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Company news and results
It is part of our human nature to explain complicated things with easy narratives that our brain can understand. It was about “stay at home” or “Covid winners” last year and it is about “reopening” now. I don’t know many people who became rich trading in and out sectors and I would not encourage you to do it. I know I can’t time the market. I also know generalisations could be misleading.
An example in the reopening category - two names that updated us this week:
One is Compass, the leading catering and food service group. Most of its business has been impacted by Covid-19. They are still operating at 71% ca of their 2019 revenues. Revenues are expected to decline 28% in Q2 (March for them), only a marginal improvement from the 34% decline reported last quarter. Still, profitability is improving quarter by quarter. They are well capitalised and expect operating margin to improve from 2.7% in Q1 to 4% in Q2. More importantly:
We remain confident in our ability to rebuild our Group underlying margin above 7%, before we return to pre-COVID volumes
Among the reopening names, Compass is still trading below pre-Covid peak. You might argue there could be a structural negative impact from a higher share of work from home. It seems less obvious today than a year ago. Some airlines trading well above pre-Covid peaks do not seem to discount any structural changes in business travel.
The other name is Cineworld, the second largest cinema business in the world by number of screens. They reported an operating loss of over $2bn in 2020, including asset impairments. They seek room to raise more debt and:
Although the Group is now looking to re-opening and recovery from the impact of the pandemic, material uncertainty around its ability to continue as a going concern remains
Not all reopening stocks are the same.
Diageo hosted a presentation on its Greater China business. They are not as big as some peers in the region, but expect it to grow from 5% to 10% of sales over time. It was 2% in 2015. Greater China is a $224bn market ex value categories, and the international spirits penetration is still very low, at 3%.
Exor's NAV per share increased by 13% in 2020. It has been compounding at 18%+ CAGR since 2009.
Nestle started reporting Nespresso and Health Science as standalone segments for the first time. Nespresso is a 5.9bn CHF business with a 24% margin. Almost 10% of the group’s operating profit. Sales grew by 7% in 2020. Health Science had 3.3bn CHF revenues in 2020, up 12% from 2019. Operating profit margin was 16.5%. In other news, Nestle is rolling out touchless coffee machines.
Deliveroo provided a trading update for the first two months of 2021. They are talking about GTV, defined as the total value of transactions processed on its platform. GTV has grown +121% at group level and +130% in UK & Ireland. The company is listing in the UK and big numbers are good. More importantly imho, they need to show they are not losing market share due to increasing competition from Just Eat Takeaway. The reality is we would need more details. These numbers are not orders. They also include grocery, launched in March 2020. I don’t see the online food delivery necessarily as a winner takes all market, but it is clear that competition is intensifying in the UK. There could be an impact if Just Eat manages to improve its logistic offer. The next quarters will be interesting.
M&A and IPO
Deliveroo set a price range of between £3.90 and £4.60 per share for its upcoming IPO (CNBC)
Legal and General joins investors shunning Deliveroo IPO (FT)
Carrefour to Buy Walmart’s Former Business in Brazil (Bloomberg)
Reckitt Benckiser considers over $2 billion sale of Mead Johnson Greater China: sources (Reuters)
Richemont shares rise on report it rejected Kering's merger approach (Reuters)
SocGen in talks with Amundi, State Street over Lyxor fund arm sale (Reuters)
EU approves $8.7bn merger between EssilorLuxottica, GrandVision (TFL)
Other news
Why Are China’s Consumers Threatening to Boycott H&M and Other Brands? (NYT)
Tui reduces summer capacity as bookings stall (Travel Weekly)
Intel’s $20 Billion Foundry Plan Hits TSMC, Samsung Shares (Bloomberg)
Have a great week and…don’t get stuck!
Disclaimer: this newsletter is for informational purposes only and does not represent investment advice. I might have a position in some of the stocks discussed. Always do your own research before investing.