Monday, December 10, 2018

A Current AIM Program International Equity Holding: Danone SA ADR (DANOY) by: Andy O'Neill. "Not at its Expiration Date"

Danone SA ADR (DANOY, $14.94): “Not at its Expiration Date”
By: Andy O’Neill, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Danone SA ADR (OTC: DANOY) operates in the food processing industry, producing dairy products, water, and other foods. They operate all over the world, but mainly out of the United States, France, Russia, and China.

•The Economist published an article saying the food industry is going nowhere.

• Management has detailed a plan to help decrease marketing inefficiencies in developing countries.

• Management has also said they are looking into different ways to be environmentally friendly in the water department.

• Due to changes in the company’s plans, a shift in focus towards the long term could have the stock back on the rise.

Key points: 

One of the biggest concerns facing DANOY during the most recent investor seminar was the fact that The Economist published an article saying that the food industry was going nowhere. They said that it was a stagnant industry because nothing about the food industry was changing, so many stocks would either hold their position, or lose some of their position. This concern would be a big problem for DANOY, as they have lost 12.2% of their stock price over the last twelve months.
The company responded to this claim from The Economist by saying that the food industry, while somewhat stagnant as a whole, can have large movers within it based off of who is making the right moves for their companies. It was then outlined that DANOY was going to be helping one of their largest suppliers, Brookside, to help cultivate the dairy markets. Previously, the different seasons in Lake Victoria made it either too wet or too dry to do efficient dairy farming, and Brookside had to charge a higher price. Now, the two companies are moving the farming from extensive to intensive farming, using less land but using that land more efficiently. This should decrease the cost of dairy for DANOY.
Also, the company is working to become more environmentally friendly, through their Waters division. They are focused on their planet’s platform, and are looking to make the company circular by 2025. This will likely improve their image of their different water brands, and make their sales increase.

What has the stock done lately?

Since October 29th, the stock has risen 6.8%, from $13.99 to $14.94. This has been very good for them, as the stock has consistently dropped over the past year. If this were to continue that would be excellent for the company, as they have had few positive months in the past year. Hopefully some of the things that they are planning on implementing coming up soon are going to be helpful to the company.

Past Year Performance: 

DANOY has decreased 12.2% in value over the past year. They have struggled the whole year, and a few minor attempts at bouncing back has only led the stock further downward. However, this is partially because of new leadership trying to direct the company towards more of a long term focus.

Source: FactSet

My Takeaway:

Having an involved CEO knowing that changes are needed are a big first step for this company. The idea for them to build up a supplier to cut down on their own costs is definitely interesting, and could have serious benefits in the future. Their presence in emerging and developing countries would be much higher if ideas like this were constantly implemented. Even after a rough year, DANOY could be in a position to make a big rebound.

Source: FactSet