Monday, October 20, 2014

Top Brands in Nigeria

Annual ranking of brands on the lines of Deliotte Fast 50, or Superbrands India is undertaken by

Feeling like I've never been this lucky before since 2009, to have found three back to back bear markets. Generally staying in a single market takes 7-8 years of patience to find the next bull market eg: 1992, 2000, 2007, 2014 in India. But global investing opens the vistas for more frequent bear markets. Second opportunity afforded is going back to 1970s in 2014. 

Disclosure: Vested interest in positions discussed. Views are personal notions and do not represent any organisation or company. I am not an investment adviser. Investment in stock market can (and many a times do) result in loss of principal capital.

Thursday, October 16, 2014

GlaxoSmithKline Nigeria - initial thoughts

GSK Nigeria

Abstracts and thoughts based on previous four annual reports and some news articles:

Revenue Growth between 2006 – 2010 at 12-14% rate

2010 Turnover up 13% PAT up 45%, PE Ratio 10 -12

2011 Turnover up 28% PAT up 16% PE Ratio 10

15 new products were launched  in 2011 !  This is a great innovation metric used by 3M and Google. It quantifies an otherwise black art of innovation estimation.
3M mandates that 35% of the revenues should come from products launched in the past four years. The company stands out distinctly with its assorted collection of knick knacks.

GSK stood out in the past decade on this score. Some organisations call it “vitality index” or “innovation index”, measured as new product revenues divided
by total revenues. New product in Silicon Valley may be 9 months, 3 years in most industries or 10 years in Airline industry. There are books on the subject, we will leave
management consulting to the experts and leave ourselves with business analysis and its side effects of getting rich.

The company was confident of double digit growths around this time. Company had planned more launches in 2012 based on science and deep consumer insight.

Company also enjoyed an astounding 5 billion Naira CFO in 2011 vs 3.2 Billion Naira in 2010

Page #51 of  AR 2011 is a delightful sight, dividends have increased with clockwork precision at 30% CAGR from 12 kobo in year 2000, to 120 kobo in year 2010. (1 Nigerian Naira = 100 kobo just as 1 $ = 100 cents)

In 2012 The turnover was up 18%, PAT of 23%

Government reduced subsidy on fuel, resulting in 12% inflation.

Real growth rates in Nigeria, however, continued to be as good as 9% between 2009-2012

In 2012 GSK introduced Lucozade Boost Can.

Company writes “Introduction of new products has contributed considerably”, innovation index brownie points!

In 2012 B/S of 21 Billion Nigerian Naira  with 10 Billion Retained Earnings, 8.2 Billion Trade Payables, no long term debt, some taxes payable looks like is an adorable garden nestled in a fortress.

Depreciation growth is moderate (cool), 810 Million this year (vs 738 million previous year)

2013 Turnover is up 13% PAT up 3% PE Ratio of 20

GSK Nigeria now 4th best place to work out of 38. Introduced a whole raft of goodies. Ribena Can, Ribena Pineapple, Ribena Cherry. Lucozade extends flavours to cola, cherry, tropical, raspberry, orange. Sensodyne Rapid Action is introduced, McCleans Sachet ! wow taking a cue from Hindustan Unilever in India for shampoos, should do well.

CFO 4.9 Billion up from 3.7 billion. Out of 29 Billion Naira revenues 20 derived from Consumer, other 9 billion from Pharma.

Between 2000 – 2013, i.e. 14 year period revenues rise from 2.9 Billion to 29 Billion. PBT from 97 million to 4.3 billion. Fixed asset formation from 400 million to 12 billion .
26 billion B/S still looks like an invincible iron man. Current PE of 18 is still marked down. Unbelievably at 20% growth it was available at 10 PE.

Personal Opinion: GSK is not very competitive against Pharma companies of developing world, nor is Reckitt Benckiser in consumer space. Products are not made with price attractive for developing world. Most products introduced in the recent five years are in consumer space.

A tragedy for GSK Nigeria is that whilst Lucozade and Ribena was not important for GSK Parent, they are significant for Nigerian entity, where the company derived 54% of consumer revenues in 2013 in Nigeria. These brands are famous in over 100 countries and are found in tiniest of countries (Nigeria is a warm country). In 2013 Japan's Suntory bought the rights for these two brands globally from GSK for 2.1 Billion USD. While Suntory has not started manufacturing these two products yet in Nigeria, the entity in Nigeria will have to commence royalties, hence profit numbers will suffer permanently. On top GSK has vowed to not build more than seven top brands in consumer space like Horlicks, McCleans, Sensodyne, Panadol (something I dislike). Need management interaction and more research before pulling trigger.

Nice to be in a position to say pass to a company considered par excellence with an infallible balance sheet. We do not own this yet but very well can any day, hence you should assume we have a bias to buy.

Disclosure: Vested interest in positions discussed. Views are personal notions and do not represent any organisation or company. I am not an investment adviser. Investment in stock market can (and many a times do) result in loss of principal capital.

Saturday, October 11, 2014

Wide Moat Investing in a Leaky Boat market

I wrote six months back (March 2014) at

that "I missed Nigeria (A mistake I hope to fix in coming weeks and months)." I've not been smart enough and yet to correct that blunder.

7UP Bottling (Pepsi Cola) at the time was 70 Nigerian Naira, in six months since then the latest price of 7UP is 162, these are high quality ideas where one can bet 10% of a large fund portfolio. In Calender 2014 the company has appreciated 128% as of date.

Buffett, "Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks"

 In this case the 'chronically leaking boat' for me is absence of worthy value stocks or growth stocks at the right price post an aggressive bull run resulting in a general over valued market.

Was reading a 1994 letter by Buffett addressed to Walter Schloss, just today, and another one in which he mentions that stocks can be at times worth NOT investing in at 40x PE under certain circumstances and one could wait on the sidelines (fixed income). He practised staying out of market for up to 4-6 years. These days, you can have consultants in tuxedo proudly claiming, how important it is to stay invested (as if you are a captain at the wheel and need to inspire the crew by example, or as an investor you need to lock in the capital in expensive equities to prove your loyalty to the country), you have to stay invested through thick and thin.

Investing in other depressed or reasonable markets is another perfect alternative to fixed income instruments. Despite tripling, 7UP Bottling Nigeria is available at 13 times annual earnings. Some more research is needed before committing to the idea, maybe the price would be up another 50% by the time I dilly dally.


Reversion to mean is a powerful model.

Lowest cost producer of a commodity is a natural MOAT. One can easily buy top two of the leading Platinum producing companies, both of which are down 70% this year on back of strikes in Zimbabwe, aging mines and tumbling platinum prices. Two biggest producers globally are Anglo Platinum and Impala Platinum, both down 60-70% this year. Both are listed on one or more of OTC market, South African Exchange and Australian Exchange.



Some more unknowns (that have nothing to do with quality of company but Government policies and regulations) prevent me to bet on platinum just yet.

The hunt is on before being submerged in a leaky boat (aka correction of 15-20%, a euphemism for loosing a lot of money very swiftly in an over valued market).

Disclosure: Vested interest in positions discussed. Views are personal notions and do not represent any organisation or company. I am not an investment adviser. Investment in stock market and currency market can (and many a times do) result in loss of principal capital.