in sunlight. So AirAsia painted all their planes to make sure Najib cannot escape.

A True Malaysian

As to stock ideas, many experts are pitching stocks that benefit from the weakening ringgit while some called upon investors to take advantage of any pullbacks to buy quality Malaysian names. A quick stock list include: YTL, Public Bank, Malaysia Airports, Maxis etc (all Malaysia listed names). Meanwhile, yours truly made a tongue-in-cheek list of stocks below in Singapore with Malaysian stories: 

1. Fraser and Neave: 40% sales in Malaysia
2. Top Glove: World's largest glove maker based in Malaysia
3. IHH: Hospital operator in Singapore and Malaysia
4. OCBC: Teens revenue exposure to Malaysia
5. Silverlake Axis: IT business with Malaysian banks

Malaysia Boleh!

PS: except for F&N discussed in a previous post which is investable (not on Malaysia but on its Vietnam story), the rest are really more for fun, please don't really buy without doing more research.

Sunday, May 06, 2018

May the Force be with Omaha!

It's the Omaha weekend again and this year is special as it also started on May Fourth which is also knowns as the Star Wars Day. In Singapore, someone then decided to organize a Star Wars Run charging people S$80-85 to either join the light or the dark side of the race! The annual Berkshire run, for those investors who are spending this weekend in Omaha, cost roughly S$60 and all are encouraged to invest in ourselves i.e. our bodies, which would be the best investment ever. 

Star Wars Run Singapore!

Well, unfortunately, one run would never amount to any tangible investment that would change our bodies, or our lives. As with everything about value investing, it's about time and consistency, which leads to habit formation, the most important agent of lasting change. The Berkshire Hathaway AGM (annual general meeting) embodies these concepts and this is perhaps one of the reasons why it's so appealing to so many. This year marks the 53rd AGM and a crowd of 40,000 would have descended upon Omaha from all over the world. Many travelled long distances just to listen to the Yoda equivalent of the investing universe utter a few words of wisdom, with the hope that the experience would help internalize some of this wisdom.   

Alas, all sentient beings have a lifespan and Yoda eventually become one with the Force (and became capable of influencing the weather). Warren Buffett, mindful of his own time, used this year's AGM to pass the baton to two of his lieutenants: Greg Abel and Ajit Jain. At the same time, he emphasized that Berkshire Hathaway is a corporation and hence immortal and Berkshire Hathaway's culture had been well established and the firm would continue to thrive without him and his trusted #2 Charlie Munger. So, keep calm everyone!

Keep calm!

It could be said that Warren Buffett's success also boils down to time and consistency, which is essentially habits. The time to form a habit is surprisingly short - just 21 days, according to various research. But to consistently do it for decades would take effort, determination, grit. Warren Buffett pretty much did the same things for 53 years and hence got to where he is today. His essential habits were reading and thinking hard. These are exactly the habits that true value investors must acquire early on in life. Buffett probably spent six to eight hours reading everything from newspapers to annual reports, every day for half a century. 

Thinking is a slightly different exercise. While there are times we should sit down and think alone, most thinking require discussing with like-minded friends, writing down our thoughts and ironically more reading to better understand the issue at hand. It is also important to be calm while thinking and hence many astute investors practice meditation or engage in other activities to calm down our monkey minds. 

It is not clear how Buffett calm his mind from what we know about his lifestyle. Perhaps it's bridge that he plays every night, or simply his meals which is always the same (hamburgers or steaks) and hence maybe when he eats he is really just eating with his mind spacing out. Nevertheless, it's important for serious investors to really find an activity that can help preserve or enhance the clarity of our minds.

So, we are back to running. Running is an activity at its core, very similar to meditation. The mind is focused on breathing and bringing the body forward. There is nothing else. This has a similar effect of calming the mind as meditation does. Maybe that's why we have a Berkshire 5km run and Star Wars runs. Keep calm and keep running!

May the Force be with you always!