Norwegian conglomerate Orkla ASA (ORKLF, Financial)(ORKLY, Financial) released 2016 numbers today. The biggest news is that the dividend has been raised from 2.5 krone (30 cents) a share to 2.6. I have been waiting for several years for management to raise the dividend. The stock trades at a forward dividend yield of 3.42%.
Earnings per share was 4.22 krone in 2016 and the stock trades at a price-earnings ratio of 18. Earnings per share were up 30%. It takes 8.34 krone to buy one dollar. The are 1.02 billion shares, the stock trades for 76 krone and the market cap is 77.5 billion krone ($9.29 billion).
Revenues were up 14% to 37.758 billion krone ($4.52 billion). The balance sheet ended the year with 1.2 billion krone ($144 million) in cash and 6.5 billion krone ($780 million) in receivables. This is to 4.3 billion ($516 million) in payables and 9.7 billion krone ($1.16 billion) in debt. Very strong.
I will give a brief narrative on Orkla as I have written on it many times. The company started life off as a conglomerate, but has been divesting industrial divisions and reinvesting the proceeds into food and consumer products. The company has been around since the pilgrims were breaking bread with the Native Americans.
The Branded Consumer Goods division saw revenues grow 16.8% to 15.476 billion krone ($1.86 billion) on acquisitions being added. Confectionery was up 7.1% to 6.23 billion krone ($747 million) in revenues. Orkla Care's revenues were up 22% to 6.74 billion krone ($808 million). Food Ingredients are up 7.4% to 8.16 billion krone ($978 million).
The extruded aluminum partnership's, Sapa Group, 2016 Ebit is 2.2 billion krone ($263 million). Orkla owns 50%. Its hydroelectric division produced 2,849 gigawatt hours in 2016. Orkla owns 42.5% of Jotun, one of the largest paint manufacturers in the world. Sales were down 3% to 15.785 billion krone. The real estate division has a book value of almost 1.3 billion krone ($156 million).
I will value the divisions as I have in past articles. I have always compared Sapa to Kaiser Aluminum Corp. (KALU, Financial), which trades at a price-sales (P/S) ratio of 1.1. Sales at Sapa in 2016 were 53.3 billion krone ($6.39 billion). At 1.1 times sales, Orkla's share is worth 29.3 billion krone ($3.5 billion).
For Jotun, we will compare it to Dutch paint blue-chip Azko Nobel NVÂ (AKZOY, Financial), which trades at about 1.13 times sales. Orkla's share would be 7.58 billion krone ($909 million).
The hydroelectric plant earned 192 million krone ($23 million) in adjusted Ebit. I have always compared it to Austrian company Verbund AGÂ (OEZVY, Financial), which trades at 10.9 times Ebit. That would value the hyro division at 2 billion krone ($251 million).
The Kraft Heinz Co. (KHC, Financial) trades at a P/S ratio of four. This would value the foods division at 61.9 billion krone ($7.4 billion). I know, four times is pretty lofty.
Adding up the parts, cash, real estate and receivables, we come to about 110 billion krone ($13.24 billion). Subtracting all liabilities of 21.7 billion krone ($2.6 billion), we come to a value of 88.3 billion ($10.6 billion). So the stock is trading at a discount of 12.2%.
The foods division launched a new healthy breakfast cereal called Bare Bra. I bet it would sell like hotcakes with a name like that in the U.S. It also released: vegan meals, popcorn snacks and fruit drinks with no sugar. Orkla distributes PepsiCo (PEP, Financial) products in Scandinavia, which gave a boost to earnings this year.
Through mergers and acquisitions, the company has increased sales and cut costs. Orkla will close 23 factories in two and a half years, according to CEO Peter Ruzicka. Globalization affects the Norwegians too. I hope those factory workers can find jobs. Thirty percent of revenues are in Norway and 70% are outside of the country.
The dividend has been 2.50 krone since 2009, so I would have liked to have seen management raise it more. But we will take what we can get. The stock was about 45 krone when I first wrote about Orkla in late 2013. As of now, it is 77.5 krone. It only took 6.25 krone to buy one dollar in 2013, now takes it 8.34.
The Norwegian government holds back 25% of the dividend for Americans. Norway also protects Orkla from outside food companies. Chairman of the board Stein Erik Hagen owns about 25% of shares.
Orkla is one of our favorite holdings. One day, when it divests of paint, aluminum and hydro, it will be become the pure-play food company it hopes to be. In the meantime, collect the 3.42% dividend and hope the Norwegian currency appreciates.
Disclosure: We own shares.
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