I wasn’t going to do a newsletter today, but then Brown Forman had great earnings, so I thought I’d do a short one — it’s a great stock trading at a significant discount, in my opinion1
Happy Brown Forman Day
I have been talking about Brown Forman to you guys since forever — finally a good day for the stock — if you were to plot it on a graph it would look like this (we use very cutting edge technology here, and I can assure you our quants have been working overtime on this):
The company beat estimates — which we like — and largely revenues were flat — whiskey sales grew +2% organically, which defied the consensus that people don’t drink anymore (frankly, analysts were pricing in doom and gloom, but it was business as usual). Of note advertising costs declined by 9% — largely from the company’s partnership with Coca-Cola to distribute RTDs, and operating expenses declined 7%. With the global alcohol climate at a standstill, reducing costs is not a bad thing. Guidance is 2-4% for operating income growth and the same for net sales. It was fairly painful to watch the layoffs, closures of the cooperage, etc at Brown-Forman, but it’s reassuring to see the company returning to growth — albeit in the low single digits. The market seems to think so too, given the stock price pop:
On the earnings call, I found the discussion around Woodford Reserve to be of particular interest. Net sales growth of +10%, and it’s one of only four of the top 20 distilled brands in the US that are actually growing.
Trades at a P/E of 17x. If you see a multiple expansion from 17x to mid-20s, you get a 40% upside. Not bad.
Related — I have been looking at Constellation Brands more, the company that makes Modelo and Corona, and of which Grandpa Buffett bought about +$1bn worth recently. It does trade at a discount relative to peers — just sayin’:
NZME
I had almost just about finished this email and then I read that Jim Grenon, the Canadian billionaire who recently bought a 9% stake in the Herald owner, has just made a bid to overthrow all the directors of the company.
With 9% Grenon can’t do it alone — but with a little help from some friends he just might be able to. Consider the top 4 shareholders:
If he gets some of these guys on board (Osmium would like some board seats too, and made a seperate proposal), then he’s got enough votes to roll the board. NZME hasn’t exactly been a great company as of late — imagine if you spun-off OneRoof, and sold that to Nine’s Domain, and did a property website roll-up. Value!
My instinct is that likely all or most of the above mentioned are on-board — Grenon is no spring chicken, and I doubt he’d make a proposal without a plan (he says he has 37% support, which likely would imply Osmium and Pinnacle..).
Board members of NZME who might see their last paycheck are:
Barbara Chapman (Chair) — Barbara also sits on the board of BNZ, The NZ Initiative, and is chair of Genesis Energy.
Carol Campbell — Carol also serves as a director of NZ Post Limited, Kiwibank Limited, T&G Global Limited, Asset Plus Limited, Chubb Insurance Limited.
David Gibson — David also serves on the boards of Trustpower Limited, Goodman (NZ) Limited and Rangatira Limited.
Sussan Turner —Sussan also serves as Pro-chancellor of Auckland University of Technology and Co-Chair of Organic Initiative Limited.
Guy Horrocks — Guy also serves on the board of Jade Software2.
Total renumeration is as follows — $665,000 for FY24. Barbara would be taking a $180,000 pay cut:
This is not investment advice. Please do your own research!
Source: https://www.nzme.co.nz/investor-relations/financial-reports/