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QuestionsCategory: Business QuadrantKimberly Clark
Benjamin Sing asked 7 months ago

I thought of tissue paper and decided to look at Kimberly Clark.
 
Can I check if I got the gist of this:
Low margin high volume business. Consumer staple industry.
Simple business model of manufacturing frequently used personal hygiene products and selling to distributors (online and offline). The product is a daily necessity but highly commoditised. Of note, Walmart contributes 14% of sales.
Borderline asset heavy business with FA/TA ratio of ~60%.
However, FCF/E is high, which may be a good sign.
(Noted negative equity in 2018 and 19.)
The business has economic moats in the form of economies of scale and wide distribution network. The ROE is high at 300+%.
The only potential growth drive I can imagine is the adult diaper industry due to ageing population. However, KC is but one company of a few, and a bigger player PG comes to mind. Other prominent companies listed outside US include Unicharm.
Potential risks: increase in civic consciousness cause people turn to reduce, reuse and recycle, and there is increasing number of people who use infant cloth diapers and reusable products rather than disposables. Could this dampen demand for disposables somewhat?
Geography: revenue about 50% N. America and 50% outside N. America.
 
Geography: revenue about 50% N. America and 50% outside N. America.
 

1 Answers
Victor Chng answered 7 months ago

Hi Benjamin,
 
Your analysis is spot on, except I don’t think people will use the reusable diaper. It is too troublesome. 
 
I think KMB probably had hit their saturation point, reflecting its past few years’ slow growths. They are more of a dividend stock than a growth stock. 

Benjamin Sing replied 7 months ago

Thanks Victor!

Haha all my kids are cloth diapered! There’s quite a following for infant cloth diapers (I don’t know actual numbers), but I also also know a good many who find it troublesome.

Thanks for your input. So that means if we invest in this stock, we should not expect much growth. To value it, we can use dividend yield and aim for high dividend yield?

Victor Chng replied 7 months ago

Haha, I use disposable diapers for my kids. Too troublesome for me.

Yes, you are right; value is based on dividend yield. U.S. companies usually are efficiently priced unless there is bad news about the company, which causes them to trade at a historical high yield. As long as the company is traded 10% discount from a historical high yield, you can consider it.

Benjamin Sing replied 7 months ago

Ok, thank you!