Holt Challenge 2017 - Adidas vs. Puma
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This document compares Adidas and Puma based on their key metrics, scorecard, sales, margins, multiples, and conclusions. It finds that Adidas has higher market size and sales growth across regions compared to Puma. However, its operational quality and valuation percentiles are lower. Puma has stronger momentum and operational quality despite more expensive valuations. The document recommends overweighting Adidas due to its quality and underweighting Puma given its momentum trap and low operational efficiency.
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Holt Challenge 2017 - Adidas vs. Puma
- 1. THIS REPORT IS MARKET COMMENTARY AND NOT A RESEARCH DOCUMENT HOLT CHALLENGE Investment Pitch, Spring 2017 Adidas vs. Puma Siddharth Chakravarty
- 2. Source: Credit Suisse HOLT Lens on July 7, 2017Source: Credit Suisse HOLT Lens on July 7, 2017 2 KEY METRICS Adidas PUMA Market size (in € Bil) 33.12 4.96 Brands • Reebok (2006) • TaylorMade Golf • CCM Hockey • Cobra Golf • Dobotex Q1 2017 Sales by region (in Euro M) EMEA 2,356 (8%↑) 414 (17%↑) America 1,442 (36% ↑) 346.5 (20%↑) APAC 1,291 (30% ↑) 243.9 (17%↑) Russia 160 (10%↓) - Sales by product Footwear 3,301 (28%↑) 498.9 (25% ↑) Apparel 1,905 (8% ↑) 326.30 (10% ↑) Hardware/ Accessories 465 (8% ↑) 179 (4% ↑) HOLT Scorecard Percentiles •Nike •Anta Sports •Asics corporation •Fila Fabbrica Italiana •K Swiss •Li Ning company limited •Peak sport products Key competitors
- 3. Source: Credit Suisse HOLT Lens on July 7, 2017Source: Credit Suisse HOLT Lens on July 7, 2017 3 SCORECARD Overall Percentile 67 Operational Quality 65 Momentum 80 Valuation 29 Quality at any priceInvestment style Overall Percentile 34 Operational Quality 19 Momentum 91 Valuation 19 Momentum trapInvestment style Momentum 6m 3m 1m CFROI Revisions 0.84 0.14 0.02 Price Change % 16.61 -5.63 -2.12 Momentum 6m 3m 1m CFROI Revisions 0.78 0.49 0.02 Price Change % 37.63 13.92 -5.99 ADIDAS Market Cap: 33 B € Price :164 € ADSGN Downside -7% Warranted Price : 152.3 € PUMA Market Cap: 5 B € Price :323 € PUMG Downside -17% Warranted Price : 274 €
- 4. Source: Credit Suisse HOLT Lens on July 7, 2017Source: Credit Suisse HOLT Lens on July 7, 2017 4 RELATIVE WEALTH CHART ADIDAS Market Cap: 33 B € Price :164 € ADSGN Downside -7% Warranted Price : 152.3 € PUMA Market Cap: 5 B € Price :323 € PUMG Downside -17% Warranted Price : 274 €
- 5. Source: Credit Suisse HOLT Lens on July 7, 2017Source: Credit Suisse HOLT Lens on July 7, 2017 5 SALES, MARGINS & TURNS ADIDAS Market Cap: 33 B € Price :164 € ADSGN Downside -7% Warranted Price : 152.3 € PUMA Market Cap: 5 B € Price :323 € PUMG Downside -17% Warranted Price : 274 €
- 6. Source: Credit Suisse HOLT Lens on July 7, 2017Source: Credit Suisse HOLT Lens on July 7, 2017 6 MULTIPLES Regional Industry Price / Earning 22. 1 43.526.6 Price / Book 3.32.9 5.1 Price / Sales 1.71.4 EV / EBITDA 45.72214.2 EV / Sales 1.81.3 Dividend yield 0.3 2.01.5 Adidas Puma ADIDAS Market Cap: 33 B € Price :164 € ADSGN Downside -7% Warranted Price : 152.3 € PUMA Market Cap: 5 B € Price :323 € PUMG Downside -17% Warranted Price : 274 €
- 7. Source: Credit Suisse HOLT Lens on July 7, 2017Source: Credit Suisse HOLT Lens on July 7, 2017 CONCLUSION 7 • Low percentile ranking • Operational inefficiency in • Creating wealth • Maintaining CFROI levels • Inability to maintain margins • Momentum trap • Strong momentum with poor operational quality compared to its peers. • Low dividend yield • High PE • Low price to sales • High percentile ranking • Operational efficiency in • Creating wealth • Maintain CFROI levels • Ability to maintain margins • Quality at any investment • Strong momentum despite expensive valuations, and good operational quality • Higher dividend yield • Low PE • Price to sales in par with industry PUMA - Underweight ADIDAS - Overweight
Editor's Notes
- Adidas and Puma are multinational companies that design & manufacture, footwear, apparel and accessories. Adidas has a market cap of 33 B Euro compared to 5 B Euro for Puma. For Q1 2017: Adidas reported revenue of 6 Billion Euros a 19% YOY increase, and PUMA reported revenue of 1.0 Billion Euros an 18% YOY increase America and Asia/Pacific regions were the key sales drivers, and Footwear continued to experience the strongest growth for both companies. At a glance both companies have impressive metrics, however the ranking based on the HOLT scorecard paint a different picture. Over the course of the presentation, we will use the holt methodology to evaluate the companies and provide a recommendation for both.
- Based on the three composite factors: Operational Quality, Momentum, and Valuation Puma is Momentum Trap stock with a relatively strong momentum, gaining over 37% in the last six months which is over valued for a company with poor operational quality compared to it peers.
- 1. Looking at the wealth charts, Adidas’ high CFROI levels, has allowed it to create wealth over sustained periods 2. Puma’ CFROI level have dropped since peaking in 2003. A high fade rate has eroded the CFROI’s, dropping it below the discount rate in 2014. 3. PUMA has invested heavily in growing its asset base since 2000. Despite continued asset growth, its inability to sustain CFROI level is a sign of operational inefficiency and creating long term value investments for the company. 5.Adidas has made synergetic acquisitions since early 2000, which has helped in maintaining consistent CFROI levels and thwarting off competition and pushing out the fade.
- Adidas has maintained a sales growth under 10% for most part since 2000, except for 2006 when it acquired Reebok. But it has maintained a operational margin greater than 10% and asset turns greater than 1, which has contributed to it consistent CFROI levels. Puma on the other hand had an impressive sales growth until 2002, however dwindling margins and asset turns have contributed negatively towards its CFROI.
- Finally the multiples for Puma show a High PE, a low Price to Sales and Dividend yield that it makes it less attractive investment.
- Based on low percentile ranking, operational inefficiency and high valuation, I assign a Underweight rating for Puma Adidas has demonstrated high operational efficiency and despite the high valuation will create wealth for investors.