This month marks a brand new daybreak for the Proof Lab, extra exactly our foray into the world of leisure put on. This was initiated by one in every of our workforce who focusses on development tales who has lastly satisfied us to start protecting Puma SE (OTCPK:PMMAF) (OTCPK:PUMSY).
For anybody unfamiliar with the Firm, Puma is a German company that designs and manufactures athletic and informal footwear, attire and equipment. Famously it was based by Rudolf Dassler, the brother of Adolf Dassler and founding father of Adidas, if you do not know the story of the 2 brothers behind the 2 manufacturers, we propose you look it up, it makes for attention-grabbing studying.
FY 2021 Outcomes
Puma meets the factors for our development inventory screener. After a small blip in 2020, when there was some nasty virus going around the globe, 2021 noticed a return to kind for the Firm, with revenues surpassing pre-Covid ranges and their revenue margin returning to between 4-5%.
In actual fact, gross sales and EBIT ranges had been the very best in Puma’s historical past, regardless of antagonistic situations in 2021, that is testomony to the Firm’s glorious model momentum and as will be seen on the backside of the above picture, Puma expects at the very least 10% income development in 2022. The group continues to execute clever endorsement offers in quickly rising markets resembling its recent deal with African musician Davido who has over 20 million followers on social media. Such a deal underscores “the corporate’s dedication to the quickly rising African market.” Allow us to not overlook the plethora of different athletes and ambassadors with which the model has key endorsement offers: Puma’s high 5 “heavy hitters” are as follows:
- Neymar, 250+ million following on social media
- Virat Kohli, 162 million
- Antoine Griezmann, 52 million
- Usain Bolt, 35 million
- Lewis Hamilton, 31 million
Regardless of all of this, Puma is considerably smaller by market cap in comparison with its “brother” Adidas and far smaller than sportswear colossus Nike. We imagine that there’s loads of house for development in income and subsequently profitability as scale economics turns into obvious.
Russia and Europe
Puma’s gross sales publicity to Russia and Ukraine stands at 3% of 2021 accounts, not a worrying determine by our calculations and we really feel that this has been greater than priced in. What’s trigger for concern nonetheless is the inflation and subsequent price of residing disaster which we’re seeing in Europe which is able to virtually positively have a major unfavourable impression on shopper cyclicals on the continent. Whereas Puma is prone to be impacted, will probably be in a position to offset the impression by the truth that sports activities manufacturers “journey” a lot better than extraordinary clothes manufacturers, because of endorsements on a world degree and likewise because of its international community. 34% of pre-war revenues got here from Europe together with Russia and Turkey.
There have been a variety of rumors circulating round Nike and Adidas’ present contracts with sports activities shoe retailer Foot Locker after the retail stated in its This autumn name that as of This autumn ’22, “no single vendor in its shops would characterize greater than 55% of complete provider spend” whereas Foot Locker had been fast to downplay rumors that Nike was pulling out of Foot Locker shops, the extra degree enjoying subject will solely play into the fingers (or toes) of rivals resembling Puma.
Right here on the Lab, we really feel just like the current inventory correction on Puma has been too sturdy. We worth the corporate utilizing a DCF valuation with a LT development charge of three% and a WACC of 8%, arriving at a goal worth of 98 Euros per share in comparison with 74.3 Euros on the time of writing. We take confidence from the truth that the inventory’s 23 PE a number of is presently at a 29% low cost to its 5y common. Additionally, from the information final month that CEO Bjorn Gulden purchased himself €500,000 value of shares after the current correction; we charge the inventory with a purchase.