Would You Buy Shares in this Mystery Company?

Posted on 31/05/2011

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I’ve found a stock that appears to tick many of the boxes that might appear on Warren Buffett‘s pre-investment checklist.  I’ve included the below a list of the company’s key operating and financial characteristics.  I’d be interested to know: does this information make you want to buy the stock (or at least get more information); and could you make a guess at what company this is?

  • Operates in the food producers sector, so supermarkets form an important part of the customer base.  The product is undifferentiated, so efficiency and competitiveness are important.  However, the product is also an essential, meaning significant changes in underlying demand are unlikely.
  • Has a market share of >30% in a market where the top three players control about 90% of supply.
  • Recorded revenue growth in each of the last six years, entirely via organic growth.
  • Achieved an average return on equity of 17.3% during the last six years.
  • Has an immaterial level of net debt and no operating lease or retirement benefit obligations.
  • Has reduced the share count by around 1% per annum over the last six years.
  • Offers a dividend yield of 5.7%.
  • Trades at a forward P/E ratio of 10.5x my low-ball FY12 estimate (March Y/E) compared to an average of 13.5x trailing P/E over the last six years.
  • EV/FY12E EBITDA is a minimal 4.1x, while the company offers a prospective operating free cash flow yield of 10.5%.

I’ll reveal the identity of the company later this week and will also post a financial model.  In the meantime, let me know via the comment section below: (a) whether or not you think this represents an attractive investment; and (b) your guess at the identity of the company.

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Posted in: Investment Ideas