An investor’s view of Müller’s acquisition of RWD, and how a NAM can help
Stockopedia writes about investing from a ‘value’ perspective i.e. finding companies that are priced attractively, like RWD.
They explain a number of attraction-criteria including category leadership, prosperous/profitable, manageable gearing, long history, no threats to permanent earning power, and a sustainable business model, simply a short term problem of a milk price-war. For details on valuation of RWD see Stockopedia,
In this type of situation NAMs can help their own companies by seeing their jobs in terms of how they affect ROCE performance (i.e Return On Capital Employed, the profit a company makes on the money tied up in a business) An acceptable level of ROCE, say 15%+, can result in more credit from suppliers of packaging, ingredients etc, cheaper borrowing from banks, more clout with retailers, but especially autonomy and freedom from takeover…
ROCE is driven by Net Margin and Capital Rotation, so a NAM can help improve Net Margin by being able to negotiate better selling prices, lower discounts/promo allowances, lower selling and distribution costs, and driving volume. Capital rotation i.e Sales/stock can be improved by driving volume, getting customers to pay faster, and more accurate sales-forecasting (if you ‘over-forecast’ i.e. sell less than forecast, then the ‘spare’ stock is being carried around the system not earning, resulting in a dilution of margin).
Obviously NAMs do all of these things (?), but the key is to know why you do it, and their direct impact on company profitability, i.e. ROCE, resulting in long term sustainability of the business model, and a higher share price, thus making the company too expensive to take over…
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