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Background and overview of Distell
Distell Group Limited is Africa’s leading producer and marketer of spirits, fine wines, ciders and ready-to-drinks. Distell employs about 5 300 people worldwide and has an annual turnover of R19,6 billion.
Distell owns well know brands that includes but are not limited too:
Spirits:
Wine:
Ciders and ready to drink (RTD's):
Distell owns well know brands that includes but are not limited too:
Spirits:
- Klipdrift
- Richelieu
- Black Bottle
- Oudemeester
- Van Rhyn's
- Three Ships Whiskey
- Bisquet
- Amarula Cream
Wine:
- Drostdy-Hof
- Two Oceans
- Nederburg
- J.C Le Roux
- Neethlingshof
Ciders and ready to drink (RTD's):
- Hunters
- Savanna
- Espirit
Scroll over or click on the funnel chart to get more details of DST's latest financial results
Financial review:
The net profit margin achieved by DST amounted to 7.1%. This is a pretty healthy net profit margin achieved by DST. A 9.6% growth in turnover is not bad going either. Encouraging to see is the fact that turnover grew at a faster rate than the operating costs, which means better profit margins. Lets hope DST can continue with this in future.
Diluted headline earnings per share came in at R7.32 per share, putting DST on a PE ratio of 23.4. This is a pretty high PE ratio, but the fact that they have a very defensive business that will continue to see demand for their products, regardless of the economic environment makes the higher than market average PE ratio justifiable. Dividend payout grew by a similar margin to that of the turnover. Gross dividend being paid for the 12month period amounting to R3.79 a share. Placing them on a dividend yield of 2.2% (which to be honest is a little on the low side, especially when the high PE ratio is taken into account).
DST is a very strong cash generative business, with cash generated from operations coming in at around R2.48billion (or R10.96 cash generated per share).
A few things to keep an eye on for DST follows. One is the increase in DST's inventories (up from R7.5billion in 2015 to R7.9billion in 2016), another is the amount trade and other receivables (up from R2.23billion in 2015 to R2.66billion in 2016). A build up in inventories can imply lagging sales and stock not moving fast enough, and an increase in trade and other receivables could show that clients are taking longer to pay DST. If this figure is not kept in check, it can lead to serious problems further down the line.
On the positive side there is a strong increase in cash and equivalents from R620million in 2015 to just over R1billion in 2016.
The pie chart below shows the contribution of DST's different regions to their revenue and pre-tax profit earnings.
DST is a very strong cash generative business, with cash generated from operations coming in at around R2.48billion (or R10.96 cash generated per share).
A few things to keep an eye on for DST follows. One is the increase in DST's inventories (up from R7.5billion in 2015 to R7.9billion in 2016), another is the amount trade and other receivables (up from R2.23billion in 2015 to R2.66billion in 2016). A build up in inventories can imply lagging sales and stock not moving fast enough, and an increase in trade and other receivables could show that clients are taking longer to pay DST. If this figure is not kept in check, it can lead to serious problems further down the line.
On the positive side there is a strong increase in cash and equivalents from R620million in 2015 to just over R1billion in 2016.
The pie chart below shows the contribution of DST's different regions to their revenue and pre-tax profit earnings.
From the pie chars above it is clear that South Africa is where the bulk of their revenues and an even bigger chunk of DST's operating profits are coming from. So is business a lot harder outside of South Africa, or are South Africa's being exploited with fatter margins? Strong margins are also achieved in the rest of their international operations (but margins seems very low in their European and their African operations; both in BLNS and the rest of Africa).
A few financial ratios for Distell (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio: 0.87 (more than 2 shows high levels of financial leverage).
- Current Ratio: 1.59 (a measure of liquidity. Less than one signals possible trouble in paying off current liabilities).
- Quick Ratio: 0.51 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt). Not the greatest ratio for DST
- Return on Assets (ROA): 7.68%
- Return on Equity (ROE): 14.35%
- Net Profit Margin: 7.13%
- Dividend Yield: 2.22%
Valuation:
While we like the strong brands in DST's portfolio, we are a little concerned about the high PE ratio they are trading at. While they are defensive, perhaps a stronger dividend is required to justify trading at such a high PE, and considering the fact that DST will in all likelihood struggle to increase their net profit margins substantially.
Based on DST's current financials, its prospects, its cash generation ability, strong brands and defensive nature, we value DST at between R163.50 and R163.80. We therefore feel at it's current price it is a little overvalued and we would not suggest value investors buy into DST at it's current price. At a price closer to R160 we will recommend long term investors buy or add to their holding (if they hold DST already).
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
Based on DST's current financials, its prospects, its cash generation ability, strong brands and defensive nature, we value DST at between R163.50 and R163.80. We therefore feel at it's current price it is a little overvalued and we would not suggest value investors buy into DST at it's current price. At a price closer to R160 we will recommend long term investors buy or add to their holding (if they hold DST already).
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.