consumer goods -pitch
TRANSCRIPT
CONSUMER GOODS - Pitch
Company, Strategy and
ProductsMarket Outlook Sustainability
AnalysisRisk & Ratio
Analysis Valuation
§ House of brands principle
§ Developing different retail strategies
§ Communication of brand name
§ Sustainability
Strategy
Kering SA
Company Overview
Profile
Products§ Fashion
§ Leather goods
§ Watches
§ Jewelry
§ Luxury and fashion goods
§ HQ in Paris, France (1963)
§ CEO François-Henri Pinault
§ 34,697 employees and 1,381 stores
€ 543.80 € 67.28 bn 1.01 1.3%
Business Portfolio
Products and Services
52%
20%
15%
6%7%
Leather Goods ShoesReady-to-wear Watches and jewelryOther
Brands Revenue share by product category
Company, Strategy and
ProductsMarket Outlook Sustainability
AnalysisRisk & Ratio
Analysis Valuation
Market outlook
Luxury and fashion goods industry Market drivers
Kering SA
§ Expected increase from US$285.1 billion to
US$388 billion in 2025, 6.4-8.5% CAGR
§ Focus on Asian and U.S. markets as revenue
drivers
§ Shift in geographic focus areas
§ Growth of online sales channels and
digitalization of customer journey
§ Shift from B2B to B2C marketing strategies,
move away from multi-brand brick mortar
§ Millennials and Generation Z accounted to be
around 50% of customers in 2025
§ Chinese market (+18%) and the e-commerce
market (+22%)
§ Sustainability becomes ultimate goal of luxury
goods industry
Peer Group
Market Outlook
Market Cap. (bn €) 67.28 43.79 9.78 93.1 84.72 263.57
Revenue (bn €) 13.1 14.24 3.9 6.39 46.98 44.65
Net Profit Margin 16.5% 6.6% -13.1% 21.8% 4.3% 10.5%
Dividend Yield 1.3% 1.2% 0% 0.5% 1.2% 1.1%
Employees 38,000 35,000 20,800 13,500 163,300 163,000
Company, Strategy and
ProductsMarket Outlook Sustainability
AnalysisRisk & Ratio
Analysis Valuation
Sustainability Analysis
Sustainalytics Score Industry Comparison
Does Kering meet our Sustainability Standards?
Exposure: Management:
Company, Strategy and
ProductsMarket Outlook Sustainability
AnalysisRisk & Ratio
Analysis Valuation
S W
TO
SWOT Analysis
Risk Analysis
§ Under investigation regarding tax evasions
§ Lacking e-commerce
§ Gucci constitutes predominant fraction of sales
§ Expertise and innovative capacity to anticipate and shape trends
§ Multi-brand business strategy
§ Vertical Integration
§ Wide geographic spread
§ Strong sustainability
§ Improving e-commerce and online presence
§ Growth in Asian market
§ Fluctuating political environment
§ Increasing availability of replicas & counterfeits
§ Increasing competition in the industry
Kering SA
Correlation Analysis
Ratio Analysis
Assessing Kering´s performance
Key performance overview
-30.0%-20.0%-10.0%
0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%
100.0%
2017 2018 2019 2020
Sales growth (%)
Kering SA Compagnie Financière Richemont
Tapestry Inc. Hermès International
Christian Dior LVMH Moet Hennessy Louis Vuitton
16.5%6.6%
-13.1%
21.8%
4.3%10.5%
Kering
SA
Compagnie
…
Tapestr
y Inc.
Hermès I
nterna
tional
Christia
n Dior
LVMH Moe
t…
Net margin [2020]
17.7%
5.5%
-22.5%
20.0% 17.5%12.7%
Kering
SA
Compagnie
Financiè
re Rich
emont
Tapestr
y Inc.
Hermès I
nterna
tional
Christia
n Dior
LVMH Moe
t Hen
ness
y Louis
…
ROE [2020]
Return on InvestmentAssessing Kering´s abilities to generate earnings
7.6%
3.2%
-8.8%
13.3%
1.9%4.6%
Kering
SA
Compagnie
Financiè
re…
Tapestr
y Inc.
Hermès I
nterna
tional
Christia
n Dior
LVMH Moe
t Hen
ness
y Louis
…
ROA [2020]
Indicating how Kering is financed and how quickly it can turn its assets into cash
Leverage & Liquidity ratios
1.34
2.90
1.50
3.60
1.60 1.60
Kering
SA
Compagnie
…
Tapestr
y Inc.
Hermès I
nterna
tional
Christia
n Dior
LVMH Moe
t…
Current ratio [2020]
14%19%
38%
2%
43%
14%
Kering
SA
Compagnie
…
Tapestr
y Inc.
Hermès I
nterna
tional
Christia
n Dior
LVMH Moe
t…
Debt/Equity ratio [2020]
Indicates the ability to generate dividend income as a percent of the investment
Dividend Policy
1.3%1.2%
0.0%
0.5%
1.2%1.1%
Kering SA CompagnieFinancièreRichemont
Tapestry Inc. HermèsInternational
Christian Dior LVMH MoetHennessy
Louis Vuitton
Dividend Yield
Company, Strategy and
ProductsMarket Outlook Sustainability
AnalysisRisk & Ratio
Analysis Valuation
Multiple Valuation
Indicating Kering´s relative value to its peer group
P/E and P/S indicator
34.629.3
0.0
66.3
42.4
54.745.5
Kering
SA
Compagnie
Financiè
re…
Tapestr
y Inc.
Hermès I
nterna
tional
Christia
n Dior
LVMH Moe
t Hen
ness
y…
Averag
e
Price-to-earnings [2020]
5.67
1.900.70
14.50
1.80
5.80 5.06
Kering
SA
Compagnie
Financiè
re…
Tapestr
y Inc.
Hermès I
nterna
tional
Christia
n Dior
LVMH Moe
t Hen
ness
y…
Averag
e
Price-to-sales [2020]
Compare the relative value of different businesses
EV/EBITDA
Industry Low Industry HighAverage
9,42 43,6722,67
19.44 20.21 17.99
43.67
9.42
25.28 22.67
Kering
SA
Compagnie
…
Tapestr
y Inc.
Hermès I
nterna
tional
Christia
n Dior
LVMH Moe
t…
Averag
e
EV/EBITDA [2020]
DCF Valuation
Kering SA
Valuation (FCF Projection)
in millions, fiscal year ending December 31 Historical period Projection periodYear 2018 2019 2020 2021 2022 2023 2024 2025
Revenue 16.122 17.778 14.934 16.129 18.064 18.425 18.794 19.170Growth rate (%) -8% 10% -16% 8% 12% 2% 2% 2%
COGS (5.964) (5.769) (4.813) (5.322) (5.961) (6.080) (6.202) (6.326)
COGS % of Sales 37% 32% 32% 33% 33% 33% 33% 33%Gross profit 10.157 12.009 10.121 10.806 12.103 12.345 12.592 12.844
Gross margin (%) 63% 68% 68% 67% 67% 67% 67% 67%SG&A (4.924) (5.267) (4.907) (5.001) (5.602) (5.714) (5.828) (5.945)SG&A % of sales 31% 30% 33% 31% 31% 31% 31% 31%
Other operating (expense) income (34) 0 0 (11) (13) (13) (13) (14)Other operating (expense) income % of sales -0,21% 0,00% 0,00% 0% 0% 0% 0% 0%
EBITDA 5.199 6.742 5.214 5.793 6.488 6.618 6.751 6.886Adjustments (If so, find in Annual Report)clean EBITDA 5.199 6.742 5.214 5.793 6.488 6.618 6.751 6.886
EBITDA margin (%) 32% 38% 35% 36% 36% 36% 36% 36%Depreciation & Amortization (580) (1.394) (1.640) (1.206) (1.350) (1.377) (1.405) (1.433)
D&A % of revenue 4% 8% 11% 7% 7% 7% 7% 7%EBIT 4.618 5.348 3.574 4.588 5.138 5.241 5.346 5.453EBIT margin (%) 29% 30% 24% 28% 28% 28% 28% 28%
Taxes (1.270) (1.471) (983) (1.262) (1.413) (1.441) (1.470) (1.499)EBIAT (Earnings before interest after tax) 3.348 3.877 2.591 3.326 3.725 3.800 3.876 3.953
Plus: Depreciation & amortization 580 1.394 1.640 1.206 1.350 1.377 1.405 1.433
Less: Capital expenditures (977) (1.070) (930) (984) (1.102) (1.124) (1.147) (1.170)Less: Short term leases and Interest*Less: Change in net working capital 1.633 (943) (1.179) 160 249 284 53 54
Unlevered Free Cash Flow 4.585 3.258 2.123 3.708 4.222 4.337 4.187 4.271FCF to sales (%) 28% 18% 14% 23% 23% 24% 22% 22%
WACC 5,09%
Discount period 0,75 1,75 2,75 3,75 4,75Discount factor 0,96 0,92 0,87 0,83 0,79
Present Value of Free Cash Flow 3.572 3.871 3.783 3.476 3.373
Kering SA
WACC Analysis
Total capitalization Total debt (M) 11.838Shareholder equity (Market Cap) (M) 81.874Total capitalization (M) 93.712
Target Capital structure Debt-to-total capitalization 12,63%
Equity-to-total capitalization 87,37%
Cost of debt Implied Interest rate 1,75%Tax rate 27,50%After-tax cost of debt 1,27%
Cost of equityRisk free rate -0,05%Market risk premium 5,20%Levered beta 1,09Size premium 0,00%Cost of Equity 5,64%
WACC 5,09%
Comparable Companies Unlevered Beta
Predicted Debt/ Marginal Unlevered
CompanyLevered
Beta Equity Tax Rate BetaCompagnie Financière Richemont 1,45 19,3% 8,5% 1,23
Tapestry Inc. 2,08 37,5% 21,0% 1,60Hermès International 0,55 1,7% 27,5% 0,54Christian Dior 1,05 43,2% 27,5% 0,80LVMH Moet Hennessy Louis Vuitton 0,85 13,7% 27,5% 0,77
Mean 23,1% 0,99Median 19,3% 0,80
Company Relevered Beta
Mean Target TargetUnlevered Debt/ Marginal Relevered
Beta Equity Tax rate BetaRelevered Beta 0,99 14,5% 27,5% 1,09
Valuation (Share Price)
EV sensitivity analysis
Share price sensitivity
Kering SA
101.382 0,6% 0,8% 1,0% 1,2% 1,4%4,1% 119.968 126.329 133.510 141.682 151.065 4,6% 105.053 109.801 115.075 120.970 127.603 5,1% 93.453 97.116 101.136 105.569 110.481 5,6% 84.172 87.073 90.227 93.667 97.434 6,1% 76.578 78.925 81.456 84.193 87.163
WA
CC
Terminal growth rate
Share price sensitivity analysis765 0,6% 0,8% 1,0% 1,2% 1,4%4,1% 914 965 1.022 1.088 1.163 4,6% 795 833 875 922 975 5,1% 702 731 763 799 838 5,6% 628 651 676 704 734 6,1% 567 586 606 628 651
WA
CC
Terminal growth rate
Terminal value (TV) 105.461,52 Terminal growth rate 1,00%TV discount factor 0,79 Present value TV 83.306 Present value Free cash flow projection 18.075 TV % Total value 82%
Enterprise value 101.382 Less: Total debt - 11.838 Less: Capital Leases -Plus: Cash and Cash equivalents 4.212 Less: Noncontrolling interest - 262 Less: Preferred securitiesPlus: LT Investments 2.109 Less: Pensions -
Equity value 95.603 Shares outstanding 125 Implied share price 765,30
Current share price 655,4 Implied upside 17%
Implied EV/EBITDAEnterprise value 101.382 EBITDA (LTM) 6.742 EV/EBITDA 15,04x
17% implied upside
Key takeaways
Final Recommendation
Valuation
Business Strategy
Peer Group
Risks
Share price development (17% Upside)§ Strong brands§ E-commerce development§ Sustainability
§ Conservative growth assumptions despite strong market growth
§ Replicas & counterfeits§ Increasing competition§ Tax evasion investigation
§ High profit margin§ High revenue for market
capitalization
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2016 2017 2018 2019 2020 2021 2022 2023 2024
Price Implied Upside