⁠Hidden Value Gems
A masterpiece on Moats by @mjmauboussin (104 pages) 🧵👇

1⃣ "You can think of a stock price as having one part that reflects the value of the company operating at a steady state of profit and the other part that captures the value the company is expected to create or destroy with its future investments."

2⃣ "On average, the steady-state value has been two-thirds of the price and the anticipated value creation the other one-third.13 There have been bouts when the price reflected little or no future value creation (1974 and 2011) as well as significant future value creation (1999 and 2001)."

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⁠Stock Analysis Compilation
Let's start with the Q3 letters!
Every Wednesday in the newsletter I send out all the analysis published here in the previous 7 days in plain text, with links to all the letters.
Link : https://t.co/lBsLuVQjso https://t.co/QVjdSHoemi
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⁠Stock Analysis Compilation
Night Watch IM on Dream International $1126 HK

Thesis: Dream International (1126 HK), trading at just 3x P/E with a 13% dividend, may be poised for recovery after being unjustly punished by its Hong Kong listing

(Extract from their Q3 letter) https://t.co/uNZNZtX9Gz
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⁠Librarian Capital
"Hong Kong slashes tax on spirits to boost nightlife" (FT)

"The duty rate for spirits with an import price of more than HK$200 (US$26) will be slashed from 100% to 10% for the portion of its value above that price"

This is a tax cut for super premium+ spirits only

cc $RCO $DGE

Hong Kong slashes tax on spirits to boost nightlife https://t.co/aIbSDy92Lr - Financial Times
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⁠Librarian Capital
France: "Exceptional contribution" for large companies (EY)

2 fiscal years after Dec-24
Based on corporate income tax (CIT)

2 sets of rates based on sales
(1) €1-3bn: 20.6% of CIT in Y1, 10.3% in Y2
(2) >€3bn: 41.2% of CIT in Y1, 20.6% in Y2

$OR, $RI in (2); $RCO in (1) https://t.co/0CpHcOD9Tb
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⁠Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: Less than 3 months ago I suggested that $MCD appears to be a worthwhile consideration for investment at $261💵

Since then, $MCD is up +18% ✅

As I stated:

“As you can see, $MCD appears to have attractive return potential IF we assume >22x earnings, a multiple below its 10-year mean & a multiple that’s not too far off from 20x which is where $MCD has a history of bottoming at — implying a decent margin of safety

Today at $261💵 $MCD appears to be a worthwhile consideration for investment, especially for investors looking to establish a position in a strong dividend grower with relatively low volatility” 🎯
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#stocks #investing

A sober valuation analysis on $MCD 🧘🏽‍♂️

•NTM P/E Ratio: 21.24x
•10-Year Mean: 23.35x

•NTM FCF Yield: 4.53%
•10-Year Mean: 4.07%

As you can see, $MCD appears to be trading below fair value

Going forward, investors can receive ~10% MORE in earnings per share & ~11% MORE in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $MCD is a quality business

BALANCE SHEET🆗
•Cash & Short-Term Inv: $838.00M
•Long-Term Debt: $37.21B

$MCD has a decent balance sheet*, a BBB+ S&P Credit Rating, & ~7x FFO Interest Coverage Ratio

* $MCD owns plenty of land, with a total value of $7.08B as of Dec 2023

RETURN ON CAPITAL✅
•2019: 22.0%
•2020: 16.4%
•2021: 21.7%
•2022: 23.1%
•2023: 23.4%
•LTM: 25.5%

$MCD has strong return metrics, highlighting the financial efficiency of the business

REVENUES🆗
•2018: $21.26B
•2023: $25.49B
•CAGR: 3.69%

FREE CASH FLOW✅
•2018: $4.22B
•2023: $7.25B
•CAGR: 11.43%

NORMALIZED EPS✅
•2013: $5.55
•2023: $11.94
•CAGR: 7.96%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 1.00B
•LTM Shares Outstanding: 726.85M

By reducing its shares outstanding 27.3%, $MCD increased its EPS by 37.5% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 57.0%
•LTM Operating Margins: 45.7%
•LTM Net Income Margins: 32.2%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~10% MORE in EPS & ~11% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $MCD has to grow earnings at a 10.62% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be less than the (10.62%) required growth rate:

2024E: $12.01 (0.6% YoY) *FY Dec
2025E: $13.16 (9.6% YoY)
2026E: $14.33 (8.9% YoY)

$MCD has a good track record of meeting analyst estimates ~2 years out, so let’s assume $MCD ends 2026 with $14.33 in EPS & see its CAGR potential assuming different multiples

24x P/E: $343.92💵 … ~14.2% CAGR

23x P/E: $329.59💵 … ~12.3% CAGR

22x P/E: $315.26💵 … ~10.4% CAGR

21 P/E: $300.93💵 … ~8.4% CAGR

As you can see, $MCD appears to have attractive return potential IF we assume >22x earnings, a multiple below its 10-year mean & a multiple that’s not too far off from 20x which is where $MCD has a history of bottoming at — implying a decent margin of safety

Today at $261💵 $MCD appears to be a worthwhile consideration for investment, especially for investors looking to establish a position in a strong dividend grower with relatively low volatility

#stocks #investing
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𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲. - Dimitry Nakhla | Babylon Capital®
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⁠Librarian Capital
Spirax $SPX: Another investor reducing stake

Blackrock down from 9.88% to 9.14% (10-Oct)

Bad reaction to investor day week before (3-Oct)? https://t.co/JMmBWwCFuH
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⁠Librarian Capital
FeverTree $FEVR was one of Lindsell Train UK Equity's two biggest detractors during Q3 (price down 23%)

But Nick Train remains optimistic:

"When the good times return, we expect a further surge in Fever-Tree’s revenue growth and its share price"
(Sep-24 factsheet, 4-Oct) https://t.co/Ts65Yc1BfG
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⁠Librarian Capital
Lindsell Train's James Bulloch on Diageo:

"There’s a growing sense that the worst may be behind us with easier year-on-year comparisons likely boosting the optics of growth"

Others in the industry (like $BF.B's Lawson Whiting) have been predicting the same

$DGE $DEO https://t.co/24sdvDY3lF
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