Orkla ASA (ORKLY, Financial) (OSL:ORK, Financial) is a Norwegian food company that has been selling off divisions and growing through mergers and acquisitions. The stock sports a 3.2% dividend yield and the major shareholder added to their position earlier this year. When all non-food divisions have been sold off and Orkla is a pure-play food company, the stock will go even higher.
The stock trades for 80.10 Norwegian krone ($9.85), there are 1.01 billion shares and the market cap is 80.9 billion krone ($9.94 billion). Earnings per share were 3.02 Norwegian krone and the price-earnings ratio is 26.5. The dividend is 2.6 krone and the dividend yield is 3.25%.
Operating revenues were up 5% for the nine months to 28.710 billion krone. It takes 8.14 krone to buy one U.S. dollar. EBITDA was up 7% to 3.192 billion krone. The EBITDA margin is 11.1%. EBIT was 2.992 billion krone and increased 10%. Profit was up 4% to 3.262 billion krone and EPS were up 2% to 2.49 krone. Had it not been for higher commodity prices, earnings would have been even higher.
With all of the mergers and acquisitions Orkla has been doing, it is not surprising costs have been reduced. Costs as a percentage of sales have fallen from 23.4% in 2014 to 22%. Divisions in Finland, Poland, the U.K., Norway and Romania have merged to cut costs.
Orkla has three other divisions and one that was sold this year. Its real estate portfolio has a book value of 1.3 billion krone. Its hydroelectrical division produced 161 million krone in EBIT for the first nine months. Orkla owns 42.5% of Jotun, one of the largest paint manufacturers in the world. The sale from a 50-50 joint venture in extruded aluminum manufacturer Sapa will bring in 11.86 billion krone this quarter.
Management has been paying a 2.50 krone dividend for the past several years and bumped it up to 2.60 krone last year. Personally, I would like to see it rise as a shareholder. Last year, an extra 5 krone was paid. About every six or seven years, a special dividend is paid. The dividend was only 0.19 krone in 1993, so you can tell Orkla has been a dividend-paying machine. As an American investor, you will see part of this dividend withheld as we do not have a great dividend treaty with Norway.
Orkla recently announced it is buying Norwegian meat ingredients manufacturer Arne B. Corneliussen. The financial details have not been made public. There are usually about four or five merger deals a year.
The Jotun paint division saw sales increase 1% to 11.048 billion Norwegian krone for the first eight months. EBIT dropped from 1.1716 billion krone to 1.291 billion krone due to higher raw material costs. I think management will sell Jotun, have a special dividend and buy more food companies.
I found a bit of news that is encouraging for shareholders. Chairman and majority shareholder Stein Erik Hagen purchased another 858,000 shares this year for an average cost of 82.82 krone. He now owns 250,010,000 shares, for a value of 20.7 billion Norwegian krone. Hagen is the reason we own the stock. I like the direction he has for Orkla—selling off divisions and reinvesting into food.
We like Orkla and first bought shares in April 2014. We are up 17.72% since then, plus about another 10% or so in dividends. We bought more shares earlier this year when the stock price came back down. Had the Norwegian krone not sold off with oil, we would be up even more. It is hard to believe how little coverage a great company like Orkla receives in the U.S.
Imagine what the stock will be worth when the cash from the Sapa deal is put to work, Jotun is sold off and synergies from cost savings of combining new companies falls to the bottom line. Food companies are profitable and Orkla is just a few years away from being a pure-play food stock. In the meantime, collect a 3.2% dividend.
Disclosure: We own shares.
