"The upshot is that Yoox is up another 8 percent today, following a 12 percent gain yesterday. This is pretty small, by way of news for Richemont, they are down around 0.4 percent in Zurich, about the same here. Simple math, if Yoox doubles the number of shares in issue (as per above), Richemont's stake will be worth 1.6 billion Euros. Which is around 4 percent of the current Richemont market cap. Small and on a very demanding multiple. A nice to have."
To market, to market to buy a fat pig. The third quarter is not quite finished, one more day remains. What a ripper yesterday, it certainly made up for some pretty ordinary markets (as far as the bulls are concerned), the local market ended the day a percent and a quarter higher. Pretty much gains across the board, I honestly could not find a single reason for the gains, there were some stories about Chinese government stimulus pending, that sent the Chinese market to 7 year highs. Shanghai, those markets will celebrate one quarter of a century in their current format next year in January. Nobody wanted to talk about that yesterday though, they only wanted to talk about this, from the Rolling Stone: Why Hiring Trevor Noah to Host 'The Daily Show' Is a Great Idea. Good work, and definitely a wow from all of us. Work hard, work smart, get rewarded, I am pretty sure that is how the model works and will continue to work all along.
Last evening in New York markets roared away, blue chips, the Dow Jones added nearly one and a half percent. The broader market S&P 500 added a percent and a quarter, as it stands now at this moment the S&P 500 is up only 1.33 percent for the year. The nerds of NASDAQ are up nearly 4.5 percent year to date, meaning that tech stocks have definitely been the companies that have attracted more attention. Apple of course has been added to the Dow Jones in the interim, 18 March was the first day it traded in the oldest blue chip index. I think that is right, can you think of any others that attract as much attention as the Dow Jones? Even though in size and scale there are markets that are far bigger, "where did the Dow close" becomes a question frequently asked, even by market insiders.
The fall in the oil price might be great for the general consumer, it turns out that it is not great for everyone, check this BusinessInsider piece on the lone star state: Texas hasn't been this bad in 2 years. And then of course, something to keep an eye on, also via the same channel: Here's the 'ugly scenario' that's about to happen if Greece doesn't get a bailout deal. I suspect that Greece will get the money, they will get it late and they will have to make more concessions. And if there is a soft default of any sort, I suspect that it will not be on the IMF repayment. i.e. They might spite Brussels, that is a dangerous thing to do. The Greeks are also trying to get more friendly with the Russians. They share equally long Easter services, Greek and Russian Orthodox church attendees. Stories that evolve all the time.
Company corner snippets
A couple more stories about NET-A-PORTER, this time the Yoox story, the NYT is following that -> Yoox Group in Talks With Luxury Online Seller Net-a-Porter. As you can see, when Richemont purchased the business and valued the whole thing at 520 million Dollars in 2010, the company was not altogether sure where all of this was going.
To try and find revenues for NET-A-PORTER specifically, or profits is too difficult. The business is listed in the "other" segments of Richemont's businesses, listed alongside Shanghai Tang, Mont Blanc, Purdey and Peter Millar. Those businesses collectively make a loss, there is however turnover of nearly 1.5 billion Euros collectively last year (see the annual report). Under "clothing and other" (where Mont Blanc is excluded) at the half year stage this division had sales of 795 million Euros. That is relative to group sale sales in the first half of 5.430 billion Euros. So, we can presume that whilst this is relatively small (14.6 percent of revenues), it is growing quickly.
It is also the most exciting space right now, for investors looking for newer technologies and platforms. It trades on two and a half times sales, if this business is anywhere near that, I would say that either Richemont should, as the Mo Down (a luxury blog I subscribe to) suggests: Net-a-Porter to launch IPO? or fetch a high price.
Of course they, being Richemont, do not need the money. It is just interesting to see that other people are willing to pay more. And more for, let us face it, not the people that manufacture the goods, rather the lower margin platform. I suppose the conundrum for Gary Saage (the co group CFO), who is possibly the next driver of this business (as Bernard Fornas and Richard Lepeu retire) is whether or not it is their core business. It certainly fits and ticks all the boxes, let me leave you with the groups strategic objectives -> Strategy. Until something actually happens, it won't of course. We watch.
And guess what. This newsletter evolves with the market news. I had written all of this before the news arrived this morning at around 7:45 local time. Here is the official announcement from Richemont -> RICHEMONT SIGNS AGREEMENT TO MERGE THE NET-A-PORTER GROUP WITH YOOX GROUP. Under the deal, each side, Richemont and YOOX will own half of the combined entity. Richemont will only have 25 percent of the voting rights however. Here goes: "Richemont will receive, in aggregate, on a fully diluted basis 50 % of the share capital of the combined entity's listed parent company. In order to preserve the independence of YOOX Net-A-Porter Group, Richemont's voting rights will be limited to 25%. Richemont has committed to a lockup period of three years in respect of shares equivalent to 25% of the total share capital of the combined entity."
The upshot is that Yoox is up another 8 percent today, following a 12 percent gain yesterday. This is pretty small, by way of news for Richemont, they are down around 0.4 percent in Zurich, about the same here. Simple math, if Yoox doubles the number of shares in issue (as per above), Richemont's stake will be worth 1.6 billion Euros. Which is around 4 percent of the current Richemont market cap. Small and on a very demanding multiple. A nice to have.
And then another South African born chap who continues to make huge progress in his adopted country, Elon Musk, caused excitement last evening with another simple tweet.
So what could it be? What could Tesla be releasing that is not a car? Some people are suggesting a home battery. A few months ago Elon Musk was quoted as saying that was something that they were working on, if they crack that, making a cheap and elegant battery. In fact, here is the exact quote (funny that one word is indiscernible), from SeekingAlpha, who have the Tesla Motors' (TSLA) CEO Elon Musk on Q4 2014 Results - Earnings Call Transcript. Musk was adding on to a piece about storage capacity:
Yes, but we're going to do -- we're going to unveil the Tesla home battery [indiscernible] consumer battery that will be for use in people's houses or businesses, fairly soon. We have the design done and it should start going into production probably about six months or so. We probably got a date to have sort of product unveiling, it's probably in the next month or two. It's really great. I'm really excited about it.
I guess then it has to be that. And ironically if they are available here, they could actually be better technology than the one that exists right now. In other words, the electricity problems that we are currently experiencing might ironically be solved by a chap that actually used to live around these parts, and was educated at Pretoria Boys High. Nice.
Things we are reading
The trends of US credit markets have a significant impact on the broader economy and to a lesser effect the global economy - It's getting easier for Americans to rack up credit card debt, but harder to get a mortgage. I suspect that with the FED not buying mortgage backed securities, the cost (interest) of buying a house has gone up.
How do you feel about under performing? What is an appropriate benchmark to gauge your performance? - Someone is Always Outperforming Your Portfolio.
Renewable energy is increasingly getting attention as technology improves, costs drop and generating ability rises. It is not difficult to imagine a world only using renewable energy - Costa Rica is now running completely on renewable energy.
Home again, home again, jiggety-jog. Markets are lower, the Rand is weaker today here, on account of Euro weakness really. Guess what this week is sports lovers, it is jobs week. It will however be on a Friday, this Friday is a public holiday, government employees will still be releasing the results. Good for them.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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