Macro.
Bearish — overtime hours (US) — recession dates. Read-through is — here’s the recession.
Gold — keeps on rising (XAUUSD) — treasury yields weakening the USD + gold likely to benefit. See XAUUSD breaking the $2000 level short-term.
NZ/Aus
Takeovers > Bettcher Industries, Inc has entered into scheme implementation agreement to acquire MHM Automation Limited for $1.70 per share. Subject to shareholder approval, etc. Nice deal for Andrew Ritchie, who scooped up ~5mn or so shares from Colin Neal at $1.05 per share.
Mainfreight > Expecting weaker earnings on the back of global freight slowing down. We’ll find out mid-week. Priced into the stk. Like buying it at $65.00 or below. If you got it in the $57.00 range last week give yourself a medal — good buying, that. MFT is back at $58.00 as of writing (the lady doth complain too much?) so we’d pick some more up here.
Noting WasteCo has raised another $1mn from a share placement to a wholesale investor in New Zealand.
Rakon > we wrote last week that Mike Daniel has taken his stake in the chipmaker to ~6.1% — we’ve started to think there’s value in it at 70c or so a share. We think it’s worth about $1.40 per share in this current market.
Westpac > profit of $7.2 billion and announced a $1.5bn share buyback. Not that exciting. Distressed loans are up 0.16%. It’s a nice dividend stock, but hardly worth writing to mum about.
Melbourne Cup > If you are the betting type, we are picking: 1st Soulcombe 2nd Gold Trip 3rd Vauban 4th Absurde (not financial advice!!)
NZ Conviction list > EBOS, NZX, MFT, IFT…
Aus Conviction list > DUR, DGL, CSL…
US
Price is what you pay > Uncle Warren over at Berkshire’s cash pile has swollen to $157bn. Net seller of stocks (“tiny” numbers, a mere $5bn). All that cash, and nowhere to spend it. On the bright side, Berkshire is buying high-yielding treasuries like no tomorrow — plenty of yield there.
Telecom Italia > Telecom Italia (majority state owned) is being sold to KKR for $20bn. It’s a parting of ways for the former monopoly and the state that owns it, and the first time PE has acquired an entire set of core infrastructure in a “first world” country (does it remind you of NZ’s state asset sales in the 80s/90s?). Bit of a blow to Vivendi,— they own 24% of the company and think it should be valued higher. We are buy rated on Vivendi via shares of Bolloré (BOL).
International conviction list > Seeing value in Christian Dior (CDI) and ergo LVMH, Diageo in the UK (DGE) and Exor over in Italy. Visa, Mastercard, Alphabet remain our US “mega cap” picks. Also like Booking Holdings, Dominos and Starbucks (with Starbucks, we were waiting for a bounce-back in China. They’ve bounced back).
You wanted a hit
Estée Lauder stock is sitting at $110.00 as of writing — far from its highs of $310.00. We made a TikTok about it. It’s been a bad few quarters for the company — those quarters are stretching to a couple of years, and the old excuses of “China, Covid and Recession” aren’t quite convincing enough — not after another bad quarter. Rival L’Oreal is seeing China woes too — sales were down 15% last quarter — but where L’Oreal’s numbers are in-line with investor expectations, Lauder’s continue to be the child at the back of the class — “must do better”. With EPS down ~90% this quarter it’s looking a little like “lipstick on a pig”.
Partially there’s a series of write-downs and bad deals — the company overpaid for Tom Ford, and they had to write-down the value of brands they’d bought like Smashboxx. Lauder did really well during the “YouTube” years of beauty, where its house of brands like Bobbi Brown, Too Faced, etc reigned supreme. But the beauty landscape has changed. New challengers have emerged — like Byredo and Glossier — and that series of missteps (over-paying, writing down…) has led the company to see a halt in sales growth.
That’s not to say the company doesn’t make money. It makes plenty. And that’s not to say it doesn’t have a big portfolio of brands too — MAC, Jo Malone and La Mer are still valuable brands that make money. The question is similar to that facing Disney — how does “Goliath” re-tool for a new market, a new world? We think new management is probably needed — Fabrizio Freda did a great job for the co. since 2009 but it’s a different environment — as we’ve seen with the re-appointment of Bob Iger at Disney, sometimes an old dog can’t learn new tricks.
We’re still bullish on the co. and see it as a buy at these levels — the stk appears oversold and the company continues to make money and own a valuable portfolio of brands (the memory of the stock market is short — it forgets that Lauder was a double-digits CAGR company since for well over a decade). Like Disney and Gucci-owner Kering, there’s plenty of work to be done to restore the company to its previous glory — but there is a good portfolio of brands and billions of dollars in sales + capital to be deployed to give the company more than a fighting chance. There’s also the chance the company sees an activist like Nelson Peltz come into the fray, or LVMH gets interested in adding to its burgeoning beauty business (they own Sephora; why not own more of the product too?)