Investing in Europe #29
Cost inflation hurts Unilever and Fever-Tree. Nicotine pouches keep growing strong. ASML, Next upgrade their guidance. And more
Welcome to a new issue of Investing in Europe, a weekly curated newsletter on what’s happening in European companies and markets. Your feedback is very important. Please comment below or DM me on Twitter. If you are not a subscriber, please sign up to get full access and never miss an update. 🙏
Company news and results
SGS, the Testing, Inspection and Certification company reported its H1 2021 results. Organic sales increased 12.4% year on year and operating margin improved to 14.8%. Cash flow and ROIC were weaker. SGS is targeting mid-single-digit organic growth to 2023, high single-digit including M&A.
Rémy Cointreau Apr-Jun sales increased +36.5% on a 2-year stack. +105% compared to last year’s depressed levels. The on-trade channel is gradually reopening and the off-trade remains above 2019 levels. That is really an exceptional growth rate and the company is guiding for a slow down to around mid-teens. Brands investments will increase and inventories are slowly normalising. Rémy Cointreau is “confident to continue to outperform the exceptional spirits market”.
A reminder that Rémy Cointreau has a 2030 guidance:
Swedish Match reported another strong quarter. Q2 sales from product segments increased by 20% at constant currency and operating profit by +27%. All segments posted double-digit growth, with Cigars continuing to outpace Smokefree this year. In the US, the nicotine pouch ZYN grew +64% to 42.5mn cans and reached record store velocity. Swedish Match lost approx 1% share in a quarter where the category sequential growth was 20%. From the chart below, it seems BAT (Velo) lost some steam while Altria (on!) did well.
In the US, the nicotine pouch category almost doubled in sales compared to last year. It is now almost 7% of cigarettes in the western region where ZYN was initially launched, and 2% at a national level. Users penetration is higher, as Swedish Match estimates the number of nicotine pouch consumers in the western region to be close to 10% of cigarette smokers.
No change in their qualitative outlook:
For 2021, Swedish Match expects continued market growth for smokefree products, most notably driven by rapid growth of nicotine pouches. Swedish Match expects that the attractive prospects of the nicotine pouch category will further elevate competitive activity. During 2021, Swedish Match expects to increase its investments in marketing, distribution and sales efforts in both existing and new markets to actively participate in growth opportunities. Continued capital investments by Swedish Match to further expand nicotine pouch production capacity are expected to result in capital expenditures in 2021 above the 2020 level.
If you want to know more about Swedish Match, @sinstockpapi posted a very comprehensive write-up this week:
Fever-Tree issued a trading update. Sales are growing better than expected and the premium drink mixers producer raised its full year 2021 guidance: from +12-16% to +17%-20%. But, due to logistics disruption and input cost inflation, they now expect EBITDA% to be around 20%, from 23% before. It is the second margin downgrade this year.
ASML reported its Q2 numbers and raised guidance.
The demand continues to be high across all market segments and our product portfolio. This is a reflection of the market that is focused on increasing capacity to support the build-up of the digital infrastructure. The long-term demand is not only for advanced nodes, but also for legacy and mature nodes in Logic as well as Memory. We are working to maximize output and we currently expect net sales growth by around 35% in 2021 compared to last year with an expected gross margin between 51% and 52%
The UK retailer Next preannounced its Q2 numbers, which were stronger than they expected, and upgraded its full year guidance.
Our sales during the last eleven weeks have been materially ahead of our expectations - up +18.6% versus two years ago. Our previous central guidance assumed an increase of +3% - and, as a result, we are increasing our profit guidance for the full year - profit before tax by +£30m to £750m.
Two nordic industrial companies, Atlas Copco here and Kone 👇, reported good numbers.
Unilever disappointed expectations with its H1 results. Growth was ok, margins not much. Operating margin deteriorated by 100bps in the quarter and they are now guiding full-year margin “around flat”, from “slightly up” before.
Commodity inflation is hurting and it is not clear how much they can raise prices. The competitiveness index deteriorated.
Givaudan, the largest company in the flavour and fragrance industry, did not disappoint. Growth was +7.9% in the first half of the year, margin expanded. Fragrance & Beauty was the strongest division, with sales up +10.1%. Givaudan is guiding for a 4-5% CAGR 2021-2025, and Free Cash Flow > 12% of sales.
M&A and IPO
Ermenegildo Zegna Group Announces Plans to Go Public By Way of $3.2 Billion SPAC (link)
LVMH-Backed L Catterton to Take Majority Stake in Etro (link) + LVMH acquires majority stake in Virgil Abloh’s Off-White label (link)
Tencent to buy British video game studio Sumo for $1.27 billion (link)
Other news
Ackman decides that his investment funds will replace Pershing Square Tontine Holding for the acquisition of 10% of UMG (Vivendi press release)
Robot collision at Ocado warehouse near London sparks fire, delaying customer orders (link)
Moët Hennessy launches its first ever Tequila (link)
Clooney’s Casamigos Tequila becomes a million case brand (link) - from 120k cases in 2016, the year before Diageo bought it
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. Your feedback is important - please contact me on Twitter