NESTLE LANKA(NEST.N0000) AGM Highlights(2014-05-22)

It's being a while since I made the last post here. Mainly due to recent changes in my work place.  Anyway thought of writing a short not about NEST AGM which I attended last week. Nestle AGM was held on 22-05-2014 at Sri Lanka Foundation Institute, Colombo 07.

As always NEST AGM is very investor friendly. For those who are interested, there was a free health check for share holder followed by Breakfast Cereals, Refreshments and a couple of foods trucks serving(LoL!).

 

Anyway I was not there for the food and drinks, but it is a gesture of goodwill towards the share holders and worth mentioning. I've been a long standing share holder of NEST. The purpose of this post is to share some important points raised by share holders as well as the answers given by management.

Shareholder Concerns & Answers

•  DPS is not there in the 10 Year summer : Personally I too have been annoyed by this. Without this data it is difficult to draw graphs you will see at the end of this post.

•  Suggestion subdivide shares and increase liquidity : One share holder make this suggestion and said that will raise the dividend yield for share holders (which is incorrect). Later on Mr Ganesan Ampalavanar (Managing Director) also explained that and said they have no plans for a subdivision. I also believe that it is pointless to go for a subdivision just to increase the liquidity as long as the price stability is there.

• Minimum Free Float : This is not a big concern for NEST. As market capital of NEST is over 5 billion they need to shed only 0.28% of shares to fall inline with the rules. Management explained that they have time till 2016 to do that and even after that they can appeal for more time.

• Break up of amount of money paid to farmers : Page 5 of annual report says 4.8 billion was paid for raw material purchases. I too was keen to know the break up (dairy and coconut). I know that as a policy Nestle do not give any hints about their business segments. That may be the intention of one who asked the question. Management said that they will consider this. But I don't think that they will give those information. It is true that this data is important for share holders but we have to remember that it is also important for competitors as well.

•  Reintroduce "Nespray" Brand : Some felt that "Nespray For Every Day" as a degraded product. Currently Nestle do not produce or import Full Cream Milk Powder. I think this is a strategic decision by the management as explained on next point. 

•  DCD issue : Some informed shareholders praised the management for the way they handled the issue. As explained by the management, Non of the products have been tested positive and they have completely stopped importing milk power. Currently Nestle is the largest milk purchaser in the island and all products are locally sourced. This might be the reason for discontinuation of Nespray. I think the profit margins are higher on other products where company have the price control(government have imposed a price ceiling for milk powder in SL). Also it is important to not that management said that if they were opportunistic, they could have destroyed the competitors during the crisis last year(not on those words Lol!). 

•  Complementary Gifts : Management categorically rejected the proposal of giving gifts for share holders in order to preserve the share values. Yeah! be a good share holder not a greedy share holder.

Dividend History of NEST

I said that I'm a long term investor of Nestle. If you need a reason Why? Following graph explain it very clearly.

Here is a gain/loss simulation of NEST from 2001. It is important to note the difference between annual gain with(1300%) and without(350%) dividend reinvesting.

Conclusion

If you too attended the AGM and have anything else to add or if you have some concerns about the content, you may comment below. I will try my best to answer you.

Happy Investing!

Dividend Analysis : UNION ASSURANCE PLC(UAL.N0000)

This is the first post of this year and market is showing positive signs already. Having gone through the CBSL Road Map, I'm excited about the next 24 months. Few things to not is Per-capita Income of $4,000 by 2016 is on track, Inflation target is around 5% for next two years and CBSL intends to keep interest rate low around 7.5%. This environment will increase the disposable income of individuals as well as industries. 

For this post I selected UAL because it had the second highest 5 year average dividend yield. With the expected increase in disposable income, I believe counters like UAL will perform better in the long run.

UAL.N0000

This is the out put from Health Check tool. As an investment UAL  is very safe.

Dividend history of UAL is as follows. Currnt payout ratio is 43%.

To me UAL is a perfectly safe investment, but not without a catch. UAL is a extremely illiquid counter. JKH hold 85% and top 20 share holders have locked nearly 98% among them. Free float is less than 2% and wild fluctuation of the share price is a result of this.

This is the order book at the time of writing this. If you are going to collect 1000 shares you will have push the price up by 10%

Here is a gain/loss simulation of UAL from 2003. Because of the illiquid nature of the counter, trading seems to be yielding better than dividend investing. But it is interesting to note that dividend investors never made a loss for the past 10 years.

Light Blue line indicate the YOY loss or gain
Dark Blue line is the annualized gain with dividend being re-invested
Red line is the annualized gain without dividend being re-invested

Conclusion

Unlike the other counters I went through before, UAL is unique due to it's illiquid nature. Things might change in the future as SEC has implemented rules on minimum free float.  For the time being I'm going to monitor UAL for a good entry point. If you managed to grab a good quantity at a discounted level, it will be great for a short term investment as well as a dividend investment.

Cheers..