Puma a strong player in the lu­cra­tive fit­ness league

Irish Independent - - Business -

WHEN the Swiss ace Roger Fed­erer strode into Wim­ble­don in search of yet an­other Grand Slam notch on his racket, his ador­ing fans spot­ted a small change to his shirt.

Gone was the fa­mil­iar Nike logo to be re­placed by the less well-known Ja­panese brand Uniqlo. It later emerged that Fed­erer had agreed a deal to be paid $300m (€263m) over 10 years to act as Uniqlo’s brand am­bas­sador.

When a spon­sor­ship coup as large as that is pos­si­ble for a 36 year-old ath­lete, it un­der­lines the fi­nan­cial strength of mod­ern sports peo­ple and the ex­cesses they can en­cour­age in sports­wear pro­duc­ers.

Uniqlo is a crea­ture of the 21st cen­tury. But Europe has pi­o­neered the busi­ness of mak­ing big bucks out of the bizarre idea that if a fan wears the same shirt as Fed­erer, he or she might be able to repli­cate the same back­hand vol­leys.

One of these Euro­pean brand spe­cial­ists is our tar­get com­pany this week, the Ger­man-based Puma.

What makes Puma in­ter­est­ing at this mo­ment is that early this year the French lux­ury group Ker­ing de­cided to re­duce its 86pc share­hold­ing to 16pc.

Ker­ing bought into Puma more than a decade ago with an am­bi­tion to de­velop both a lux­ury and sports­wear busi­ness.

It has since de­cided to fo­cus only on lux­ury goods and its sports­wear am­bi­tions were pushed into row Z.

We won­dered if this opens an in­vest­ment op­por­tu­nity.

Puma has never been all that far from a good row. It arose out of a fam­ily feud be­tween two Ger­man Dassler broth­ers who worked to­gether as shoe­mak­ers for 20 years.

The split cre­ated both Adi­das and Puma. How­ever, the feud did not pre­vent the two com­pa­nies, and their Amer­i­can ri­val Nike, chang­ing the face of sport and in turn cre­at­ing a mas­sive money spin­ner.

Puma is man­aged by Bjorn Gulden, a former Nor­we­gian in­ter­na­tional foot­baller. The group floated on the Frank­furt Stock Ex­change more than 30 years ago and to­day is the third largest sports­wear group in the world. It de­signs and sells footwear, ap­parel and ac­ces­sories.

The se­cret in this game is to line up ‘stars’ to spon­sor the gear and act as am­bas­sadors for the brand.

Puma has, over the years, signed up ‘greats’ like Diego Maradona, Pele, Usain Bolt and clubs like Arse­nal, Borus­sia Dort­mund and AC Mi­lan.

It mar­kets its goods in more than 120 coun­tries and while the com­pany has a global foot­print, it is still HQ’d in the sleepy Bavar­ian town of Her­zo­ge­nau­rach, where it all started.

Group sales last year were a record at €4bn, with footwear ac­count­ing for half of to­tal sales, ap­parel slightly over one-third and ac­ces­sories mak­ing up the re­main­der.

Its global sales are con­cen­trated on Europe and the US, with three­quar­ters of to­tal sales. The Asian mar­ket, driven by China, ac­counts for the other quar­ter.

In spite of volatile cur­rency de­vel­op­ments, po­lit­i­cal in­sta­bil­ity and un­cer­tain trade en­vi­ron­ment, Puma is in the mid­dle of a re­vival af­ter years of in­dif­fer­ent per­for­mance.

Last year the group, val­ued at €6.2bn, had healthy growth with rev­enues of €4bn. Op­er­at­ing prof­its of €245m were dou­ble that of the pre­vi­ous year and ex­pected to rise this year.

The shares climbed from a yearly low of €277 per share and now trade at €411, hav­ing fallen from a high of €539. The current price earn­ings mul­ti­ple is a mas­sive 38, earn­ings per share are 11 and free cash flow is ex­pected to ex­ceed that of last year.

First-quar­ter re­sults con­tin­ued the re­vival with sales up 7pc and op­er­at­ing prof­its climb­ing higher.

Like for many oth­ers, Don­ald Trump is caus­ing headaches for Puma.

The group has had to con­sider mov­ing its Chi­nese pro­duc­tion to other Asian coun­tries should the USChina trade spat get worse. Puma cur­rently pro­duces one-third of its prod­ucts in China, one-third in Viet­nam, and the rest among other Asian coun­tries.

The US is an es­sen­tial mar­ket for Puma, but mov­ing pro­duc­tion to the US is not an op­tion as there is limited shoe ca­pac­ity in that mar­ket.

While there is lit­tle to fault the com­pany and trad­ing is go­ing to script, I would hold off in­vest­ing in Puma at this time.

Noth­ing in this sec­tion should be taken as a rec­om­men­da­tion ei­ther ex­plicit or im­plicit to buy any of the shares men­tioned.

with John Lynch

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