The Gabelli Equity Trust Inc. (the Equity Trust) is a non-diversified, closed-end management investment company. The Company's primary objective is long-term growth of capital. The Equity Trust will invest at least 80% of its assets in equity securities. The 80% Policy may be changed without shareholder approval. It may purchase or write call or put options on securities or indices. It may invest up to 10% of its net assets in securities, for which the markets are illiquid. The Fund invests in various sectors, including food and beverage, financial services, cable and satellite, energy and utilities, diversified industrial, telecommunications, entertainment, consumer products, healthcare, retail, machinery and business. The Company's investment advisor is Gabelli Funds, LLC.
johnny cashHigher A&P expenses to boost sales volume In light of weaker consumer spending and saturating alcohol consumption in the country, we foresee a tough operating environment for GAB. Its aggressive launch of new products will have minimal impact on its bottomline as product launches entail A&P spending.
Weak demand, higher operating costs, saturating consumption levels and the higher incidence of contraband add up to a tough operating environment for GAB. Its dividend yield of 4.4-4.7% seems low for the risks taken. We maintain our Reduce call while lowering our DCF-based target price as we increase our beta assumption to be more in line with its beta. Switch to F&B or REITs for yields. Poor consumption and higher A&P cost hit 3Q GAB performed worse than Carlsberg in the quarter ending Mar, with revenue dropping by 15.8% and net profit plunging by 41.9% yoy due to weak consumption and high advertising and promotion expenses. Despite the environment of weaker consumption, GAB will continue to invest in A&P in the hope that each dollar spent will translate into better sales volume. More new products in the pipeline GAB has launched two new super premium products in the past few months – Kirin Beer in Mar/Apr and Sminoff in Jun. Apart from these new products, we understand that GAB plans to roll out two more new products in the premium segment in FY15. A&P expenses are expected to remain high in FY15 due to the committed new launches. 4Q results will remain weak GAB’s 4QFY6/14 results could be weaker yoy due to poor consumption and high A&P expenses. While the company is launching premium products aggressively, new products take time to gain recognition and their impact on the bottomline will be minimal for now. Furthermore, Carlsberg which has a larger premium product portfolio is stronger in the premium segment.