Business Strategy & Outlook:
Neither Tommy Hilfiger nor Calvin Klein has the pricing power or competitiveness to provide PVH with a moat. Moreover, the firm is dealing with the war in Ukraine, shipping delays, inflation, depreciation of the euro versus the dollar, and higher taxes. The adjusted EPS will drop about 10% this year. Due to these challenges and competition, PVH will fall short on its PVH+ plan targets of 2025 revenue, operating margin, and free cash flow of $12.5 billion, 15%, and $1 billion, respectively. The estimates are $10.6 billion, 12.4%, and $900 million. Even so, its key brands as healthy, and believe efforts to elevate product, achieve cost efficiencies, and build e-commerce will result in consistent earnings growth after this year. Once known as a producer of mid-tier men’s shirts, PVH purchased fashion brand Calvin Klein in 2003. It acquired a second large fashion brand in Tommy Hilfiger (2010) and Calvin Klein licensee Warnaco (2013).
PVH now has employees in more than 40 countries, and the share of its revenue generated in the U.S. fell to just 32% in 2021 from nearly 90% in 2009. Growth rates and operating income for the international segments of both Calvin Klein and Tommy Hilfiger have consistently exceeded those of their North American segments over the past few years. While PVH’s international expansion, its brands suffered sales declines in North America in both 2019 and 2020 and remain below peak levels, which is a sign of weakness in these brands. PVH, has failed to connect with North American consumers as well as some peers. PVH’s dependence on just two brands is risky. Its U.S. business is exposed to department stores, such as no-moat Macy’s and narrow-moat Nordstrom, that have closed full-price stores. However, PVH is working to reduce its dependence on these channels by increasing sales through mono-branded stores and e-commerce. Its five largest customers only accounted for 15% of sales in 2021, down from 22.2% in 2015. Aside from its two key brands, PVH owns and licenses a few smaller brands that have minimal profitability and strategic value.
Financial Strengths:
PVH has taken the proper steps to get through the COVID-19 crisis. During the first quarter of 2020, PVH collected $169 million in cash from its sale of Speedo and raised EUR 175 million in a bond offering at an attractive interest rate of 3.625% (matures in 2024). In the second quarter, it raised an additional $500 million in a debt offering at 4.625% interest (matures in 2025). Then, in 2021, it closed its heritage brands retail stores and sold most of the brands for about $220 million. It also cut costs in several parts of its business in both years. After taking these measures, PVH paid down $1 billion in debt in 2021, bringing its long-term debt down to $2.3 billion. PVH’s net debt/adjusted EBITDA fell to 0.9 at the end of 2021 from 6.6 at the end of 2020 due to this debt reduction, cash generation, and increased EBITDA. PVH resumed share repurchases in the second half of 2021. Before the crisis, PVH was repurchasing stock even as it put a priority on reducing debt from its acquisitions of Tommy Hilfiger (2010) and Warnaco (2013). Buybacks increase shareholder value if completed at prices below the estimate of intrinsic value. PVH repurchased about $1.3 billion in stock between 2016 and early 2020 and repurchases exceeded $300 million in 2021. Over the next 10 years, the firm averages are forecasted $880 million per year in free cash flow to equity, which it uses for about $730 million in average annual combined share repurchases and small dividends (2% average payout ratio).
Bulls Say:
- Calvin Klein and Tommy Hilfiger have proven global strength, with the potential for greater sales in Asia, Europe, and the Americas. PVH has taken greater control of its brands through acquisitions, allowing improved marketing and pricing.
- PVH has paid down debt and resumed share repurchases and dividends. The free cash flow to equity will rise above pre-pandemic levels by 2024.
- Tommy Hilfiger is known as a casual and active brand, which nicely aligns with recent fashion trends.
Company Description:
PVH designs and markets branded apparel in more than 40 countries. Its key fashion categories include men’s dress shirts, ties, sportswear, underwear, and jeans. PVH’s leading designer brands, Calvin Klein and Tommy Hilfiger, generate nearly all its revenue after it disposed of most of its smaller brands in 2021. PVH distributes its clothing wholesale to retailers and through company-owned stores and e-commerce. The firm traces its history to 1881 and is based in New York City.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook:
Even in the face of competitive and macro-economic headwinds, wide-moat Hershey’s dominance in U.S. confectionery is undeniable (46% share of the chocolate aisle versus just 1% for private label, as cited by the firm, according to IRI). But more so, the strategic focus CEO Michele Buck has brought to helm–ramping up investments in its core domestic brands while pulling back international (high-single-digit percentage of total sales) spend. Hershey’s category mix didn’t benefit from stock up grocery trips that stemmed from concerns surrounding COVID-19–given the impulse nature of the purchase–like other areas of the consumer product landscape. But despite facing labor, packaging, and raw material inflation, it continues to funnel resources to elevate its brands (including a slate of new products in the better-for-you lane), which is perceive as supportive of its leading product mix and its engrained standing with its retail partners. As important, it will back down from these efforts, with the forecast calling for Hershey to direct a high-single-digit level of sales toward research, development, and marketing annually.
While Hershey’s prominence in North America is without question, its standing abroad (in its key markets of Brazil, China, India, Malaysia, and Mexico) has historically been shakier (particularly given the beachheads wide-moat Nestle, wide-moat Mondelez, and privately held Mars/Wrigley have amassed). But after a rough 2020 plagued by the corollaries of the pandemic (lockdown measures that siphoned off foot traffic and sales at traditional outlets), Hershey has begun chalking up more modest gains (including fiscal 2021 sales that nearly matched the level chalked up two years prior). From the vantage point, these marks are the byproduct of steps CEO Buck has taken since assuming the top spot, including rightsizing its international footprint to strike an appropriate balance between the level of cost and the return likely to ensue. And a runway is viewed for additional improvement over the longer term, with the forecast calling for it to boast mid- to high-single-digit top-line growth annually beyond its home turf.
Financial Strengths:
With debt/adjusted EBITDA of around 2 times and interest coverage holding in the double-digits at the end of fiscal 2021, which haven’t wavered from stance that the Hershey’s balance sheet strength will buttress its ability to weather a volatile macroeconomic and competitive landscape ahead. And Hershey continues to churn out a significant amount of cash; free cash flow as a percentage of sales has averaged 16% the past five years, and forecasted a similar level (16.2% on average annually) over 10-year explicit forecast horizon. Importantly, don’t expect Hershey will abandon its long-standing commitment to returning excess cash to shareholders; the forecasted 7% annual growth in its dividend over the next 10 years, rendering the payout around 50% of earnings). The sizable ownership stake of the Milton Hershey School Trust (at around 80%) should ensure its stable cash flows aren’t jeopardized by a larger, more transformative deal. From the vantage point, its focus will remain on smaller, bolt-on acquisitions (with an appetite for deals that enhance its exposure to salty or better-for-you alternatives), since the Hershey School depends on the firm’s dividends to fund its operations. However, don’t surmise that Hershey merely hungers for added revenue. In this context, in fiscal 2020, management divested of three brands (its premium meat jerky offering, Krave, and its two premium chocolate brands, Scharffen Berger and Dagoba brands) –though estimated the proceeds were immaterial.
Bulls Say:
- Hershey has been intentionally rationalizing its fare over the past few years to ensure shelf space and ad dollars are allocated to the highest return opportunities.
- Low-priced competition is scant in confectionery, as private-label fare holds just 1% share of U.S. chocolate, versus 46% for Hershey.
- Hershey has pivoted to use local distributors in China (versus its own salesforce), which is viewed as an opportunity to refocus the business on its areas of competency and to expend resources on ensuring its mix continues to evolve with consumer trends.
Company Description:
Hershey is a leading confectionery manufacturer in the U.S. (around a $25 billion market), controlling around 46% of the domestic chocolate space (per IRI). Beyond its namesake label, the firm’s mix has expanded over the last 85 years and now consists of 100 brands, including Reese’s, Kit Kat, Kisses, and Ice Breakers. Hershey’s products are sold in about 80 countries, albeit with just a high-single-digit percentage of sales coming from markets outside the U.S., including Brazil, India, and Mexico. The firm has sought inorganic opportunities to extend its reach beyond its core confection business, adding Amplify Snack Brands and its Skinny Pop ready-to-eat popcorn to its mix and Pirate Brands (including the Pirate’s Booty, Smart Puffs, and Original Tings brands) over the past few years.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook:
Enel has been suffering from high leverage stemming from the acquisition of Endesa at the top of the cycle in 2008. Sovereign debt crises in Spain and Italy and economic doldrums in these countries led to the implementation of adverse regulation for utilities. After 2014, the regulatory and economic backdrop in Enel’s core markets has stabilized, and a new strategy aiming to boost organic growth and streamline the group organization has been implemented. Management reduced costs while increasing growth investments in regulated networks and renewables and strengthened control of its fastest-growing Latin America and renewables businesses by delisting Enel Green Power in 2016 and buying out Latin America activities from its subsidiary Endesa.
The energy crisis, which started in 2021 has put energy affordability at the forefront of the political agenda of European countries, increasing political risk. Nonetheless, measures mulled by the Spanish government in 2021 to tackle soaring energy prices have been significantly amended so their impact on Enel’s Spanish subsidiary Endesa will be fairly limited. Likewise, windfall taxes taken by the Italian government will have a limited impact on earnings as they will spare hedged power production and will be applied only above EUR 60/megawatt-hours. At end-2021, Enel had 50 gigawatts of installed renewable capacity, the highest among European utilities. The firm intends to increase its solar, wind, and batteries capacity by 19 GW by 2024, or 6.33 GW per year. Thanks to higher renewables generation, the firm intends to lower the cost of energy sold by enhancing its integrated model through the reduction of its short position. The group pledges a fixed dividend of EUR 0.4 and EUR 0.43 in 2023, implying an annual growth rate of 6.4%. In 2024, Enel targets a flat dividend of EUR 0.43. By assuming a 70% payout ratio in 2025 and 2026, forecast a 2021-26 dividend CAGR of 5.5%, in line with its earnings growth.
Financial Strengths:
The forecasted net debt to increase from EUR 51.6 billion at end-2021 to EUR 57.6 billion at end-2022 on high investments and involving a net debt/EBITDA ratio of 3 times, in line with the guidance. The net debt shall peak at EUR 61 billion in 2023 before falling to EUR 55 billion in 2026, notably thanks to the EUR 7 billion disposals planned by the group. Net debt/EBITDA ratio would peak to 3.05 in 2023 before receding to 2.5 in 2026 on increasing EBITDA and a net debt decline. The projected ordinary EBITDA/net interest expense and net debt/equity to average 9.5 times and 1.25 times, respectively, through 2026. All said, posit Enel will be able to fund its investments and dividends without tapping the stocks market. In line with its 2022-24 business plan, factor in 2022, 2023 and 2024 dividends of EUR 0.4, EUR 0.43, and EUR 0.43, respectively. In 2025 and 2026, assumed a 70% payout ratio involving a 2026 dividend of EUR 0.5 and 2021-26 dividend CAGR of 5.5%.
Bulls Say:
- Enel’s diversified profile and leadership positioning in renewables and networks offers solid and visible earnings growth.
- Strengthening of the Brazilian real and the U.S. dollar will support earnings.
- Enel boasts higher returns on invested capital than its peer Iberdrola.
Company Description:
Enel is a diversified energy company domiciled in Italy. Operations are concentrated in Italy, Spain, and Latin America. The firm’s primary activities are electric generation, electric networks, and gas and electricity marketing. Around 50% of the company’s EBITDA is derived from its regulated networks. Taking into account power sold through power purchase agreements in Latin America, around 70% of EBITDA is quasi-regulated. Enel is a giant in global power generation with 86 gigawatts of capacity, of which 39 GW is renewables, including a large share of hydro.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.