Please refer to the another blog if you are interested : http://bursamalaysiastockstips.blogspot.com/
How I value my favorite Stock - Dutch Lady
I have bought Dutch Lady since many years ago and I keep buying it. Today, I still think it is cheap in term of valuation even though the stock price has been consistently rise from few dollars to 10 dollar now , why ?
1. Earning is consistently outperform for many years : -
Earning Per Share: -
2006 half year - 0.31
2005 - 0.42
2004 - 0.31
2003 - 0.24
2002- 0.24
2001 - 0.19
2000- 0.23
1999 - 0.21
The earning per share is in uptrend and consistently doing well for many years. If you are boss and you have employed a sales man who consistently outperform for many years, do you ask him to leave the company, or still keep him ? The answer it: keep him as long as he perform well ..............then why should I dump Dutch Lady ?
2. Pay out the dividen consistently
Only if the company pay out the dividen, the cash figure in the financial report will be in realize into real money, and you will be convinced that the company is really doing well to pay out the real money. Let see the Dutch Ladies dividen as follow : -
Dividen per share
2006-half year 0.30
2005-0.63
2004-0.56
2003-0.13
2002-0.06
2001-0.23
2000-0.23
1999-0.18
Dutch Lady not only pay dividen, but pay generously, in 2005, the total dividen is 63 cents per share , even more than the earning per share of 42 cents per share. In 2006, it pays 30 cents for half year, almost equal to the earning per share for half year of 0.31. Hard to believe, to generously, it really a cash cow : -
3. Good ROE : Based on the Net Tangible asset of 1.85 in 2005, the ROE is about 23%, mean for every ringgit you invested will earn you 23 cents, which is much higher than the current Fix Deposit.
If the stocks consistently pay out the generous dividen, it will reduce the NTA subsequently and therefore the ROE will be improving, and I expect one day it will exceed 30%. I like the stock with high ROE than low PE.
4. Moderate debt or low gearing : I do not found any long term debt in 2005 financial report, and the net current asset is rather good. Thus, this stock meeting my criteria of low or moderate debt.
5. Consumer Monoply : Dutch ladies Milk is famous milk among many peoples in the globe. Even there is a potential of new competitor come in, but it is unlikely challenge its market share in Malaysia as it is really a worldwide well know brand.
6. A business that will never be outdated : - unlike technology products which has the risk of being outdated or challenged by another company who has better technology edge, the milk is a basic necessary for human and this product will never be outdated like camera film or floppy disk. You suppose your grandma drink milk, your children drink milk and your children's children drink milk.
7. Not a business that will recylce up and down : - for recyling business like property, shipping, consctruction, and even oil and gas, there will be a good timing and bad timing and the stocks price will reflect with low price when bad timing and reflect with high price when good timing. However, for this milk stocks which is require by human being for 1 year 24 months and 1 century 100 years, thus, you should not have worry of cycling up and down.
8. A simple business model : It produce milk and milk related products, simple and easy to understand. More importantly, it will never diversified its business into none milk related business like most of the local companies here. You will not be surprise in Malaysia that a clothing company invest in property, or a automoble company invest in oil and gas, which is not their core bussienss. Of course, if the invested business success you will earn, but what if it fail ?
I always prefer to stick with a company culture that doing its core business like Dutch Lady producing milk, and if I interested in oil and gas, I will invest in KNM rather than Dutch Lady.
9. Excellent Management : Yes, based on the track records of this company and its current excellent CEO from Netherland Cornelis H.N, the management of this company is really excellent and capable. You can find so many good new Dutch Lady products in the supermarket shelves today, if you do not believe, go to any hypermarket and see........
10. Little risk of inflation : Don tell me you will stop drinking milk if the price of milk is too high, maybe you still can do it, but most peoples will not do it, as it is basic food required by human being.
11. No huge capital expenditures : The machinery and technology is simple to produce the milk, so you don't worry if the company need hugh capital expenditures like proton.
