(B)(N) SODA SodaStream International Limited
Deal Book. SodaStream? You say? SodaStream sells all the hardware and flavors that we need to fizz our own from ordinary tap water, which is a lot handier than carting back and forth cases and bottles of Pepsi & Coke and their empties.
Ms Fizz & The Soda Stream Party Line
Courtesy of SodaStream. smart. simple. soda.
Since coming out at $30 on the Nasdaq in 2010, SodaStream has made a lot of noise of its own with steady global sales growth and reliable earnings, but still no dividends.
Their first bubble burst in August 2011 allegedly on some weakness in quarterly earnings and a forecast weakness in earnings for the next quarter that dropped the stock price from $75 to $35 within two weeks (please see Exhibit 1 below) but, alas, the only failure was that the top-line sales increased by only +30% and the net income by only +100% over the year before.
Now, there’s a rumor afoot, vigorously denied by all the parties, that PepsiCo might make a $2 billion offer for the $1.4 billion company at the current prices.
Our estimate of the downside in the stock price due to the demonstrated volatility is minus (-$10) and so we would not be surprised by any price between the current $71 and $60 or $80.
It’s also trading significantly above the current Risk Price (SF) of $60 which would be the “fair value” dollar-for-dollar acquisition price instead of the current $100 that people are hoping for. The July put at $70 is available for $4.80 today and we can sell an offsetting call at $80 against our long position for $3 so that for the cost of holding the stock at $70 and the collar at $1.80 per share ($4.80 less $3.00), we can ride out the indecision and disavowal until we know more.
Incidentally, 40% of the stock is owned by five institutions so we don’t really know what to expect or when because 40% of $1.4 billion is just pocket-change for these folks. Maybe they don’t want to sell?
Exhibit 1: (B)(N) SODA SodaStream International Limited – Risk Price Chart
(B)(N) SODA SodaStream International Limited
SodaStream International Limited manufactures home beverage carbonation systems, which enable consumers to easily transform ordinary tap water instantly into carbonated soft drinks and sparkling water.
(Please Click on the Chart to make it larger if required.)
From the Company: The company operates through four segments: the Americas; Western Europe; the Asia-Pacific; and Central and Eastern Europe, the Middle East, and Africa. It offers a range of soda makers; exchangeable food-grade carbon-dioxide (CO2) cylinders and refills; reusable carbonation bottles; and various flavors to add to the carbonated water, as well as sells additional accessories, such as bottle cleaning materials and ice cube trays. The company sells its products through approximately 60,000 retail stores in 45 countries. In addition, it distributes Brita water filtration systems in Israel. The company sells its products under the SodaStream and Soda-Club brands directly and through local distributors, as well as over the Internet. The company was formerly known as Soda-Club Holdings Ltd. and changed its name to SodaStream International Ltd. in March 2010. SodaStream International Limited has 1,600 employees and is headquartered in Airport City, Israel.
Exhibit 2: (B)(N) PEP PepsiCo Incorporated – Risk Price Chart
(B)(N) PEP PepsiCo Incorporated – June 2013
PepsiCo Incorporated is a food, snack and beverage company, which manufactures or uses contract manufacturers, markets and sells a variety of salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages and foods.
(Please Click on the Chart to make it larger if required.)
The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2009) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks. Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.
Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.
To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.
Postscript
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