Tag Archives: Profitability Consistent

Business, Finance, Occupation & Industry

Carnival: Buy, Sell, or Hold?

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By Zarr Pacificador, The Motley Fool

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LONDON — I’m always searching for shares that can help ordinary investors like you make money from the stock market.

Right now, I am trawling through the FTSE 100 (UKX) and giving my verdict on every member of the blue-chip index.

I hope to pinpoint the very best buying opportunities in today’s uncertain market, as well as highlight those shares I feel you should hold… and those I feel you should sell.

I’m assessing every share on five different measures. Here’s what I’m looking for in each company:

  1. Financial strength: Low levels of debt and other liabilities.
  2. Profitability: Consistent earnings and high profit margins.
  3. Management: Competent executives creating shareholder value.
  4. Long-term prospects: A solid competitive position and respectable growth prospects.
  5. Valuation: An underrated share price.

A look at Carnival
Today, I’m evaluating Carnival  , a global cruise and travel company, which currently trades at 2,303 pence. Here are my thoughts:

1. Financial strength: Carnival has adequate liquidity to cover financial obligations, with net gearing of only 35% and an interest cover of five times. Although the net debt of 5.8 billion pounds is quite high at five times operating profits, cash flow is set to improve as the company intends to reduce shipbuilding and plans to introduce only two to three ships annually from 2013 to 2015 compared to a five-per-year average in the past.

2. Profitability: While revenue-per-share growth has been consistently increasing by 10% per year over the last 10 years, earnings per share have declined from a high of 197 pence in 2008 to 103 pence in 2012. Operating margin and return on equity (ROE) have also deteriorated from 20% in 2003 to 11% in 2012 and 12% in 2008 to 6% in 2012, respectively.

3. Management: Micky Arison is the CEO and chairman of Carnival Plc and Carnival Corporation. The son of the company’s founder, Ted Arison, has been Carnival Corporation‘s CEO since 1979 and Carnival Plc‘s CEO since 2003. He has more than 30 years of experience in the industry and has built Carnival into the biggest cruise company in the world with a market capitalization of 4 billion pounds and earnings of over 9 billion pounds to date. Management has committed to increasing shareholder returns and opportunistic share repurchases the next few years and has announced the renewal of its $1 billion (660 million pound) share repurchase program.

4. Long-term prospects: Carnival is the largest cruise company in the world, with 100 ships operating in the U.S., the U.K., Canada, and continental Europe. It owns a portfolio of leading brands that include Carnival Cruise Lines and Princess Cruises in North America and P&O Cruises and Cunard Line in the U.K.

The past couple of years have been a challenging time for the cruise industry: The global economic slowdown and volatile fuel prices have dampened demand and increased costs resulting in earnings per share declining in three out of the last four years. However, the company has responded by intensifying cost-efficiency efforts, reducing fuel consumption per unit by a cumulative 21% since 2007 and expects around another 5% reduction per unit in 2013. Also, with travel …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

British American Tobacco: Buy, Sell, or Hold?

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By Zarr Pacificador, The Motley Fool

Filed under:

LONDON — I’m always searching for shares that can help ordinary investors like you make money from the stock market. Right now, I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. 

I hope to pinpoint the very best buying opportunities in today’s uncertain market, as well as highlight those shares I feel you should hold… and those I feel you should sell.

I’m assessing every share on five different measures. Here’s what I’m looking for in each company:

  1. Financial strength: Low levels of debt and other liabilities.
  2. Profitability: Consistent earnings and high profit margins.
  3. Management: Competent executives creating shareholder value.
  4. Long-term prospects: A solid competitive position and respectable growth prospects.
  5. Valuation: An underrated share price.

A look at British American Tobacco
Today, I’m evaluating British American Tobacco  , a British multinational tobacco company, which currently trades at 3,482 pence. Here are my thoughts:

1. Financial strength: British American Tobacco is in a solid financial position with net debt of only 1.5 times operating profits and interest cover a hefty 13 times. The company also generates consistent and stable free cash flows averaging over 3 billion pounds per year for the past three years.

2. Profitability: Revenues have increased 7% per year for the past five years while earnings per share has grown by 13% per year and dividends per share by 15% per year for the past decade. Operating margins have expanded from around 10% early in the decade to around 35% the last few years. The 10-year average return on equity (ROE) and return on capital employed (ROCE) have been a remarkable 60% and 35%, respectively.

3. Management: Nicandro Durante assumed the post of CEO in March 2011. He was previously the COO and has been with the company since 1981. British American Tobacco‘s share buyback program, which was suspended in 2009, was resumed in 2011. It has bought back 750 million pounds’ and 1.25 billion pounds’ worth of shares in 2011 and 2012, respectively. The board has agreed on repurchasing 1.5 billion pounds’ worth of shares for 2013.

4. Long-term prospects: British American Tobacco is the world’s second-largest tobacco company by market share, with a portfolio of 200 brands sold in around 180 markets worldwide. The group has significant exposure to emerging markets, where it derives around 70% of its profits.

The group’s four well-known brands, which it refers to as the Global Drive Brands (GDBs — Lucky Strike, Kent, Dunhill, and Pall Mall) accounted for 35% of the group’s revenues in 2011, and have performed well the last few years increasing volume and market share. As of the last trading statement, GDBs have increased volume by 3% and market share by 0.3%. However, group volumes declined by 1.6% due to the difficult trading conditions in some of its major markets, particularly Southern Europe. But revenues at constant rates of exchange still grew by 4% and adjusted diluted earnings per share were up by 7%. Also, the group saw increases in …read more
Source: FULL ARTICLE at DailyFinance