Macy's on sale?

This Thursday Macy's 89th annual Thanksgiving Day parade will wind it's way through New York to Macy's Herald Square. In a age where most retailers are being Amazoned (code word for retail destruction) Macy's stands out with its own parade. Macy's is still number one in apparel but Amazon is soon expected to take the lead. Unlike most department stores Macy's is online it is the 7th largest internet retailer (just behind Netflix) offering same day delivery in 17 markets. Macy's Thanksgiving day parade and their iconic locations make Macy's stand out from the brick and motor pack. Macy's don't disclose the cost of the parade but it does requires a lot of hot air. Apparently Macy's is the second largest helium consumer after the government that's one big Kung Fu Panda!

Macy's stock has taken a hit recently with declining mall traffic. They also took a hit from the strong dollar impacting sales as tourists find it more expensive to go on a shopping trip. Given its prominent locations Macy's is highly sensitive to a strong dollar. In total Macy's operates 885 stores in 45 states with 446 owned properties.

Sell stores not dresses
Investors are rightfully questioning the future of department stores but Macy's properties are iconic. Most investors seem more interested in their property as it is irreplaceable so much so that some think Macy's should sell their stores not dresses. Starboard an activist investor in Macy's believe that their flagship Herald Square store is worth $4 billion by itself, including all mall locations around $21 billion a similar level to Macy's market value. They also have a credit card business the situation looks similar to what happened here in Australia with David Jones where valuable property has been monetised.

Buy one get one free?
Understandably management are reluctant to introduce high fixed costs (rent) in the business separating the property in a sale and leaseback in a REIT structure would reduce the flexibility and increase the leverage they have in their business. Macy's is an enduring brand but it is a concern when investors value the property more than the business. Like many retailers the value is their property but Macy's is also their single tenet. Its tricky so they are seeing if they can monetise some of the space through a joint venture with Tishman Speyer they might let space to other stores. Just like many buy one get one free offers you receive something extra but did you really need it in the first place? For the moment Macy's is a property asset and you get the retail business for free.

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Macy's (M). 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.

The jockey and the horse: Top CEOs

The Melbourne cup was run 2 weeks ago. In racing we all know to bet on the jockey and the horse well its the same for investing. Fundstrat put together a great diagram of the greatest CEOs. As you can see on the top right the best performing CEO is John Malone the cable king. $100 invested with John is now worth $315,337 his returns put him in a similar class to Warren Buffet. John helped consolidate the cable industry his approach was to grow free cash flow, minimize taxes and buyback shares. He also had good timing buying and selling investments, his current holdings include Liberty, Discovery Communications and LionsGate.

Sleep at night factor
It's safe to say we all know Elon Musk and the others but one name I was least familiar with was Scott Thompson. He also has the best compound track record he was previously the CEO of car rental firm Dollar Thrifty which he sold to Hertz. In September he was named CEO at Tempur Sealy (TPX) the world's largest and most profitable bedding company. It's a well known global brand yet international sales are only 18% also in a world that is changing so quickly it's hard to see a mattress getting replaced or disrupted! On average mattresses last 8-10 years apparently over 80% of Americans still sleep on a mattress with a spring also unlike other industries the price for mattresses keeps going up. Their brands are below.

The TPX team is very motivated with 1.34 million restricted stock units given to management if they achieve EBITDA of $650 million for 2017 the estimate for this year is $462 million. In his first conference call Scott mentioned that he was attracted to the business because  "I was impressed with the following: the industry's consistent history of unit and pricing growth, the importance of bedding products in people's lives, the worth of the industry's brands, marketing and services to retailers, the healthy margins both for the manufacturers and the retailers, lastly, the great free cash flow attributes of the industry." If history is any guide the new CEO should be able to help TPX shareholders sleep at night even without one of their mattresses.

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Tempur Sealy (TPX). 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.

IPO week Square and Match.com

This week has seen a flurry of big IPOs out to beat the month of December. The most interesting IPOs we have looked at are Match.com and Square.

Swiping right with Tinder

Most mission statements are boring but Match's goal is to increase romantic connectivity worldwide who can't be motivated by that statement! Match has 45 online dating brands but Tinder is the brand making news. Tinder is a first impression dating service users swipe through 1.4 billion photos a day with 9.6 million daily active users. If you haven't heard of it 86% of users are under 35 years old. On average users spend 35 minutes a day swiping through 145 profiles. If two users swipe right they can message each other. Match has plans to introduce advertising in between the swipes. 

All you need is love

As a group Match has 59 million monthly active users with 4.7 million paying subscribers. Some services like Tinder are free with some brands charging fees to promote yourself in ratings and communicating. It's a tough business as if match is successful they no longer have to subscribe to their services though helpfully online dating no longer has negative connotations. Over the last 4 years in America alone Match has been responsible for 2.5 million marriages. 

Fair and Square (1/2 a CEO)
Meanwhile Square is one of the more famous Unicorn stocks in Silicon valley (value over one billion) helping small businesses to accept card payments anywhere, anytime with just their phone. To garner interest in its IPO Square has cut it valuation below previous private funding rounds. The problem with Square is that you're sharing the CEO with Twitter.

Magic on board

The most interesting part of Square's roadshow is the fact that Earvin "Magic" Johnson the 5 time LA Laker NBA champion is on the board. (As a basketball fan I was amazed to see it). Square is unprofitable but it has 2 million active sellers using their payment services. It has a large runway ahead as there are 30 million small businesses yet 20 million businesses only accept cash. Starbucks is Square's largest customer at 17.4% of sales though they are not a profitable customer. Starting next year Starbucks has announced that they will be transitioning to a new provider. The good news is that Square should benefit from increased card payments according to Nilson 17% of payments are still made in cash and amazingly 12% use cheques. 

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Square or Match. 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.

Botox + Viagra = Good times

Pfizer is in early friendly talks to potentially create the world's largest drug company by acquiring Allergan (the owner of Botox). A combination will solve the needs of many with Botox and Viagra being available under one roof! Some shareholders are probably hoping for a shareholder discount plan or a combined loyalty plan. The discount plan is a little tongue in cheek but Allergan does have a brilliant distinctions program that rewards loyal users. It's proved tremendously useful for the company locking users into the brand as it says below earn, save, repeat. You get 200 points for one Botox treatment.

Acquisition has some wrinkles
The merger has plenty of political risk. Pfizer has been motivated by Allergan's lower Irish tax rate of 15%. Acquiring Allergan would reduce Pfizer's 25% tax rate while giving them the growth asset that is Botox and Allergan's development pipeline. It will be Pfizer's second attempt at a tax inversion. The news of Pfizer moving its tax base overseas will generate headline risks and a lot of noise during the presidential debates. The Pfizer CEO Ian Read is well aware of these risks pushing for this deal under the present congress. The underlying problem is the US tax system. All the potential issues are likely to cause a lot of frowns, in that case we all know where to go....

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in Allergan (AGN).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.

Ferrari off to the races

Ferrari completed its IPO two days ago generating a lot of excitement as you might not be able to own the car but you can buy the stock! As we all know its not only a car but a leading luxury brand. They are selling the dream. Most people would never wait one year to buy a car but Ferrari can get away with their one year waiting list. If you are one of the lucky few Ferrari shipped 7,255 cars in 2014. They are expected to increase this to 9,000 a year by 2019 there's hope for all of us.

They are also very valuable unlike most cars they tend to hold their value. They have 22.9% market share of the luxury performance car market.

Stock expensive just like the car

Cars, auto parts and engine sales bring in the majority of revenues. 15% comes from sponsorships and branding most of it coming from Ferrari World in Abu Dhabi they also have 20 franchised and 12 owned stores. For me it's a tough business because it's hard to grow. Their growth has to be measured and controlled so not to damage the brand. Growth versus exclusivity. It's a fine balance having to please shareholders while keeping it exclusive for the customer. It's also expensive trading more like a luxury company (43 x trailing free cash flow) than a car company. As the Founder Enzo Ferrari says the best Ferrari ever built is the next one. Put me on the car waiting list and not the stock.

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Ferrari (RACE).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.

Your shopping list: Granny Smith and Apple stock

Gift cards are the perfect present. It's the gift of choice and it's more thoughtful than cash. You can now buy gift cards for stocks. Blackhawk the largest distributor of gift cards (supplies the gift rack cards at the end of the aisle at your local Woolworths) has teamed up with Stockpile (the broker dealer) making available a gift card that can be redeemed online for stock.

Your shopping list: Granny Smith and Apple stock
The cards will cost $4.95 for a $25 gift card with 20 popular companies like Apple, Tesla, Facebook and Berkshire Hathaway. Given the high share price of these stocks owners will likely have exposure to a fraction of the share.

Blackhawk found that 73% of millennials do not own stock but they would if it was as easy as buying a gift card. Blackhawk has nearly 200,000 locations but to start the stock gifts will be available at a limited number of stores including Kmart and Safeway in the US.

Stock Christmas list
Last year the average shopper spent $166 on gift cards up 23% (source packaged facts 2014). Blackhawk's most popular gift card is Apple's iTunes around 12.5% of their sales. It will be interesting to see which stock will be the most gifted this Christmas. Instead of a Tesla car you might get $25 of Tesla stock or even worse a coal stock! We all better be good for Christmas.....

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in Blackhawk (HAWK).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.

Alphabet G is for Google

Google officially became Alphabet last week. Alphabet is a new holding company with Google as a subsidiary. It's basically an extremely lopsided conglomerate with Google search making the money and subsidizing everyone else. Alphabet have even claimed the handy internet domain abcdefghijklmnopqrstuvwxyz.com. Easy to remember but something you don't really want to type in! CNN has put together a nice chart to help us better understand the move.

One of the subsidiaries Calico is a healthcare company focusing on longevity this is still Google after all. While Google X contains their moonshot bets such as driverless cars, drones and unfortunately Google Glass. It will be useful to shine a light on the growth potential of these other businesses. At the moment we don't even know how much is being spent on these so called moon-shots. We will also be able to value Alphabet at a sum of the parts. 

I think the best part is giving Larry Page more time to think big rather than managing people. Larry Page is the Edison of our generation a mix between an inventor and entrepreneur. It will be interesting to see what he comes up with next. He has previously spoken how much he admires the Berkshire Hathaway model of giving businesses independence Larry also gains his own with this move. He spoke last year about broadening Google's vision of organizing the world's information. With Alphabet he will be in the business of starting new businesses. Larry likes to invest in technologies so useful that people use them twice a day like a toothbrush. They have a lot of alphabet letters left to fill let's see what they come up with next!

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in Google (GOOG) or Alphabet.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.