I have found that simple financials and ratios to be most useful as the first snapshot when looking at a company. This is like the first date. You are just going to see a glimpse of this person with all the excitement and risks. Is she pretty, is he handsome? What are his or her likes and dislikes? Any major dealbreaker like smoking (if you are non-smoker), drugs, violence etc. That’s simple financials. Today, we have this interesting set of numbers:
Simple financials (Jun 2023 estimate, USD)
Sales: 55.7bn
EBITDA: 30.0bn
Net income: 14.9bn
FCF: 12.4bn
Debt: 5.1bn, Mkt Cap 144.9bn
Ratios
ROE 33.4%, ROIC 30.3%
EV/EBITDA 5.2x (Jun 24)
PER 10.4x (Jun 24)
Past margins: OPM 25-45%
FCF yield 8.6% (consistently at mid to high single digit, with last two years double digits)
This set of numbers could be the strongest we have seen so far, beating Roche’s! Alas, it is in an industry even more cyclical than Roche’s! In the lean years, it goes into losses and ROE turns negative. It is also highly capex intensive (10-35% of sales) and the firm suffered a couple of years of negative FCF over the last 30 years but only once in the past 20 years. Over the last 10 years, it has compounded nicely with share price doubling for GBP12 to GBP24 today.
Investors, skeptical of the boom bust cycles in the recent past, has ascribed inexpensive valuation across the whole sector with PER at very low double digits and EV/EBITDA at 4-6x. Meanwhile FCF of the whole industry has been exceptionally strong over the last few years.
