4 billion kilos
11 April 2024
Today we're going to tell you about a company whose products you've already consumed without even knowing it existed. The company is Lamb Weston, and it makes a product so common you'd forget there were giants behind it: chips!
Lamb Weston is one of these giants. A spin-off from Conagra, it is now worth $12 billion on the stock market, just like its former parent company (we told you spin-offs weren't bad here). It has sales in excess of $6 billion and 25% of the world's production capacity - 4 billion kilos - making it the #1 company in North America and the #2 in the world. Its main customer? An obscure company called McDonald's, which has accounted for just over 10% of sales for years.
Last week, Lamb Weston published its Q3 results. The stock lost 20% on the same day, its worst ever session. Naturally, such a fall is intriguing.
Source : Investing
The main problem this quarter was the implementation of the ERP*. Put simply: it went wrong. Sales took a big hit: 8% less volume because of it, or $135m in turnover. Add to that a drop in demand from restaurants over the last few quarters : don't pour any more, the cup is full!
We've seen all that. But we've also seen other things. A leader in an oligopolistic market. A critical supplier of a low-cost, high-margin ingredient to its customers. A market with long-term volume growth. Experienced management. An attractive valuation.
Lamb Weston multiple results:
Source : Tikr
Today we are paying <14x earnings for the next twelve months, the lowest ever. Earnings growth will return rapidly once the temporary problems have been ironed out.
These two factors will therefore work in our favour, and we could even see a third appear with the increase in share buybacks. At this stage, our medium-term target is x2. Not bad for potatoes.
*L'ERP (Enterprise Resource Planning) est une logique qui intègre et gère les processus de base d'une entreprise (finances, inventaire, opérations) au sein d'une plateforme unique et unifiée.
Market and portfolio focus
Behaviour:
From 28/03 to 05/04, the fund was in balance when the CAC 40 lost 1.8% and the S&P 500 1.0%. The performance of Tidewater (+0.4%) and Vipshop (+0.1%) was offset by the rest of the positions.
Lines:
We sold our position in Alphabet and started a new position with Lamb Weston (4% of the fund).
On the bond side, we increased our exposure to US short rates and took a position in US long rates. Our total exposure to these two lines is now 31%. At the same time, we reduced our position in Rivian.
Have a good week,
Antoine
Disclaimer
This presentation is a promotional document. The content of this document is communicated by and is the property of Monocle Asset Management. Monocle Asset Management is a portfolio management company approved by the Autorité des Marchés Financiers under number GP-20000040 and registered with the ORIAS as an insurance broker under number 10058146. No information contained in this document should be construed as having any contractual value. This document is produced for information purposes only. The prospects mentioned are subject to change and do not constitute a commitment or a guarantee. Access to the products and services presented here may be subject to restrictions for certain persons or countries. Tax treatment depends on individual circumstances. The fund mentioned in this document (Monocle Fund SICAV) is authorized for marketing in France and possibly in other countries where the law permits. Before making any investment, it is advisable to check whether the investor is legally entitled to subscribe to the fund. The risks, costs and recommended investment period of the funds presented are described in the KIDD (key investor information documents) and the prospectus, available free of charge from Monocle Asset Management and on the website. The KIDD must be given to the subscribers before the subscription. Past performances are not a reliable indicator of future performances. Monocle Asset Management cannot be held responsible for any decision taken or not taken on the basis of information contained in this document, nor for the use that could be made by a third party. The investor may lose all or part of the amount of capital invested, as the funds are not capital guaranteed.
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