Return of DOCS!
Doc Martens fights back
Return of the DOCS!
Sometimes people go “gosh Eden you do harp on about alcohol, luxury and media stocks a lot”. Well, duh! I like value, ladies and gentlemen. And value is always best when we’re sitting at the point of “max pessimism” — the alcohol industry is priced, currently, as if it’s in a terminal state, luxury companies like Kering trade regularly at 1/2 of their historic PE, and media companies like Paramount, Lionsgate, etc trade like what they are — legacy media companies.
But Doc Martens — hoo boy look at this chart. I’ve written before to you about DOCS and how it was, probably, my first big stuff up as a young analyst — bought too high, too soon; traumatised myself for life (I can cry into my pillow later). Since then DOCS has traded in that 55-60p zone — down about 79% since listing. Crikey. Everything has its price and DOCS at 55p or so felt like a “no brainer” deal — if they keep selling Docs at a regular pace then you’re buying a set of future cash flows with good predictability and some kind of ‘moat’. You’ve got to discount that moat appropriately — footware is a notoriously hard industry (just look at Buffett’s misadventures in footwear..), and you’ve also got to account for the way DOCS’ ex-owners, PE giant Permira, reamed out the company until flicking it on and listing it. You also need to account for the ex-CEO, Kenny Wilson, who was all-in-all a disappointment.
Some catalysts for why the stock went up:
Kenny Wilson is gone
Results were not as bad as expected
Max pessimism was baked in, some any slightly good news is upside
A reader did email me and note that sales of Doc Martens classic shoes (i.e. yellow stitched boots) is on the wane — I’m not sure if this is a perfect indicator, though. DOCS overbuilt inventory and relied too much on sales of the shoes in the last couple of years. A better approach — the one I hope new mgmt takes — is to sell less shoes for more, and concentrate the range and where the range is stocked (i.e. the Birkenstock playbook).
More boomer stocks — Paramount and WBD
It’s been a minute since we talked about Shari and Paramount, the once-mighty media company her father created that is now a relative minnow, dwarfed by Netflix, Disney and almost everyone else.
David Ellison, Larry’s son is the buyer (ok ok — it’s a merger with Skydance, David’s media company — but what’s semantics between friends?)
The deal is likely to go ahead — Larry’s been spending a lot of time at Mar a Largo, and Shari wants out, and a Trump presidency is likely friendly to boomer M&A. There’s a little bit of arb to be made but nothing spectacular — class B shareholders get $15 for half their shares and have to hold onto the other half — but at least you know you have The Bank of Larry bankrolling his son’s project — better to own a big iceberg than a small one.
Also think of WarnerBrothersDiscovery, the unholy beast currently run by our friend Zaz, who has about all the charm if a middle-class orthodontist called “Dave”. WBD was trading in the single digits not too long ago — now it’s around $10.00. Zaz might’ve lost NBA rights, but he managed to re-negotiate carriage deals with Sky and Comcast, meaning all that content will continue to exist in cable-land for some time. Mind you, he didn’t get more money for it — but in this economy it’s almost a win to get the same amount as you did before. I don’t think Zaz has much time left on the clock — he came in to do a job as a kind of hatchet man, he did the deed (and everyone in Hollywood hates him for it), and now the rubble is kind of clear for a new broom who can foster talent.
Breaking — as I was writing — activist fund Anson buys stake in another legacy company, Lionsgate
If Paramount is small potatoes then Lionsgate is tiny kumura — market cap of $2bn or so. If Anson pushes for a sale — which they may do — it only proves how hungry the industry is for consolidation. Companies like WBD/Paramount/Lionsgate have great IP but are tiny — the message is consolidate or die.
And speaking of boomers…
Logan r — I mean Rupert Murdoch — lost his battle to change the family trust to give favourite son Kendall — sorry, Lachlan. His other grown children (James and Elizabeth) lean more left than Lachlan. The cash cow for Fox is, unsurprisingly, Fox News (you can buy the whole thing for 10x P/E — not bad, laddie). Remember the bulk of Fox’s entertainment assets were sold to Disney a few years back in what now looks like a masterstroke — daddy Murdoch sold at the peak — poor Shari did not. But Fox is a funny asset — Fox News makes a lot of money, but it’s a toxic football to hold onto — not everybody wants to hold onto that football, or own it.
Lachlan is the only Murdoch kid who likes Fox News, so it’s understandable why Rupert tried to keep his no.1 boy there in control — there’s only so much vampire blood the elder Murdoch can suck before he dies, and the question of what happens to Fox, and Fox News, as an entity is a giant question mark. Like I said — not everyone wants to own the toxic football.
You’re as smooth as Tennessee Whisky
Brown-Forman — maker of that smooth Tennessee whisky — largely flat results. Decline in tequila, whisky and others flat. Not particularly concerned — still trades around 20x, roughly 35% discount to historic P/E.
Read-through is a bit obvious — consumer dollar is stretched and people are buying less. I don’t think this should come to anyone as a surprise. Flat results in a bad environment is the best a boy can ask for.
NZ
Not much as everyone on holiday. NZSA voted against a couple of long-serving Hallenstein’s Glassons directors because they had served too long. Who cares? HLG has been run very well and I (a bear on the stock) have been proved wrong by how well they’ve done. Credit where credit’s due.
Nice little update from AOF — revenue expected to be on the upper end of guidance, $79mn, guidance for FY25 $85-95mn. Well done on this — SaaS segment growing well.
Fashion Corner
Been waiting for a time to buy Puig — the teeny-tiniest fashion conglomerate of them all. 19 EUR — fallen a little since having to recall their Charlotte Tilbury setting spray (one of the brand’s most popular products. Still feels a tad expensive at +25x earnings, but it’s something I’d love to own at the right price… the controlling family clearly knows how to address an audience with the right product — and you know me — I like to be aligned with controlling families (incentive > outcome).
Lots of hype for Prada (the finTwit crowd have discovered Miu Miu, it seems). Like Prada, don’t like the valuation — 26x a bit much…more than LVMH!— the finTwit crowd are a good contra — once they get into something, then you know everything is baked in (especially with fashion, no disrespect — but most analysts dress badly and don’t understand the significance of say, the 1993 Margiela collection1.) Miu Miu has the zeitgeist of now, but you need to understand the zeitgeist of tomorrow to make money (i.e. Druckenmiller’s whole thing — forecast from two years out, not today). I mean — sequin underwear-as-shorts, 90s-esque turtlenecks, slightly clunky jewellery — it gives good zeitgeist.
Of course, Miu Miu had a moment like this earlier, where it did cutesy oh-shucks cat collars that were removable (about 2010 I think)
Point is, fashion is cyclical and Miu Miu’s extraordinary growth is no guarantee of the future (analysts often fail to see this…). That isn’t to say Kering, LVMH or Puig will be the companies to capture the zeitgeist in two years — though they very may well be. It’s more to say that I’d rather pay a fair multiple for a company with a lot of bets happening at once (Kering has Gucci, Bottega, Balenciaga, McQueen…; LVMH has too many to count).
There’s also a few structural things I’m not a fan of with Prada: a lot of reliance on Raf Simons and Miuccia Prada, Miuccia’s husband Bertelli still exercising control (he’s famously volatile), and a lack of other brands — it’s basically Prada, Miu Miu and Church’s. If you’re hunting for single-vision brands, then you need to consider that Hermes’ net profit margin is around 31% and Prada’s is around 15%. Why own second best when you can own the best?
I do, and that’s why you love me