Author Topic: KHC - Kraft Heinz Co.  (Read 31698 times)

Liberty

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KHC - Kraft Heinz Co.
« on: July 10, 2015, 11:04:31 AM »
I thought that this vehicle for 3G and Berkshire should probably have its own thread. Thanks to Scott Hall for re-bringing that one to my attention, it had kind of slipped away.

I haven't really looked at it, but it's not too hard to imagine that it'll do well. Simple recipe: Cut fat, increase margins, try to change the culture to be more effective at getting growth, make a big acquisition once in a while, rinse, repeat.

The main question is valuation. I haven't really done the work, but it doesn't seem cheap at first glance. But it could turn out to be cheap if they succeed with their model, it all depends on how much value they can create, and how fast they do it.

For reference, there's the original thread about the Heinz acquisition over at the Berkshire board:

http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/berkshire-acquires-heinz-for-72-5-ps/

I thought the new public entity could use its own thread on the investment board.

The merger presentation is probably a good place to start to get an overview:

http://www.heinz.com/data/pdf/Kraft_Heinz_Investor_Presentation_2015-03-25.pdf

Anyway, curious to hear other people's thoughts on it.
« Last Edit: July 10, 2015, 11:15:30 AM by Liberty »
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folivera13

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Re: KHC - Kraft Heinz Co.
« Reply #1 on: July 10, 2015, 11:40:27 AM »
17 Mile has some good posts with valuation math (http://seventeenmile.com/2015/06/22/events-krft-proxy-analysis-june-2015/)

By my numbers it is trading at approx 20x 2017 FCF.  Dividend yield is ~2.9%.  I think to have strong returns the stock now depends on 3G beating estimates and another big M&A deal (which is very likely to happen once they delever).  Leverage should be close to 3x by 2017.

original mungerville

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Re: KHC - Kraft Heinz Co.
« Reply #2 on: July 10, 2015, 11:44:59 AM »
Agree. If we characterize the valuation of this one using Bill Ackman's taxonomy, I would say it is fully priced on a stand-alone basis, however, there is little platform value which has been assigned.

moneystockholder

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Re: KHC - Kraft Heinz Co.
« Reply #3 on: July 10, 2015, 01:28:30 PM »
Has anyone read the short thesis on VIC?

Here's the link: http://www.valueinvestorsclub.com/idea/KRAFT_FOODS_GROUP_INC/136533

Thoughts?

valueinvesting101

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Re: KHC - Kraft Heinz Co.
« Reply #4 on: July 10, 2015, 03:03:47 PM »
Thesis seems to be exclude effect of reduction in interest payment in combined company.

Heinz has $8bn in preferred issued to Buffet at 9%. If this is financed by debt there would additional increase of ~$300 million.

From ProForma table of new company HNZ EBITDA increases from $2,839  in 2014 to $3,265 increase of about 15%. Seems pretty good for slowing dying business with negative 5% sales growth.
But then why project 3.29% increase in KRFT EBITDA? Can it be higher? If it around 10% that would be increase in another $200 million.

What about growth of KRFT brands in outside US? There is considerable scope for growth outside US for KRFT projects. It will not be very fast growing company but international distribution of Heinz will be leveraged by Kraft to increase overseas sales and margins.

In the long run, some US food brand will be not accepted overseas but some of them will be. Ketchup was cited by Buffet as a brand that travels better. I feel cheese also fits into that category. Long term growth for this business will come from financial and operational leverage.



Schwab711

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Re: KHC - Kraft Heinz Co.
« Reply #5 on: July 10, 2015, 08:44:38 PM »
I don't think all the large brands are dying, but they are definitely losing market share to private labels. I'm pretty sure there was a similar dip in market share at other times in their history. Higher inflation and market share stability or small gains could make this a decent investment (especially at a lower price).

Phaceliacapital

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Re: KHC - Kraft Heinz Co.
« Reply #6 on: July 11, 2015, 07:07:56 AM »
Re the short case, I don't understand how you could short something owned by 3G and Buffett, aren't there 100000 other more viable options?
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alwaysinvert

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Re: KHC - Kraft Heinz Co.
« Reply #7 on: July 11, 2015, 10:20:00 AM »
Re the short case, I don't understand how you could short something owned by 3G and Buffett, aren't there 100000 other more viable options?

Marketing. We all know who Doug Kass is now.

Jurgis

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Re: KHC - Kraft Heinz Co.
« Reply #8 on: July 11, 2015, 11:37:10 AM »
Re the short case, I don't understand how you could short something owned by 3G and Buffett, aren't there 100000 other more viable options?

Cause Tesco and Posco were such bad shorts...  ;)
Edit: OK, I'll throw in KO in 1998 just for fun. ;)

OK, I'll give you that 3G was not involved. ;)
« Last Edit: July 11, 2015, 11:40:18 AM by Jurgis »
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bookie71

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Re: KHC - Kraft Heinz Co.
« Reply #9 on: July 11, 2015, 01:15:02 PM »
I believe that the difference is that WEB is buying the company which has a type of moat.  The others are looking at the stock and when you don't have control, the stock can be over price or under priced (e.g. Coke)
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