Updates on JD.com, Bunzl, Legal&General & Unilever
Businesses continue to hum along - time to review them
In the 2 months it took me to put together all the input metrics for me to build the Business Value Score, something I wrote about last week, I have not had time to keep up with the current results as they were coming thick and fast. If the latest annual results were available when I looked at the company, I included them, and when not, I deferred to looking at the latest results later on.
Now that the initial analysis is over and I have managed to put out something with regards to the basic findings, I am finding more time to go over and look at the latest results of the companies as a second iteration. Let’s talk about JD.com, Bunzl, Legal&General & Unilever.
JD.com (HKG:9618, NASDAQ:JD)
JD.com is one of the largest & oldest (founded 1998) e-commerce companies in China, starting out as a physical store selling electronics, but later shifted its focus to online retail, selling a wide range of products, including electronics, clothing, home appliances, and more.
1Today, JD.com is known for its efficient supply chain management and fast delivery service, with a logistics network that covers most of China. The company operates its own warehouses and delivery fleet, which allows it to offer same-day or next-day delivery in many areas. JD.com has also been expanding internationally, with operations in Southeast Asia, Europe, and the United States.
JD.com announced their 2022 results about 2 weeks back and while the business did not present glowing results, it wasn’t as disappointing as it could have been. In what has been a challenging year with slow growth and challenges in some markets, revenue has only grown 1.58%. Thankfully cost of goods sold grew only 1%, leaving the business with a 5.28% growth in gross profit - of about 21B - an all time high, and an OPAT of $1.4B vs the 701M loss from a year ago. Make no mistake, there will continue to be challenges facing this business, specially with cut throat competition, and needing to deeply discount their wares.
It is also clear that the comparables are affected by a high 2021 comparison. So, it is important to zoom out and look at a longer track record. Over the past 10 years, revenue has grown 36%, and diluted EPS grown by 12.79%. Balance sheet is strong with both Current Ratio and Total Ratio being healthy at 1.3 and 1.8 respectively. Not a bad track record!
While results are at best satisfactory and challenges abound for the business, I also found an error in my previous calculations - that the base number (2012 metrics) for all Business Value Score calculations are negative and hence formulae were erroring out on the CAGR calculation for various metrics. My sincere apologies. I have now made adjustments to offset negative base numbers and produce useful numbers.
The stock isn’t cheap, specially for a business that is challenged, and in numeric terms, goes back and forth between having a positive Relative Score2. It is clear that the business is not a “Dilute” anymore, but not enough to warrant an “Accumulate”. I am re-rating this to a “Maintain”.
Bunzl Inc (LON:BNZL)
I have written previously about Bunzl before and explained why I am a happy stock holder. They dropped their latest results just after that post came out and I am happy to say business continues to look good3. Revenue grew by 17% in 2022, OPAT by 12.6%. Company is declaring another dividend bump - from 57p to 62.7p - 10%, and marks the 15th year of consecutive dividend upgrade. Payout ratio is still well below 50% - so all good here.
On acquisitions, Bunzl continues to impress:
2022 was another year of successful strategic progress, with the Group signing agreements to acquire 12 businesses which span multiple sectors, including specialist healthcare distributors and warehouse solutions providers, from across nine different countries. In July 2022, the Group announced a key acquisition in Germany to provide a platform for expansion into this high-potential market, which we have already built upon with the German acquisition we have announced today.
Demonstrating Bunzl’s focus on portfolio optimisation and returns focused capital allocation, we disposed of our UK healthcare business in 2022.
As a side note, how the company chooses to describe their own performance is often an interesting read - with Bunzl, they present their long term revenue and OPAT growth over long term (since 2004 in their case), which I very much welcome and is aligned to how I think of businesses, as should all of us.
All in all, business is humming. This company easily retains its “Accumulate” rating on my scorecard and I very much intend to continue to accumulate shares in this company, adding a little bit this week too.
Legal & General (LON:LGEN)
Legal & General is a British multinational financial services company that provides a range of products and services including life insurance, pensions, investments, and general insurance. The company was founded in 1836 and is headquartered in London, United Kingdom.
Legal & General operates through a number of subsidiaries, including Legal & General Investment Management (LGIM), which is one of Europe's largest institutional asset managers, and Legal & General America, which provides life insurance and retirement products in the United States.
The company has a strong presence in the UK, but also operates internationally, with offices in the United States, Asia, and Europe. Legal & General is a publicly traded company listed on the London Stock Exchange and is a member of the FTSE 100 Index.4
In terms of the annual update, LGEN continues to do well as a business - net premiums earned grew to £8.5Bn, up from £6.9Bn. Profit after Tax has gone up to £2.29Bn, up from £2.04Bn a year before. Diluted EPS is 36.49p up from 32.57p a year before. Dividends declared in the year grew to 19.37 from 18.45 a year ago, with dividend payout being in the healthy ratio.
In other metrics, 2022 saw £9.5bn of new premiums, £32bn of direct investments, £954m - individual annuity sales, and an upgrade of Solvency II Capital Coverage Ratio to 236% from 187%.5
This business continues to trade at an attractive valuation of 7-8x P/E. Despite the general weakness of financial companies these days, and unattractiveness of UK listed securities, this is still a good price point to pick up slices of this decent business. Retains its “Accumulate” rating easily.
Unilever (LON:ULVR)
Formed in 1929, Unilever is a consumer goods company that produces and markets a wide range of products including food, beverages, cleaning agents, and personal care products, operating in 190 countries with over 400 brands. Some of Unilever's well-known brands include Axe/Lynx, Dove, Hellmann's, Knorr, Lipton, Magnum, and Ben & Jerry's, among many others.
Unilever had a surprisingly good year in 2022. In a year where inflation has raising its ugly head, I would have expected to Unilever to do OK, but not great. Instead what came out, seems more likely to be categorised as “great” than “OK”.
Revenue growth was a solid 9.0% , driven by all business groups, with price growth of 11.3% and volumes declining 2.1%, leading to a total revenue of € 60Bn, leading to an OPAT of € 8.27Bn (vs € 6.62Bn in 2021). EPS grew to € 2.99 from € 2.32.
Like the other 2 London listed businesses I write about in this post, business is chugging along just fine. Unilever too easily retains its “Accumulate” rating on my scorecard.
Portfolio Updates
I am generally happy with these round of results updates. I have accumulated shares in all 4 companies I write about this week, along with a small lot of Berkshire Hathaway, with the following price points:
JD.com (HKG:9618) - HKD 156.79 per share
Bunzl (LON:BNZL) - GBP 30.58 per share
Legal & General (LON:LGEN) - GBP 2.37 per share
Unilever (LON:ULVR) - GBP 42.11 per share
Berkshire Hathaway (NYSE:BRK.B) - USD 295.24 per share
(Is the Trading Updates section useful? Should I share it in future, or is it distracting from the core commentary? Comments/feedback welcome)
All the updates today, have been reflected on to my Coffee Can Portfolio sheet, and I have added a “Changelog” section for easier reference of things that have changed.
This paragraph was entirely generated by ChatGPT - your favourite finance substack is now AI powered!
Relative Score is roughly computed as Business Value Score - P/E. (ref) The higher the number, the more “valuable” a company is, relative to the price, and vice versa. The formulas are structured such that a positive relative score generally indicates something worthy of buying. A company that flirts with the 0 line, going back and forth between positive and negative Relative Score is perhaps still not worthy of buying, as it might be worth waiting to see if either (a) the prices come down significantly marking a clear signal or (b) the business improves and the price becomes less of a concern. To provide some context, vast majority of the companies in my portfolio have a clearly positive Relative Score, which makes them easy to mark as “Accumulate”.
I had hinted on this in the post, based on management’s earning guidance. However, it is always good to see confirmation in the annual results, which are always more trustworthy than guidance.
The 3 preceding paragraphs are attributed to ChatGPT.
Solvency II capital coverage ratio, which shows own funds on a regulatory basis divided by the solvency capital requirement, is one of the indicators of the group’s balance sheet strength and aligns to management’s approach of dynamically managing its capital position.
What would be the end game for JD.com? I think all you are holding is something tracking stock rather than actual stock as direct holding by foreign investors remains illegal in China?