Alaska Milk Corporation (AMC) is a leading manufacturer of milk products in the Philippines. It began its corporate life in 1972 and became a publicly listed company in the PSE in 1995. In 2007, AMC became even more dominant in the liquid milk category by acquiring/licensing the liquid canned products of Nestle S.A., which includes Carnation, Milkmaid, Alpine, Liberty and Krem Top brands.
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| wala pa ring tatalo sa Alaska! |
Economic Moat:
Alaska Brand is one of the leading Milk brand in the Philippines. It’s greatest rival is Nestle S.A. with similar product lines like Bear Brand and Nido. Despite the competition, AMC manage to keep a big part in the overall market share of the Milk products specially the liquid milk products for 35 years. In addition, some of the milk brands that are originally owned by Nestle S.A. was acquired by AMC since 2007 complementing their business thus resulting to improved operation margin, better supply management and improving their sales as a whole.
Alaska Brand is one of the leading Milk brand in the Philippines. It’s greatest rival is Nestle S.A. with similar product lines like Bear Brand and Nido. Despite the competition, AMC manage to keep a big part in the overall market share of the Milk products specially the liquid milk products for 35 years. In addition, some of the milk brands that are originally owned by Nestle S.A. was acquired by AMC since 2007 complementing their business thus resulting to improved operation margin, better supply management and improving their sales as a whole.
Business review:
AMC has consistent increased in sales, net income and operating cash flow as shown in the charts below.
AMC has consistent increased in sales, net income and operating cash flow as shown in the charts below.
Profitability:
Average ROE for 5 years = 17.57
ROE (TTM or trailing 12 months) = 36.92
Net Profit Margin = 16.39
AMC management is doing an excellent work in making its business profitable and consistently improving. ROE higher than 15 is a sign of a profitable business. Note that the 5 year average of all the companies in PSEi is only 16.06 thus making AMC above average. The net profit margin of AMC is also improving (16.39) compared to industry average of 5.20. In addition, the expected appreciation of peso in the near future will further increase the profit margin since raw materials are imported.
Growth:
Annual Net Income growth rate = 24.13% (for the last 7 years)
Sustainable growth rate = 33.36%
In a country where birth rate is one of the highest in the world, the best profession is midwifery and the best product to sell is obviously Milk. Combine this fact with the efficient production line of AMC thus making the business grow faster over time. Acquiring the products previously owned by Nestle S.A. is a very good step by the company since these brand has its own share of loyal consumers (I’ve known Alpine, Carnation and Liberty since I’m young) plus it optimize the production, CAPEX and overhead expenses since all this product complement each other (same raw materials and almost same production lines and machines). Its sustainable growth rate is also high and overleveraging is highly unlikely. The sustainable growth rate is the maximum growth rate that a firm can sustain without having to borrow money.
Risk and Debt:
DE Ratio = 9.94 (Debt to Equity)
Current Ratio = 1.84
Should another round of financial crisis happen in the near future, I bet this company will survive since its debt is almost negligible. Based on all the books and experts, a DE ratio of 100 or less is good...AMC has 9.94! In fact the only time that this company borrowed in the bond market is when they acquire the legendary brands from Nestle and still this level is very low. PSEi stocks has average DE ratio of 66.10 (and so it means these companies are financially strong...hurray!). Liquidity is also better than average since its current ratio (current asset/current liabilities) is above 1.5....
Valuation:
PE ratio = 5.12 (2010 estimate)
PB ratio (MRQ-most recent quarter) = 2.71
Intrinsic Value = Php 25 per share
Current Price = 13.18
Upside = 89.70%
Average ROE for 5 years = 17.57
ROE (TTM or trailing 12 months) = 36.92
Net Profit Margin = 16.39
AMC management is doing an excellent work in making its business profitable and consistently improving. ROE higher than 15 is a sign of a profitable business. Note that the 5 year average of all the companies in PSEi is only 16.06 thus making AMC above average. The net profit margin of AMC is also improving (16.39) compared to industry average of 5.20. In addition, the expected appreciation of peso in the near future will further increase the profit margin since raw materials are imported.
Growth:
Annual Net Income growth rate = 24.13% (for the last 7 years)
Sustainable growth rate = 33.36%
In a country where birth rate is one of the highest in the world, the best profession is midwifery and the best product to sell is obviously Milk. Combine this fact with the efficient production line of AMC thus making the business grow faster over time. Acquiring the products previously owned by Nestle S.A. is a very good step by the company since these brand has its own share of loyal consumers (I’ve known Alpine, Carnation and Liberty since I’m young) plus it optimize the production, CAPEX and overhead expenses since all this product complement each other (same raw materials and almost same production lines and machines). Its sustainable growth rate is also high and overleveraging is highly unlikely. The sustainable growth rate is the maximum growth rate that a firm can sustain without having to borrow money.
Risk and Debt:
DE Ratio = 9.94 (Debt to Equity)
Current Ratio = 1.84
Should another round of financial crisis happen in the near future, I bet this company will survive since its debt is almost negligible. Based on all the books and experts, a DE ratio of 100 or less is good...AMC has 9.94! In fact the only time that this company borrowed in the bond market is when they acquire the legendary brands from Nestle and still this level is very low. PSEi stocks has average DE ratio of 66.10 (and so it means these companies are financially strong...hurray!). Liquidity is also better than average since its current ratio (current asset/current liabilities) is above 1.5....
Valuation:
PE ratio = 5.12 (2010 estimate)
PB ratio (MRQ-most recent quarter) = 2.71
Intrinsic Value = Php 25 per share
Current Price = 13.18
Upside = 89.70%
Intrinsic value of AMC is calculated based on the latest quarterly report(3Q-2010). Cash flow is projected to grow at 15% for the next 10 years and then discounted at a rate of 10%. The computation is very conservative since I don’t consider the other future income after 2020.
Other Factors:
AMC is scheduled to give dividend on Mar 01, 2011 (ex date) and this company is very generous to its shareholder this year after giving a total of Php0.425 per share. Currently, its price show a strong support at 13.0.
Conclusion:
AMC is a good value stocks specially if you have long term outlook since it usually give high dividend to its shareholders. It has more upside in the future with low risk due to its financial strength.
Disclaimer:
The assumptions used above are based only on historical data and doesn't guarantee future performance of the company. All investors are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance is no guarantee of future price appreciation.
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