The Lemon Fool

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.

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.

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.

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!

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.

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.

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.

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

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