NZ
Little newsflow out of NZ as US earnings season kicks into gear. Our focus the next few days will be on the States – both individual companies and larger macro signals.
Found this snippet from BusinessDesk to be interesting: Mergers and acquisitions could be a prominent feature of the tourism landscape over the coming year as operators recover from covid and build economies of scale, according to a report by Westpac.
We’re long THL (Tourism Holdings) and we like SkyCity as a differentiated value play (big divvy, some litigation risk; our proprietary data suggests that business is as usual with a lot of tourist dollars flowing).
Australia
Analysis from credit bureau Experian shows 1.41% of all home loans were in arrears in April, up from 1.39% a month earlier, and the highest level since the pandemic ramped up in March 2020. More rollovers > More pain to come?
Continue to be bullish on DGL. Simon Henry is a good operator and DGL still is trading at ~4x EBITDA. First got interested in this around the ~85c mark and we liked it even more at ~67c.
Adidas sold some Yeezys Adidas wrote down their expected loss for the year to €450mn from €700mn as it sold €100mn of inventory in a much-anticipated online auction of unsold Yeezy stock. The stock climbed +1.22% on the news. It’s not exactly good news – Adidas famously cut ties with Kanye West/Yeezy, who was, famously, the main progenitor of Adidas’ recent success. Once the Yeezy inventory is sold, how well will Adidas fare? We think it’s best not to try be too clever with stock picks – Nike’s operating margins sit at 12% while Adidas’ sit at ~3%. That may be unfair – Adidas has had a tough time. In better days Adidas’ operating margin sat in the high single digits, which still isn’t quite that of Nike. Both sportswear brands face short-term headwinds: consumers are buying less and inventory has built up. But Nike’s problem is more banal – sell stock of current brands, whereas Adidas’ is more existential: sell stock of a very popular brand it no longer makes. BUY rated on Nike; no view on Adidas.
Dominos
Dominos Pizza (DPZ) reported strong earnings, with EPS growing ~9.00% to $3.08 per share.
We upgraded the stock at the start of June to a buy following weakness in the stock price; it was then trading at 20x fwd earnings versus a historic 30x earnings. The stock traded at $298.00 when we first recommended it and it now trades at $385.90. What we like in particular is that gross margin increased from ~36% to ~$39% YoY — management’s focus on getting those input costs right has paid off.
Oh, Elon
Users logging into Twitter today would’ve noticed it has been changed to “X”. You might sigh and go: oh, Elon. Elon’s had the X.com domain for a long time – it was originally Musk’s payment platform that merged with Confinity, and what emerged was PayPal. We all know PayPal. It’s done pretty well! It’s faltered in recent years, but it resulted in some Very Powerful Fortunes – Musk, of course; but also Peter Thiel, and Reid Hoffman who founded LinkedIn, and the two guys who founded YouTube – etc, etc. Anyway – X.com was dead and clearly Musk harbored a desire to use it. You can just imagine Musk sitting in his CyberTruck thinking — “if only there was a way for me to use my X.com domain”. Anyway; he purchased Twitter, and now he has renamed it X, and it doesn’t really make sense, but none of this Twitter purchase has made much sense – you could argue that Musk destroyed millions (billions?) of dollars of brand value with the rebrand, and you could argue that “X” really says nothing about what the business is, but hey – it’s Elon. We’re not surprised. (And by the way – a “tweet” is not called a “xeet”. We’re not joking).
Chart of interest: from Marvel to Barbieheimer
