EUR 463.50 For Business Accounts Only

Three Value Names to Buy Here

To inform our analysis into finding the next value ideas in this current market environment, we started by examining the sectors that outperformed the S&P 500 Index following the 2008 financial crisis (recovery started on March 2, 2009). The data shows six sectors (out of the total 11) that have consistently outperformed the S&P 500 Index in the five years after the recovery. We have narrowed down to three names (one European and two US) that are worth buying at current levels.

The Edge View...
MAR: Hotelier Marriott International, Inc. (MAR) has 53% of its rooms in either luxury or upper-upscale hotels, with high-end exposure exceeding that of Hilton Worldwide Holdings, Inc. (HLT) at 35%, and Hyatt Hotels Corp. (H) at 23%. Marriott has 5x more luxury hotels under development than HLT and has more high-end rooms under construction than HLT and H combined. This luxury and upper-upscale position works in MAR’s favor as this segment enjoys limited competition and is not exposed to online accommodation aggregators like AirBnB, which has a larger economy position competing against Wyndham Hotels & Resorts, Inc. (WH) and Choice Hotels International, Inc. (CHH).

Additionally, MAR is transforming itself into an asset-light business as fee-generating managed and franchised hotels account for a growing proportion of its revenue. In FY19, base management and franchise fees made up 59% of MAR’s adjusted revenue transition to an asset-light business, which is similar to rival Intercontinental Hotels Group (IHG). While saving profitability, MAR has undertaken such steps by reducing administrative costs by 15%, slashing executive compensation and shedding staff, in response to an expected FY20E lower than expected occupancy levels.

VFC: VF Corp. (VFC) is an apparel and footwear company with three segments (i) Outdoor (brands like The North Face, Timberland, Altra, etc., FY18 revenue of $4.3bn) (ii) Active (brands like Vans, Kipling, JanSport, etc., FY18 revenue of $4.9bn) and (iii) Work (brands like Dickies, The Red Kap, Kodiak, etc., FY18 revenues of $1.8bn). Out of the three segments, the Outdoor and Active segments are the growth drivers, with an expected overall revenue growth of 5.1% in FY21E and 7.8% in FY22E. VFC also offers the highest EBITDA margin profile at 17% in FY21E compared to its peer average of 14.4% (Adidas: 14.7%, Nike: 15.4%, Puma: 11.4% and Columbia Sportswear: 16%). Despite having a higher growth and a higher margin profile, VFC is trading at a 10% discount at 11.5x compared to the peer average of 12.8x.

On March 16, 2020, VFC provided a COVID-19 update where the company said there was a limited impact on its supply chain. Also, the company has re-opened nearly 90% of their retail stores in Greater China as the situation steadily improves there. However, VFC’s North American and European stores have and will remain closed for now. Based on this acknowledgement and concluding that VFC’s digital sales are likely to continue its growth path, we understand the COVID-19 impact is a “one-time” issue for VFC.

LHN SW: LHN enjoys a top-three position in 80% of its markets, with an asset base in more than 80 countries. It has four segments: (i) Cement (60% of FY19 net sales), (ii) Aggregates (14%), (iii) Ready-Mix Concrete (18%), and (iv) Solutions & Products (8%). Geographically, Europe is the largest net sales contributor (30% of 2019 net sales), followed by Asia Pacific (25%), North America (24%), Middle East Africa (11%), and Latin America (10%). With its peers HeidelbergCement AG (HEI GY), Compagnie de Saint Gobain SA (SGO FP) and CRH Plc (CRH LN) share prices plummeting in-line with LHN, we believe it provides an opportune time to capitalize on its size and diversified operations LHN has inherited as a result of the merger of Lafarge and Holcim in 2015 followed by bolt-on acquisitions.

We believe the recent COVID-19 outbreak presents near term uncertainty, though by diversifying its footprint across the globe inorganically by means of acquisitions (8 new acquisitions in FY19 in Australia, Europe and North America), we believe LHN will experience minimal impact from the virus’ spread. Additionally, with its financial health improving and global market under pressure, we expect LHN will further consolidate its business by divesting low-growth non-core businesses and acquiring growth businesses in other countries, making for a mid-term re-rating catalyst.