Where ARV thou dividend?

28 May 2024

NZ Earnings

Arvida (ARV) — a bit grumpy about this one — dividend is suspended but eagle-eyed recipients of their recent release will note the suspension of the dividend is only mentioned on the 29th paragraph — if you weren’t a closer reader you will miss it. One might think suspending the dividend is material news and should be, perhaps, in the first paragraph. Anyway — taking into account the fact that they have suspended the divvy and managed to bat away a $1.70 NBIO last year — one starts to wonder if that NBIO should’ve been looked at a bit harder. ARV is trading at 99c as of writing. $1.70 is a substantial premium. Why didn’t the board put this offer to shareholders — this is a mystery to me.

As I have written before this appears to be one of the areas a lot of company directors struggle with in New Zealand. They are presented an offer (RAK — which is still in play; MPG, ARV, ERD, etc) and they swiftly bat it away. I emailed all the companies which have had takeover offers and they mostly gave back the same response — “didn’t reflect intrinsic value”, etc. It is remarkable the intrinsic value of all these companies seems to be far above the actual value real money will pay for said companies. The co has appointed a couple of advisers to consider “capital partnerships”. Again — and I am sounding like a broken record here — but wouldn’t a simple sale of assets and management rights be better? I never understand why companies make a simple thing complicated. Watching with interest…

RAK — Earnings tomorrow…all eyes on the result and the on-going NBIO….good commentary from Rebecca on RNZ here. Expecting a weaker result given telecoms segment but in my view the main news (or lack of) is said NBIO. There was also some storm-in-a-teacup about the use of Rakon’s chips in weapons (link) — truth is RAK’s chips are used in a lot of things … I would be more interested in Rocket Lab’s links to the CIA and the military-industrial complex…

FBU — AFR reporting that the boys and girls at Allegro are looking at buying Tradelink from FBU. As I have opined before…FBU is best served broken up, in fractions (don’t see this happening, TBH, given regulatory risk… though look at the success of breaking up the once-great GE into parts…similar path could work for FBU).


Fellow kids are taking cruises now

HOW DO YOU DO, FELLOW CRUISE SHIP FANS

I used to think cruise ships were for retirees from Timaru who were “so excited” about seeing the authentic sights of Hawaii, etc. I am a big fan of the cruise ship genre — obviously you have David Foster Wallace’s classic — “On the Nearly Fatal comforts of a luxury cruise” , and you have one of the best Gawker pieces ever (rip) on Paula Deen’s cruise, etc. Cruise ships are weird! Big floating hotels with endless food and conga nights and so on. So last night, I was lying on my 8000-thread count sheets with lavender mist being sprayed for me by my maid, with one eye open and I read with surprise the earnings calls of a couple of cruise lines (I do fun things like this at night). Here’s a quote from Norwegian Cruise Lines CEO Harry Sommer:

…We appeal obviously to older customers, but millennial and Gen Z is the fastest-growing segment of our cruising right now…

And Royal Caribbean saying

Our brands also continue to attract new and younger customers. Millennials and younger generations have gained 11 percentage points share compared to 2019. And today, almost 1 in 2 guests are millennials or younger.

I mean — it was not on my list for 2024 that the new hot thing for the young folk is going on a cruise ship. But I guess it makes sense? People love all-inclusive?

Millennials and Gen Z love the fact that everything is included. Think meals foodies would love, tips covered, Wi-Fi to stay connected and a ton of fitness classes

Doesn’t the phrase “foodies will love” make you cringe, a little? As in — something people who hate food might say. But don’t worry — there is Wi-Fi to “stay connected”. I can’t think of much worse than being stuck in a giant floating hotel having your tenth pizza of the day. But the kids — they love it — or so say the cruise lines!

I think this actually points to something a little more bleak and it’s hidden in Deloitte’s annual summer survey report —

More higher-income travelers are headed to cruises,” whereas “lower-income travelers are going camping,” the Deloitte report, released Tuesday, said. (“RV trips are up across the board,” it added.

Source: Deloitte

Translation, dear reader — the higher-income earners can’t afford to spurge out on another European trip, so they are going on cruises (case in point: one well to do lady recently told me she was on a cruise and nobody was spending outside of what was included in their package — “the casino was empty”). On the other hand — low-income earners are going the cheap route — camping. What does this all spell to you?

Could it be?

Could it be the dreaded “R” word? All-inclusive packages for the rich and camping for the not-so-rich? I’m not so sure to jump to that conclusion – but I do think it is interesting that hotel demand is down and private accommodation options are more in demand (including camping and RVs)

I don’t know — maybe we should just continue sailing? Nothing to see here.


Bird flu

CSL is a good company anyway — it’s a perennial blue-chip and owning it has been a no-brainer for a while. But did you know CSL owns Seqirus, one of the world’s leading influenza vaccine makers?

I say this not because it is a “fun fact” but because bird flu is spreading to humans via cow milk. Naturally I wanted to know who would be the main beneficiaries of this if bird flu continues. The usual suspects are there — Moderna, etc — but also CSL, the stock of which has not moved much in response to bird flu. And why should it? The reported cases are tiny. But as a purely speculative “what if” scenario, I think it’s interesting to think that CSL may benefit. Fun fact, etc. The more you know.

Here is the worst-case scenario for bird flu spreading. People are skeptical towards vaccines post-COVID. Often, but not always, they drink raw milk. Bird flu spreads to humans via raw milk. If both sets of circumstances are met (i.e. one is a vaccine skeptic and drinks raw milk) the likelihood of bird flu being caught is higher. Like the Chinese curse goes — “may you live in interesting times”.


Eden’s fashion corner

Borrowing this from Lauren Sherman’s excellent newsletter at Puck — in response to “why isn’t Bottega growing faster?” (Bottega is a Kering brand. Kering trades at 13x earnings).

It all feels like it’s coming together commercially now, which you can see in Kering’s results. As for the price of the bags: I do think they are quite high, and that is something Kering is going to have to stand by in order for the customer to get used to it, eventually. My whole thing with every handbag maker: Why should someone buy your bag and not an Hermès? Kering and Bottega will have to continue strengthening their argument. And speaking of Hermès, remember, they only recently launched cosmetics. They do everything with intention, and in order for Bottega to continue flourishing, that’s the way they’ll have to do it, too. Let’s hope Bottega doesn’t get too big, too fast.

I will say it again: Kering, a house that has +2bn euro of FCF, is trading at 13x earnings. That is not a typo. The bear case is: “Gucci no make good cwothes anymore, Gucci SAD”. The bull case is: “Kering owns Bottega, Saint Laurent, Balenciaga, etc and its peers trade at +20x earnings”.

I mean – an old mentor always used to say “you make all your money in the buying” and I think that is perhaps the case here — you have a company trading like a small cap single house stock when it tends to sit amongst its peer group (Hermes, Richemont, LVMH, etc). I am not the biggest fan of Kering but I do think the investment case is pretty clear — multiple low, multiple re-rate — make money.


Mentions of “pricing power” vs “expense mgmt”

Source post: Blackbull Research - Substack

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