A current AIM International Fund Holding: L'Oreal SA ADR. (LRLCY) by Stephen Lane. "$LRLCY remains a Hold"

L’Oreal SA ADR (LRLCY, $45.51): “$LRLCY for the #SELFIE Generation”

By: Stephen Lane, AIM student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• L’Oreal SA ADR (OTC:LRLCY) is a manufacturer and seller of beauty and hair products. They operate in four main segments: Professional products (hair salons), Consumer products (retail), L’Oreal Luxury (department stores) and Active Cosmetics (pharmacies & drugstores). L’Oreal is headquartered in Paris France and was founded by Eugene Schueller in 1909.

• Today, LRLCY is seeing a 4% year-over-year organic growth in sales from increased volumes.

• LRLCY maintains dominance in cosmetics by having a well-diversified portfolio and market.

• There has been an increase in concern about the lag in penetration from the Chinese market as LRLCY is seeing large competition from local brands.

• With a slowing growth seen in the beauty market, LRLCY is taking proactive actions to increase their presence and market share in new/emerging markets.

Key points: After acquiring several skincare brands last year L’Oreal is continuing to see very positive impacts. That being said, the positives are offset by a negative impact from FX. As expected these acquisitions have increased the revenues and market share in the skincare division but at the same time L’Oreal saw a slowing of market share in two other divisions.

In today’s very trigger-happy world, L’Oreal has done a good job at maintaining a respectable environmental, social and governance (ESG) rating. The beauty industry is often highly scrutinized their usage of chemicals. L’Oreal has started increasing its transparency by having a fragrance ingredient disclosure. In addition, the company committed to using 100% renewable raw materials from sustainable sources by 2020. L’Oreal is well equipped for the trend toward more natural and organic products (54% of ingredients), appealing to the newer generations of consumers.

While L’Oreal is a leader in the cosmetic market and all the previous points are very positive and encouraging it is important to know that the beauty market is seeing a slowing. Currently it is growing at about 3.5% while in the past it was above 5%. In addition, the Consumer Products division failed to outpace the market for the last couple years. The market has also seen an increase in niche brands threatening L’Oreal’s market share.

What has the stock done lately?

In the last year L’Oreal has successfully integrated their acquisitions and led the industry in sales grown from an increase in volume not price. They have positioned themselves as being the high quality and affordable company.

The selfie obsessed generation are spending more on beauty products than the average consumer. Millennials have made makeup (26% of L’Oreal’s sales) the fastest growing cosmetic globally. L’Oreal has increased their online presence by developing partnerships with key bloggers and vloggers. When compared to their peers L’Oreal’s brands ranks very highly for their online presence.

Past Year Performance: Over the past year L’Oreal has achieved a price high of $45.71, a low of $36.14 and is currently at $45.51. Their growth in new markets was 8.1%, 2.5% in Western Europe and 2.3% in North America. Management continued to improve their margins while increasing research and development. While last year L’Oreal’s debt to equity ratio was concerning the repurchasing throughout 2017 has continued to strengthen their shareholder return.

My Takeaway: Management has been proactive on the trends of the market and they have successfully integrated their acquisitions. L’Oreal currently dominates the industry with a 12.6% market share in cosmetics. This dominance is due to the combination of an increased presence in the e-commerce market and the utilization of more natural and organic ingredients. L’Oreals transition from traditional marketing and sales channels has given them a great advantage over their competition. While the slowing of growth trend in the market is concerning, L’Oreal has shown they are willing to adapt and continue to grow. L’Oreal in the last four years has grown about 57% and is at the forefront of product development. They have very respectable financials and will continue to dominate the cosmetic industry for years to come. This is a HOLD recommendation.

First Set of AIM Program Student Equity Pitches on Friday, January 26th - Join Us in Person or On-Line

AIM Class of 2018 & 2019 Student Equity Presentations - Friday, January 26th

The first set of AIM student equity presentations of the spring semester will be on Friday, January 26, 2018. 

Follow the link to review the student equity write-ups for the Friday, January 26^th presentations.  You can also find every write-up since AIM's inception here.

January 26th Write-Ups

Location:  Marquette University, College of Business Administration - Straz Hall, 1225 W. Wisconsin Avenue, Milwaukee 53233 - in the AIM Research Room 488, 4th Floor
(pdf directions to AIM Room).  

• Date:  Friday, January 26th 
• Location:  AIM Research Room
• Presentation Times: 9:00 to 9:50 a.m. & 3:00 to 4:00 p.m. CST
• Link to pdfStudent Equity Write-ups 
• If you are unable to attend, you can always view them via the webcast at https://meet77796088.adobeconnect.com/rnjn12jfz73z/ 

AIM will again be utilizing Twitter for your comments and questions.  Please follow the instructions below.

How to comment using Twitter:

1. Go to the MarquetteAIM Twitter account (you can use Search Twitter on your site) and click Follow.
2. During AIM presentations, go to #AIMpitch and follow the tweets (discussion) on Twitter (it will also be appearing on the Rise Display Board in the AIM Room and on your smartphone)
3. Tweet your comments and questions during the AIM equity pitches

• Follow the rules of etiquette for using Twitter during AIM pitches
• Use the hashtag #AIMpitch to start each tweet
• Use $TICKER (note: this is called a cashtag and it be should the unique ticker/symbol for the stock that is being presented, ex: $TSLA)
• Keep you comment short because each tweet is limited to a maximum of 140 characters
• Example for Tweeting on a student’s Tesla equity pitch (note: the ticker for Tesla is TSLA): #AIMpitch $TSLA How do lower gas prices impact demand for electric cars? 

GMC Blockchain Technology 101 Event Held on January 23, 2018

Today, Dr. David Krause, director of the AIM Program at Marquette University, moderated a panel of FinTech presenters discussing the use of Blockchain Technology from various industries.

Watch the Facebook Replay:

https://www.facebook.com/GreaterMilwaukeeCommittee/videos/1805197176180866/

GMC Blockchain Technology 101

Tuesday, January 23rd, 2018

11:30-12:00 Networking

12:00-1:30 Blockchain Technology 101 Presentation & Panel

 

  

 

 

What is Blockchain Technology? 

Many are asking if blockchain technology is the "new internet." And, what is the relation to Bitcoin and other emerging cryptocurrencies?

Join us at a special lunch and learn for GMC members only to learn more about this emerging technology.

The blockchain is an undeniably ingenious invention – the brainchild of a person or group of people known by the pseudonym, Satoshi Nakamoto. But since then, it has evolved into something greater, and the main question every single person is asking is: What is Blockchain?

By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet. Originally devised for the digital currency, Bitcoin, the tech community and many local companies in Milwaukee are now finding other uses for the technology.

Bitcoin has been called “digital gold,” and for a good reason. To date, the total value of the currency is close to $233 billion US. And blockchains can make other types of digital value. Like the internet (or your car), you don’t need to know how the blockchain works to use it. However, having a basic knowledge of this new technology shows why it’s considered revolutionary. 

Join us for a special lunch and learn on Blockchain Technology beginning with an educational primer presentation by Bob Cornell, lead emerging technology analyst with Northwestern Mutual. 

Dr. David Krause, director of applied investment management at Marquette University will moderate a panel of local presenters discussing the use of Blockchain Technology from various industries. Marcie Bomberg, CEO of Confidentia Group, will round out the discussion with a brief presentation on enterprise-wide risk considerations for adopting Blockchain Technology. Panelists include:

• Derek Urben, chief financial officer, Coinigy
• Girish Ramachandra, senior manager, WIPFLI
• Michael Adam, founder, DocLaunch
• Mindi Giftos, partner in technology, manufacturing & transportation, Husch Blackwell

Following the panel, GMC members will have an opportunity to ask questions.

1/23/2018 Marquette University's Blockchain Risk Management Event

A Message from Marquette University College of Business Administration:

Tuesday January 23, 2018 is the Marquette Blockchain Lab's " Blockchain Risk Management" panel discussion. The event will be held in room 105 of Marquette University's David Straz Hall, which is building 12 on this campus map: http://www.marquette.edu/campus-map/marquette-map.pdf. 

Parking is available in two campus structures (see buildings 55 and 67 on the map) as well as on many streets around campus.

As of now, more than 150 people have registered for this free event. Registration is still open, so feel free to invite your friends and colleagues to join us. 

At the event, we'll be using the Twitter hashtag #MKEblockchain. We will be filming the panel discussion and posting to YouTube afterward for those who aren't able to join us.

Blockchain Risk Management Tuesday, January 23, 2018 from 6:30 PM to 8:00 PM (CST) David Straz Hall, Room 105 Marquette University Milwaukee, WI 53233 Organized by Marquette University College of Business Administration

Download Tickets

Last week KFC Canada briefly accepted Bitcoin as payment for $20 bucket meals – demand was exceptional!

Add KFC Canada to the list of companies that is looking to capitalize on the frenzied interest in cryptocurrencies

KFC Canada, the fast-food retailer, offered to accept Bitcoins as payment for a $20 meal in a bucket last Thursday, only for a limited time. For a paltry 0.001156 bitcoin you got fried chicken - and sides.  Sound good? Well, the thought of using your bitcoin right now to buy chicken is moot - since the Bitcoin Bucket sold out on KFC's website in less than 30 minutes last Friday.

The Bitcoin Bucket, which included 10 tenders, waffle fries, a side, some gravy and a pair of dips, costed the going rate of the cryptocurrency at the time of the purchase (depending also on the exchange rate of $20 Canadian). That was the equivalent of about 0.001167 bitcoin at the time, but by the time your read this - $20 Canadian in bitcoin is likely to have swung wildly (up or down). Given bitcoin's meteoric rise and fall, however, buying chicken with that fraction of currency now could mean forfeiting value if the cryptocurrency's value skyrockets higher.

KFC says it plans to offer more bitcoin promotions, although it should be pointed out that fees associated with bitcoin transactions could double the price of the meal for some people.   

Given bitcoin's meteoric rise, however, buying chicken with that fraction of currency now could mean forfeiting value if the cryptocurrency's value skyrockets higher.

Motherboard pointed out it might not be the wisest idea to blow your Bitcoin stash on fast food:

• In 2010, Laszlo Hanyecz spent 10,000 Bitcoin to buy two Papa John’s pizzas. That poor chap’s stash would be worth around $143 million today.  “It wasn’t like Bitcoins had any value back then, so the idea of trading them for a pizza was incredibly cool,”  he told the New York Times in 2013. “No one knew it was going to get so big.”

The cryptocurrency is already accepted by a range of major companies including Microsoft, Expedia.com, Overstock.com, as well as at a number of fast-food franchises globally. 

Like it or not --- cryptocurrencies are here!

Dan Fuss, Distinguished Marquette Alumnus, Spoke at the CFA Society of Milwaukee Luncheon on January 17, 2018

This week Dan Fuss Presented his “4 Ps of the Bond Market” to the Milwaukee CFA Society

On Wednesday, January 17, 2018, the CFA Society of Milwaukee hosted its annual Dan Fuss luncheon event at the Milwaukee Athletic Club. Similar to past presentations, Mr. Fuss spoke about his “4 Ps” and gave his bond market outlook. Marquette's AIM program was again represented at the luncheon.

Mr. Dan Fuss with Marquette AIM students

 

Mr. Dan Fuss with Marquette AIM students

 Daniel Fuss, CFA, is the vice chairman of Loomis, Sayles & Company and manager of the Loomis Sayles Bond Fund. He has won numerous awards for his outstanding performance as a fixed income manager and SmartMoney magazine in July 2008 called him one of the world's best investors. He earned his bachelors and MBA degrees at Marquette University and he is a former U.S. Navy lieutenant. Dan Fuss is one of the early supporters and advocates behind Marquette’s Applied Investment Management (AIM) program.

The Enormous Potential of Blockchain and Cryptocurrencies!

The Future of Blockchain and Cryptocurrencies Explained 

Dr. David Krause, Marquette University

January 2018

Campbell Harvey

In his Innovation and Cryptoventures class at Duke University, Campbell Harvey states, “Blockchain is a distributed ledger that provides proof of ownership and allows for the efficient, secure exchange of ownership. It is called blockchain because transactions are grouped together in blocks. Each block is cryptographically linked to the previous block. A public blockchain is transparent and distributed and anyone can put it on their computer. It requires no trust; however, you cannot change any entry in the blockchain. It is immutable.”

Avie Tevanian, tech-industry legend, recently was interviewed about blockchain and cryptocurrencies by Barron’s, “Many people say, ‘I don’t know about bitcoin, but I believe in blockchain.’ That’s a cop-out because most people still can’t explain blockchain. They don’t really believe in bitcoin, but want to say something positive about it. Yes, blockchain is a distributed public ledger, but what we’re really talking about is strong cryptography based on mathematics that is being used to create the distributed ledger of bitcoin transactions. Bitcoins don’t exist in a material way. Nothing is actually mined, computers are being paid in bitcoin for adding transactions to this distributed ledger.”

Tevanian continues, “So this is one of the world’s biggest collaborative math projects. But is it creating something of value?  We know that only 21 million bitcoins will be created. They have a value somewhere between zero and a very large number. Some people say bitcoin has no value; you can’t do anything with it. In fact, there are technical reasons why it doesn’t make sense to use bitcoin to pay for small transactions. But bitcoin makes sense as an asset for people who want to store a value of something that can be traded for something else in the future.”

Avie Tevanian

Continuing the Barron's interview, he said, “Say you don’t trust the banks or you’re worried about a natural disaster and want to have some cash available. Some people put cash in a mattress, or a safe. Or you can put it in something attributed to you that shows you have something of value that you can use in the future. The simple comparison is to gold, and it’s not a bad one. Gold is a store of value. Similarly, people can convert currencies or energy into bitcoin. This is what bitcoin miners are doing: using energy for mining, and being paid in bitcoin for their work. You can keep bitcoin safely from others, and transfer it without being easily tracked. These features can be put to use for nefarious but also good purposes. In due time—I don’t know if it is five years, or 10, or 20—bitcoin’s value will be extremely high.”

The interview continued, "You are assuming that people will come around to recognizing that the bitcoin database can be a store of value?  Tevanian responded, “Yes. They aren’t going to figure out the math, but they will figure out that the doomsday scenarios don’t make sense. Under one scenario, the government bans it. That can’t happen, although the government can tax and regulate it. But that only slows it down, allowing other countries to take better advantage of it. China has tried to clamp down on bitcoin by not allowing people to buy it, but China has the biggest bitcoin-mining operations in the world. If you want to buy bitcoin in China and can’t use your bank account to do it, you can buy energy and convert that to bitcoin.”

He further stated with Barron's, “Blockchain technology is separable from bitcoin. It has other uses that are just starting to take off. Blockchain could be used to record real estate titles, for instance. The information is public; it is securely encrypted, and you would have a permanent ledger of all real estate records. But it is probably too early to invest in blockchain.”

Bianco Research’s economist, Jim Bianco, recently posted on his blog, “The following is a simple explanation of the blockchain which we have heard and like. Right now anything put on the internet is a “copy.” That includes this post. Anyone can copy and paste an exact replica of it. This destroys intellectual property. The blockchain allows files to remain original without the option of being copied, but can be transferred when permission is granted via a distributed ledger and a private key (aka “the blockchain”). A cryptocurrency is just a different type of property that is unique to its owner and cannot be copied. Again, it can be distributed to other parties via the blockchain.”

Bianco suggests viewing the 2016 Ted Talk “How the blockchain is changing money and business” by Don Tapscott to better understand the basics of blockchain and the potential impact on the financial industry. 

He continues with an example of how the blockchain/bitcoin can save newspapers. “To explain in more detail, consider the following example. You write an article. You offer the first 50 words as a teaser. To read more, enter your private key and for some nominal fee of a few cents you can access the rest. There is no registration, no monthly fee, no passwords. It can be as effortless as reading it for free. In this example the author gets paid and is protected. The person that bought that copy cannot copy and paste it and send it to others via email. What they can do is “transfer” it to someone else. But then it is gone from their computer.”

Jim Bianco

Bianco wrote, “Currently, microtransactions like this are too expensive because the standard credit card swipe fee is 30 cents plus 2% of the transaction. The hope of a cryptocurrency is the fee for transaction payments is essentially zero. This happens because there is no intermediary (like a bank or credit card company) standing in the middle demanding payment.  This is what the internet is missing – a way to instantly and safely send a few pennies to someone without being charged an exorbitant fee.”

He continued, “Why will you happily pay 3 cents (or 5 or 10) to read an article? Think of all the monthly charges you pay for intellectual property. Start with video (cable, Netflix), then go to newsletters/newspapers (WSJ, NYT) and end with sites you pay for access (i.e., ESPN). If you are like many, you are overpaying, probably in excess of $300 or $400/month. The blockchain can help solve this by allowing sites to piecemeal out their intellectual property.”

According to Bianco, “This can also benefit content providers. When their work goes viral, they will get tens of thousands, or hundreds of thousands to pay them 3 cents. Netflix can allow users to stream video for 1 cent a minute. So when everyone says Netflix’s “Stranger Things” is really good, you don’t have to worry about setting up an account and password and entering a credit card. Just click your private key and in 2 seconds you start watching for 1 penny a minute. If you don’t like it after 25 minutes, turn it off and you’re out a whole quarter! By making things more efficient, users (like us) pay less and content providers (like Netflix and The NY Times) get a lot more. It restores the value of intellectual property and stops pirating.”

He concludes, “That is just one example of why cryptocurrencies/blockchain have so much potential. It can make transactions so much smoother and cheaper. This could fundamentally rewrite many business models, especially banking and financial services.”

***