Procter & Gamble (PG) is world well-known consumer goods company founded in 1837. The most important segments are Beauty, Grooming, Health Care, Fabric Care and Home Care, Baby, Famine and Family Care. So to put it briefly many daily use products. Company has around 21 brands with sales above $1b, with brands such as Head & Shoulders, Pampers, Gillette and many more. Some products are presented below:

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(source: Company’s factsheet)

Sales by geographic region is more or less as follows: North America 41%, Europe 24%, Latin America 10%, Greater China 9%, Asia Pacific 8%, India Middle East and Africa 9%. Such geographical split makes financial results volatile due to currency issues – strong USD is unfavorable for PG. Moreover currency depreciation in Russia/Ukraine/Japan/China/Middle East is bad for PG – local products are relatively cheaper. On those Tough Markets in 2014 company sold around $14b.

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As it comes to financials (estimates):

Market cap ~ $217B

Net debt ~$18B

Payout ratio ~70%

ROE ~14%

Beta = 0.57

Dividend yield 3.3%  + buyback program ~6B$, but on the other hand dilution by employee stock ownership plan – even around $3B – $4B per year, which means net share reduction is around 1% of capital.

 

Estimated valuation ratios:

P/E = 21

EV/EBITDA = 13.7

Fiscal year ends at 30 June.

 

Procter & Gamble is one of The Dividend Kings – company with more than 50 years of rising dividends (since 1957 year). Current dividend yield is around 3.3%, which is acceptable level in comparison to other consumer companies. Historically in years 1993-2008 company was paying on average 2% and in 2009-2015 around 3%. In short periods of time dividend yield spiked to around 4% – this was a good time to buy shares – for example September 2015. Dividends should grow by high single digits.

 

Drawdown risk analysis:

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PG is currently trading with discount of around 12% to all-time highs. Buying at around 20% drawdown was historically quite safe deal. In September 2015 company was at 25% drawdown. Current levels are still attractive but risk to return ratio deteriorated significantly. I think that levels around $72 are interesting.

 

Summing up, with share price of around $80 I feel neutral about PG – valuation is demanding and net buybacks are not so high, but on the other hand 3.3% dividend yield is OK. If only share price drops to around $72 I think I will buy some shares… or if I find no other interesting opportunity.

 

Disclaimer PG – no position