3 Wise Views on the Blue Chip Share Wilmar International Limited

Three wise men were blindfolded and led one at a time into a room where an elephant stood. Each was asked to discern what was in the room without removing his blindfold.

The first, upon touching the elephant’s trunk, concluded a “snake” was in the room. The second, upon contacting a leg, concluded a “tree” was in the room. The third, upon grasping the tail, concluded a “rope” was in the room. All were surprised to discover the elephant once their blindfolds were removed.

— old Indian fable

You may have heard this old fable before. The three blindfolded wise men were not able to make a good guess of the complete picture (in this case, an elephant). It can be the same with investing.

For any potential investment, our own view may be limited, and we may miss some major points. We could always do with more intelligent and Foolish perspectives.

With that, let’s use Asia’s leading agribusiness group Wilmar International Limited  (SGX: F34) as an example today. You can read more about Wilmar, which is a blue chip share by virtue of its status in Singapore’s market barometer the Straits Times Index  (SGX: ^STI), in here and here.

With this company, I would like to share three possible views, from three differing investor personalities no less. They are the value investor, the income investor, and the growth investor.

The value investor’s view

When it comes to Wilmar, there may be both pros and cons in the value investor’s eye.

The thing to like about Wilmar from the value investor’s perspective is its valuation.

At its closing price of $3.72 on Monday, Wilmar sports a trailing price-to-earnings (PE) ratio of 12.5. In comparison, the PE ratio for the SPDR STI ETF  (SGX: ES3) – a close proxy for the fundamentals of the Straits Times Index – is around 13.4. Meanwhile, Wilmar’s also trading at a price-to-book ratio of around 1, some 30% lower than the SPDR STI ETF’s selfsame figure.

With Wilmar’s valuation metrics being lower than the market average, the value investor may be tempted to dig in further.

But by delving deeper, the value investor may notice that Wilmar carried US$2.2 billion in cash and bank balances and a hefty US$22 billion in debt as of 31 March 2015. Wilmar’s mountain-sized debt levels may make it less enticing for the conservative value investor.

The company’s ability to generate positive free cash flow  (more on this shortly) over the past two years is welcome, but it may still not be enough to assuage any concerns that the value investor may have over Wilmar’s balance sheet.

The income investor’s view

At its current price, Wilmar offers a dividend yield of 2.3%. At first brush, this may not be enough to supplant the 2.8% yield offered by the SPDR STI ETF.

However, the income investor may have noticed that Wilmar’s dividend, while showing inconsistent increases, has generally gone up over the past five years.

Financial year ended 31 December Dividends per share
(Singapore cents)
2010 5.5
2011 6.1
2012 5.0
2013 8.0
2014 7.5

Source: Wilmar’s website

A look at Wilmar’s dividend history may not be enough – the income investor would also like to have a good grasp of the company’s ability to pay its dividend. This is where Wilmar’s free cashflow (operating cashflow minus capital expenditures) may provide some hints.

In this case, the agribusiness giant has been free cashflow positive in three out of the last five years.

Wilmar OCF FCF

Source: Wilmar’s earnings report

Wilmar’s mixed bag of dividend increases and a somewhat spotty track record in generating free cashflow may leave the income investor feeling a little underwhelmed. The diversity of the company’s business activities (more on this shortly) may score a few brownie points, but it may not be sufficient for the discerning eye of the income investor.

The growth investor’s view

The growth investor might be feeling the same way as the income investor but for different reasons.

From the graph below, Wilmar appears to have some business segments – like the oilseeds and grains segment, the consumer products segment and the sugar (merchandising and processing) segments – that have shown strong revenue growth.

But, the sheer scale of Wilmar’s revenue (US$43 billion in 2014) may make significant growth harder to come by in the future.

Wilmar - Business Segment Revenue

Source: Wilmar’s earnings report

A quick glance at the chart below, which plots the pre-tax profits for Wilmar’s various business segments, also shows the growth investor that not much of Wilmar’s top-line actually drips down to the bottom-line.

For instance, while the revenue growth in the oilseeds and grains segment looks promising, it doesn’t translate to profits at all. There is a glimmer of hope in the profit growth of the consumer products and sugar (merchandising and processing) segments, but Wilmar’s overall growth in profits has been underwhelming over the past five years from 2010 to 2014.

Wilmar Profit Before Tax

Source: Wilmar’s earnings report

These traits – a lack of bottom-line growth in the past five years and the likelihood that it’d be increasingly difficult for meaningful revenue growth to occur – may trouble the growth investor enough to give Wilmar a pass.

Foolish summary

So, there you have it. Three quick perspectives from three different investor personalities looking at the same company. Thinking as different investor personalities and coming up with different views can be a useful exercise for us.

Collectively, the differing views may be worth much more than the sum of their parts.

So, do you – Foolish reader – have another company of interest in mind? Why not give the differing views approach a try yourself and then share it with us? We all may become better investors from sharing our motley views.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.