Welcome back to Investing in Europe, a weekly newsletter on what’s happening in European companies and markets, filtered for what matters. Welcome to new subscribers! 🥂 Your feedback is welcome. You can find me on Twitter.
If you are not a subscriber, please sign up to get full access and never miss an update.
If you are a subscriber and like what you read, please share it to a friend. Thanks! 🙏
How was the week
European markets closed the week up 1%. The sector rotation continues as Tech was down almost 5%. Tech is not a big sector in Europe, it accounts for less than 8% of the Stoxx 600 and 1/3 ca of that is the mighty ASML. Auto, Banks and Energy were all up 4%+. People are selling past year’s (Covid) winners and buying losers. If you are invested in good companies at decent valuations, you probably should not care.
Company results
The media group Vivendi reported its 2020 results. Vivendi has interests in different businesses but most of its value is in Universal Music Group (UMG).
As they wrote in the press release:
For a number of years, Vivendi’s leading institutional shareholders have been pressing for a split or the distribution of Universal Music Group (UMG) to reduce Vivendi’s conglomerate discount.
It is finally happening. To reduce its conglomerate discount, Vivendi is planning to spin out 60% of UMG later this year. A Tencent-led consortium have already bought a 20% stake in two tranches between March 2020 and last January, at a €30bn valuation. There are still some uncertainties around tax implications, but UMG should be better valued outside the group.
UMG’s revenues increased +4.7% in 2020. Looking at the slide below, 52% is streaming and subscriptions which has been growing at a 26.8% CAGR since 2016. Margins improved from below 18% to 20%. They also invested a ton of money in artist advances and catalog acquisitions, more than 3x compared to last year (part of that is Bob Dylan’s catalogue).
Kuehne + Nagel. Unless you work or invest in logistic you probably never heard of them. They are one of the biggest players in the freight forwarding business, actually the largest sea freight forwarder worldwide and the number 2 in air logistics.
What is a freight forwarder? I will borrow this quite official definition from the UK government (link):
Freight forwarding is a service industry that involves moving goods around the world on behalf of importers and exporters. Freight forwarders specialise in moving cargo. They also arrange customs clearance of goods, maintain all documentation, oversee cargo packing and will at times deal with the movement of dangerous goods.
They do not own the actual transportation assets (ships, planes) but work as intermediaries, providing logistic solutions. This is why they are one of those low margins/high turnover businesses which are able to generate high returns, as I posted this week:
In 2020, they managed to deliver better profits and cash flow despite lower volumes, mainly thanks to the air logistic division. The previous week, they announced their largest acquisition ever, Apex International, one of the leading Asian air freight forwarders.
HelloFresh is the world's leading meal kit company. You might have ordered one of their boxes. They send you all the ingredients and a receipt so you can cook by yourself. The pandemic was the perfect scenario for them as people ate more at home: they increased revenues by 111% in 2020 and reached 5.3mn active customers in the last quarter of the year. Will you keep buying meal kits post lockdowns? They expect sales to slowdown, but still grow at 20-25% in 2021.
2020 was a great year to eat at home. Not to go to the stadium. Manchester United’s matchday revenues dropped more than 95% in the last quarter. They accounted for almost 20% of group revenues in the same quarter last year.
Lindt & Sprungli. There is an easy way to see the Swiss chocolate company has been creating value over time. Its share price: 84,500 CHF. That’s a lot of chocolate. Organic sales went down -6.1% in 2020, as Covid-19 impacted their network of own shops and the travel retail segment. Online sales doubled to around 5% of group sales. They expect to emerge stronger from the crisis and launched a 750mn CHF share buyback program.
Rentokil Initial, the world’s largest pest control company, reported a 6.3% increase in revenues in 2020. They generated almost £340mn in free cash flow (3.8% yield). Part of their business, Initial, is related to hygiene and disinfection services. Boosted by the pandemic, it was up 37%. They expect volumes and prices to significantly unwind in this segment this year.
M&A
eBay and Adevinta proposed to sell Shpock, Gumtree (UK) and Motors.co.uk to get approval for merger (link)
Power supplier Aggreko accepts £2.3bn private equity bid (link)
Other news
Ocado opens first mini CFC in Bristol (link). They are planning a 40% increase in capacity in the UK
Danone is still under shareholders pressure and they announced they are:
Some people don’t (want to) understand share buybacks 🤷♂️. A good primer in Meb Faber’s tweet:
If you wonder why our politicians don't understand basic personal finance and investing it's because we don't teach money in school. So, they didn't learn it either. Here's a primer mebfaber.com/2019/08/05/faq…"There is no reason for a company to move into the market and buy anonymously thousands of its own shares for any reason other than to raise the price of its own shares," says @ewarren on stock buybacks: https://t.co/jipbjIJge7Squawk Box @SquawkCNBC
68% of British households purchased spirits in 2020 – a higher proportion than wine for the first time ever (link)
The UK lost 6.6% of its licensed premises since Dec 2019 (link)
Have a great week and good investing!
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.