Analysis of China Petroleum & Chemical Corp - SNP

I do not have much of a format for analysis yet.  We will take a look at the 4 areas I rank each stock on and then have some discussion around the company. My goal is to take no more than an hour researching and writing this post to maximize my time with the family.  Over time I will have to come up with an approach that is repeatable to maximize this research time.  As always your feed back and tips will be welcome.

One of the things I do to reduce the number of stocks I have to rank in my screen is to solely use Dave Fish's U.S Dividend Champion's spreadsheet (USDC).    This thing rocks!  The Champions have raised dividends for 25 or more straight years.  The Contenders for a little less time but still pretty decent are at 10-24 years.  The last are the Challengers.  They have only been doing it for 5-9 straight years. He has all 3 combined on the All CCC worksheet.  I like to include all three as some of the younger dividenders (is that a word?) have some potential for growth in allot of areas and are worth including in your portfolio.

Also note that although Dave calls this the U.S. Dividend Champion list it also includes ADR's (American Depository Receipts.)  These are foreign companies that have dividend streaks as well.  I guess since they trade on a U.S. Exchange they are included.

This is a massive time saver for me as allot of the numbers I am looking for are right in the spreadsheet.  No having to go out to various sights and gather the information.  Nor do I have to do any major calculations for ratios (although once you have a nice spreadsheet with functions and calculations it is not so bad.)


Lets get started.



SNP keeps coming out as the #1 overall rank in my screen.  I thought I should give it a closer look to see why.  It is in the top 20 in 3 out of the 4 areas I look at.  It ranks in the top 100 for the quality factor.

Its core business is petroleum and petrochemical production.  They also do natural gas as well.  This puts them in the Oil&Gas industry.  It covers all parts of production including marketing.  Marketing must be pretty important as they mention it 3 times in the summary paragraph describing themselves.


Value


According to the USDC spreadsheet it has a trailing twelve months price-to-earnings ratio of 7.09.  As of this writing they were at 6.91 PE.  Usually something in this range is undervalued or thought to be in decline.
I took a look at Yahoo's Industry PE's and for Oil & Gas Refining and Marketing it is 18.7.  Another valuation metric you could use is price-to-sales.  For SNP it is sitting at a pretty TTM ratio of .15.  SNP is generating almost enough revenue as the price of the share itself.  

These are all good signs the company is priced right for value investors.

Doing dome digging it looks like one of the most important things to look at in this industry is free cash flow.  There is allot of CAPEX and debt incurred in this industry to explorer and get that money (oil or gas) out of the ground.  On Morningstar the price-to-cash flow reporting in at 4.6. 

Single digits are usually a good sign that it is undervalued. 


Growth


The past 5 year average growth rate is at 19.2% however things are starting to slow down and the prediction for the next 5 years is back to single digits with a 5.3%   The TTM earnings per share is at 13.41.  The higher the better the ranking.


Quality


This was the worst in my ranking system.  The price-to-book ratio is not bad at all.  It is sitting at 1.18.  They also seem to be managing their debt well.   The debt-to-equity ratio is at .58.  I like to see companies with less than one.  From my reading this ratio for the Oil & Gas industry tends to vary widely and is mostly dependent on the size of the company.


Yield


The spreadsheet had it listed with a 4.16 yield.  The price has been rising recently and it was 3.71% as of this writing.  Man if I don't get this written soon all the prices will change and I will have to start over.  The other thing a good dividend investor would look at is by how much the dividend has been raising for the past 5 years (and hopefully longer.)  SNP has a pretty good record these past 5 years It has averaged 19.8%.  With a payout ratio around 47% that could last a few more years.  However with growth predicted to slow that could easily dwindle to single digits.  In fact the 1 yr. dividend growth rate was only 8.4%.  Not bad but it is slowing down. 

This is an ADR as well.  That usually means that dividends are not quarterly.  For SNP it is twice a year.  This will have the potential to slow down compounding.  That and tax complexities usually cause me to stray from them.


What's the talk?

There was not much news available from my broker.  The last was a downgrade by JP Morgan.  They downgraded it from overweight to neutral.   Looking at other ratings they seem to be split on Strong Buy and Hold.  As for me I will be watching this one for now.  I have allot of weight already in this sector and don't want to put all of my eggs in one basket.

This analysis went over my 1 hour allotment (closer to 3).  Although short since it was my first it took longer to organize my thoughts and put them down on the e-paper.  I hope you enjoy reading it and gain some insight.

Anything else I should be looking at when doing an analysis?  I don't have allot of time to read detailed reports but if you know of a site with good summaries let me know.

Full Disclosure: I don't own this.


Comments

  1. Enjoyed the analysis. Thanks! I tend to avoid foreign companies because I have a difficult time gathering accurate information. How did you go about finding the info for SNP? I don't trust my ability to accurately convert foreign currencies to USD.

    Cheers,
    Henry

    ReplyDelete
    Replies
    1. Hi Henry,
      I used Morningstar, Yahoo, and Sharebuilder. Also Dave Fish spreadsheet is an excellent source.
      Thanks for commenting.
      DFG

      Delete
  2. Hi DFG,

    Thanks for a helpful article - I'm considering a purchase in the energy sector next week and I'm looking around for possible candidates.

    I only buy US stocks but there's not much selection in the energy sector if ADRs and MLPs are excluded, so I'm curious. Do you know what the tax complications of ADRs are?

    Best wishes,
    -DL

    ReplyDelete
    Replies
    1. I am not a tax guy so don't take what I say as law. I know certain counties like Canada will automatically take the tax right out of the dividend before you even get it. My kids have some stocks from their and I see that happen monthly. Other countries have a tax treaty with the US and you just pay the US taxes. The rest of the counties may be expecting you to file tax returns with them (not sure how that gets enforced). I haven't found a good site yet with up to date information but when I do I will post it. This is a list of taxes by country from Deloitte, https://www.dits.deloitte.com/DomesticRates/domesticRatesMatrix.aspx

      Delete
    2. Actually here is a good matrix of tax treaties by Deloitte:
      https://www.dits.deloitte.com/taxtreatyrates/comparetaxtreatyrates.aspx

      Delete
  3. Thanks for sharing this analysis of SNP. I recently wrote about Alternative Foreign Oil And Gas Dividend Stocks on my blog and discussed E, STO, EC and PTR. Thanks for sharing.

    ReplyDelete
    Replies
    1. Thanks for reading DivHut. I will check out your analysis as well. Still learning about foreign stocks and reading their
      numbers.
      DFG

      Delete

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