Inflation, GLP-1s and weed have left a lot of wreckage in the supermarket aisle. I’ve been intrigued by a few names, but just about everything cheap has too much debt. Diageo $DEO, with its new CEO, seems like an interesting turnaround. And when was the last time Pepsi $PEP had a dividend yield above 4%? I even spent some time looking at the Turkish biscuit-maker Ulker $UELKY. You can find Ulker in the bargain bin. But if you think we have a problem with ingredient inflation, you ought to see what the working capital looks like for a Turkish confectioner.
I had a chance to dig around some of our own ingredient makers. Ingredion $INGR was once called Corn Products International but changed its name to reflect the company’s growing participation in more dynamic sectors like pea protein and stevia. Unfortunately, its legacy assets are still a drag. Sadly, the Argo corn starch business has been an actual tragedy due to a massive fire at a Chicago complex. Douglas Ott has written a nice summary of the business, so I won’t repeat his work.
Ingredion, with a market cap of $6.6 billion, decided it better pull off a Shawshank and get busy livin’. They went out and made a $5 billion offer for British ingredient maker Tate & Lyle. I worked up some numbers to see if there was much merit to the deal. I’m not inspired.
Presented below is a summary valuation where I combined cash flows for the two businesses, added projected synergies, and helped get the Argo plant back on line. I employed a weighted average cost of capital of 9.13% for the combined entity. That might be a bit high but I’m not exactly getting good vibes from the Treasury or Gilt markets these days. In my estimation, Ingredion is trading about 20% above it’s intrinsic value. It’s a pass for me. This is a big deal for Ingredion, and big transatlantic food deals are seldom winners.
I wonder how that Yoplait acquisition is working out for Lactalis?
Music interlude: Joe Stummer.
I’m all lost in the supermarket
I can no longer shop happily
I came in here for that special offer
A guaranteed personality
There’s a good topic for a poll. What are the best songs that start with the chorus? Paradise City by GnR would probably be on that list.
Let’s switch channels to Africa. If demography is destiny, then investing in African companies makes sense. I own MTN Telecom $MTNOY. The $21.6 billion market cap South African mobile network operator recently surpassed 300 million subscribers. MTN is the largest mobile operator in Nigeria, South Africa and Ghana. Shares trade at 17 times trailing earnings. I’m also intrigued by Reunert, another Johannesburg listing. It sounds like Eskom has finally got the power working in South Africa, so that could be good for their electrical business. Reunert also has a European defense business that is growing nicely.
I wanted to see if there were any ways to invest alongside Africa’s wealthiest individual, Aliko Dangote. Turns out the answer is yes. Dangote opened Africa’s largest oil refinery in 2024. You can’t participate in what will likely become one of Africa’s biggest producers of cash. At least not yet. However, shares in his cement and sugar refining companies are traded in Lagos. In fact, Mr. Dangote is aiming to list Dangote Cement PLC in London soon. Dangote Cement trades with a market cap of 17.3 trilion naira, or $12.66 billion. Revenues are on track to exceed $3.68 billion in 2026. Revenues are growing at 20% per year in a country with 15% inflation.
But Dangote Cement seems too good to be true. The group has consistently posted operating margins in excess of 30%. The margin was 42% for the first six months of 2026. Now if that seems a little high, well, that’s because it is. CRH & Holcim are the largest publicly traded cement companies in the world, and their margins are in the high teens. Cemex barely hits double digits. Anhui Conch, the Chinese giant has 13% operating margins.
I don’t have a Scooby as to why Dangote is so profitable. Monopoly pricing seems like one possibility, I suppose. But yeah, I’m just leaving Dangote Cement alone for now.
Until next time.
DISCLAIMER
The information provided in this article is based on the opinions of the author after reviewing publicly available press reports and SEC filings. The author makes no representations or warranties as to accuracy of the content provided. This is not investment advice. You should perform your own due diligence before making any investments.
The alcoholic beverage industry has been experiencing a secular decline since the pandemic boom. So, borrowing an expression from the Hormuz-constrained oil industry, are we nearing tank bottom? Molson Coors, the brewing giant formed through a 2005 merger, looks like a bargain by most standard metrics.
Molson Coors had sales of $13 billion in 2025, representing a 5% annual decline. First quarter revenues ticked up slightly, and management expects 2026 to be a year of stability. The company trades for an EBITDA multiple of 5.7x. The 4.6% dividend yield is well-covered. Cash flow from operations was $1.8 billion dollars in 2025, so there was plenty left over for share buybacks and debt reductions after paying capital expenditures of $700 million and dividends of $376 million.
As usual, I calculated the intrinsic value of the business using the earnings power value (EPV) method favored by Bruce Greenwald and his value investment acolytes. This math simply takes normalized unlevered free cash flow and divides it by a weighted average cost of capital to arrive at a gross value for the business. Adjustments are made for cash and debt on the balance sheet to arrive at a net value, or “intrinsic value”.
My intrinsic value calculation shows that the shares trade for a 21% discount. Over the trailing twelve months, unlevered free cash flow amounted to approximately $1.15 billion dollars. I applied a discount rate, or weighted average cost of capital (WACC), of 7.5%. This percentage reflects an equity cost of 9.9% and an after-tax debt cost of 4.1% with a weight of 42%. The resulting quotient is $15.5 billion of capitalized value. Adding cash and subtracting debt and pensions of $6 billion leaves a value of $9.8 billion, or $51.55 per share.
I added some shares of Molson Coors to an account focused on generating income because I think the dividend is well-protected. The yield is better than Treasuries, and much of the downside is priced in. However, I am reluctant to take a large swig at the TAP. The return on capital in 2025 was only about 6.7%. This is less than the WACC of 7.5%. Molson Coors booked $3.6 billion of impairments in 2025, and I suspect more could be in the offing as management seeks to rationalize production. Also, to state the obvious problem, there is no foreseeable sign of growth in the alcohol industry. Finally, margins will continue to come under pressure from high aluminum costs.
Where’s the upside going to come from? Continued share buybacks is one answer. A takeover seems less likely since most brewers are struggling with their own debt hangovers. A leveraged buyout led by the Molson family is my other idea. But why add more debt? This one is for the patient coupon-clippers.
I had much more fun researching Li-Ning, the Chinese athletic footwear and apparel maker. Shares of the company appear to offer an exceptional bargain. And while sales growth is in the low single digits, sales are growing. A lot of the coverage of Nike $NKE and Lululemon $LULU has focused on various management missteps. I suspect one underreported factor has been the role of Chinese competition. The stature of Chinese athletic brands has been rising, and nowhere is this more apparent than on the feet on some of the NBA’s most talented players.
While Nike continues to dominate the NBA shoe league table with the Kobe Bryant, Michael Jordan and Kevin Durant franchises. Chinese brands have made significant inroads. Anta Sports $ANPDY is the largest Chinese brand (another undervalued stock, in my opinion), and has just signed Kyrie Irving to a major deal. 361° features two-time MVP Nicola Jokic. Meanwhile Peak and Rigorer have also made inroads. But the largest deal was recently made by Li-Ning who signed Steph Curry to a $400 million 10-year deal. Curry joins a stable of stars led by Dwayne Wade. The former Miami Heat legend teamed up with Li-Ning several years ago. The Way of Wade line from Li-Ning garners rave reviews from fans, athletes, and “sneakerheads”.
Li-Ning trades in Hong Kong and over the counter with the symbol $LNNGY. At the recent price of $48, the market cap is just below $5 billion. The company has virtually no debt and approximately $300 million of lease obligations. Cash on the balance sheet is an astounding $2.9 billion. They can afford Steph’s contract. With 2025 sales of $4.3 billion and EBITDA of $825 million, the EV/EBITDA multiple is only slightly above 2x. The chart isn’t pretty. The hype from the pandemic spending boom has evaporated, and shares are down over 80% from their peak.
I think Li-Ning shares trade at a substantial 50% discount. Using a weighted average cost of capital of 10.6% and unlevered free cash flow of $500 million, the capitalized value is roughly $4.8 billion. Adding the $2.9 billion of cash and the company’s JV investments while subtracting those leases and about $160 million of warranty liabilities leaves an earnings power value of $7.7 billion or $74.50 per share. It appears that Li-Ning has 56% of potential upside.
The competitive landscape of athletic wear is challenging, to say the least. Hoka $DECK and On Running $ONON are brands that didn’t even register a pulse a decade ago, now they are staples. Meanwhile, spending on athletic apparel could come under pressure as European and American consumers grapple with higher energy costs. Chinese consumers are in year five of a major retrenchment due to the collapse of housing prices. Despite these headwinds, Li-Ning represents an exceptional opportunity at the current market price.
Until next time.
DISCLAIMER
The information provided in this article is based on the opinions of the author after reviewing publicly available press reports and SEC filings. The author makes no representations or warranties as to accuracy of the content provided. This is not investment advice. You should perform your own due diligence before making any investments.
Chris Hohn’s interview with The Financial Times was sobering. He contends there are only about 200 companies in the world that are investable. These are the privileged purebreeds who can raise prices with impunity. Naturally, shares of these champions trade at massive premiums to the rest of the market. Exhibit A is Hohn’s largest holding, GE Aerospace which profits from a duopoly in the jet engine market. Sadly, trading at 38 times earnings, it’s no bargain.
When all the best companies are priced to perfection, what’s a value investor supposed to do? It reminds me of the Wall Street scene at 21 Club. Gordon Gekko instructs Bud Fox, “Cover the Bluestar buy, and put a couple hundred thou in one of those bow-wow stocks you mentioned. Pick the dog with the least fleas. And buy yourself a decent suit. You can’t come in here looking like that. Go to Morty Sills. Tell ’em I sent you.”
I know the feeling, Bud. When the pedigree canines are too expensive, you have to find a few mutts. I’m talking about finding a loyal hound, not the pug crossed with a Chihuahua. Maybe it’s a beagle that had a fling with a golden retriever. Or the Australian sheepdog who spent a spa weekend at Labrador camp. Man’s Best Friend. The kind of pooch that will fetch your slippers, carry a keg of brandy and guard your kids. Those are the mutts I’m looking for.
Where are the dogs with the least fleas? Well, I found a few in the South African consumer sector. One standout is Spar Group Limited, South Africa’s second leading grocer. Spar generated over $8.1 billion in sales from continuing operations during the last fiscal year ended September of 2025. Having shed its unprofitable operations in Poland, Switzerland and the UK, Spar Group has narrowed its focus to its to core markets: Southern Africa and Ireland. The company also operates a joint venture in Sri Lanka. Debt has been reduced by $250 million following the divestitures. Spar’s market capitalization of $700 million represents a 14% discount to my estimate of the company’s intrinsic value.
Spar is better understood as a wholesaler. It doesn’t actually own and operate its retail stores. Instead, each retail operator brands its location with the Spar livery and agrees to purchase its inventory from Spar. Store operators also agree to pay marketing and inventory management fees to Spar, akin to a franchise model. Spar Group is affiliated with Spar International which is based in Amsterdam, where it began business in the early 1960’s. Spar International awards country licenses to various wholesalers around the world, and Spar Group holds the licenses for Southern Africa, Ireland, and Sri Lanka. While some products on sale in a Spar are locally sourced, much of the inventory consists of “Spar” private label products.
Spar Group is headquartered in Durban, South Africa where it recently moved after selling off its offices in nearby Pinetown. Spar is the second largest food retailer in South Africa. Spar stores generally fall into two categories: large-format grocery stores, and smaller convenience stores. Spar also offers a collection of DIY of home improvement retail destinations. There are 2,523 outlets in Southern Africa serviced by 9 distribution centers. Gross retail margins during the last fiscal year were 10.8%, and operating margins amounted to 2.1%. The Ireland market is stronger with a 3.1% operating margin. Unfortunately, Ireland accounts for only 20% of group sales. The Irish market hosts 1,161 stores serviced by 25 distribution centers.
Shares of Spar could be purchased last week on the Johannesburg bourse for 57.25 rand, or about $3.50 per share. The chart is abysmal – down nearly 70% since the Covid peak. The price represents a multiple of 5 times EBITDA and about 13.5 times FY 2025 earnings.
To calculate the intrinsic value of the business, I used the earnings power value (EPV) method favored by Bruce Greenwald and his value investment acolytes. This method takes unlevered free cash flow and divdes it by a weighted average cost of capital to arrive at a gross value of the business. Adjustments are made for cash and debt on the balance sheet to arrive at a net value, or “intrinsic value”.
My calculation uses 13% as a weighted average cost of capital. Spar’s 50% debt load, including leases, carries an approximate cost of 9.8%, or 7.15% adjusted for tax deductibility. Equity, the other 50%, bears a cost of 19%. This factor takes the sum of the equity risk premium of about 10.6% on top of the country’s 10-year note yield of 8.5%. I probably could have reduced the rate to account for the 20% of sales from Ireland, but I didn’t bother. 13% seems like a reasonable discount rate.
At 13%, unlevered free cash flow of 2.7 billion rand capitalizes to 21 billion rand. Deducting net debt results in a valuation of 12.6 billion rand, or 65.30 rand per share, or roughly 14% above its recent closing price. I prefer investment candidates with a 30% margin of safety, so Spar doesn’t pass muster.
I also compared Spar with its grocery peers. The gallery included the Canadian grocer Metro, the UK’s Tesco, Kroger, and Spar’s leading competitor Shoprite. Numbers were adjusted to US dollar terms in the accompanying chart. Metro is the most profitable of the group, while Kroger and Tesco show operating margins of 3 and 4 percent, respectively. Spar trails the sector.
Spar’s gross revenue margin exceeds 12.2% when you include revenue from operator contracts. The operating margin last year was the meager 2% mentioned above. Returns on equity are lackluster at just slightly above 10%. Meanwhile, Shoprite trades with an 8.5 EBITDA multiple and posted a 27% return on equity last year. Spar needs to aim for this target if it hopes to improve shareholder value.
Despite the divestments and improved balance sheet, Spar continues to face challenges. Rising gold and mineral prices have boosted the South African economy, but GDP growth is mired in the low single digits. An inventory management software upgrade has been a fiasco. Early in 2026, CEO Angelo Swartz resigned after three years in the role and 19 years with the company. CFO Reeza Isaacs has stepped into the vacancy. Spar will post first half FY 2026 trading results on June 10, and I expect the numbers will be underwhelming.
Although my calculations indicate that Spar is trading below intrinsic value, the stock is a pass for me. Yes, they can fix the software problems and improve management, but that won’t change the fundamental problem that Chris Hohn so clearly identifies: Spar has no ability to meaningfully lift prices. It is a price-taker, not a price-setter.
A bigger hurdle is the risk that independent operators become disenchanted with the Spar model and abandon the mother ship. Revenue from customer contracts amounted to 2.1 billion rand in FY 2026, or nearly 80% of operating income. Cyncially, one could argue that Spar makes virtually no money at all on the wholesaling business and is completely dependent upon the loyalty payments from independent operators to eke out its modest profits.
Store count is barely growing in Ireland and static or falling in South Africa. Recently, WalMart announced that it would enter the South Africa market. Although the Bentonville behemoth has had its own share of foreign misadventures, many independent operators won’t be able to withstand the siege. We haven’t even mentioned Amazon.
Grocery is a tough business in the best of times. Buffett lost $400 million in Tesco during 2014. Even if I could buy shares of Kroger or Metro at meaningful discounts, I still wouldn’t do it.
Like a good Bloodhound, the search continues. Until next time.
DISCLAIMER
The information provided in this article is based on the opinions of the author after reviewing publicly available press reports and SEC filings. The author makes no representations or warranties as to accuracy of the content provided. This is not investment advice. You should perform your own due diligence before making any investments.