Chris Swasbrook presented his in-depth investment thesis on Luxottica (NYSE: LUX) at Best Ideas 2017.
Luxottica is the world’s largest eyewear company and undisputed market leader. The group manufactures and distributes products across more than 150 countries, with 95 million prescription frames and sunglasses produced annually worldwide. As a category, Eyewear is benefiting from strong structural growth drivers and attractive socio-demographic factors while significantly underpenetrated markets provide opportunity for market-leading players. In this regard, Luxottica holds the dominant proprietary and licensed brand portfolio in the market, in addition to owning and operating several leading retail brands which similarly hold principal positions in their respective markets. Guided by founder Leonardo Del Vecchio, Luxottica has vertically integrated its business model with operations spanning all stages of the eyewear industry’s value chain. Through these twin pillars (brand power and business model), Luxottica has created an extremely strong competitive advantage, enabling them to maximize efficiencies and extract value throughout all stages of their business. Furthermore, such qualitative factors are exceedingly hard to replicate and grant a defensible position against potential competitors as it increases barriers to entry. Looking forward, ongoing optimization of the group’s vertical integration strategy and execution of current growth initiatives provide substantial headroom for long-term capital appreciation. Chris acknowledges that softness within the eyewear market may create volatile trading conditions in near term. However, he asserts that the quality of the business has been established such that it can endure short-term uncertainty and still thrive in the long run. In contrast to popular belief, Chris views the active involvement and leadership of Mr. Del Vecchio since 2014 as a positive for the Company and the other 33.5% of shareholders while concerns towards succession planning should be viewed as short-term “noise”. Luxottica trades at ~€50 per share with an EV/EBITDA multiple of 13x which Chris believes to be attractive given the long-term growth outlook for the industry, the potential for further consolidation in the retail and wholesale segments, newly planned expansion into the lens market coupled with the possibility of a merger with global lens giant Essilor.
About the instructor:
Chris Swasbrook 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. Chris is a highly regarded ValueConferences instructor. He presented on Post Holdings at Best Ideas 2014, Adidas at Best Ideas 2015, and Coach at Best Ideas 2016.
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