Sotheby's a great bubble indicator

Low interest rates have stocked demand for real assets such as property, equities and even arts and collectibles. It has also increased talk of bubbles. It's hard to pick the pricking of a bubble but one of the most reliable indicators has been Sotheby's (BID). As many of you know BID is the auctioneer of fine arts and collectibles. They are highly reliant on a booming/speculative economy.

Looking at a chart of BID its share price has picked the top of many bubbles. Ranging from the Japanese boom in 1989, the tech boom in 1999, housing/oil boom in 2007. While it has threatened to make new highs in 2011 and 2014 it hasn't made a substantially new high since 2007. This suggests that talk of a equity bubble might be premature and we should stay long the market.

Source: Bloomberg

Oldest company listed on the New York Stock Exchange
As an investment itself Sotheby's (BID) is starting to look interesting. For such a cyclical company BID has stood the test of time. It was founded in 1744 in London to auction a couple of hundred valuable books. BID is the oldest company listed on the New York Stock Exchange. It has the characteristics of a great business as there are only two auction houses of substance BID and Christie's. Christie's is privately owned by French billionaire Francois Pinault who purchased the company for $1.2 billion in 1998. It is a great long term duopoly market with no other comparable listed peer. While it might seem like a simple matching making business they add value through performing due diligence to authenticate and determine ownership of the property being sold.

Source: Sotheby's investor day

Some change will do you good
This past week BID announced the appointment of Tad Smith ex Madison Square Garden and Starwood as CEO. Tad replaces the old CEO who has served in his role since 2000. He held very little shares in the company while receiving country club perks and a driver. Though Tad has little art experience he has experience in growing brands.

This change should be welcomed by investors as previous management have not fully taken advantage of the buoyant art market. As seen above sales have rebounded to peak levels but EBIT is nowhere near peak.

Help from activists
Shareholder activists are here to help. Third point and Marcato two well regarded activist funds own 19% of BID. They are pushing management to make better use of their capital. They are arguing for share buybacks and release of capital by selling and leasing back their London and New York headquarters. BID has shown great timing by purchasing their New York headquarters on February the 6th 2009 for $370 million subject to a $235 million mortgage. They are currently reviewing options on whether or not to sell. BID has a board to match its illustrious history including such names as the Duke of Devonshire. Thankfully Dan Loeb has appointed himself and two other members to the board. Interestingly Danny Meyer the Shake shack co-founder is also a board member.

No dummy bids here
During the financial crisis in 2008 BID guaranteed minimum prices for nearly half of their artwork. Obviously this didn't do to well as markets for everything around the world crashed. BID has hedged this risk by entering into contracts with dealers and other third parties to pass on this risk. They are entitled to receive a share of the commission if the property sells. One problem for BID is that the art market just like the equity market is cyclical and we are in the sixth year of what is normally a five to seven year cycle.

Bid on a 271 year old company
You can't marry someone hoping that they will change. Company management and performance is similar, underperformers will continue to under deliver and outperformers will continue to surprise on the upside. The change of CEO should bode well for the future of what is essentially a duopoly business and a scarce asset.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a long position in Sotheby's (BID) stock.

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Drinking with Jack

Brown Forman (BFB) is a pure play investment in American whisky. Their main product Jack Daniels needs no introduction. It is one of the best known spirit brands in the world selling 11.5 million cases last year. They have a portfolio of 30 other spirit, wine and cocktail brands such as Finlandia, Southern Comfort and Canadian Mist. Their products resonate with Australians. Australia is the single largest market outside of the US being 12% of overall sales with ready to drink Jack Daniels a big driver.

Whisky keeps on performing
BFB is a consistent long time performer. Not many companies have been around for 35 years let alone growing at 10% over that period. Some of the world's oldest companies are in the alcohol or pub business, no matter what technological change occurs in the future people will still be drinking whisky. As you can see below Whisky is the fastest growing spirits category.

Source: Brown Forman investor day

Source: Brown Forman investor day

Innovation on fire
Modern updates of their core Jack Daniels has introduced more consumers to the brand. Jack Daniels Honey has attracted more females and millennials. Honey is now a top 20 brand with 1 million cases sold above $25 per bottle all within four years. BFB have also released Jack Daniels Tennessee Fire a cinnamon liqueur. It's slogan puts hair on your chest then burns it right off! So far it is tracking ahead of Honey's rollout growing 1.3x Honey's growth rate.

Like most established brands BFB is an emerging market story. Their Jack Daniels brand has a 28 year compound annual growth rate of 20% overseas compared to 4% in developed markets. Another way to look at is Jack Daniels has 13.7% share of value in the US versus 6% in the rest of the world.

A friend of Jack
The Jack Daniel's brand is a rare asset, most growing spirit companies are not listed. Their competitor Jim Beam was taken over by the Japanese company Suntory who paid $16 billion including debt approximately 20 times trailing EBITDA BFB trades at 18x.

Source: Brown Forman investor day

You can see above that everyone is a friend of Jacks. Their combination of a great heritage brand like Jack Daniels and its innovation around honey and cinnamon will likely mean another great 35 years for the brand.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a long position in Brown Forman (BF/B) stock.

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Starbucks caffeinating you, your portfolio and your property

Starbucks (SBUX) is world famous for selling coffee they are also famous for their store locations. SBUX spends very little on marketing preferring to spend on an ever expanding number of stores with some of the best prime locations. If you're everywhere you don't need to advertise!

Location Starbucks
This real estate expertise was backed up by Zillow the American real estate research site. They conducted research on key factors that would indicate an increase in property prices. Among the most consistent indicators was proximity to a SBUX store. They found that homes located within a quarter mile of a SBUX's store have gone up by 96% compared to 65% for all US homes. Dunkin donuts was up only 80%. As the distance to store increased the property increase became smaller.

Balanced growth not frothy
Can it still grow stores? Most of SBUX growth will come from overseas in particular Asia where they can grow their 1,500 stores in China to 5,000. Otherwise SBUX is maximising the locations it already has. It has multiple revenue opportunities such as increasing food contribution which is 19% of transactions, evening offers like wine and cheese and the big one this year is digital ordering.

Source: Starbucks William Blair Conference

Espresso express 
SBUX is trialing express order and pay in their Portland stores. The great thing about express ordering is that customers will have to sign up as a rewards member. This should help retain the customer making them even more loyal to SBUX which they can leverage for one to one marketing. So far results are above expectations. They are seeing a lot of curiosity from other customers when others are ordering direct. SBUX also plans to trial order and delivery from mid 2015. Hopefully this can extend the impact of their location premium!

SBUX's is dominant in the US and is replicating this success in Asia. Shanghai has the most SBUX stores 320 of any city in the world. SBUX is trading on a high multiple but they aren't many companies out there that sell an addictive product with long term profit growth targets of 15-20% that can also increase your house price. The next time you're at SBUX make sure you budget some time to look at local property.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Starbucks (SBUX) stock.

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Appdate with Comscore

Comscore (SCOR) is the leader in measuring where we go on the internet. They have great insights on how we spend our time. Their most recent app update shows that Facebook and Google owned apps continue to dominate with 8 out of the top 10 apps.

Source: Comscore insights

Apple now has over 1.4 million apps. The bad news is that it's very hard to get your app to stand out as usage is very concentrated (see below). 40% of the time spent on your phone is social networking and games.

Comscore's own update
Getting an app out there is competitive and so is the general battle for eyeballs. Time spent on devices is moving to mobile and more television viewing is shifting online. We think a business that measures these changes is a better way to participate in this growth. SCOR has the opportunity to leverage its online measurement to measure TV viewing across device and as it moves online. The increasing adoption of internet TV and watching on mobile devices means that traditional TV measurement no longer makes sense.

Measurement less exciting but with more potential
Media companies are voicing concern that current measurement systems (mainly Nielsen) are not making enough changes to measurement when viewing habits have changed. Given the measurement limitations they are leaving precious advertising revenue on the table when online viewing is not included. Nearly every media conference call involves some comment or complaint about television measurement in an internet world. This change creates an opportunity for someone to crack the cross media device code.

Source: Comscore 4Q presentation

Doing what your customers want
Customers are asking SCOR for a solution. They believe they can accomplish cross-measurement best in a recently announced strategic alliance with Kantar (see above). Kantar is the leader in TV measurement outside the US and is owned by WPP. This alliance will aid SCOR's expansion overseas combining Kantar's overseas TV assets and SCOR's digital measurement business providing a world class cross media measurement system. Everyone is watching media on TV, phones, tablets and desktops, media companies are asking for it and now we have someone to measure it.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Comscore (SCOR) stock.

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Hasbro playing well with Disney

The toymaker Hasbro (HAS) has got game. Their brands reported record earnings last week, raising their dividend and announcing a $500 million stock buyback. Lately they have had plenty of good news to share. Late last year Disney Princess ditched Mattel for HAS. Starting in 2016 Disney Princesses will be hanging out with the team at HAS ending a nearly 20 year partnership with Mattel. HAS has traditionally been strong in boys but with Frozen and Disney princess HAS will have a massive legup against its rival Barbie and Mattel.

Playing with Disney
Disney Princess is a 2016 story but this year the boys will be kept busy with Disney movie releases. In addition to Disney princess HAS has the rights for Marvel and Star Wars. It's a big year for boys toys as Avengers 2 comes out in May, Ant Man, Fantastic Four and the big one Star Wars comes out December 18. The last Star Wars film in 2005 helped sell $494 million of HAS toys. HAS are looking to up their game working on light sabers that kids can customize. It's like lego for light sabers (see below).

Source: http://kotaku.com/star-wars-bladebuilders-let-you-craft-your-own-impracti-1685846217

Monopoly is a monopoly
HAS revenues are split between licensed brands from the likes of Disney and Sesame Street and their fully owned brands. HAS owned brands have seen a renaissance by combining media and play (see below). The main driver has been movies and TV with Transformers benefiting the most. HAS has made sure that their brands are well represented on TV commenting that kids are consuming 12 hours of media within 8 hours. Kids are multi-tasking just like the rest of us doing two things at once, playing and listening to music etc at the same time.

Source: Hasbro investor day 

Entertainment and story telling has been a driver of HAS success. According to NPD entertainment based toys grew at a 7% compound annual growth rate while non-entertainment toys were flat from 2012-2014. Great stories and characters are attracting kids to their toys.

The most interesting thing about HAS is that Disney has given them their vote of confidence. HAS already has the biggest boy brands in Marvel and Star Wars, starting 2016 they will also have Frozen and Disney Princess. HAS toys will greatly benefit from Disney's film schedule. An investment in HAS is a bet on Disney's story telling success.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in Hasbro (HAS) stock but is long Disney (DIS).

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Visa and Mastercard insights to the consumer

Consumer stocks have been the biggest beneficiaries of the drop in oil and gas prices reporting some of the best results from earnings season. Visa (V) and Mastercard (MA) were also standouts and gave a great insight into the spending habits of consumers. The drop in gas prices is like a tax cut in an improving economy, with more jobs consumers should be able to save more and spend more. So far the read through is that consumers are still cautious but both of these companies are expecting this to change.

From Charles Scharf the CEO of Visa. "This drop amounts to approximately $60 per month for the average consumer. According to our surveys, approximately 50% of the savings consumers are seeing is being saved. 25% is being used to pay down debt, and approximately 25% is being spent in other discretionary categories. These categories include grocery, clothing, and restaurants. This is consistent with what we've seen in our own spend data. As we look forward, we would anticipate the savings will accumulate, and ultimately we would see more spent in the discretionary categories, including higher ticket items such as home improvement, electronics, and travel and entertainment."

"And just keep in mind a little bit, the average of $60 a month, $60 a month in its own right

doesn't change – it's unlikely that people change their behavior. I mean, if you boil it down to people filling up their tanks once a week, right, at that point you're down to $15 a week. How are you going to go spend differently? So the places that we're seeing it, which I mentioned are the grocery stores, quick service restaurants especially, are the types of places where you would see that kind of additional dollar amount. But as I said from our surveys, we know that 50% of it is being saved. That amount of money accumulates, people start to see that they have additional money, and then over a period of time will potentially buy higher-ticket items is what we would anticipate."

From the MA CEO Ajay Banga. "I think about the fact that it's $800 a month (I think he meant year, Jason), or whatever it is to a middle-class family, the gas prices are down 12% over this same time the previous year, and that's not a small number here. So, when we put all that into context, you would've thought it'd flow through. But the way, I think about it, I was in Davos, we've talked to so many other fields about this, I just feel that maybe it is that it's going to take three months or four months for the U.S. consumer to feel that this is something that's going to be with them for a little while. If you have a longer-term perspective of the price of gas, not going back to $100, but maybe settling in at $75, $80, that's where we're thinking. I don't think the U.S. consumer knows whether to expect this to be sticking around or not, so I think there's some degree of, let's say, the desire to see that through before they really start spending that kind of money. So, if you were to ask my opinion and my guess, I would say, we're probably a month or two or three away, if this price stays where it is, for them saying, you know what? I do have $800 a month more in my pocket, and I could afford to go and buy X. I think that's kind of what I think about it".

Source: Visa investor day

Both companies were impacted by the decline in gas prices reducing revenue growth by 1%. However this was offset by the trend to e-commerce. The great thing about e-commerce is that cash does not work in the online world and it is growing nearly three times the rate of retail spend. Cash is still the number one competitor for these companies and luckily for them cash can't be accepted online. Also while V and MA are big marketers cash can't advertise. Both companies are in a great position when their main competitor (cash) cannot advertise back! 

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Visa (V) stock.

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

China Hurun

The Hurun Report recently released their Best of the Best Awards for 2015. Hurun is famous for releasing China's equivalent of the Forbes 500, a magazine targeted towards China's richest. Their survey saw Apple voted as the top gift brand for both men and women. In China Apple is the luxury brand iPhones are now officially more valuable than handbags (see below). The corruption crackdown is still having an effect on gift giving down 5% year on year on top of the 25% fall last year.

Source: http://www.hurun.net/en/ArticleShow.aspx?nid=9604

Australia was the preferred international travel destination with Qantas voted as having the best year on year performance for business class meals. In what should be good news for the Aussie economy travel and retail go hand in hand 7 out of 10 luxury purchases are bought overseas.

Source: http://www.hurun.net/en/ArticleShow.aspx?nid=9604

Jason

http://www.decisiveassetmanagement.com/

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.