Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Long Term Stock – #1 Paint Company in Kenya, Uganda and Tanzania

with 19 comments

As trillions of dollars are chasing the opportunities at the speed of light, this results in drying up on obvious bargains amongst market leaders.

Above normal returns, then can be made in industries which are neglected, geographies that are considered unsafe, companies below a certain size/revenue threshold, or markets where trillions of dollars are not allowed to come in. If money is allowed to flow freely, then even in countries with abject poverty, leading stocks trade at 40+ PE multiple.

You may have appreciated numerous 100 year charts with breakdown of equity CAGR returns segmented by market cap. And, that companies with greatest market cap perform almost predictably below mid cap, which are further out flanked by small caps. What skips the instant analysis is that Large cap are dozens, mid cap in scores, and small caps in hundreds. That is, 100 out of 500 midcaps may have been decimated, which no longer feature in any 100 year chart. If you invested in 20 small caps out of which 10 did not survive, then then personal returns as elucidated by charts would prove to be a mirage. Therefore, one needs to diversify to a larger extent with small/mid caps.

For an investor with 10 stock portfolio, either conviction in small cap has to be unshakable (which is always the case when one begins investing :)), as a general guideline one should invest in leaders in an industry niche or geography for long term investing. Wouldn’t it be better though – if a leader is also available at small cap valuations. If not in India or New Zealand, who cares.

———————————————————————————————–

Enough is said about raising opportunity cost. Any foreign investor is able to invest freely in Kenya. In India you get leading paint company (Asian Paints) at a market cap of 5 times annual revenues and even #2 and #3 players (Akzo and Berger) at 2 times annual revenues.

Crown Paints Kenya (www.crownpaints.co.ke) (formerly Berger Kenya), similar in stature in product line, industry offerings, present in Decorative, Industrial, Commercial, Marine and more segments is available 1 time annual revenues.

– #1 company in the Country
– Now also rapidly expanding in Uganda, Tanzania and other East African countries.
– Promoted by Crown Paints of UK, (www.crownpaint.co.uk), now a part of 200 year old Danish Hempel Group, #2 worldwide in Marine Paints www.hempel.com
– Available at 10 PE ratio
– With no Debt
– Cash flows as good as Net profits
– With much room for improvement in profit margins
– With products from Crown, Dupont and Hempel

Five year performance:

100% returns in 2012 and over 57% in 2013 until September

Financial dissection, so dear to an analysts heart can be downloaded and broken down in threadbare detail from here.
Something you may not have read in any Indian annual report for years now, because such magnitude of inefficiency and disequilibrium does not exist in Indian companies, such as 9% productivity growth in one year that Crown experienced.

Risks: Geography and Currency Risk.

Disclosure: I and my family/friends may have positions here

Written by amitdipsite

October 11, 2013 at 9:36 pm

Posted in Uncategorized

19 Responses

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  1. Wonderful article:

    “From time immemorial, it has been a bunch of creative traders and maverick investors who have continued to find new destinations for investment. In Nepal, a bank like Standard Chartered or a multinational like Unilever or Surya Nepal, that brought in a couple of million dollars 25 years back, have their companies valued in the hundreds of millions now.”

    http://www.ekantipur.com/the-kathmandu-post/2013/05/13/oped/fragile-to-frontier/248711.html

    Amit Arora

    October 12, 2013 at 3:01 am

  2. “When Procter & Gamble first launched Febreze as an odor-eliminating product, it failed.”

    http://www.chicagonow.com/marketing-strategist/2013/09/how-pg-sniffed-out-new-markets/

    Scent Segmentation

    http://www.chicagonow.com/marketing-strategist/2013/10/a-portfolio-approach-unilevers-dove-segments-with-scent/

    “This is the Rs1,000 crore that could become the Rs10,000-15,000 crore ten, fifteen years down the road and it's the business responsibility and strategy to really seed some of the categories,” Hindustan Unilever Chairman and Unilever COO Harish Manwani said.

    http://articles.economictimes.indiatimes.com/2013-06-05/news/39764666_1_dove-premium-brands

    Amit Arora

    October 12, 2013 at 8:07 pm

  3. “When Dove was launched in early 90's, most companies including HUL (then Hindustan Lever) thought that liberalisation would translate into consumers buying more premium brands.
    However, it didn't happen as customers saved money for big-ticket items such as durables.”

    Looks like just as in the 90s, in 2013 and 2014 the trend to premiumization will stop as well as India becomes a Dog from Darling with a promise of 4% growth rate ahead.

    Market Cap to GDP ratio is still 56%, down from 110% in 2008. But still much ahead of 23% it was in 2003, way to go !

    Amit Arora

    October 12, 2013 at 8:13 pm

  4. Interesting Observations:
    ——————————————————————
    Australia Population 2.2 Crores
    Unilever Australia Revenues 9,000 Crores INR
    Revenue per capita: 4090 INR
    ——————————————————-
    India Population 125 Crores
    Unilever India Revenues 26000 Crores INR
    Revenue per capita: 208 INR
    ——————————————————-
    Ghana Population 2.6 Crores
    Unilever Ghana Revenues 900 Crores INR
    Revenue per capita: 346 INR
    ——————————————————-
    Nepal Population 2.7 Crores
    Unilever Nepal Revenues 295 Crores INR
    Revenue per capita: 109 INR
    ——————————————————-
    UNILEVER Global Revenue per capita: 435 Rs INR
    ——————————————————-

    Unilever extracts on an average 450 Rs INR per annum from every world citizen, with a lot of variation. 50-100 Rs in countries like Nepal. 200-500 Rs in African subcontinent continent and India, and 4000+ Rs in economically developed countries.

    Unilever Global trades at multiple of 19PE and in all developing/emerging countries where foreign investment is allowed, trades between PE 35 – 45.

    While P&G Global has even better class of products with greater vintage, its ROE is dismal 16% vs Unilever Global's 29% ROE, primarily because latter is more focused on emerging markets.

    This proves that the more economically starved economies you invest in, the greater the long term returns, assuming countries don't fail. There is still a legion of Western Fund managers who believe it as risky investing in India as it is in Somalia or Afghanistan, matter of perception.

    Amit Arora

    October 12, 2013 at 9:30 pm

  5. Hi Amit
    Saxo doesn't show Kenya as a market, could u plz give a few names of brokers who will allow us to do so

    Perfect Research

    October 13, 2013 at 3:17 am

  6. Hello Ashish

    http://www.sbgsecurities.co.ke/standimg/Kenya/sgbsecurities/index.html

    They are part of a large MNC bank

    All the best

    Amit Arora

    October 13, 2013 at 4:31 am

  7. Sorry, typo – ROE for Unilever Global is 39% not 29% whereas P&G Global ROE is only 16%.

    Amit Arora

    October 13, 2013 at 4:40 am

  8. Same of Uganda, Crown's group company is first result

    https://www.google.co.nz/search?q=uganda+paint+company

    http://www.regalpaints.co.ug

    Title of the Post should now be revised

    Amit Arora

    October 13, 2013 at 8:35 pm

  9. Amit Arora

    October 24, 2013 at 3:30 am

  10. Have you considered Entertainment Network (India)? Radio Mirchi strong brand associations will be revenue triggers. Advertising spends never go down. Good promoters. EPS growth 5 years > 50 and zero debt. First mover in industry. Market Cap < 3000 crore, P/E 22. Historical P/E above 30.

    Manu

    October 27, 2013 at 2:08 pm

  11. Hi Amit,

    Disappointing numbers from Thangamayil. What is your take now ?
    Are you still holding ?

    Thanks,
    Gouri

    Gouri Maya

    October 28, 2013 at 11:01 am

  12. You still holding Gulshan polyols ??

    Ashwini Damani

    October 28, 2013 at 4:47 pm

  13. With Thangamayil really disappointing results. I would not add but with sunk cost bias, I will hold on. New money will not go there, instead any or all housing finance company. Company however, has not lost to competition or brought out losing products. RBI regulation prevailed instead.

    I have not sold any stocks in last 2-3 years except Eclerx and Infinite. I hold on to losers and winners. My inclination is now to hold on to stocks for ever. Hence looking across the border for Unilever, Bata, Nestle, Glaxo, Pepsi etc.

    Amit Arora

    October 29, 2013 at 6:17 am

  14. Reduced Thangamayil. Bought Dewan Housing. Gruh Finance also looks promising for long term

    Amit Arora

    October 29, 2013 at 6:47 pm

  15. Accidentally deleted your comment:

    bengup has left a new comment on your post “Long Term Stock – #1 Paint Company in Kenya, Ugand…”:

    Was thinking of adding more of Can Fin Homes. Your view?

    Publish
    Delete
    Mark as spam
    ==================================

    I also own Canfin, looks good.

    Amit Arora

    October 30, 2013 at 4:05 am

  16. Nestle India (50PE), fifth consecutive quarter of below 10% growth in India.

    Unilever India and Unilever Indonesia Market Cap same !

    20 Billion USD

    Amit Arora

    October 31, 2013 at 7:17 am

  17. is there any specific mutual fund who invests in bangladesh

    Amit G

    November 2, 2013 at 7:46 am


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