Research archive for CFR

Talking of annual reports, I saw the Richemont one yesterday, it is available to download: Annual Report. On reading the report it cemented the investment thesis, one cannot underestimate the quality of the brands and the enduring qualities that have been built over centuries. The company is essentially a jewellery manufacturer and seller and a specialist watch manufacturer (nearly 80 percent of sales) and seller. These are devices and pieces that can be kept in your family for generations, I was once reminded by a client who rightfully took objection to a remark that I had made about a fancy watch. Montblanc is not necessarily one of their businesses to worry about, it is less than 7 percent of sales (6.85 percent to be "precise"), but that business has been flat for three years, sales wise. I guess the percentage contribution from a sales perspective will look less in time.

OK, as promised:

Richemont have released their full year numbers this morning. They have comfortably beaten expectations. Sales numbers faced currency headwinds during the year, the aforementioned European recovery might have been fabulous news for countries themselves, but for companies reporting in Euros, well, not so great. I suspect that there will be many European countries with the same "problems", not the worst one to have however. We will have a better and more detailed analysis of these numbers tomorrow, for the time being the market likes it. So do we, we remain convinced that this is one of the best investments that folks have access to in this market.

Last week I saw the Richemont announcement (this company will definitely benefit from a richer middle class globally) Richemont and EPFL to create a new academic chair, it was exactly what I thought. Machine precision parts for timepieces (watches) to continue to supply a fast growing market. You cannot compromise on the quality and if machines and technology can help to manufacture the parts to make a perfect piece every time, I think that is what the consumer wants, not so? And in this case it is the use of new materials to make the high end purchases more profitable and importantly more precise. This is good news for shareholders in a pretty low key announcement, the next very high key announcement is in 10 days time, with the annual results next Wednesday. I am going to say now that I am very excited!

Richemont have hit the screens with a sales update for the Third quarter to end December 2013. Off the bat the market is clearly disappointed, the stock in Joburg was down 4 percent as we opened. Mainland China reported lower sales than the corresponding comparative quarter, indicating that the measures taken by the Communist party are working. The austerity measures, the clampdown on people spending on luxury and that included the big billboard pulldown. Let us not rub the new found wealth in the faces of the many that have been left behind. Those many live of course not in the cities.

As promised, we head towards the Richemont six month numbers that were released on Friday. The company is the owner of 18 brands, some of them associated with Uber luxury, some a little more affordable, but all quality. You cannot lie to your core clientele with luxury, if it is not the very finest piece then your clients can tell the difference. After all clients who shop at luxury stores might have the money for these purchases, but these are big ticket items and as such more time and care will be taken before a purchase. This is natural.

Richemont released a trading update that Mr. Market was not too happy with, expectations were missed. Just a bit, not by too much. The sales update (fairly short and sweet) can be downloaded here: RICHEMONT REPORTS FIVE MONTHS SALES AT ANNUAL GENERAL MEETING. Two surprises and I am going to use the table from the release to illustrate the point I want to make:

Richemont results this morning have hit the screens. As if there was not enough going on around here, that company released their full year results to the end of March 2013. My expectations were high, and they have been met. The markets expectations have been exceeded. Sales topped 10 billion Euros, 10.150 billion to be exact, up 14 percent on last year. The company managed to grow margins against the backdrop of a sales growth trajectory that is definitely slowing, sales in their Asia business only increased at constant currency rates of five percent in the last year, after a 46 percent sales growth in the prior year, 2012. Operating profits of 2.426 billion Euros with operating margins at 23.9 percent are both records. Profits for the year clocked just over 2 billion Euros for the first time, an annual change of 30 percent versus the prior financial year.

Whoa! Stand back here folks. Richemont have produced a sparkling trading update this morning, that indicate a likely increase in net profit of approximately 30 % compared to the prior year. Sales increased by 14 percent for the year, whilst in constant currencies only increased 9 percent. That was the benefit of a weaker Euro. As that crazy Jim Cramer says in the intro to his show, there is always a bull market somewhere. So, net profits are expected to increase by around 30 percent, so somewhere around 2 billion Euros for the full year.

Richemont dragged the broader market lower, a sales miss and warning about an uncertain Chinese outlook weighed on the stock. Down just over six percent on the day. This fall and the general sentiment amongst the luxury goods stocks prompted a FT broader special report on luxury goods, I emailed the pdf to my kindle. Imagine using that line twenty years ago. Email? Pdf? Kindle? What is that? Email, OK, Plato and Unix mail systems existed, I remember using Plato in the school library. I wonder what that place looks like? The school library that is. I do know that all the Lance Armstrong books have been moved to the fiction section. I didn't make that line up. The truth is that Swiss watch exports to China have fallen at the end of last month. I do wonder if some of this had to do with the ruling (and only) party in China deciding to take a stance on corruption and cutting back wasteful expensive ceremonies, and if that knock on effect delayed certain purchases. As the FT piece said, when quoting a luxury goods analyst, the rich uncle is not going to stop buying an expensive Rolex at his nephew's wedding. No. The culture of gifting is not going away soon.

Richemont have released a trading update for the nine months to end December 2012, and from the initial flash, they seem to have missed sales expectations. At least that is what the screens say in front of me. The stock has been on a tear. The stock is up nearly 70 percent over the last year. And every single time that I have spoken to clients about the company the inevitable question comes up asking, is there any more juice left in the share price? To answer that question one is perhaps best placed to try and understand a few things about the company and their customer base. The company falls into an investing theme that we like a lot that is called aspirational consumerism. The idea that across the globe there are more upper middle class people who are able afford luxury. In China a culture of gifting exists, whereby to seal a deal of most sorts gifts are exchanged.

Richemont released numbers for their first half to end September this morning. The immediate news that people have chosen to focus on is that Johann Rupert will give up the CEO role at the beginning of March and focus just on the Executive chairman role. And to get his golf handicap lower than the current levels, whatever that is. So in a sense that is giving back a little of control. His family interests of course will still have voting rights and control the business. Remember that when I am talking about these numbers, that the per share numbers should be divided by ten, that is the GDR (Global depository receipt) that is traded here in Johannesburg. It is a ten here for each one in Zurich. The price, as at the close last evening in Europe is 52.98 Euros, or 64.30 Swiss Francs.

When Richemont released their full year results in May this year they indicated that they were sitting on a about 1.6bn Euros in cash. Over the last two weeks we have seen two acquisition announcements from the company neither of which are big enough to have an effect on earnings but definitely worth noting, especially as an indicator of where the company is going and their confidence in the future.

Richemont are getting a punch in the guts this morning, Nomura have downgraded Burberry, but it comes after the luxury goods maker suggested that full year profits would be at the bottom of the expected range. Check out the Burberry First Quarter Trading Update and Interim Management Statement. So you read that right? Seems ok. But the stock got drilled, down over 18 percent. It is not even the most expensive of its peer group. Trench coats. Turns out people prefer watches. Although I can see myself in this one: VELVET COLLAR CHESTERFIELD COAT. For the five days or so that I might need it in winter down here, I am going to pass. Cheapskate. My point however is simple, trench coats are not watches and jewellery.

Richemont released a five month sales update this morning and it looks decent enough. The sales per region are always an indicator of who is doing well. However, the sales in Europe have mirrored the real economies, and this is often attributable to the tourist buying. You see, in places like China, where luxury goods are taxed at a higher rate than in Europe, tourists from the East often pick up cheaper products whilst travelling. And of course on the high streets of Europe consumers can be sure that they are getting the finished product. A discerning customer can always spot the genuine product, that goes without saying, not so? This is what the release says: "Europe was strong, particularly in the retail channel in major tourist destinations."