INTER PARFUMS (IPAR)(April/19/2012)
Ryo-Seob (Joseph) Kim
Po-Chieh Shih
Jionghan Dai
Varinthorn (Build) Saengpanyarak
Pattharaporn (Pauline) Lertphaiboonsiri
Agenda
Introduction Stock Market Prospect Industry Inter Parfum Business Financial Analysis Multiples DCF Recommendation
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
Introduction
Last Price $16.12
EPS 1.05
52 week high 24.80 P/E 15.35 Div. Yld
2.00%
52 week low 13.75 Imp. EPS g
27.6%
PEG 1.117-10 growth
Graham 3.5%
EBIT/Tang
EBIT/EV
Total
Greenblatt
30% 13% 43%
Stock Market Prospect
Source: CapitalIQ
Last Price
$16.12
External Market Drivers
US Consumer Sentiment EU Consumer Sentiment
Source: US and EU Consumer Sentiment
Index, Thomson Reuters
External Market Drivers
US Real Median Household Income EU Real Median Household Income
Source: US and EU Real Median
Household Income, Thomson Reuters
Industry Overview
• Chinese Luxury Purchases• Men Product Segment
Source: IBISWorld, InterParfums’ Annual
Report
Industry Overview
• Distribution Channels
Source: Datamonitor
Global Cosmetics Industry
Current Market Size 12 Annual Growth 07-12 Annual Growth 12-17
Source: Global Cosmetic,
IBISWorld; Global Fragrances, Data
Monitor
Global Cosmetics Industry
Fragmented Market
Source: Global Fragrances, Data
Monitor
Business Structure
Brands
Inter Parfums
Supplier
Supplier
Supplier
Licenses
Goods
Goods
Goods
Retailers
Final Goods
<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
Brand and Product lines
Source: Inter Parfums http://www.interparfumsinc.com/ir_investor_presentation.html
Brand and Product lines
Brand Number of Products
Type Starting Expiration
Burberry 8 License 1993 2017
S.T. Dupont 9 License 1997 2016
Paul Smith 8 License 1998 2017
Van Cleef 10 License 2006 2018
Lanvin 9 Acquisition 2007 -
Jimmy Choo 1 License 2009 2021
Montblanc 8 License 2010 2020
Boucheron 3 License 2010 2025
Balmain 0 License 2011 2023
Repetto 0 License 2011 2024
- 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
Business Overview
Source: Inter Parfums http://www.interparfumsinc.com/ir_investor_presentation.html
Revenue by Region
- Sales Growth in North America and Asia shows the effect of diversification
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
• 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
Financial Analysis - Asset
Financial Analysis – Cash Conversion
Cash conversion cycle has been decreasing• By extending their payment to suppliers
2008 2009 2010 2011days sales outstanding 99 99 79 81days payable outstanding 147 119 99 132days in inventory 218 218 191 219Cash conversion cycle 170 197 171 168
Financial Analysis – Cash Flow
2009 2010 2011
Operating CF
84,640 37,845 (23,721)
Investing CF
(6,301) (77,279) 36,737
Financing CF
(23,457) (15,943) (13,797)
Total Cash Flow
58,063 (62,919) (1,692)• 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
Financial Analysis – Cash Flow
Short term solvency
• Company’s ability to control their cash flow would be very critical
2007 2008 2009 2010 2011Current ratio 2.18 2.34 2.88 2.45 2.11Cash ratio 60% 33% 96% 69% 19%
Financial Analysis - DuPont
2007 2008 2009 2010 2011Operating Margin 12% 11% 11% 12% 11%Interest Burden 100% 91% 103% 95% 101%Tax Burden 65% 65% 65% 66% 64%Asset Turnover 0.87 1.05 0.98 1.05 1.19Financial Leverage ratio 2.32 1.66 1.46 1.46 1.59ROE 15.88% 11.79% 10.49% 11.89% 13.24%
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
Competitors
Inter Parfums
Product Segment
Source: Bloomberg
Competitors’ Financial Figure
Company Name Market Capitalization($mill)Gross Margin % EBIT Margin % EBITDA Margin % Net Income Margin %Interperfum 494.99 54.5% 11.0% 13.1% 5.3% Avon Products Inc. (AVP) 9,923.67 63.4% 10.3% 12.4% 4.5% Elizabeth Arden, Inc. (RDEN) 1,104.42 49.2% 7.7% 10.3% 4.4% Revlon, Inc. (REV) 928.34 64.3% 14.0% 15.9% 3.9% Parlux Fragrances Inc. (PARL) 117.36 46.4% (1.7%) (0.1%) (2.1%) Estee Lauder Companies Inc. (EL) 24,300.45 78.9% 14.7% 17.9% 8.9% International Flavors & Fragrances Inc. (IFF) 4,720.89 39.6% 17.0% 19.7% 9.6% L'Oreal SA (OR)- Listed in France 72,533.84 71.2% 16.2% 19.2% 12.0%
Source: Bloomberg
Comparable Multiples
Price range : $22.23 - $42.78
Company Name EV/EBITDA P/E P/TangBV
Avon Products Inc. (AVP) 8.6x 19.2x 15.5xElizabeth Arden, Inc. (RDEN) 10.3x 21.4x 4.9x
Estee Lauder Companies Inc. (EL) 14.5x 29.8x 15.8xInternational Flavors & Fragrances Inc.
(IFF)10.1x 17.9x 11.9x
Revlon, Inc. (REV) 9.4x 17.6x -
Mean 10.6x 21.2x 12.0xMedian 10.1x 19.2x 13.7x
Multiplier 80.8 1.05 3.6 Implied Share Price $27.27 $22.23 $42.78
Tangible BV
Tangible BV
Financial Projections – Growth Rate Assumption
IPAR acquired four new brands in 2011, we assume that company need more time to promote its business.
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Growth Rate 14.52% -8.22% 12.44% 33.62% 5.86% 15.32% 12.43% 9.69% 5.78%
Average Growth Rate 13.09% 9.82%
Growth Rate in North America -5.89% -10.87% -5.79% 64.47% 2.76% 4.68% 3.39% 2.10% 1.10%
Growth Rate in Europe 17.84% -9.41% 14.55% 16.15% 2.10% 4.24% 3.65% 1.32% 1.01%
Growth Rate in Central and South America 34.75% -22.89% 43.00% 45.58% 10.21% 35.65% 27.24% 15.20% 5.10%
Growth Rate in Middle East 50.19% 7.91% 7.57% 25.27% 10.21% 22.32% 15.21% 13.20% 8.20%
Growth Rate in Asia 20.73% 1.13% 24.07% 42.86% 15.15% 39.87% 27.14% 23.25% 14.05%
Growth Rate in Other 16.81% -20.47% 36.93% 77.16% 5.12% 4.92% 4.11% 3.17% 2.17%
North America % Total Sales 29.62% 24.34% 23.64% 19.81% 24.38% 23.67% 21.48% 19.76% 18.39% 17.57%
Europe % Total Sales 44.46% 45.75% 45.16% 46.00% 39.99% 38.56% 34.86% 32.14% 29.68% 28.34%
Central and South America % Total Sales 7.24% 8.52% 7.16% 9.10% 9.92% 10.32% 12.14% 13.74% 14.43% 14.34%
Middle East % Total Sales 6.70% 8.79% 10.33% 9.88% 9.26% 9.65% 10.23% 10.48% 10.82% 11.07%
Asia % Total Sales 11.27% 11.88% 13.09% 14.44% 15.44% 16.80% 20.37% 23.04% 25.88% 27.91%
Other % Total Sales 0.71% 0.72% 0.63% 0.76% 1.01% 1.00% 0.91% 0.85% 0.80% 0.77%
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)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gross Profit Margin 58.89% 56.98% 57.19% 59.51% 62.87% 62.12% 61.86% 61.32% 60.10% 59.98%
Average Gross Profit Margin 59.09% 61.08%
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)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Tax Rate 35.27% 35.13% 34.93% 33.74% 36.27% 36.27% 36.27% 36.27% 36.27% 36.27%
Average Tax Rate 35.07% 36.27%
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)
Financial Projections – Discount Rate
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
Financial Projections – Scenario Type
Financial Projections – Scenario Type
Financial Projections – Scenario Type
Financial Projections – DCF Model in Basic Scenario
Financial Projections – DCF Model in Burberry buy back Licenses Scenario
Financial Projections – DCF Model in Worst Scenario but Burberry do not buy back License
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.
Q & A
Thank you for your timeFeel free to ask any
question
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