Chris Swasbrook presented his in-depth investment thesis on Adidas (Germany: ADS) at Best Ideas 2015.

Adidas: Adidas is a designer and manufacturer of sportswear and sporting equipment. It owns Adidas (which is the core brand), Reebok, Taylor Made and Rockport. It is the largest sportswear company in Europe and the second largest globally (behind Nike). Adidas has seen its market capitalisation decline by nearly 50% since January 2014, attributable to sluggish sales in Europe, a declining golf market and the sustained negative headlines from Russia and the associated depreciation of the ruble (to which Adidas has a an exposure – ~7% revenue and ~15% EBIT). These factors have bought Adidas’ valuation down to a level which we believe represents a compelling long-term investment opportunity.

Adidas would best maximise value for shareholders by selling off its non-core brands. This may involve the divestment of Reebok, TaylorMade and Rockport to strategic buyers or via spin-off (in the case of Reebok and TaylorMade). This being the case we see upside potential of as much as 85% from current levels. However, management do not always act in ways that optimise shareholder value. Assuming this scenario and the possibility that Adidas management continue along the path they are currently on, we still see long-term value in the company (to € 83.30 per share, representing ~46% upside). Our valuation on this basis assumes a normalisation of multiples towards peer group multiples which reflects the quality of the core brand and management executing as they have in the past with their brand strategies but ceasing value destroying acquisitions.

About the instructor:

Chris is Managing Director and Portfolio Manager of Elevation Capital Management Limited a global investment manager based in Auckland, New Zealand. He was previously a Partner of Goldman Sachs JBWere Pty Limited and Co-Head of Institutional Equities at Goldman Sachs JBWere (NZ) Limited. Chris is a member of the NZX Listing Sub-Committee and a member of the NZ Markets Disciplinary Tribunal. He is also a Director of NZX listed – Mowbray Collectables Limited. Chris graduated from The University of Auckland with a BCom (Economics) in 1995.

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