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. Welcome to our new subscribers! 🥂 Your feedback is welcome, please DM me on Twitter 🙏
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Company news and results
Plenty of numbers this week, and from some very good companies.
Nestle’s sales increased +7.7% YoY in the first quarter of 2021. Strong numbers in coffee, with Nespresso growing +17.1% ☕. It is the first time we see a slide dedicated to Nespresso numbers. Nestle started to report Nespresso and Health Science separately last March, and disclosed the 2020 numbers: Nespresso was ca 7% of 2020 sales with 24% margin. All categories grew in the quarter, except for infant nutrition (we had less babies during the pandemic) and water (impacted by Covid restrictions). Pet food grew +9% on Q1 2020, which was +14% on Q1 2019. Quite impressive 😸. Nestle confirmed its FY21 guidance at 4%+ growth. It looks conservative and, with better visibility on the FY, it could be raised next quarter.
Pernod Ricard reported a +19.1% increase in sales in its financial Q3 (Mar21). On a 9m basis the business is back to growth, although a moderate +1.7%. By region: Americas was up +4% with the US at +6%, Asia/RoW +3% with China +34%. Europe is still in negative territory, down -3%. Southern Europe is mainly an on-trade market (hotels, bars and restaurants) and has been suffering the most. Pernod is guiding for a +10% organic growth in profit.
Rémy Cointreau is strategically managing its US cognac inventories as stock levels are quite low, one month for VSOP and a few weeks for 1738. 🍷 It means the +15.1% growth we saw in the quarter could have been higher. Rémy Cointreau is by far the best performer among European spirits stocks in this pandemic. It also trades at the highest multiples - which are not valuation, I know.
Hermès reported a +44% increase in sales in its first quarter of the year. Compared to Q1 2019, it is a +33% growth. Asia is almost 1/3 of the group sales and was up +63% vs 2019. Europe was down -14%. Similar to what we have seen with other companies in the luxury sector, this is not weak local demand but lack of tourists. Covid accelerated the repatriation of Chinese spending back to China. Note also the increase in “other Hermès sector” - jewellery and home products - below: only 8% of sales but 1/4 of total growth. People have been spending more for their houses during this pandemic. This will likely normalise soon. Not a big issue, as the core leather goods segment has been doing perfectly fine, up almost 26% from 2019.
Hermès is the best compounder in European luxury over the past 20 years:
Kering revenues returned above Q1 2019 levels as well. It is another good set of numbers in the luxury sector, but not as strong as LVMH or Hermès. Sales increased 25.8% compared to last year and +5.5% on Q1 2019. Gucci, which is more than 56% of sales, grew +24.6%. As a reminder, LVMH Fashion & Leather was up +52% compared to last year first quarter. Online was up +108% and now represents 14% of retail sales. Similar to LVMH, this should decline as stores reopen. Luxury needs physical stores.
Heineken reported on its first quarter trading. Beer volume was in line with last year, with the Heineken brand outperforming the market (+12.1% volume). Africa, Middle East & Eastern Europe was the strongest region, with volume up +9.9%. Europe the weakest, declining -9.7%.
ASML reported strong numbers in its first quarter and expects revenue growth towards 30% in 2021, as they see “a significant increase in demand across all market segments and our product portfolio”.
Zalando preannounced its Q1 2021 numbers: GMV growth is expected at +54.5%-56.5% (from +50%), revenues +46-48% and EBIT 80-100mn, or a 4% ca margin. Part of the acceleration in growth might be related to the prolonged lockdowns in Europe. The FY 2021 guidance of +27-32% is unchanged.
AB Food reported its first half results. Revenues are still depressed, down -18% compared to last year, as most of the Primark stores were closed in the period. They can’t wait to have their customers back:
We are excited about welcoming customers back into our stores as the lockdowns ease and are delighted with record sales in England and Wales in the week after reopening on 12 April
Sartorius Stedim Biotech reported a +61% increase in sales in its first quarter, with an EBITDA margin of 35.4%. Sales were boosted by the coronavirus pandemic, with additional business from vaccine manufacturers. They quantified the boost at +23%. The order intake almost doubled, again boosted by the pandemic (almost 40% of the growth). Sartorius is guiding for a +38% increase in sales this year, which is approx +15% organic ex M&A and Covid boost.
Vivendi reported a +5% increase in sales and, more importantly, Universal Music Group grew +9.4%. UMG distribution is expected to be completed this fall.
M&A and IPO
Oatly reveals growing losses, revenue in U.S. IPO filing (link)
LVMH's move on Tod's fuels turnaround, takeover expectations (link)
Other news
12 of Europe’s richest football clubs planned to start a breakaway Super League. Not a completely new idea (link). As founding members, they would have had no need to qualify, in contrast to the Champions League. The plan failed, mainly because football fans were not happy (link). Some of those clubs are listed so this was mainly a brand optimisation exercise, which they will probably try again
Rumoured Biden cigarette crackdown knocks £6bn off UK tobacco stocks (link)
L’Oreal announced a €1.2bn share buyback at its AGM
Uber Eats plans Germany launch in challenge to Just Eat (link). This started a Twitter. Some people enjoyed it, I didn’t like it. I guess it’s bullish Twitter.
Apple launched its button-shaped tracking device, called AirTag. A few in partnership with Hermès, starting from $299 (link)
Credit Suisse to boost capital ahead of further Archegos hit (link). Some Swiss humour below:
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.