Two similiar companies with un-similar valuation!

Two similiar companies with un-similar valuation!

Relative valuation is the key to understanding why to invest in Thailand! There are good and bad companies all around the world. What is not often pointed out are the immense differences in how the market values one firm in USA versus Thailand. This original article was first released for our subscribers on Dec.17 '99.

Thaistocks.com has long argued that there are hidden "jewels" on the Stock Exchange of Thailand. Dozens of highly profitable manufacturing companies receive little investor attention because of their small size or unglamorous products. These are, according to Paul Renaud, "a rational value investors' ultimate picks."

So how do these companies stack up against their peers in the West? This month we compare President Rice Products Public Company Limited (SET: PR) with a similar U.S. stock, The Earthgrains Company (NYSE: EGR).

CRITERIA. It’s not easy to find exactly identical companies for comparison, but we really don’t need our subjects to be identical. Our primary criteria are that the companies being compared are (1) subject to the same types of economic forces, (2) value stocks, and (3) recommended by qualified investment professionals.

PRESIDENT RICE. PR is one of Paul Renaud’s long-time favorites. Thaistocks.com carries a "Strong Buy" for the diversified Thai food-products concern. Paul views PR as "a defensive growth stock with high dividend yield."

President Rice makes rice-based products including rice vermicelli, rice noodles, kua chap, rice porridge and rice soup. It is the Thai market leader in such products, offering Clear soup, authentic Thai Tom-Yam, and beef, chicken, and pork instant noodles. PR products are sold under more than 40 brands such as MAMA, MAMY, AND PAMA.

Through its President Bakery subsidiary, PR produces more than 100 varieties of bread and other bakery products where it has, by far, the dominant market share in the Kingdom. Its Farmhouse brand is well known at local markets and kiosks.

PR is part owned (30%) by the Saha Pathanibul group of companies, which is by far the best consumer product distributor in Thailand, according to Paul Renaud.

PR’s stock has languished between Bt 45 and Bt 50 for some time, despite consistent operating performance through the Asian Crisis and an aggressive growth plan.

Paul Renaud’s complete analysis of PR and various comments on this company can be viewed by using our search engine.

EARTHGRAINS. EGR carries four "Buy" and three "Hold" investment ratings from Wall Street firms. According to its web site (www.earthgrains.com), EGR "is a leading manufacturer, distributor, and consumer marketer of fresh packaged bread and baked goods and refrigerated–dough products in the United States and Europe." EGR was spun off from Anheuser-Busch Companies (best known for its Budweiser beer) three years ago. Today, it is:

• No. 1 in market share for packaged bread, buns, rolls, and bagels in

• No. 1 in market share for packaged sliced bread, buns and snack cakes

• The only producer of store–brand canned and other refrigerated–dough

• The only producer of canned refrigerated dough in Europe."

EGR’s bread products are well known to American consumers: Colonial, Country Hearth, Country Recipe, Earth Grains, Grant’s Farm, IronKids, Rainbo, Roman Meal, and Sunbeam, among others. European brands include Bimbo, Bony, Madame Brioche, Martinez, Mr. Bagel, Silueta, Semilla de Oro, and Tigreton.

EGR’s stock has suffered of late in sympathy with troubles at its largest competitor, Interstate Bakeries Corp. (NYSE: IBC). Following several quarters of decreasing profits at IBC, investors have concluded that margin pressure is mounting in the U.S baked goods industry. Both stocks, previously high flyers, have lost 40% of market value over the last year. EGR has not seen the same level of profit deterioration, and a majority of analysts now believe the stock is attractively priced.

MANY SIMILARITIES. While EGR is much larger than PR, there are many striking similarities between these companies.

• Each company manufactures a basic, everyday food that will always be in demand.
• Each has a strong market share in its key domestic segments.
• Each has an aggressive, internationally oriented growth strategy.
• Each relies on strong brands to build and maintain customer loyalty.
• And finally, each of these stocks is a value play.

THE COMPARISON. Placing some key investment-related facts side-by-side:

Long Term Growth. First, note that the analysts expect similar long-term earnings growth for the two companies. This is one of the most important determinants of price multiples. Despite the depressed share values, investment professionals are looking for above-average future earnings growth for both companies.