Danone has been on an acquisition spree to expand its footprint in the global food & beverage business. Recently, it agreed to acquire as much as a 92% stake in Happy Family, a fast growing organic baby food company. It also snapped up a 50.1% stake in Sirma, a Turkish company specializing in flavored bottled waters and Home & Office Delivery. Since the beginning of the year, Danone has grown from $13.15 per share to more than $14.80 per share. Let’s take a closer look to determine whether or not we should invest in Danone at its current price.
A solid growing first quarter
In the first quarter of 2013, Danone experienced solidly growing sales. Revenue increased from €5.11 billion in the first quarter last year to €5.34 billion in the first quarter of 2013. Danone derived most of its revenue, €2.95 billion, or 55.2% of the total Q1 2013 revenue, from the Fresh Dairy Products segment. The Baby Nutrition segment ranked second with nearly €1.18 billion, while the Water segment generated €887 million in sales in the same period. The Baby Nutrition segment is the fastest rising segment, with a year-over-year growth of 17.1%.
The company would adapt its business model for the continued slow growth in Europe. By the end of 2014, Danone expected to generate around €200 million in savings. For the full year 2013, Danone is estimated to generate around €2 billion in its free cash flow. At $14.80 per share, Danone is worth $44.1 billion on the market. It is valued at 11.5 times EV/EBITDA and 20.7 times its forward earnings.
Happy Family is really a fast growing organic baby food business. Its products have been sold in more than 20,000 stores in the U.S., including at Target Corporation (NYSE:TGT) and the organic-focused supermarket Whole Foods Market, Inc. (NASDAQ:WFM). According to the Wall Street Journal, its revenue increased by nearly four times in just two years, from $13.3 million in 2010 to $62.3 million in 2012. Founder Shazi Visram would continue to lead the business after the acquisition. She mentioned that Danone would be an “optimal fit” for her business.
Danone has been the target of famous activist investor Nelson Peltz. Peltz thinks that the company owned a great “21st century” portfolio with its Yogurt, Bottled Water and Baby Nutrition business. Its Yogurt business is a global leader, with 23% of the world’s market share.
Like Mondelez, it is also a huge emerging market player
Whenever people think of , they think of developing markets. Interestingly, Danone generated a greater share of its revenue from emerging markets than Mondelez International Inc (NASDAQ:MDLZ). While the developing markets accounted for 45.4% of Mondelez’s total revenue, Danone derived as much as 52% from the emerging markets.