That’s where the real effort has been going lately 
Start only reviewing stocks I can think of a pun or witty title for.
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EssilorLuxottica SA
One of my favourite companies in the world. Not on Freetrade yet.
Business model is lovely. Exclusivity deals all over.
Feel free to check it out
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Really interesting, thanks for the tip!
Looks like a few analysts are still pushing for a buy, a few holds, and one sell. Decent analyst coverage at least!
They also have a really strong ESG rank which is interesting.
Never looked at them before, looks like a pretty stable firm. They are on the Paris exchange though, don’t you have to pay a foreigner tax for trading French shares? I think that was an issue I had investing in Ubisoft a few years back.
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Great summary again. Is this on Free Trade yet?
Couldn’t find it myself
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Amazing! That is a serious collection of brands. I did some quick digging and found a few reports on how they are effectively controlling the glasses market in America. Talk about dominance!
I managed to find the “french foreigner tax”
International dealing | AJ Bell, under the What are the costs heading and image, the final paragraph has a link.
In addition to these charges there are additional government and local stock exchange charges for certain international markets. These charges will be added to your contract note. To view these charges click here
That has the extra fee there. Turns out a few markets do something similar that I didn’t know about!
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I gave it a quick look and it looks like a Freetrade restriction for now.
https://community.freetrade.io/t/request-international-airlines-group-lon-iag/3299
In short, investing in a UK airline you need to declare your nationality for defence reasons, and that hasn’t been setup yet. Hopefully something they do in the future! This was an extra check I didn’t know happened with some stocks!
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I was aware of it for things like BAE but didn’t know it reached as far as UK airlines as well. The more you know hey
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Make that the world! From what i understand any brand/ celebrity that needs glasses made relies on them to do it. Look at the list of brands on there, any name in glasses and shades is there, including all the high-end names. It’s a monopoly!
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Indeed.
Before the merger with Essilor, Luxottica revitalized Ray-Ban at a time the company was in financial trouble.
Ray-Ban became increasingly popular. Everybody wanted to buy a pair. Management decided to drop prices in order to get a wider customer base, allowing lower income people to be able have a taste. Sales dropped with the lower prices, for the customer now perceives the brand as of lower quality and without the sense of exclusivity. On its knees, they are acquired by Luxottica. Luxottica raises the prices. Sales increase…
Oakley tries to fight Luxottica. Luxottica wins and acquires Oakley.
Essilor merger with Luxottica. Prescription glasses and contact lenses merger with designer shades. Loads of real estate. Loads of R&D investment.
Not only they have a moat around their castle, they have generals, an army and the equipment to overcome challengers. As long as they have consumer psychology on their side, they are winners in their game. Their realm. There are loads of people who like to feel they can afford to pay 150, 200, 300 quid for a pair of shades with a famous name on it so they can show it to everyone else.
Manufacturing costs for the shades: 3 to 6 quid. Per unit.
Love the business.
Love Hawkers shades. A privately owned competitor with a different business model. All they have is a warehouse and a website. Manufacturing costs for the shades: 3 to 6 quid per unit. Retail price: 20 to 50 quid. Much smaller cost structure. A lot less employees and partners needed.
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Unite Students is an interesting recovery play. But the whole student sector is a big question - Unite is not too far off its highs either, so seems expensive with the uncertainty.
Would you be able to show a graph where it isn’t far off it’s high? As I don’t think it is near it’s high yet
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One to look at then! 
Just need to figure out where I can dig up all the data! That’s the downside with finance being so US focused, interesting companies outside the core of wall st are much harder to research. I guess how hostile LSE can be with it’s data is to blame for a lot of this (and other exchanges too!)
I agree with @don_quixote it’s not close to their highs, but I do see your point on the student sector. It sounded like Unite had a few agreements in place where uni’s would still pay some of the costs, and they are hoping to ride the wave of government support to universities, how useful that will be to them we don’t know though.
One month Google Finance
One year Google Finance
HP (HPQ) - A Future Money Printer?
HP likes to describe itself as the original Silicon Valley Startup. Founded in 1939 but split in 2015, we are looking at the printing and personal systems side of the two HP related companies.
What Are HP Up To?
It might seem odd to ask what such an old and well-known brand is up to, but since the company split they have been given the freedom to grow their hardware offering.
Source: HP Q2 2020 Presentation
The easiest way to breakdown any company is to use their language, it makes it simpler when it comes to understanding how they make their money and where the issue could be.
At the highest level, HP is broken into two halves, the personal computing and devices side of things and printing.
Unsurprisingly the money with the printing business is largely driven by supplies and ink. Those £9 ink refills plus shipping is making someone rich after all. Within the printing side of the business, HP has the new 3D printers. 3D printing isn’t just the hardware either, it includes supplies and support.
The personal computing space is dominated by their notebook/laptop ranges, which is the likely candidate for why you see the HP brand each day. Alongside this is the peripherals like monitors, keyboards, and the other bits you can spill your coffee over in the morning, this is all part of the “personal systems” side of the business.
How Has COVID-19 Impacted HP?
As expected supply chain issues have been the biggest pain point for HP, given the Eastern world was impacted by COVID-19 first, they felt the pain ahead of other industries.
However, the shift to work from home has spiked the need for printers, supplies, and new laptops. As such HP has been trying to load up their inventory (they never want it to be as high as it is right now) to try and counteract any more supply issues during the pandemic.
Source: HP Q2 2020 Earning Summary
The good news about seeing the Q2 summary is this appears to be the worst of the impact. While the situation is being monitored, HP is well stocked to limit any more disruptions to their supply lines, which also means they can reduce any ordering in Q3 and focus on selling existing inventory and R&D.
While Q2 has been a slump, and Q1 saw some impact, the real issues were linked to supply and demand. Rather than a fundamental issue with the business.
How Do HP’s Fundamentals Look?
I promised I wanted to look at an undervalued company, it should be no surprise that HP is currently cheap relative to the rest of the market, while still be a strong financial powerhouse.
Source: Genuine Impact
Let’s breakdown the key figures and see what story is inside, I’ll be focused on the quarterly figures and I’ll point it out if I change to annual. With $12.4bn in revenue and a Price to Earnings ratio of 8.21x, HP is an oddity in its size and relatively cheap price.
Breaking down that revenue we can see where HP has some room for improvement. The disappointing aspect of HP’s operations is the cost of revenue, in my mind, this is what is holding them back from becoming one of the great companies to invest in. A gross margin of 19.01% is horrifically low and makes it amazing they can even generate a profit. The profit margin is also a disappointing figure coming in at only 5.36%.
With such a large range of products offered we can find out the top-level margins but this is a very competitive space. Printing is the real winner here, this is driven by reoccurring purchases rather than meaningful innovation or IP
Source: HP Q2 2020 Presentation
In terms of Earning Per Share (EPS), we have a respectable 2.06x. For a company of HP’s size this is good to see but looking into their history they have been involved in heavy share buybacks, something I will touch on later.
The other value metrics, we have the cash to book ratio of 3.20x, but a book to share -0.84x and price to book of -20.11x. This raises some questions around their debt and liabilities. The debt to equity ratio is currently sitting at -29.05x. HP has a very interesting approach to cash and debt.
Source: HP Q2 2020 Presentation
They have always run a deficit of cash compared to their current debts. Only a few weeks ago HP confirmed another debt raise to pay off the due senior notes, while the new notes are being locked in at a lower percentage around 2-3%, they don’t appear to be paying off any debt rather they are always extending their credit.
The debt to assets percentage is always over 100%. For the past four quarters, it has bounced around 102% to 105%.
Having looked at the short term numbers, due this year, we have $19.6m available to go out but $25.2m is due, and HP is keeping their free cashflow protected. This explains the new notes and financing being issued.
Long term debt is very manageable with HP’s balance sheet, but it’s the short term accounts payable which are eating away at the business (money they owe to their suppliers.)
What About The Future?
The sell-side analysts aren’t singing HP’s praises but they aren’t off-put either.
Source: Genuine Impact
Most of the sell-side analysts are recommending a hold, given the debt juggling HP is currently managing and the current distribution issues, it’s no surprise they have taken a wait a see approach.
Then why do I consider this an investment that will pay off in the future?
Source: Wallmine
HP has been paying out since 1996 with a dividend, recently this dividend has been growing as they seek to transfer more wealth back to the shareholders.
I mention share buybacks, and this ties back to what has HP been doing with their money.
Source: HP Q2 2020 Presentation
The buyback scheme is slowing down but the management team at HP still have an objective to return cash to shareholders. HP has always sat with a comfortable $4-6bn in free cash, rather than buying back shares they want to increase the dividend.
we do plan to be active, returning at least 100% in this fiscal 2020 year. For 2021 and beyond, we remain committed to the 100% of free cash flow unless there’s a better returns-based opportunity
HP’s CFO when asked if they are returning 100% of free cash flow to investors in 2020 and 2021.
While this is under review and HP has withdrawn their forecasts due to COVID-19 they do have a plan in place to increase the long term rewards by being an HP shareholder.
Summary Pros
- Strong financial balance sheet
- Undervalued compared to the market, especially the industry
- Large and stable company, a no thrills long term buy
- Buybacks are slowing down in favour of dividend payments
Summary Cons
- Short term logistic issues and mismatch between debt and income
- Competitive space has squeezed margins, not a lot of wriggle room in the profit margin
- Not an innovator and dependant on slower-moving hardware sales
- Dependant on 3rd party suppliers for their products with no plan to centralise more of the business
- Focus on shareholder benefits could be at the expense of the long term safety for the business
My Thoughts?
HP isn’t typically the type of business I would invest in. It’s a large slow-moving fairly defensive business. They are running at a discount and we know Q3 is going to be better but still slow, this gives us a cheaper entry point.
Long term the increased dividend, which is already at 4.10%, will make this even more attractive. While the share price growth and revenue forecasts are average, I like the look of this business as a dividend machine more than anything.
I think HP is a nice source of future dividend in a portfolio, cheaper than expected with a predictable recovery incoming, it’s not going to turn into a ten times return, but will slowly payout over time.
What do you think? Is HP something you have looked at or interested in? I’m always keen to hear your thoughts!
Thanks for reading and stay safe.
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Thanks Jack for analysing eBay! Appreciate your views 
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Thanks for the lovely comment!
I’ve been spending some more time outside enjoying the sunshine but I’ll have a look at another write up soon. Maybe take my laptop outside, anything to try and escape the heat!
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Reach (RCH) - UK print and digital news
I’ve been looking for some cheap investments while COVID-19 has the market in a slump. Ideally trying to find stocks which hadn’t returned to their original potential, and appear to be cheaply valued. Potentially Reach (RCH) on the London Stock Exchange meets that criteria.
Who Are Reach?
If you haven’t heard of the name before, don’t worry. Reach is a collection of UK print and digital newspapers and magazines, some focusing on national news, others on gossip and celebrates, and a few on hyper-localised news. They are the largest commercial national and regional news publisher in the UK, with over 150 national and regional multichannel brands including the Mirror, Express, Star, OK!, New!, Daily Record, Manchester Evening News, Liverpool Echo, WalesOnline, MyLondon and BelfastLive.
Source: Reach 2019 Annual Report
You might think a print-based company would be the last investment you would want to make when you think about the world in five or ten years. Keep in mind, in December 2019, Reach sold 40m newspapers and reached a digital audience of over 47m people in the UK, their digital offerings are growing.
With a new CEO who joined back in August 2019, a period of operational focus after buying the Daily Express and Daily Star, and now with COVID-19 there are a lot of headwinds that Reach are battling.
As this is a UK listed company, it’s harder for us to get up to date information, as the fundamentals update bi-annually. Thankfully we have seen a trading update which we can talk about later on.
How Does Reach Make Money?
Print has been in decline for several years now, with that in mind it’s important to make sure Reach is actively looking to diversify their income.
Source: Reach 2019 Presentation
As we can see, they are expanding the digital revenue but it is massively behind print, and print is declining faster than digital can replace it.
Source: Reach 2019 Presentation
Looking at the breakdown for print it’s the advertising which is in decline above everything else. As advertisers move to more holistic, trackable, and cheaper methods it’s hitting Reach’s top-line revenue.
That isn’t to say Reach doesn’t love advertisers. The digital offering is the new powerhouse in terms of what can be done for advertisers with customers data.
Source: Reach 2019 Presentation
The digital aspects of Reach have been tailored to build up a complete picture of you across all their brands. The more data they collect, the higher fee they can charge for more targetted advertising. Reach has already made this a priority within their traditional print outlets to ensure they have a strong digital offering. The vast expanse of outlets and the hyper-local solutions drastically increases the odds of Reach being able to offer you up to advertisers.
Is Reach Fundamentally Strong?
Reach has brought up other brands, currently going through an integration, and digitally upscaling their efforts, which all sounds very expensive.
Source: Genuine Impact
I was taken back and impressed to find some pretty sable fundamentals for Reach. Even compared to investments in the US, Reach was showing up as a cheap buy and had a solid balance sheet behind it.
Naturally, we want to dig into the raw data to make sure we understand the business a bit more.
Carrying on with the finances, let’s talk about the revenue again. Bringing in £702.5m worth of revenue is a pretty decent figure, as we know it’s what happens next which matters.
The gross margin is not as high as I normally like, 47.23% means you are losing half your revenue just to make any money at all. The print business is an expensive one to be in, and this is something Reach is looking at reducing. With the two new brands on board, there are more savings to be made there operationally speaking.
Where I start getting impressed is the profit margin of 13.42%. This dipped in 2018, due to buying the other brands.
We also see a return on assets of 6.60%, and a solid return on equity of 15.81%. One thing Reach gets right is putting money to good use.
Seeing how Reach just brought some new brands I wanted to check out the debt to see if there were any clear red flags.
Source: Wallmine
Debt to assets of 52% is higher than it needs to be but not uncomfortably so. We do know they have drawn down an additional £25m in debt to protect their cash during COVID-19, considering the current debt is £693.2m this isn’t a dramatic change. They also have £35m left on their credit facility if they need it.
Speaking of debt, I wanted to have a closer look at the balance sheet. In terms of cash, we have £20m plus £102.2m in net receivables. Then things get weird. £224.9m in equipment (told you printing was expensive) and £810m of intangible assets. These very high intangible assets could well be the value of the “brands” rather than anything you should be taking debt against. When you consider this, the debt to assets percentage isn’t as attractive. Removing £810m from the assets brings it down to £518.6m, and suddenly the debt looks a bit more serious.
While COVID-19 has stalled many dividend payouts, including for Reach, it’s worth mentioning as when this dividend returns it’s one to hold onto. An 8.34% dividend yield which has grown for the last four years, it’s suspended right now but will be returning. The payout ratio is only 20.79% meaning as the price increases the yield will drop again. Though keeping 80% of the profits does allow Reach to keep building a war chest and hopefully chip away at that debt.
Is This A Value Purchase?
The price has seen a COVID-19 related drop, and we have had some tame news about revenues being down but digital being up. We already know that a hit to print is a meaningful cut against the top-line revenue.
Source: Google Finance
The price still hasn’t recovered, and until the UK is back to work it’s unlikely to. Reach won’t be able to replace the missing revenue, but they can speed up their digitalisation.
It’s worth noting the high intangible assets will inflate any figures for value hunters, and Reach has used this to help them raise more debt. Assuming we think these assets do hold their value, what does that mean for Reach’s numbers?
A price to earnings of 2.55x is extremely attractive compared to the rest of the UK market, this is being boosted by a strong EPS of 31.50x. Looking elsewhere the numbers are much lower. Enterprise value to sales of 0.32x, and a price to book of 0.39x.
This gives us some nice headway in terms of the assets they hold, but it comes down to your belief in their balance sheet and how successfully will they bounce back.
What About The Future?
Reach-ing into the future the sell-side analysts are optimistic but not sold. In terms of the share price growth, the expectation is recovery is incoming. For a one year position, this makes Reach very interesting.
Source: Genuine Impact
To turn this growth into hard numbers, we are looking at a target price of £1.25~ versus the current price of £0.80~, a 55%+ increase. However, this is not enough to push all analysts into a buy position.
Source: Genuine Impact
With no clue about when the UK will return to normal, and will the UK buy as many papers again, this is a dark cloud above the share price.
Analysts are moving into a more defensive position to wait and see, for either the momentum to pick back up again or until Reach announces more promising news in future trading updates.
Summary Pros
- A massive brand which is focused on improving its operational ability
- Big focus on going digital and expanding their offering
- The promise of higher dividends in the future
- Undervalued still because of COVID-19 and the print business
Summary Cons
- No clue about the success of print post COVID-19
- The assets and debt against them is questionable
- After spending so much money having COVID-19 means another profit slowdown
- Will advertisers come back and what does advertising look like right now
My Thoughts?
It’s an old business which is trying to go digital but it still makes so much money through print. Will COVID-19 make them change their ways and drive forward with more digital innovation?
Long term the debt can get out of control, and being the biggest doesn’t mean being the best. They have a strong digital appeal but they aren’t making the most of it.
As a long term investment, it comes down to what they can do digitally and turning digital into a meaningful revenue stream.
Short term if you are hopefully about the UK returning to “normal” then we can expect a spike with more people returning to work. If working from home becomes the new normal, there will be long term damage to Reach.
What do you think? Is this a hopeful buy based on the UK returning to work, or do they have more to offer on the digital side? Or maybe they are an old company which has seen their day?
Let me know what you think, I always welcome any feedback!
Thanks for reading and stay safe.
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Great analysis, personally don’t think I’d go for it until there was a bigger switch from them to digital.
What are your thoughts on TRIG
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