Growth
So apart from the points mentioned above, a good growth ahead would be like cherry on top.
The long term growth rate has been 6-8% and it should be able to maintain that growth going forward as it earns more than 60% of its revenues from the emerging markets where it has been growing at double digits figures. And there is still a lot of room available for growth in these countries.
Even in the developed markets, in these difficult conditions Tupperware has managed to grow at mid-single digits. So I believe that the company can quite easily maintain its growth rate for the next few years at least.
Competition
In the food storage space, in US it faces competition from Newell Rubbermaid with its Rubbermaid brand and in Asia it faces tough competition from a Korean company called Lock and Lock. Rubbermaid is majorly sold in US and does not pose a big threat to Tupperwares market position as they have totally different business models.
But it’s a different story in Asian markets. There Tupperware faces huge competition from Lock and Lock. This brand has become the biggest brand in Korea with 63% market share of airtight plastic containers and it’s also the number 1 brand in China surpassing Tupperware. But Lock and Lock is selling through retail stores (similar to what Rubbermaid did) and only time will tell whether the business model makes a difference in this business.
Tupperware also has beauty products in its portfolio and mainly sells in Latin America. Cosmetics and Toiletries in general is a very tough business to be in with lots of competition and low margins, unlike its food storage business. It faces huge competition in the beauty segment in Brazil from Natura Cosmeticos SA (PINK: NUACF) and in other Latin American countries from Avon Products, Inc. (NYSE:AVP). Both Natura and Avon have direct selling model similar to Tupperware. Natura is the market leader in Brazil and Avon is the number 1 beauty seller in other LatAm countries such as Chile, Argentina and Colombia.
Risks
The most important perceived risk to the company is forex risk, but they have operations in so many countries that it provides a natural hedge to forex changes. The next major risk is the risk to its growth if the emerging markets slow down. Even if it slows down in the short run, the long term story and the scale of opportunity still remains intact.
Conclusion
At the CMP of $76, Tupperware is available at P/E of 15x (ttm), dividend yield of 3.25% (increasing every year), Free cash flow yield of more than 5% and ROIC of 20%. With a long term perspective, and considering the current economic situation, the valuation seems decent for a quality company with shareholder friendly management.
The article Plastic Money originally appeared on Fool.com and is written by Shailendra Raghav.
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