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. 

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