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.
Summary:
• 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
