March 06, 2022 - 11:09pm EST by
2022 2023
Price: 8.12 EPS 0 0
Shares Out. (in M): 839 P/E 0 0
Market Cap (in $M): 6,811 P/FCF 0 0
Net Debt (in $M): 5,124 EBIT 0 0
TEV (in $M): 11,935 TEV/EBIT 0 0

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Coty is finishing this fiscal year with record high FCF (using all years of public data) of $500-600mm while trading at record low multiples, which implies $20/share or higher stock vs. $8 stock, potential 150%+ return within 12-months. COTY is a leader in the beauty space, with a legendary CEO, growing as fast or nearly as fast as peers for half the multiple. So I’ve returned to this multi-bagger stock – reminder – “Historically, COTY generated ~$250M-$380M in FCF each year. During those years, COTY traded mostly between $15-$30/share.” Asymmetrical risk/reward.


Sue Nabi is the 5th CEO in ~6 years so 3 quarters of beating expectations (recent quarter was more mixed but the two before were clean beat and raises) has gone under the radar. Nabi is highly incentivized and could become a billionaire on the success of this stock, which would make her 2x as wealthy as the CEOs of admired big tech companies such as GOOG, MSFT and AMZN.


Regarding revolving doors of CEOs, Sue Nabi has been at the company nearly 2 years now and as she said, “the turnaround is behind us,” given gaining market share in nearly all to all categories of the businesses, again consolidated growing as fast or nearly as fast as peers.


Sue has a great track record and highly regarded in the space. She was the youngest CEO of L’Oreal at 37 years old. “Because you’re worth it” campaign was her work, which “revived” the unit to DD growth. She did the same at Lancôme, bringing it to DD growth and “record turnover of 3.2 billion euros” after declines. She is the founder of vegan skincare line Orveda and skincare is a driver at Coty right now. Nabi is also considered a “marketing wizard.”


COTY is broken down 60% prestige beauty and 40% consumer beauty, which is mass market. For prestige, top 9 brands represent ~80% and for consumer, top 5 brands represent ~90%.


Specifically, please notice that blue-chip companies such as Nike and Starbucks have Instagram follows of 83mm and 17.8mm vs. Kylie (which COTY owns 51% of) with 290mm. That 290mm is growing, with 10mm added over the 30 days post investor day. She is the most followed woman on the planet. As mgmt. said, “Kylie’s social content is so powerful. She recently did an interview for Vogue that broke all engagement records.”


Harf and JAB, Germany’s “secretive” Reimann family, are “among the world’s most underrated business players,” who own ~60% of shares – they still believe in the long-term multi-bagger story.


FY23 could reasonably be $700mm+, which implies $30-60+ stock vs. $8 today. 


Beauty products are defensive goods, consumer staples, and in some cases Veblen goods. Consumers, mostly women, buy them in all economic environments. Despite every CEO and their mothers and brothers talking about having pricing power, this is a business that actually has it to offset inflation.


Bear cases are predicated on 1) leverage, which is coming down, 3) execution, which has been proven, 3) group valuations, which are admittedly high but again COTY trades at half the multiples of peers, 4) volatility, however volatility does not determine risk but requires emotional discipline and conviction in one’s ideas, and 5) some sell-side analysts at banks estimates, although there appears to be mismodeling.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


A fourth quarter of beat and raise, sheer value with growth, debt pay down story combined with simplification of the portfolio, FY21 revealing record FCF according to publicly available data, time.   

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