NZ & Aus
A bid for Metro Performance Glass has been launched by veteran investor Peter Masfen and Vulcan Steel founder Peter Wells – initial bid came in at 18c, which is a lowball offer in our opinion. We think the bid could get juiced higher. Wells is a good operator – Vulcan is a well run company – and we can’t help but think of the operating efficiencies that might be found if Wells and Masfen manage to take MPG private. Our gut feel thinks 25c per share feels about right.
DGL stock sitting at $1.05. We first wrote it was oversold at 88c (then again at 67c, feeling a little sheepish that we might be wrong). We like entering into the stock under $1.00 – Simon Henry is a good operator and the serial acquisition model works for chemical storage and logistics. It’s not an exciting AI stock, but we’ll take it. NZ CPI has slowed to +6.00% vs. 6.7% on the quarter previous. Worse than +5.9% expected and we still think Orr will need to hike again (before the election?). Depending on your read – a “not bad” result compared to the UK, but a poor result compared to the US.
State of Luxury Snapshot
Lots to digest in the luxury sector from the last few days. Let’s get cracking.
Headline news is Kering flew in a new CEO for Gucci – Jean-François Palus – who Kering majority owner François-Henri Pinault described as “my daily sparring partner”. The change comes as Gucci sales lag against the rest of the market – its maximalist designs were a pandemic hit but have fallen off the radar as of late – the market now wants “quiet luxury”. Gucci isn’t quiet. We’re not big fans of Kering stock: nominally it looks cheap compared to peers (17x fwd earnings versus LVMH’s 30x), but the over-reliance on Gucci is a huge risk and new designer Sabato de Sarno is a relatively unproved quantity. Pinault is a busy man – he’s also rumored to be making a bit for CAA, the Hollywood talent agency. Pinault, of course, is married to Salma Hayek – coincidence much?
On the earnings front, Cartier and Van Clef owner Richemont reported slowing sales – on a fx-netural basis the company saw +19% growth which slowing growth in America. The stock dropped +10% on the news, which we think is a little overreaction – +19% growth is still good; +24% growth of Cartier is better. Richemont is another one of those luxury companies controlled by a family who had nothing to do with luxury at the onset (Richemont was originally a mining company, known as Intercontinental Mining and Resources). It is basically a jewelry company with an odd collection of clothing and watches attached to it (Dunhill, Chloe, etc). The Cartier/Van Clef double whammy is where the value is; the rest is for “free”. The company also, at one point, owned Net-a-porter/Yoox, which was a doomed pairing from the start and the company’s interest has now been mostly spun-off. We like the Cartier business and we like Van Clef but we could give or take the rest.
Finally, Zenga (yes, the suit makers) poached LVMH executive Lelio Gavazza to run Tom Ford. This may give you pause – didn’t Estee Lauder just purchase Tom Ford? They did – but they sold a license to Zenga to run the clothing arm of it. This itself made us double take – brands famously do poorly when aspects of the business are licensed out (the best example is Yves Saint Laurent, which licensed its brand out to almost anything you could think of in the 80s/90s before regaining brand under, ironically, Tom Ford). Good for Zenga – the suit-maker that could – but it’s another decision of Estee Lauder’s which is a little bit of a question mark for us. The beauty company used to be a star performer but weak sales, especially as of China, and little sign of a turnaround plan have us reassessing the stock, which we had as a “buy”. We’re not the only ones to be question the company – Terry Smith, of Fundsmith, wrote similarly of his holding in his last letter to shareholders. We don’t want to give up on what’s been a good thing for a long time, but we’re starting to worry.
Misc – Ralph Lauren has signaled a push to increase its prices, as the brand “punches up”. Harrods Dept Store has announced the launch of a private members club in Shanghai, restricted to 250 people – a sign of the retreat of loud “new money” aesthetics and the continuing push to “quiet luxury” – the rich do not want the hoi polloi watching them spend, especially as consumer wallets become more constrained.
As per our preference remains LVMH followed by Hermes. Richemont might get interesting. Avoiding Kering and the smaller players – they lack the scale. LVMH and Hermes both look expensive, but they always do – they’re a “buy and forget” stock.