Welcome back to a new issue of Investing in Europe, a weekly newsletter on what’s happening in European companies and markets, filtered for what matters.
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Company news and results
Some very good European companies reported this week.
LVMH never stops amazing me. In the middle of a pandemic, with stores closed and travel restrictions, Fashion and Leather revenues increased +37% organically compared to the first quarter of 2019. A +17% annualised growth rate. Fashion and Leather is LVMH’s most important business group: 41% of 2019 sales and 64% of profits. It has also been the most resilient division during the pandemic. As the other segments have been more heavily affected, its weight increased to 87% of profits in 2020.
Chinese customers kept buying: their spending increased +40% ca on Q1 2019 numbers. With Europe in lockdown, they bought LMVH’s goods in their home country. Repatriation of Chinese luxury spending accelerated with Covid. This explains why Europe was the weakest region (-18% vs 2019), as locals kept buying as well but could not offset tourists spending. Asia ex-Japan increased to 41% of sales compared to 29% last year.
Some sales went online as stores were closed. LVMH does not usually disclose its online penetration. They don't like too much e-commerce, as stores are key in luxury. We know that online was 5-7% pre-Covid and went up significantly last year, definitely in double-digit territory. It will probably go down again, as luxury is about emotion and experience and you can’t fully replicate that online.
Fun fact: LVMH is up more than Facebook, Amazon and Netflix in the past 12 months
Givaudan reported a +7.7% increase in sales in the first quarter of 2021. Every time I look at quality growth staples like Givaudan I am impressed by how expensive they optically look. Then I see them getting more expensive.
L’Oreal, the market leader in cosmetics, is growing 2-2.5x faster than the market. The company reported a 10.2% increase in sales in the first quarter of 2021. Ecommerce increased +47.2% and accounts for almost 27% of sales. It was only 16% of sales in 2019. Asia Pacific is its biggest (37% of sales) and fastest (+23.8% in Q121) growing region.
Chr. Hansen, which specialises in cultures and enzymes, reported a +10% growth in sales in their last quarter. They expect a +6-8% growth this financial year, with free cash flow around €140-160mn. That means approximately a 1.5% FCF yield. Chr Hansen has been a wonderful company that is becoming less so, imho: lower growth, declining returns, higher debt. Starting from a 1.5% FCF yield, you need some good growth to get decent returns over time.
In the food delivery space, both Just Eat Takeaway and Deliveroo orders growth accelerated in March. Just Eat Takeway reported a +79% increase in orders in the first quarter of 2021. UK orders were up +96%. As we have discussed a few weeks ago, the company is heavily investing in logistic and marketing to consolidate their leadership position in Europe: delivery/logistic orders almost tripled from last year and now account for approx 35% of total orders. As for Deliveroo, orders grew +114% in the first quarter. +121% in the UK and Ireland. Growth will likely decelerate from next quarter as UK reopens, Just Eat keeps pushing, and comps get tougher. Q2 2020 had the fastest sequential growth in Gross Transaction Value last year.
Teleperformance reported a +35.9% increase in revenues in the first quarter, boosted by vaccination campaigns in Europe. The call centre giant raised its FY21 sales growth guidance from 9%+ to 12%+. The margin target remains unchanged, at 14%.
SAP preannounced its first quarter results and raised its FY21 guidance.
“The first quarter of 2021 was unique in many ways. We had the highest order entry growth across cloud and software in five years while posting the strongest increase in Non-IFRS operating profit and margin in a decade. In the mid term SAP’s expedited shift to the cloud will accelerate topline growth and significantly increase the resiliency and predictability of our business.”
Luka Mucic, CFO
Publicis, the marketing and communications company, returned to growth in the first quarter of 2021 with revenues at +2.8%. The US was the main driver, growing at +5.1%.
Tesco expects its operating profit to be flat this financial year compared to pre-Covid level. The Covid sales boost did not help much.
HelloFresh has been a graveyard of short sellers. After the debacle of Blue Apron in the US, not many people (including myself) believed in the meal kit delivery business. Well, the stock is up 7x since 2019. Covid-19 gave them a big boost, but is not only that. HelloFresh grew 106% in the first quarter and raised its FY21 guidance "from previously between 20% and 25% to now between 35% and 45%". Margin is expected at 10-12%. Let’s see what will stick after the pandemic.
M&A and IPO
Evolution Gaming to buy Big Time Gaming (link)
Veolia and Suez agree for merger (link)
Diasorin paying $1.8B to acquire multiplex diagnostic specialist Luminex (link)
Diageo Acquires Another Ready-to-Drink Alcohol Brand Loyal 9 (link)
Oxbotica raises $13.8M from Ocado to build autonomous vehicle tech for the online grocer’s logistics network (link)
Cybersecurity Firm Darktrace Plans London Stock-Market Listing (link)
Swedish Payment Firm Trustly Plans IPO to Raise $934 Million (link)
Other news
Activist investor Elliott builds stake in Glaxosmithkline (link)
France bans less than 2.5hrs domestic flight - it sounds like something big but it actually means…only 5 routes
Have a great week and good investing!
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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.