Thursday 23 May 2013

Analysis of Danone

A French dairy product company

Company: Danone

Business: Sale of fresh dairy products, water, baby and medical nutrition.

Active: This French company are acting globally and are one of the fortune 500 companies.

The reason for this very quick analysis was due to the reports here in Germany that Chinese people are buying all the baby nutrition from the stores and sending it back home to China were it is being sold for 3-4 times the price here in Germany. The reason for this is the discovery of melamine contaminations in the baby food in China. So one of the brands having problem in China is Dumex which is a brand from the French Danone and means current significant sale losses on the Chinese market for Danone. One of the favourite baby nutrition's that are currently being sold like crazy in Germany is Aptamil from Milupa GmbH. The stores have even been forced to limit the packages sold to people to be able to keep some kind of supply on the shelves for the German population.

P/E: 22.3

So the twist of this story is that surprise, surprise... Milupa GmbH is a daughter to Danone. So the loss of sales that Danone is having in China they are making up for by selling the German product from Milupa via Chinese relatives in Germany. Crazy, crazy!

The P/E of Danone is over 22 and the price to book is as high as 3, which according to Graham means that the company should not be bought. The earnings to sales of 8% is pretty ok if one classify it in the group of "food" stores like Wal-Mart, Tesco and Carrefour. The book to debt is acceptable with 0.7 according to the same group classification. In the last five years their growth has been 6.5% which gives a motivated P/E according to Lynch and Graham of around 20. They pay 2.5% in dividends which I find low however it is 56% of the earnings so it should not be pushed up further based on the current earnings.

Conclusion: Danone is currently fairly valued by the stock market and I would today not make an investment in it but it is funny to see how a company can loose profit in one brand to gain it in another and then also in a completely different region.

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