Is the Investment Worth it?

L’Oreal is a market leader, being the biggest consumer business in their space globally, bigger than Proctor & Gamble by around one-fifth (that division) and over three time the sales of Estee Lauder. Their footprint is pretty breathtaking, nearly 83 thousand employees across 140 countries, selling 32 brands across the portfolio.”


To market to market to buy a fat pig Worries about this and that. And now I can see someone who is talking about pattern recognition, my least favourite topic in markets. Showing me a graph of the past, and in some cases all the way back to 1929 and presuming that something is going to happen next is just plain dumb. I can’t understand how you can draw a conclusion like that. I suppose it is fear of the unknown, which is often why we don’t like to talk about estate planning either, the inevitability of the end is not something we like to deal with in the moment.

OK, that unexciting topic aside, patterns and the ability to see something in the past, that is a great subject for another day. Last evening in New York, New York, stocks ended the session firmer. The blue chip Dow Jones broke their losing streak, closing up around one-quarter of a percent, whilst the broader market S&P 500 ended the session around one-third of a percent better on the day. The nerds of NASDAQ were the best of the majors, adding over four-tenths of a percent, all three indices closing strongly into the bell.

Apple continued to creep higher, the stock was last at these levels two reporting cycles ago, indicating that the collective fears have been allayed at this time. And all the while, believe this, Kim Kardashian (who is famous for being famous, how she got there is none of your kids concern) is looking for a Blackberry and cannot find one. According to Quartz that is. I did however see that tablet sales were trending lower, I guess the device is made so darn well and lasts so long.

Across to our neck of the woods, where local was lekker and standing in line was a slight inconvenience for participating in the fine idea that is inclusive democracy, stocks were closed for the day. Hence nothing from our side, humblest apologies! Stocks were all heading lower, you could take your pick of reasons as to why. Commerzbank and the broader European banking landscape, not well capitalised enough and needing a whole lot more support I am afraid. Weaker data from the US recently, apparently all the PMI numbers were not what Mr. Market wanted. I had seen the CFO of the German institution suggest that you were not to worry, the second biggest bank in the fourth largest economy in the world was going to be ok, and if anything represented an opportunity for less risk tolerant investors. Yes? The bank stock price is down 54 percent over the last 12 months. Tell that to the choir who have been singing another tune there old chap.

And then my personal favourite (not), Japanese stimulus not expected to move the needle. Huh? Japanese stimulus has and hasn’t worked, depending what data you cherry pick. Anyhows, the Japanese are rich and highly evolved as a society.

Back on the local front Tuesday, it was, as we said up above, a pretty broad based all fall down session, resources being the only stocks that stuck out with any conviction. And in amongst those, the heavyweight gold stocks led the charge, up strongly. MTN took more pain, the Naira devaluation, whilst welcome in the long term and meeting the “parallel” (i.e. real) market rates is the right thing, the pain in the very short term is not great. The stock continues to take pain on weakness in the local Nigerian currency, and I am afraid that there is very little that one can do, except see where it settles.


Company corner

Cosmetics and the application thereof is thousands of years old. The ancient Greeks, the ancient Egyptians all applied make-up in different forms, as did the Chinese and the Japanese. It is not a new phenomenon. In the recent era, in Europe and the Americas, the rise of make-up can be directly linked to a rise in urbanisation, more urban related activities (eating out, visiting hotels, seeing plays and the opera and the like) gave rise to the fashion industry being more accessible and more sought after for “ordinary people”.

People were being seen outside of the fields and forests, and normal upper-middle income people would want to look good. For one another of course, this applies more to modern day society than at any given time. In an era of Instagram and selfies, the need to look better has never been more important. There are multiple reasons that woman wear makeup, including the need to look older or younger, to enhance beauty, to get a clearer complexion, to look attractive, to raise confidence. There can be a multitude of reasons. L’Oreal is not just a cosmetics business, they are huge in the hair business.

L’Oreal is a market leader, being the biggest consumer business in their space globally, bigger than Proctor & Gamble by around one-fifth (that division) and over three time the sales of Estee Lauder. Their footprint is pretty breathtaking, nearly 83 thousand employees across 140 countries, selling 32 brands across the portfolio. They hold over 35 thousand patents, having registered nearly 500 alone last year, and comfortably over 10 thousand over the last decade and a bit. The company runs 44 factories and 153 distribution centres worldwide. It is a big business. The company reported their first half numbers for the current financial year last week, not much fanfare and rah-rah involved, the company is after all French.

A couple of tables, remembering that all of these numbers are in Euros of course. This is for both the second quarter and the first half simultaneously. Herewith the sales and profits:

You can see how incredibly profitable the business is, what is always astounding is that their advertising budget is an amazing 30 percent of total revenues, 29.4 percent to be exact. Byron once described this as spending more on telling you how awesome the product is than on making the product awesome. R&D actually represents 3.2 percent of all sales. I suppose with a lot of competition, you have to make sure that you are under the nose of your customer all of the time. And then per product line, which is the most profitable? You can see by a country mile that the consumer products makes up the bulk of that.

The Body Shop stunk up the joint, as you can see, it swung to a loss there. It is small though. The luxury market from coats to watches, handbags to jewellery and everything in-between (which includes this business) has been under pressure globally. We really like the sector, we think that the stock price is well placed to take advantage of an ever increasing and swelling middle class globally. The stock price in Dollars has underperformed, we expect that it is just a matter of time before the market re-rates the stock. Stay the course, this is the cream of the crop.


Linkfest, lap it up

This world record attempt has been doing the rounds on social media. Im not sure the reward matches the risk level of jumping out an aeroplane, with no parachute and aiming at a net (very small when you are high in the sky) – Skydiver Free Falls 25,000 Feet With No Parachute

Having loyalty cards with preloaded money, is a great way to raise interest free cash. In Starbuck’s case the amount they have to work with is rather large (more than the market cap of Famous Brands) – Starbucks Holds More Cash Than Many Banks

Infographic: Starbucks Holds More Cash Than Many Banks | Statista

You will find more statistics at Statista

Imagine if slowing the ageing process or speeding up recovery after an operation meant ‘all’ you had to do was get a blood transfusion from someone younger than 25 – For $8,000, a clinical trial will inject you with young blood to see if it makes you younger.

As millennials become the biggest generation globally, knowing their characteristics is important for making investment decisions – 29 Facts That Might Make You See Millennials Differently


Home again, home again, jiggety-jog. Stocks across Asia are higher. Our stock in the office is higher, we all enjoyed our voting experiences yesterday. Some more results overnight, we will get to them all!

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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