Carlsbg- time to take profit

Early Comment recapped

In November 2010, I posted a piece on Carlsbg, where I concluded that the stock was trading at its fair value & has limited upside. To wit:

Carlsbg is deemed fairly valued. If it can trade at the same multiple of 16.4 times as Guinness Anchor Bhd- a more established company- then Carlsbg may go as high as RM6.56. At this moment, I do not think Carlsbg can command that kind of valuation. As such, I think its upside is rather limited.

Subsequent Financial Results

Carlsbg announced its results for QE31/12/2010 on February 24. I did not post any update because there was nothing significant to comment. If I had posted anything, it would have been a negative comment as its top-line & bottom-line had declined in the last quarter of a calender year, which is normally a good quarter. However, Carlsbg has undergone some restructuring after acquiring its related company in Singapore which could lead to some distortion in its accounting numbers. All in all, Carlsbg's financial results after its acquisition of the Singapore entity (completed in October 2009) was underwhelming. See Table 1 & Chart 1 below.


Table 1: Carlsbg's last 8 quarterly results



Chart 1: Carlsbg's last 21 quarterly results

Special Dividend announced

On February 24, Carlsbg made a surprise announcement. It would be paying out a special dividend of 43 sen for FY2010 (on top of the final dividend of 7.5 sen). Since that announcement, the share price has rallied. Given the additional borrowings of RM44 million incurred for FY2010, I believe the chance of another huge special dividend for FY2011 is low.

Valuation

Carlsbg (closed at RM7.83 yesterday) is now trading at a PE of 17.8 times (based on last 4 quarters' EPS of 44 sen). This multiple is higher than the PE multiple enjoyed by GAB (of 16.4 times). The only justification is that Carlsbg has a dividend yield of 7.5%. However, this dividend yield includes a special dividend which I believe may not be repeated (or, if repeated, it would not be so sizable). As such, I believe Carlsbg is overvalued.


Table 2: Carlsbg & GAB's valuation compared

Technical Outlook

From Chart 2 below, we can see the upside breakout above the horizontal line of RM6.50 in February (following the announcement of the special dividend). The rally was so strong that Carlsbg has matched its all-time high of RM8.00 (recorded in 1993) this morning. See Chart 3 below.


Chart 2: Carlsbg's daily chart as at April 8, 2011_10.00am (Source: Quickcharts)


Chart 3: Carlsbg's monthly chart as at April 1, 2011 (Source: Tradesignum)

The monthly chart of GAB is also included for your perusal.


Chart 4: GAB's monthly chart as at April 1, 2011 (Source: Tradesignum)

Conclusion

Based on the above- unexciting financial performance, high valuation & strong technical resistance, I believe Carlsbg is a SELL now.