Sunday, September 17, 2017

The Patent-Box.

The Patent-Box is a facilitated taxation of income arising from a certain types of intangibles assets like know-how, trademarks and patents. It is a way to encourage the investment of the firms in research and development. The beneficiaries are all eligible corporate income taxpayers, regardless of their legal form (corporate enterprises, partnerships, cooperatives, mutual companies, public and private), of their size and accounting regime adopted.

The main requirement is the following : the abovementioned firms need to carry out research and development activities with the aim to product certain intangibles assets (internally or not). The excluded companies are those in liquidation and/or with extraordinary administration, as well as the firms that determine the income with fixed criteria and self-employed people. 

The facilitated taxation regards the use (direct or indirect) of :
  • copyright-protected software ;
  • trademarks (registered or under registration) ;
  • designs and models (legally protected) ;
  • processes, formulas and information (industrial, commercial and scientific field, legally protected).
The facilitation consists in deduction of income related to previous use which does not contribute to the generation of total income by 50% of the relevant ammount (30% for the fiscal year 2015, 40% for the fiscal year 2016 and 50% for the fiscal year 2017). In order to quantify the benefit, it needs to calculate the amount of income arising from the use of intangibles assets. 
  1. With indirect use, the income is equal to the fees resulting from the use of the asset, net of tax-related costs.
  2. With direct use, it is equal to the economic contribution of the asset vs the total income of the company ("Ruling Procedure").
Then, we must also consider the allowable income share, on the basis of the ratio between the cost of reasearch and development activities, relevant of tax purposes (including the maintenance, growth and development of the intangibles assets) and the total costs, relvant of tax purposes, incurred to product such goods. Finally, we can apply the deduction percentages (30%, 40% and 50%). 

The facilitated tax option has a duration of five tax periods. It is irrevocable and renewable.
The option must be transmitted telematicly. The option covers the tax period during which is communicated and the next four. The option is significant in addition for the IRES and IRPEF income and also for the value of IRAP production. 

Lately, in the luxury sector we have had two examples : Tod's and Brunello Cucinelli. 
The benefit is estimated at the time of the earnings release. The regime covers five years (2015-2019).

Patent-Box : Tod's S.p.A.

The same for Brunello Cucinelli : see the following image. 

Patent-Box : Brunello Cucinelli S.p.A.

To read the full press-releases, please consult the following links : 

As we read in the previous documents, we can notice that the impact of the benefit is small. 
Simply, it is a surplus-value linked to fiscal and legal matters. Clearly and primarily, the intention of the legislator is to promote the use of the intangibles assets, without paying much attention to the effective higher income (generable). 

Thursday, September 14, 2017

Enel S.p.A. : chart framework.

Here we have the chart of Enel S.p.A. : the stock broke the resistance at about EUR 4.50 (the previous maximums, yellow circles) and then, it broke the previous top at about EUR 4.90 (red circles). From a lateral trend (between 3.50 and 4.50), the stock began a bullish trend (still in progress) since the beginning of the year 2017. The bullish trend is highlighted with a blue parallel channel. We have another confirmation (also in the medium/long period) with the dashed line that is still valid. We can say that there is a clear bullish trend and unless conditions change, it will be confirmed : only with a break of the previous top (red circle) but mainly with a break of  the tops at 4.50, there may be a change in the trend and consequently a test of the lateral trend area (abovementioned). The change of the trend must be accompanied with high volumes, other patterns and other confirmations, in the following trading sessions, of course (at present, it is a bullish trend). 

Chart from

The slope of the EMA (60 and 20) shows the uptrend, too. The RSI is not overbought but the values are in the neighborhood of the upper line. The bullish trend is strong but there are not nearly retracements. The uptrend needs a break (at least, in the short term).

Chart from

The FIBO retracements indentify the previous price levels (see the first chart and see the blue circles) of the past resistances. It is very important to focus on those to set a short or long trading strategy, even if the trend is bullish, clearly. 

Chart from

Analyzing the short-term, we can see that the BB show an high volatility, just after absorbed, with a candlesticks pattern, a Dark Cloud Cover. After a bullish trend, it is a bearish reversal signal. At now, it represents only a "volatility exhaust" and a price correction in the short-term.
See the chart and the following pattern recognition.

Chart from

A Dark Cloud Cover consists of two candles (white and black) : the black one has the opening price higher than the top of the white one and the closing price lower than the median value of the real body of the white one. As usual, we need a confirmation (a bearish candle after the black candle and a continuation in the trend change). The top of the black candle represents a resistance. 

Sunday, September 3, 2017

Brunello Cucinelli S.p.A. : comments with regard to the 1rst half 2017 results.

We have a double-digit growth in both revenues and in profit. The perfomance is better in the international markets than in domestic market. However, overall, the results are good. 
Net sales benefit from the forex : at current exchange rates, net sales rose by 10.7% ; at costant exchange rates, net sales rose by 9.7%. 
The brand has a great perception among the customers and among the different distribution channels ("digital" and "physical"; retail, wholesale multibrand and wholesale monobrand).
About the net financial position, we have a decrease due to the good cash generation from operating activities (+26,519 vs +4,339) and due to the positive changes of the net working capital (for further info consult the consolidated statements of cash flows).
It was used cash flow in investing activities (-22,749 vs -16,849) to support the brand, to safeguard its prestige and its exclusivity.

The following table shows the income statement data : there is an improvement of the items (double-digit growth, like I said previously) and, at the same time, an amelioration in the margins. 

The management explains that this good policy will be proposed also in the future, thanks to the investment plan 2017-2019. To read the full press release, please see the link (Brunello Cucinelli investor relations) :

At the release of the data, the market reaction was good : the volumes increased and there was a white candle. However, just after, the candles presented some shadows (Doji Star Bearish pattern). 
It means a weakness in the bullish wave, a resistance in the maximums and a pressure from the sellers. The BB shows an high volatility that may be absorbed, subsequently. See the chart.

Chart from

The stock is not at all cheap. 
If we project the growth of the first half of the year, applied to the full year 2016, we get :

Full Year 2017 Revenues  = 457,029 * (1 + 10.97%) = 507,165.1
Full Year 2017 Net Income = 37,119 * (1 + 23.88%) = 45,983.02

If we project the margin of the first half of the year, we get :

Full Year 2017 Net Income = 507,165.1 * 8.12% = 41,181.8

At the current prices, we have a market cap of  1,731 EUR M. It means about 40X the expected earnings and about 3.40X the expected revenues.
There is a premium compared to the peers (considered also the smaller size of the firm). 
This premium can be explained by : 
  • The high brand perception ;
  • The rarity and the craftsmanship of the product ;
  • The quality of the management and of the business ;
  • M&A opportunity, having regard to the small size ;
  • The higher defensiveness of the stock (low beta 0.29, Brunello Cucinelli overview from, vs the industry average). On the long run, it is a safety for the price stability.