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Kone - Expanding Multiples

Analysing companies' finances and value from their financial statements using ratios and formulae
ADrunkenMarcus
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Re: Kone - Expanding Multiples

#450364

Postby ADrunkenMarcus » October 15th, 2021, 2:33 pm

Kone seems weak given concerns about the Chinese property market. It may be that short term weakness provides a more attractive entry point!

I think we can argue Spirax underwent a healthy correction. It's down 11% from its 16700p peak.

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#451052

Postby flyer61 » October 18th, 2021, 5:02 pm

So I have topped up Kone. I sold some at £10 more than they are now a year or so ago. It is still held in Fundsmith and as long as TS isn't selling then I am confident over the long term this should work out.

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Re: Kone - Expanding Multiples

#451249

Postby ADrunkenMarcus » October 19th, 2021, 11:43 am

flyer61 wrote:So I have topped up Kone. I sold some at £10 more than they are now a year or so ago. It is still held in Fundsmith and as long as TS isn't selling then I am confident over the long term this should work out.


The gross dividend yield is 3.2%. :) It's a pity about the Finnish dividend withholding tax, which was 30% and increased to 35% this year. However that's not Kone's fault!

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#451257

Postby monabri » October 19th, 2021, 11:56 am


ADrunkenMarcus
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Re: Kone - Expanding Multiples

#458034

Postby ADrunkenMarcus » November 14th, 2021, 8:59 pm

To return to 'expanding multiples', Spirax Sarco closed at 17050p on Friday - an all-time high.

There have been further upward revisions to earnings forecasts, stretching to 2023 that I can see, but it's on a p/e of about 52 vs. its three year average of 42. (I bought around a p/e of 23 in 2015). The p/e on a forward basis to 2023 is still 46. While the dividend yield on my book cost from 2015 will be a healthy 4.7% according to forecasts, someone buying today has a 0.8% dividend yield which will remain sub-1% in 2023.

Much of the 445% total return has come from multiple expansion because it trades today on 2.2 times the 2015 multiple!

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#458695

Postby ADrunkenMarcus » November 17th, 2021, 10:06 am

Spirax's trading update this morning was very positive IMHO as they maintained guidance despite rising costs, because they have been able to 'broadly offset'.

https://www.spiraxsarcoengineering.com/ ... atory-news

Wednesday 17th November 2021
TRADING UPDATE
Continued strong growth, guidance unchanged
[snip]
Trading
We continue to experience very strong demand across the Group, with order books in all three businesses expanding in the four months to the end of October above our expectations at the time of the Half Year Results. [snip]

[snip] The adverse effect of rising material and freight costs continues to be broadly offset by internal efficiencies and price management practices.

Currency effects had an adverse impact on sales and operating profit, compared to the same period of 2020, as sterling strengthened against our basket of trade currencies. If current exchange rates were to prevail for the remainder of the year, we anticipate close to 4% adverse impact on full year sales and profit, compared with the full year 2020.

Outlook
We are maintaining our overall guidance despite the supply chain challenges in the second half of the year and expect record levels of revenue, profit and operating margin for the full year 2021.
[snip]
we expect to end the year with a record order book across all three businesses.

For 2022, we expect growth in both sales and profit, underpinned by continuing strong demand and our higher-than-normal order book. The Group operating margin is expected to be lower due to the full year impact of revenue investments in 2021, as well as further investment planned in 2022 to support our future growth and operating margins.


The shares are down 5% as I write. I wonder if the market was expecting even better, or whether they dislike the currency impact. Currency impact is nothing I personally hold against a company: multinational ones such as Spirax are perfectly used to dealing with currency movement! Lower operating margin in 2022 is nothing I am worried about either, because they're running the business on a long term basis and investing for the future, rather than trying to meet short-term margin targets which caused Reckitt Benckiser such trouble a few years back.

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#459007

Postby 77ss » November 18th, 2021, 8:56 am

ADrunkenMarcus wrote:Spirax's trading update this morning was very positive IMHO as they maintained guidance despite rising costs, because they have been able to 'broadly offset'....
Currency effects had an adverse impact on sales and operating profit, compared to the same period of 2020, as sterling strengthened against our basket of trade currencies. If current exchange rates were to prevail for the remainder of the year, we anticipate close to 4% adverse impact on full year sales and profit, compared with the full year 2020......

The shares are down 5% as I write. I wonder if the market was expecting even better, or whether they dislike the currency impact. Currency impact is nothing I personally hold against a company: multinational ones such as Spirax are perfectly used to dealing with currency movement!
Best wishes


Mark.


Agreed. Currency effects happen every year. I expect that some years you win and some years you lose.

I note that, in today's interims, Halma also refer to a negative currency translation effect of 7% on profits. The market doesn't seem to be that perturbed.

https://www.investegate.co.uk/halma-plc ... 00037489S/

I continue to hold both.

ADrunkenMarcus
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Re: Kone - Expanding Multiples

#459097

Postby ADrunkenMarcus » November 18th, 2021, 2:54 pm

I wish I'd bought Halma, too. :)

It may be the market is unforgiving of anything that isn't an 'earnings beat'. I note Spirax has recovered somewhat. They would, IMHO, have upgraded guidance if it were not for supply chain issues. And they are on course to grow their dividend well ahead of inflation: Again!

Rotork is down 7% today!

Best wishes,


Mark

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Re: Kone - Expanding Multiples

#482228

Postby ADrunkenMarcus » February 22nd, 2022, 9:19 pm

ADrunkenMarcus wrote:To return to 'expanding multiples', Spirax Sarco closed at 17050p on Friday - an all-time high.

There have been further upward revisions to earnings forecasts, stretching to 2023 that I can see, but it's on a p/e of about 52 vs. its three year average of 42. (I bought around a p/e of 23 in 2015). The p/e on a forward basis to 2023 is still 46. While the dividend yield on my book cost from 2015 will be a healthy 4.7% according to forecasts, someone buying today has a 0.8% dividend yield which will remain sub-1% in 2023.

Much of the 445% total return has come from multiple expansion because it trades today on 2.2 times the 2015 multiple!


It is interesting to review this a few months later. Spirax was then close to its most recent peak of 17225p a share. It's now come down to 11555p at today's close, down 33% or so even though forecasts for 2023 have edged up. Certainly a more attractive entry point.

Best wishes


Mark

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Re: Kone - Expanding Multiples

#495825

Postby westmoreland9 » April 22nd, 2022, 4:45 pm

after the success of fund smith, many feel that to make a good return all you have to do is identify quality companies, no matter what the price, and you'll make money.

ADrunkenMarcus
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Re: Kone - Expanding Multiples

#495957

Postby ADrunkenMarcus » April 23rd, 2022, 10:11 am

westmoreland9 wrote:after the success of fund smith, many feel that to make a good return all you have to do is identify quality companies, no matter what the price, and you'll make money.


Quality is very important IMHO and with it the potential for a company to generate sustained good performance over extended periods. In that sense, I guess a good company can 'burn off' a high valuation. However, recent examples of Spirax and Kone do show companies with a good operating performance whose share prices rose far beyond the performance of the underlying business.

When I bought Kone in 2017 it was trading at what seemed to be an attractive valuation (the first post of this thread outlines the metrics) and then it had practically doubled by September 2020, whereas the underlying business had not. Today, the share price (in sterling) sits up about 10 percent for me or an annual gain of 2.5 percent. I've also received net dividends accounting for 15 percent of the book cost. The total return (simply adding capital gain per share plus dividends per share, not reinvested) is about 25 percent. Not disastrous by any means but not a brilliant return over a five year period.

It is currently trading at a 4.3 percent free cash flow yield, rising to 5.3 percent on 2024 estimates - somewhat cheaper than when I purchased five years ago.

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#496176

Postby westmoreland9 » April 24th, 2022, 5:48 pm

ADrunkenMarcus wrote:
westmoreland9 wrote:after the success of fund smith, many feel that to make a good return all you have to do is identify quality companies, no matter what the price, and you'll make money.


Quality is very important IMHO and with it the potential for a company to generate sustained good performance over extended periods. In that sense, I guess a good company can 'burn off' a high valuation. However, recent examples of Spirax and Kone do show companies with a good operating performance whose share prices rose far beyond the performance of the underlying business.

When I bought Kone in 2017 it was trading at what seemed to be an attractive valuation (the first post of this thread outlines the metrics) and then it had practically doubled by September 2020, whereas the underlying business had not. Today, the share price (in sterling) sits up about 10 percent for me or an annual gain of 2.5 percent. I've also received net dividends accounting for 15 percent of the book cost. The total return (simply adding capital gain per share plus dividends per share, not reinvested) is about 25 percent. Not disastrous by any means but not a brilliant return over a five year period.

It is currently trading at a 4.3 percent free cash flow yield, rising to 5.3 percent on 2024 estimates - somewhat cheaper than when I purchased five years ago.

Best wishes


Mark.


whilst i largely agree with that, for me the first discipline in investing is entry price. we all have differing investing styles, but i'm more aligned to the private equity model of seeking value. i.e. strong balance sheet (an under geared company), lots of under appreciated real estate or other non core assets obscuring true underlying value, and i'm very conservative on estimates of growth. i consider myself reasonably sophisticated but would rarely consider investing in anything with a p/e of over 20, as the consequences of even minor profit downgrades could torpedo capital values.

obviously, when you first bought shares in Kone, you were adhering to this, hence why your returns have been solid (rule 1 never lose money), once it goes to 30 or 40 x earnings it's the time to bail out unless it's an exceptional company.

investors in coca cola in 1998 needed to wait a further 15 years to get back to where they bought it for. entry price is very important IMV and the biggest mistakes a private investor can make is thinking they are warren buffett and paying 25 x earnings with no margin of safety or expertise in what they are buying in to.

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Re: Kone - Expanding Multiples

#496194

Postby ADrunkenMarcus » April 24th, 2022, 7:42 pm

westmoreland9 wrote:obviously, when you first bought shares in Kone, you were adhering to this, hence why your returns have been solid (rule 1 never lose money), once it goes to 30 or 40 x earnings it's the time to bail out unless it's an exceptional company.


Yes, I've earned a positive (and reasonable, i.e. above-inflation) return over the period even though it had a tough two or three years and has actually de-rated somewhat. I will need to run the numbers to get a precise estimate, however I suspect the return would rise from about 25 to 30 percent if it traded today at the same valuation as at purchase in April 2017. Cash is simply piling up on Kone's balance sheet and their net cash position will equate to about 11 percent of today's market cap if 2024 estimates are realised, so I anticipate further special dividends.

With the benefit of hindsight, I could have sold in September 2020 for about double my book cost and then waited, repurchasing today and practically doubling my share count!

Spirax Sarco îs a company that went through a much more extreme re-rating (as detailed above) from purchase in March 2015 until its peak in November 2021. However, the effect of the more recent de-rating is less so because the growth has been so much stronger. The result has been that the 32 percent CAGR (ex. dividends) has reduced to about 26 percent. It still looks expensive but I could justify it in the 'exceptional company' category.

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#520458

Postby flyer61 » August 7th, 2022, 10:04 am

So I sold all my Kone (51.50 euros)along with quite a bit of other stuff on Feb 23 this year. A little bit of knowledge turned out to be a very valuable thing!

I am looking again at some of the stuff that was sold and am thinking of rebuying Kone. Does anybody have any thoughts now that the share price is down in the low 40 euros. TS has remained a staunch holder. Obviously they are exposed to China but is that now in the price?

for the record my sales on Feb 23 were

Starbucks $91.43
Meta $203.34
Scot Mort £9.89
VWRL £84.73
FGIT £837
Smithson £15.14
Kone 51.50Euro
Handelsbanken 93.72 SEK
MMM $156

ADrunkenMarcus
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Re: Kone - Expanding Multiples

#520469

Postby ADrunkenMarcus » August 7th, 2022, 11:32 am

flyer61 wrote:So I sold all my Kone (51.50 euros)


I kept holding.

The price today is slightly higher in monetary terms and cheaper in valuation than when I bought in 2017. Free cash flow yield is projected at 5.3% for 2023 and the company is forecast to have 12% of its current market cap sitting as net cash on the balance sheet by 2024.

If I had spare funds, I'd be tempted to top up.

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#520672

Postby flyer61 » August 8th, 2022, 9:08 am

Thanks Mark,

decisions decisions, I have a small holding in OTIS, it may make sense to increase this instead.

Plenty of interesting analysis on Seeking Alpha, will reread before making a final decision.

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Re: Kone - Expanding Multiples

#527078

Postby doug2500 » September 2nd, 2022, 1:15 pm

I see Fundsmith has sold out of Kone as per the August monthly factsheet. No comment on top of that from them.

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Re: Kone - Expanding Multiples

#527092

Postby ADrunkenMarcus » September 2nd, 2022, 2:01 pm

I'm still holding. If there was a time to trade and sell it high to re-buy it low, I missed it. There is always the opportunity to top up!

Best wishes


Mark.

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Re: Kone - Expanding Multiples

#527098

Postby monabri » September 2nd, 2022, 2:16 pm

doug2500 wrote:I see Fundsmith has sold out of Kone as per the August monthly factsheet. No comment on top of that from them.


Has anyone made a list of all the companies Fundsmith have bought and then dumped ( sometimes after owning for only a short while)?

"Just a small number of high quality, resilient, global growth companies that are good value and which we intend to hold for a long time, and in which we invest our own money."

"Fundsmith knows" :roll:

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Re: Kone - Expanding Multiples

#527100

Postby ADrunkenMarcus » September 2nd, 2022, 2:21 pm

I'm not sure how long Fundsmith held Kone.

I built my position from April 2017 to October 2018. I think Fundsmith had held it (or Terry Smith had commented on it) some time before my initial purchase.

Best wishes

Mark.


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