NZ — Another day, another director gone at FBU — this time it’s Martin Brydon. We’re down to four — Barbara Chapman, Cathy Quinn, Peter Crowley and Sandra Dodds. You could be forgiven for mistaking Fletcher Building for some corporate version of a Saw movie — who will go next? Who will be left? Will anyone be left?
More of the same at Synlait — special meeting called to vote on a resolution of a shareholder loan made avail. to Synlait from majority owner Bright Dairy. If you bank on Bright pulling through (what else can you bank on?) then all eyes are on A2, who I imagine will vote for the resolution unless they’re interested in picking the co up for scraps — I don’t think they would be though. Synlait’s Dunsandel plant is valuable — other than that, what else? Who wants Pokeno? Nobody…
Some good news (finally) for Sky City shareholders — sold its online gambling supplier GiG for $50mn — approx +$15mn gain on investment. A rare bright spot … look — who wants to go into the CBD and venture through road cone land to the casino?
Housing — lots of nice feedback to yesterday’s NZ property post. Most of you agree — a few, who had lived through the Celtic Tiger, said it reminded them of that (when Ireland saw property prices soar and then crash — was typical of a plumber to own a few “investment properties”.
ARV — This thing languishes at 96c and we think it is best positioned for the eventual recovery of the retirement market. Should’ve (coulda woulda) taken the NBIO when it was offered but remains good value — even better now — 96c is a long way away from the NBIO’s $1.70…
Mandatory reading from down to earth Kiwi — link
Why is productivity low in NZ? Could it be so many of the Boards & CEO positions in NZ are made up of “A Lister” management types who have no in-depth knowledge of the technical, engineering workings of their industries? Fletcher Building’s Board is over half accountants & lawyers. Was Google started by accountants & lawyers? Was SpaceX started by lawyers & accountants?
I have long been leery of the managerial class — symptomatic of a dying culture — I blame McKinsey, Jack Welch, and spineless consultants — Welch famously was once the Great American CEO (of General Electric) before the whole thing collapsed — GE’s economic engine was really just its finance division, where he could manipulate numbers to his heart’s content (the co also did things like sell parts from an overseas division to an American division — all owned by the same company — and book it as revenue).
Further to yesterday’s property post — we need more Rocket Labs and Space X-like companies…
Aus —
Please sir, may I have some more?
Per the AFR —
A unicorn tech founder has called for super funds to be mandated to invest in start-ups as a leading Australian investor warns that a hidden group of “zombie” Australian start-ups sector will soon fall into their graves.
Ben Thompson, the chief executive of HR software company Employment Hero, said big superannuation funds should have to dedicate 1 per cent of their cash for start-ups even if they failed to meet performance tests.
No sympathy here. There will likely be zombie companies as a function of high interest rates and private equity funds increasingly loaded with lemons. It is easy to hide lemons at low interest rates — harder at high interest rates. See below chart from S&P Global.
GYG watch — A taco chain is worth $2.94bn Aussie dollars. I mean, you could buy DMP — Dominos Pizza enterprises — for 26x P/E, or you could buy GYG for +500x P/E. Or McDonald’s at 23x earnings, etc…
ResMed fell 11% (!) on the back after Eli Lilly revealed its tirzepatide weight-loss drug reduces sleep apnea. I’m still a bit suspicious — still plenty of obese people with sleep apnea, and we’re still on a long runway with weight-loss drugs … I am always suspicious of a “miracle” drug. If I was a ResMed owner would pick up a few shares at this level.
Cettire, the online fashion reseller, downgraded its profit outlook — stock down ~50% — EBITDA of $32 – $35mn and sales of $735 – 745mn. Blaming “weaker environment” but main reason, I think, has more to do with opaque operating practices and potentially flouting customs duties. Also — as I have said often — fashion resellers like Farfetch and Net-a-porter struggle to make money because the margins are so damn thin.
Intl – Luxury Report
St Tropez — Report from the front line — luxury goods selling well — 20 minute line for Rolex! Sure, someone might have said to me “darling, St. Tropez is a different world” — but it is a great world to sell luxury in. And I bet it’s sunnier there than Auckland right now.
Continue to be long luxury… which brings me to this chart from Baader.
Luxury stocks continue to underperform STOXX 600
This reporting season gave us bifurcated results from the luxury houses — smaller houses were mostly a disaster (Ferragamo or Burberry, anyone?) while larger houses showed signs of slowing but still retain nice fat margins and so on.
The easy trade is to buy LVMH, Richemont and Kering, and supplement with a little Brunello. As much as I love Hermes I find the valuation a little toppy — it’s something to buy but you need to time it (am I wrong here? maybe). Speaking of Hermes — great piece on the economics of the Birkin:
You could double your money in five minutes by buying a Birkin handbag at your local Hermès boutique and then flipping it. But getting your hands on the world’s most sought after purse is a lot more complicated than it sounds.
A basic black leather Birkin 25 costs $11,400 before tax at the Hermès store. Buyers can walk out and immediately give it to a handbag reseller like Privé Porter in exchange for $23,000 in cash. Privé Porter will then sell the Birkin on Instagram or at its Las Vegas pop-up store, possibly on the same day—box fresh, with receipt—for up to $32,000. All this for a bag that analysts estimate costs Hermès around $1,000 to make.
The unusual economics of the Birkin have upended the normal balance of power between shopper and store worker. At the Hermès boutique, it is the buyer who kowtows. Some of the wealthiest women in the world have brought homemade cookies to the store to cozy up to their sales assistant. They have offered tickets for Beyoncé concerts, trips to the Cannes Film Festival in a private jet and even envelopes stuffed with cash—all to get their hands on a Birkin.
Luxury is really about the economics of desire. Let it sink in. I’ll say it again.
Luxury is about the economics of desire.
And again:
Luxury is about desire.
One more time — say it with me:
One final time — here’s famous actress and Neighbors regular Margot Robbie:
Here is Hermes versus the NZX50, which is barely visible on the chart — just to reinforce how powerful that economic loop of desire is.
The point isn’t if you want a Birkin, the point is that it is desired by many and that desire is infectious (Hermes regularly runs +45% EBITDA margins). The same can be said for top-tier luxury brands like Ferrari and Rolex — it’s about buying desire, and the alchemy of desire.
Preference list is Kering, LVMH, Richemont, Brunello and Hermes at the right price. Kering remains extremely cheap — 18x earnings — as markets have discounted the twilight of Gucci too heavily (remember — they own St. Laurent, Balenciaga, Bottega, etc, and a huge amount of prime real estate…).
Note the relative fwd P/E ratios below. Greatest upside for re-rating is Kering — provided a turnaround can be executed.
