Investing in Europe #7
Kering, Hermes, Beiersdorf, Nestle, Danone, BAT, Carrefour and others...it is reporting season!
Hello. Welcome to Investing in Europe, a weekly newsletter on what’s happening in European companies and markets, filtered for what matters.
I have been investing in Europe for over a decade and here I share some of my thoughts. You can find me on Twitter. Your feedback is welcome!
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.
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Company results
Europe is home to some of the best luxury companies in the world. We discussed how LVMH has proven to be resilient in the pandemic in IIE #4. A few other companies reported this week, let’s see how they did.
Kering is not LVMH: Gucci’s owner Kering reported a 16.4% drop in sales in 2020, on a comparable basis. LVMH Fashion & Leather Goods business was down -3% in 2020. In the last quarter of 2020, Gucci sales were down 10.3% compared to LVMH Fashion & Leather Goods up +18% (link).
Hermes is in a league of their own: in the middle of a global pandemic, sales went down 6% at constant exchange rates. Q420 was up +16%. The revenues generated in the group’s stores were down only 2%. APAC ex-Japan, which represents 46% of their sales, was actually up, +14.4%. (link).
Hermes - revenue breakdowns (company presentation):
Moncler, the luxury puffer jacket maker, reported a decline in sales of 11% at constant currency in 2020. The last quarter of the year was up +8%. (link).
Moving to other sectors, Nivea’s owner Beiersdorf has a profitability problem. EBIT margin has been trending down since the 2019 reset, when the company warned profitability would go down to 14-15% compared to 15.3% the year before. At that time, they announced a €80-90mn per year investment program into “new markets, innovation, digitalization” and guided for a 16-17% EBIT margin by the year 2023.
They actually did 14.3% in 2019. Then Covid-19 arrived and margins went down again, to 12.9% in 2020 as sales declined almost 6% organically. 2021 should be a better year right? Well, they are expecting higher sales but the same profitability. Also, the investment program increased by €300mn over 5 years, which means it almost doubled from the original plan.
Nestle reported an organic sales growth of +3.6%, the highest in the last five years. (link). Americas was the strongest region, growing +4.8%. PetCare, which is almost 21% of operating profits, was the strongest category, up +10.2%. Ecommerce grew to 12.8% of sales from 8.5% last year, one of the highest penetration among staples. Shipping pet food and coffee is easier than water and beverages. Margins improved to 17.7% and more importantly ROIC went up +240bps to 14.7%. They expect sales to growth mid single-digit in 2021 (the CEO commented the 4% threshold could be crossed). Nestle has done a good job in improving ROIC over the past years:
Danone is not Nestle: net sales were down 1.5% LfL in 2020. The waters division was particularly weak, down almost 17% (compared to down 7% at Nestle). Dairy and Plant Based was up +3.4%. (link). The management is under pressure from some activist investors seeking change (link).
British American Tobacco reported a +3.3% growth in revenues at constant currency. EPS grew 5.5%. They generated more than £7bn free cash flow which is 12% ca of the market capitalisation. 2021 outlook: constant currency revenue growth of 3%-5% and mid-single digit EPS growth. So far so good. Market reaction? Down. Tobacco is one of the most hated sector. (link)
Food retailers: The pandemic boosted groceries sales and the French group Carrefour reported LFL sales up +7.8%. France was +3.6%, the highest growth in almost 20 years (yep, not that much growth unless there is a pandemic). Brazil +18.2%. (link). Ahold Delhaize (Dutch grocer but 60%+ sales in the US) reported comparable sales up +12.5% with the US +14.4%. (link)
The Dutch paints company AkzoNobel reported a 6% LfL increase in revenues in Q420. They announced a new €1bn share buyback program, as they dropped bid to buy Finnish rival Tikkurila. (link)
Other news and M&A
Kinnevik to distribute its stake in Zalando (link)
Specialty chemical maker Lanxess to buy Emerald Kalama (link)
Hargreaves Lansdown co-founder cashes in £300m stake (link)
Adidas is selling Reebok, 15 years after they acquired it (link)
The UK Competition and Markets Authority on Adevinta / Ebay:
has found that Adevinta’s anticipated £6.5bn ($9.2 billion) purchase of eCG from eBay could lead to higher prices and less choice for consumers (link)
Volkswagen may spin-off Porsche (link)
Uber drivers must be treated as workers rather than self-employed, the UK's Supreme Court has ruled (link). Just Eat Takeaway’s CEO tweeted:
Container-shipping costs have surged in recent months (link)
Have a good week and good investing everyone - your feedback is welcome!