Why I'm not investing in Madara Cosmetics (MDRAUC)

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MADARA Cosmetics also known as MADARA, is a Latvian manufacturer of organic skin care products. The ingredients include biologically certified blossoms and herbal extracts from the Baltic region.

Since October 17, 2017, there is an ongoing IPO for Madara stocks on First North Baltic Share List. IPO will end on November 3rd. Also, there is a small hype with this IPO in Latvia and seems after this IPO will end, it will attract a lot of new first time investors to the Baltic stock exchange (Nasdaq Baltics), mostly from Latvia. Which is great, and hopefully more people will start to explore and invest in other listed companies.

As a strong investor in the Baltic region (Dividend-paying stocks and peer to peer lending) investment opportunities in Madara Cosmetics have been on my radar, probably since the Spring of 2017, when I first heard about upcoming IPO, planned for the Q4 of 2017

Once IPO was announced and I familiarized with the prospectus I had ambivalent feelings regarding investing in this company.

I did the most basic fundamental analysis I could - I asked to almost all Latvian females I know - what are they thinking about products of Madara Cosmetics, and the answer was staggering - despite all of them knows Madara brand, none of them are actually using it. An alarm bell for me.

Second - pretty high price for the Baltic market - EUR 6.25 per share. In general, I'm fine with the price, on the other hand, I'm paying about EUR 9.3 - EUR 11 for well known and established companies in the Baltics with great dividend history, for example - Latvijas Gāze, Tallina Vesi, Olainfarm. See: Dividend Paying Stocks In Nasdaq Baltic Market By Yield

Third - by reading comments from Baltic investment experts, saying:"Those who use Madara Cosmetics products which are not cheap, can afford to invest in not so cheap shares" (Article in Latvian here)

Personally, for me, it was the third point that leads me to stay away from participating in Madara Cosmetics IPO. For evaluating is the stock price cheap or expensive we can use P/E ratio, For the sake of justice it should be noted (from the same article):

Based on the 2017 operating forecasts, the projected P / E could be around 16, which is not cheap for the Baltic States, for example, AS Olainfarm has P/E 12 while AS Grindeks 7. Of course, these companies are not fully comparable with Madara Cosmetics, adds the expert. Globally, for example, the L'Oreal P / E index is 26, while Oriflame is around 18. Thus, Madara's shares are cheaper or slightly cheaper compared to the industry.

Anyhow, as I'm a strong buy&hold dividend stock investor when looking through Madara Cosmetics dividend policy, I indeed find it too expensive, according to the prospectus company has paid in dividends following:

  • 2017 - EUR 0.0311
  • 2016 - EUR 0.0373
  • 2015 - EUR 0.0140

For the price of EUR 6.25 per share getting dividend return at EUR 0.0311 gives about 0.5% dividend yield, which for me isn't interesting anymore. Sure, the dividend could be increased with time. But for now, taking into consideration all the hype with Madara Cosmetics in Latvia, high price, and low dividend yield - I better stay away.

Luckily for me (and just because it all happens at the end of October), there is a dividend paying stock for November in the Baltic's - Linas Agro group (Agriculture), giving a dividend yield at 1.12%. So once I had a chance to compare apples with oranges (cosmetology with agriculture) - I decided to go with agriculture. Learn more about my monthly dividend income progress.