Based on some happy experiences, as a matter of principle, I am attracted to the notion of buying shares in businesses that are either sold by governments, or spun out from bigger corporations (recall that DLX was de-merged from ORI in mid-20100).
In this case the business that was set free, dramatically outperformed the mother ship:
In FY10, ORI earned EBITDA and NPAT of $1.34bn and $620m, respectively. This year, ORI's EBITDA will be 30% lower than the 2010 level, at $920m and NPAT will be 40% lower, at around $380m.
By comparison, DLX's EBITDA and NPAT are today over 50% and 75% higher than they were at the time of the de-merger in 2010, representing 10% pa CAGR in bottom-line earnings.
No surprises, then, that a $10,000 investment made in DLX at the time of the de-merger would today be worth over $25,000, while that same investment in ORI would today be worth around just $5,000.
Problem is, this impressive performance from DLX has been well-recognised by the market, meaning the stock is no longer undervalued, as it has been in the past.
I am therefore hoping for a few potential snags in today's result which might place some downward pressure on the stock price. There's been quite a bit happening within the business in the current half (industrial action, commencement of new factory construction, potential supply chain disruptions in preparing to transition to new DC) which might have some adverse cost or cash flow impacts (hopefully).
For what its worth, on my modelling I am expecting the following financial results, pre-abnormal items
(all figures in $m, unless otherwise stated):
Revenue = 878
EBITDA = 119
EBIT = 102
NPAT = 64.7
EPS = 16.6cps
Final DPS = 11.00cps
OCF = 55
Capex = 60
NIBD I expect will be around $400m at period-end
Segmental Revenues
Paints and Coatings = 469
Consumer and Construction Products = 137
Garage Doors and Openers = 81
Cabinet and Architectural Hardware = 89
Other = 110
Segmental EBITDA
Paints and Coatings = 92.5
Consumer and Construction Products = 15.5
Garage Doors and Openers = 9.5
Cabinet and Architectural Hardware = 5.3
Other = 8.8
Unallocated Costs = -13
10:30am webcast
(See DuluxGroup website)
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