L'Oreal results sparkle

Yesterday we had full year results from one of our newly recommended stocks in New York which certainly pleased the market. L'Oreal managed to grow sales 10.4% for the year which came in at 22.46 billion Euros. On a like for like basis (excluding acquisitions etc) this grew 5.5% which beat the sectors growth of 4%. This obviously means that they managed to gain some market share. Net earnings per share grew 15% to 4.9 Euros while the dividend was increased by 15% and another share buyback worth 500 million Euros was announced.


The stock trades at 111 Euros which puts it on a historic valuation of 22.6. Forward earnings are expected to come in at around 5.31 Euro this year, 6 Euro in 2014 and 6.9 Euro in 2015. Trading at 16 times 2015 earnings the stock is certainly not cheap. But when you look at those growth rates and the fact that the company has zero debt you can see why.


The future looks bright. They have targeted 1 billion new clients over the next 10 years. Wow that is huge. They have also expanded production outside of France to target the developing market consumer. They opened factories in Indonesia and Mexico last year with one in Egypt planned for this year. That may be on hold at the moment. 2012 was the first year where markets outside of Western Europe and North America were responsible for more than 50% of sales.


I read an analyst note yesterday (it's paid for so I cannot say who) which suggested the following sales growth rates per region for 2013. Indonesia (34%), India (23%), Argentina (20%), China (12%), US (7%), UK (4%) and France (3%). That looks very positive and reiterates my view that the developing world is going to become more and more image conscious, both men and women.


I guess the only negative to consider is the ownership structure of the company. Nestle own 30% and the Battencourt family (founders) own 31% who both act in concert pursuant to a shareholders' agreement. Basically they vote together and dictate which path the company takes. I generally have nothing wrong with that, Google and Facebook have similar structures, as long as everyone's interests are aligned. Apparently though there is a bit of a rift amongst the Battencourt family in terms of inheritance. Here is the wiki entry about Liliane Bettencourt, the founders daughter who is now 90 years old and is worth over 20bn Euro. It is just a niggling issue that does need to be considered when buying these shares.


It is also a possibility that Nestle could try and buy the family out once she dies and with that the whole company. That of course would be good for shareholders who would demand a premium.


Regardless of this issue which needed to be pointed out I see this as a fantastic entry into the aspirational consumer growth group.