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INTER PARFUMS (IPAR)

Ryo-Seob (Joseph) Kim Po-Chieh Shih Jionghan Dai Varinthorn (Build) Saengpanyarak Pattharaporn (Pauline) Lertphaiboonsiri. INTER PARFUMS (IPAR). (April/19/2012). Agenda. Introduction Stock Market Prospect Industry Inter Parfum Business Financial Analysis Multiples DCF

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INTER PARFUMS (IPAR)

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  1. Ryo-Seob (Joseph) Kim • Po-Chieh Shih Jionghan Dai Varinthorn (Build) Saengpanyarak • Pattharaporn (Pauline) Lertphaiboonsiri INTER PARFUMS (IPAR) (April/19/2012)

  2. Agenda • Introduction • Stock Market Prospect • Industry • Inter Parfum Business • Financial Analysis • Multiples • DCF • Recommendation

  3. Introduction • GICS: 30 Consumer Staple • 30302010 Personal Products • “Inter Parfums, Inc. is a worldwide marketer of prestige and mass-market perfumes, cosmetics, and personal care products that specializes in perfumes with a focus on licensed designer brands.” • Nasdaq Small Cap - 492.53M • History • 1985: Formed as Jean Philippe Fragrances. Began acquisition of license and distribution channel in 1986. • 1999: adopted Inter-Parfums subsidiary name • Successful track record in marketing and outsourcing processes

  4. Introduction

  5. Stock Market Prospect Source: CapitalIQ

  6. External Market Drivers • US Consumer Sentiment EU Consumer Sentiment Source: US and EU Consumer Sentiment Index, Thomson Reuters

  7. External Market Drivers • US Real Median Household Income EU Real Median Household Income Source: US and EU Real Median Household Income, Thomson Reuters

  8. Industry Overview • Chinese Luxury Purchases • Men Product Segment Source: IBISWorld, InterParfums’ Annual Report

  9. Industry Overview • Distribution Channels Source: Datamonitor

  10. Global Cosmetics Industry • Current Market Size 12 Annual Growth 07-12 Annual Growth 12-17 3.2% 4.6% $214.4B Source: Global Cosmetic, IBISWorld; Global Fragrances, Data Monitor

  11. Global Cosmetics Industry Fragmented Market Top 3 Co. account for 24.4% Source: Global Fragrances, Data Monitor

  12. Business Structure Brands • <Bargaining Power> • 80 out of 150 suppliers • <Brand Value Matters> • Exclusive License Agreement with 19 Brands • Most of companies are relatively small (Incentive to work with Inter Parfums) • but high-end & luxury brands (Customers care) • <Inter Parfums Knows What It Does> • 26 years experience in the field • Specialized in Product Development & Brand Building (Customers care) • Strong global distribution system with 11 subsidiaries around the world Supplier Goods Licenses Supplier Goods Inter Parfums Goods Supplier Final Goods Retailers

  13. Brand and Product lines Source: Inter Parfums http://www.interparfumsinc.com/ir_investor_presentation.html

  14. Brand and Product lines • Expansion through license agreement with new brands • -> Licensed with 5 new brands in 2010 & 4 new brands in 2011 • -> Managing operational risk by diversified brand portfolio • Expansion by increasing the number of product lines • -> Typically one new product line every 2 years

  15. Business Overview Source: Inter Parfums http://www.interparfumsinc.com/ir_investor_presentation.html

  16. Revenue by Region - Sales Growth in North America and Asia shows the effect of diversification

  17. Financial Analysis - Sales • Lower cost of sales • Interparfums Luxury Brands, Inc. as a distribution subsidiary in the US • Higher SG & A • More brands introduced in 2010 increased marketing expense • Improving margin in the long run

  18. Financial Analysis - Asset • Intangible assets • 20% ~ 25% of assets • Basically include trademarks and licenses • Account receivable & inventories • 47% of assets in 2010, 65% in 2011 • Company stated that it is needed to support high sales growth

  19. Financial Analysis – Cash Conversion • Cash conversion cycle has been decreasing • By extending their payment to suppliers

  20. Financial Analysis – Cash Flow • 2009 • Decreased in sales • Liquidated inventories • Tightened extended payment terms • 2010 • Increased short-term investment • Increased acquisition of intangible assets • 2011 • Increased inventories and account receivable • Sold short-term investment

  21. Financial Analysis – Cash Flow • Short term solvency • Company’s ability to control their cash flow would be very critical

  22. Financial Analysis - DuPont

  23. Financial Analysis - Conclusion • Operating margin is likely to improve • Company’s expanding strategy may increase its financial risk in the near future • Company’s ability to utilize asset is improving

  24. Competitors Inter Parfums

  25. Product Segment Source: Bloomberg

  26. Competitors’ Financial Figure Source: Bloomberg

  27. Comparable Multiples Tangible BV Price range : $22.23 - $42.78

  28. Financial Projections – Growth Rate Assumption • IPAR acquired four new brands in 2011, we assume that company need more time to promote its business.

  29. Financial Projections – Gross Profit Margin Assumption • IPAR sell European prestige products in the U.S. directly to retailers rather than through a third party distributor, which generates higher gross margins on our product sales. (10-K_2011)

  30. Financial Projections – Taxes Rate Assumption • The higher rate in 2011 is the result of a tax rate increase enacted by the French Government retroactive to 2011. The tax rate for French operations increased from 34.4% to 36.1%. (10-K_2011)

  31. Financial Projections – The risk of Burberry buy back Licenses • Burberry has until July 31, 2012 to determine whether it wishes to buy out the unexpired portion of the license as of December 31, 2012 or continue the existing contract which runs through December 31, 2017. (10-K_2011) • The purchase price will be the greater of the fair market value of the unexpired term of the license or 70% of 2010 net wholesale sales of Burberry products. As of the date of this report, discussions are continuing. (10-K_2011)

  32. Financial Projections – Discount Rate

  33. Financial Projections – Scenario Type • 1. Basic Scenario • 2. Burberry buy back the License Scenario • 3. Worst Scenario but Burberry does not buy back the License

  34. Financial Projections – Scenario Type

  35. Financial Projections – Scenario Type

  36. Financial Projections – Scenario Type

  37. Financial Projections – DCF Model in Basic Scenario

  38. Financial Projections – DCF Model in Burberry buy back Licenses Scenario

  39. Financial Projections – DCF Model in Worst Scenario but Burberry do not buy back License

  40. Recommendation • Put IPAR in the Watch List Reason: • The result in Multiples and DCF Model are quite different. • The risk of Burberry buying back license exists.

  41. Q & A Thank you for your time Feel free to ask any question

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