armstrong capital partners
TRANSCRIPT
Armstrong Capital
Share Price Movements
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Past Six Months Share Price
NYSE:PG - Share Pricing ^SPX - Share Pricing NYSE:CL - Share Pricing NYSE:EL - Share Pricing
Business Segments
Structure
Debt13%
Equity87%
Capital Structure ( Market Cap $215 B)
PG Discounted Cash FlowStage 2 - Terminal Stage 1 PROJECTED(in thousands) (in thousands) 2015 2016 2017 2018 2019L-T growth 2.00% Year 1 2 3 4 5WACC 6.80% EBIT $14,500,608 $14,790,620 $15,086,433 $15,388,161 $15,695,924FCF year 6 $13,595,863 Tax Rate 22.5% 22.5% 22.5% 22.5% 22.5%Terminal $283,247,152 EBIAT $11,237,971 $11,462,731 $11,691,985 $11,925,825 $12,164,341PV Terminal $210,666,226 Depreciation (+) $3,280,992 $3,541,636 $4,010,318 $4,496,330 $5,000,178
Δ NWC (-) $445 $69 $70 $72 $73Stage 1 $51,106,272 CapEx (-) $3,543,238 $3,614,103 $3,686,385 $3,760,113 $3,835,315Stage 2 $210,666,226 FCF $10,976,170 $11,390,332 $12,015,988 $12,662,113 $13,329,278Enterprise Value $261,772,498 WACC 6.80% 6.80% 6.80% 6.80% 6.80%Debt $32,439,000 PV of FCF $10,620,995 $10,319,996 $10,193,688 $10,057,888 $9,913,705Cash $8,558,000 Equity Value $237,891,498 Shares Outstanding 2,882,500 Sum of free cash flows Stage 1 $51,106,272 Share Price $82.53
Current ValuationBuyback Program $7,000,000Shares Outstanding 2,713,000 Buyback Per Share $2.58Dividend Per Share $2.49Discount Rate 6.80%Dividend Growth Rate 1.00% Share Price $87.42Market Cap Estimate $237,161,552
Stage 1 $51,106,272Stage 2 $210,666,226Enterprise Value $261,772,498Debt $32,439,000Cash $8,558,000Equity Value $237,891,498Shares Outstanding 2,713,000 Share Price $87.69
Growth Rate 1.0% 1.5% 2.0% 2.5% 3.0%
5.5% $87.52 $99.69 $115.35 $136.23 $165.476.0% $78.19 $87.96 $100.16 $115.86 $136.796.5% $70.59 $78.60 $88.39 $100.63 $116.377.0% $64.29 $70.99 $79.02 $88.83 $101.107.5% $58.99 $64.67 $71.38 $79.43 $89.27
Low HighPer Share Value Range: $78.60 -- $88.83
Divestiture
Baby, Feminine, and Family Care
BeautyFabric and Home
care
Grooming
Healthcare
Post Divestiture
• Sell 143 P&G Brands producing less than $80 million in sales and negative 5 year CAGR• Remaining Beauty products will be sold during Phase 2 of the Investment Plan
Baby, Feminine, and Family Care
BeautyFabric and Home
care
Grooming
Healthcare
2014 Annual Report
Sale of Beauty Segment• Sales down 11% 9 months ending March 2015. (Q3)
• Earnings down 17% 9 months ending March 2015. (Q3)
• With waning sales and earnings, thin margins, increasing market competition and unfavorable consumer preferences, we believe that it is in the shareholders of P&G to exit from this business.
• Concerns over consumer preferences, more people opting to buy non-premium brands to save money. P&G mostly sells beauty products in the premium/ultra-premium categories.
• Sale of Beauty segments top performers to outside company will return a lot of capital to the shareholders. We believe that brands will sell in the range of $45-60 billion based on our range of valuations.
• Beauty has been holding company earnings back, we believe there is more potential for growth for P&G without the burden of its beauty segment.
Beauty DCFStage 2 - Terminal Stage 1 PROJECTED
(in thousands) (in thousands) 2015 2016 2017 2018 2019 2020 2021
L-T growth 3.00% Year 1 2 3 4 5 6 7WACC 8.00% EBIT $1,795 $1,813 $1,994 $1,956 $1,878 $1,758 $1,881FCF year 6 $2,368 Tax Rate 22.5% 22.5% 22.5% 22.5% 22.5% 22.5% 22.5%Terminal $47,357 EBIAT $1,391 $1,405 $1,545 $1,516 $1,455 $1,362 $1,458
PV Terminal $40,851 Depreciation (+) $359 $363 $399 $435 $469 $502 $537
Δ NWC (-) $1 $0 $1 $1 $1 $1 $1Stage 1 $11,388 CapEx (-) $489 $477 $465 $454 $442 $431 $420Stage 2 $40,851 FCF $2,238 $2,245 $2,410 $2,405 $2,368 $2,297 $2,417Enterprise Value $52,239 WACC 9.90% 9.90% 9.90% 9.90% 9.90% 9.90% 9.90%Debt $7,785 PV of FCF $2,037 $1,858 $1,816 $1,649 $1,477 $1,304 $1,248Cash $0 Equity Value $44,453
Sum of free cash flows Stage 1 $11,388
Potential BuyersPotential Buyer Comp Set Company Name Day Close Price
LatestShares
Outstanding Latest
Market Capitalization
Latest
LTM Net Debt Total Enterprise Value Latest
LTM Tangible Book
Value/Share
LTM Total Revenue
LTM EBITDA
The Estée Lauder Companies Inc. (NYSE:EL)
81.29 378.1 30,733.4 17.2 30,761.9 6.89 10,950.6 2,096.7
Church & Dwight Co. Inc. (NYSE:CHD)
81.17 130.7 10,610.1 673.1 11,283.2 ( 3.72) 3,297.6 738.8
Colgate-Palmolive Co. (NYSE:CL) 67.28 904.6 60,859.5 5,269.0 66,407.5 0.51 17,022.0 4,878.0 Kimberly-Clark Corporation (NYSE:KMB)
109.69 364.1 39,938.0 7,216.0 47,373.0 ( 3.69) 19,528.0 4,413.0
The Clorox Company (NYSE:CLX) 106.1 131.2 13,918.0 1,788.0 15,771.0 ( 10.26) 5,672.0 1,133.0 Henkel AG & Co. KGaA (DB:HEN3) 116.65 434.3 46,701.3 228.4 47,082.0 2.37 18,391.3 3,266.7 Coty Inc. (NYSE:COTY) 23.91 359.4 8,592.4 2,201.9 10,902.1 ( 7.04) 4,492.1 707.8 Unilever plc (LSE:ULVR) 44.04 2,836.7 124,933.4 11,616.0 138,047.7 ( 3.36) 54,224.5 9,890.8 Providence Equity Partners LLC - - - - - - - -BlackRock, Inc. (NYSE:BLK) 363.94 167.1 60,808.7 1,854.0 62,816.7 ( 17.61) 11,134.0 4,764.5 Berkshire Hathaway Inc. (NYSE:BRK.A)
213,400.0 1.6 349,312.4 19,234.0 371,403.4 103,154.11 189,666.0 38,272.0
The Procter & Gamble Company (NYSE:PG)
79.51 2,713.0 215,710.3 19,279.0 236,722.3 ( 4.47) 80,637.0 19,145.0
New PG DCFStage 2 - Terminal Stage 1 PROJECTED
(in thousands) (in thousands) 2015 2016 2017 2018 2019 2020 2021
L-T growth 3.00% Year 1 2 3 4 5 6 7WACC 12.00% EBIT $5,779 $5,837 $7,063 $8,475 $10,191 $12,293 $14,883FCF year 6 $19,375 Tax Rate 22.5% 22.5% 22.5% 22.5% 22.5% 22.5% 22.5%Terminal $215,278 EBIAT $4,479 $4,524 $5,474 $6,568 $7,898 $9,527 $11,534
PV Terminal $185,700 Depreciation (+) $0 $2,918 $2,568 $2,825 $3,136 $3,512 $3,969
Δ NWC (-) $984 $20 $204 $225 $272 $329 $400Stage 1 $57,185 CapEx (-) $2,023 $2,043 $2,247 $2,472 $2,744 $3,073 $3,473Stage 2 $185,700 FCF $5,518 $9,505 $10,493 $12,090 $14,050 $16,441 $19,375Enterprise Value $242,885 WACC 9.90% 9.90% 9.90% 9.90% 9.90% 9.90% 9.90%Debt $23,439 PV of FCF $5,020 $7,870 $7,905 $8,288 $8,764 $9,331 $10,006Cash Equity Value $219,446
Sum of free cash flows Stage 1 $57,185
Revenue Growth Comparison
2015 2016 2017 2018 2019$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
PG Beauty New PG
Divestification Timeline
Present YE15 Q2-16 YE16 YE16
Decreasing stock value, 200 total brands with the
majority underperforming
Begin selling total of 143 brands
contributing less than 1% of revenue or
negative 5 year CAGR
Down to 57 core brands in 5 reportable segments
Sell remaining 16 beauty brand
segment for $40-$60 billion
Down to 41 brands in 4 reportable
segments with an equity valuation of
$242 Million
• In selling total of 157 brands, P&G will be a leaner and more efficient company with a remaining large dividend
• P&G will function as a growth stock post Phase 1 and Phase 1 Divestiture, similar to the P&G of the past