Finanalys'  Instablog

Companies 3Q results look flat. Although last 12 month earnings were up by 2% from 27,0 bn.$ to 27,4bn.$ compared to 2011Y Net income has shrink a little bit by -1% from 5,5 bn.$ to 5,4 bn.$. On the other hand if you look at 5 year perspective both sales and net income are stably increasing, so few more years are needed to know if this is a long term action or just a one time decrease due to economic issues.

Billion $RevenueNet Income20082009201020112012Q329162330

Decreased is mainly due to that major sales of McDonald comes from Europe which is at depreciation now. When this cases to happen growth return can be expected. In general companies results are slightly negative.

Revenue by GeographyU.SEuropeAsia/Pacific/Middle Eastand AfricaOther32%23.3%39.1%

Companies balance sheet is average and have worsening equity level, which have drooped to 41% at Q3. Before it was around 45% which was more comfortable level. It was because share repurchase and dividends were over Net Income and due to that Equity has decreased. On the other hand due to increased Net income in past five year return on asset has increased. Liquidity is just ~1 which is not good. This might be just one time thing, because it was always around 1,2. In general companies balance structure is average.

Return onEquityEquity level20082009201020112012Q30.300.350.400.450.50

Share value:

Companies share book value is ~13,8$. Current market price is ~87$ which shows that market is paying ~73$ more, or more then 13,5 years of Net Income, which is 5,4 bn.$ which is a bit over then average but still in normal zone. Share profitability (Share market price/Net income before Depreciation) is 6,2% which is a bit lower then average. In general share value is a bit high.

$Earning pershareAnnualdividends20082009201020112012Q30.01.53.04.56.0

Company has anounced that they increase dividends to 0,77$/share quarterly dividends or 3,08$/quarter) before tax or 3,55% investment yield, which is quite good. Payout ratio would be around 60%, which is a bit high. 5 year analysis show stable EPS and dividend growth, which is good. Company can be treated as long term stable growth stock. Investment is good for investment, but not to big.

Analysis source: McDonald 2012 3Q financial results

Companies 2012 3Q results are slightly positive. Overall past 5 years show stable revenue and Net income growth. If comparing 3Q accumulative last 12 month results (2012 9 months+20114Q) with 2011Y revenue has increased from 46,5 bn.$ to 47,6 bn.$ or Δ+2,2%. Net income has increased from 8,6 bn.$ to 8,8 bn.$ or Δ+2,7%. This growth is quite good if taking into account overall world economy growth slowdown. Larger Revenue and Net Income growth at Y2011 was due to CCE bottling company acquisition.

Billion $RevenueNet Income20082009201020112012Q3015304560

Coca-cola main income is from its original North America. There company sale almost 1/2. Since US economy is recovering further growth can be expected. In 2010 companies acquired bottling segments has 2,2 bn.$ or ~17% of total group sales. In general companies results are slightly positive.

Revenue by GeographyNorth AmericaPacificEuropeLatin AmericaEurasia & AfricaBottling44.5%17.3%

Companies balance sheet has issues with equity level. Which has droped quite a lot from good 51% at Y2008 and Y2009 to only 38% now. Another issue is Return on equity. It is stable 27%. But knowing that Equity level has decreased quite a lot that is a bad thing. Major decrease was in Y2010, since then equity level has not improved due to increased level of profit sharing with companies shareholders trough share repurchase and dividends. If at Y2008-2009 68-69% of Net Income was spent on Dividends then in 2010-2011 it increased to 75% and 84% so company is basically paying out everything that it earns and not leaving a lot in the company, which is not good for companies long term growth. At first 9 month of Y2012 this level stays at high 80%. On the other hand its not over 100% like in some other companies. At Y2010 company has acquired major bottler CCE with its quite large amount of debts. Although this has increased companies diversification but its ratios has worsened. It would be nice to see company accumulating more equity and deceasing debt level to return into stable balance sheet like it was at Y2009. In general companies balance structure is bit risky.

Return onEquityEquity level20082009201020112012Q30.20.30.40.50.6

Share value:

Companies share book value is ~7,4$. Current market price is ~37$ which shows that market is paying ~29,7$ more, or more then 15 years of Net Income, which is 8,8 bn.$. This is quite a lot taking into consideration that companies balance structure is a bit risky. Share profitability (Share market price/Net income before Depreciation) is only 5,0% which is low. The only risk lowering factor is stable sector - consumer good production.

Company at the moment pays 1,01$/share annual dividends (0,255$/quarter) before tax or2,7% investment yield, which is a bit low. Since growth is very minimal dividend increase should be minimal. In general share evaluation is quite high, due to that its profitability is low and also taking into consideration a bit risky balance sheet.

Making these analysis of companies made me want to try my knowledge and calculations on the market, so I have come up with this virtual million dollar portfolio which I intend to update each quarter with brief companies latest financial overview. My main rules is not to have more then 10% in one position and lowest holdings is 2,5%. I calculate broker fee as 0,25%. Also I will calculate the results in portfolio change under automatic purchases triggered by chance in share value which makes it attractive to buy or sale some part of holdings. Later I will update with Google Finance tools, but for now its this picture.

Portfolio name: My virtual 1 m.$

Portfolio opening data: 2012-09-30

Starting value: 1.000.000$

Changes: Most of investment went to 5 star companies BP and Chevorn 9% each. 4 star companies got 8-7,5%. 3 stars got 6-5% and the last ones 2 stars got 4-3,5% with minimal 2,5% investment in Apple. Google, IBM and Facebook are of the portfolio. I'm keeping large amount of cash ~30% in case markets will go down and stock will be bought in good price. Main investments is in Energy sector, Technology is a bit lower even if this sector companies dominates worlds largest companies list, but they are mostly very expensive and investments there are considered to be very low.

That's it for now, will update the fund with 3Q companies financial brief overviews and comparison