INTER PARFUMS (IPAR)
(April/19/2012)
Ryo-Seob (Joseph) Kim
Po-Chieh Shih
Jionghan Dai
Varinthorn (Build) Saengpanyarak
Pattharaporn (Pauline) Lertphaiboonsiri
Agenda








Introduction
Stock Market Prospect
Industry
Inter Parfum Business
Financial Analysis
Multiples
DCF
Recommendation
Introduction
•
•
•
GICS: 30 Consumer Staple
30302010 Personal Products
“Inter Parfums, Inc. is a worldwide marketer of prestige and massmarket perfumes, cosmetics, and personal care products that
specializes in perfumes with a focus on licensed designer brands.”
•
Nasdaq Small Cap - 492.53M
• History
•
•
•
1985: Formed as Jean Philippe Fragrances. Began acquisition of
license and distribution channel in 1986.
1999: adopted Inter-Parfums subsidiary name
Successful track record in marketing and outsourcing processes
Introduction
Last Price
$16.12
EPS
1.05
52 week high
24.80
P/E
15.35
Div. Yld
2.00%
52 week low
13.75
Imp. EPS g
27.6%
PEG
1.11
7-10 growth
Graham
Greenblatt
3.5%
EBIT/Tang
EBIT/EV
Total
30%
13%
43%
Stock Market Prospect
Last Price
$16.12
Source:
CapitalIQ
External Market Drivers
US Consumer Sentiment
EU Consumer Sentiment
Source: US and EU
Consumer Sentiment Index,
Thomson Reuters
External Market Drivers
US Real Median Household Income
EU Real Median Household Income
Source: US and EU Real
Median Household Income,
Thomson Reuters
Industry Overview
•
Chinese Luxury Purchases
•
Men Product Segment
Source: IBISWorld,
InterParfums’ Annual Report
Industry Overview
•
Distribution Channels
Source: Datamonitor
Global Cosmetics Industry

Current Market Size 12
Annual Growth 07-12
Annual Growth 12-17
Source: Global Cosmetic,
IBISWorld; Global
Fragrances, Data Monitor
Global Cosmetics Industry
Fragmented Market
Source: Global Fragrances,
Data Monitor
Business Structure
Brands
Supplier
Licenses
Supplier
Inter Parfums
Supplier
Final Goods
Retailers
<Bargaining Power>
-80 out of 150 suppliers
<Brand Value Matters>
-Exclusive License Agreement with 19
Brands
-Most of companies are relatively small
(Incentive to work with Inter Parfums)
-but high-end & luxury brands
(Customers care)
<Inter Parfums Knows What It Does>
-26 years experience in the field
-Specialized in Product Development &
Brand Building (Customers care)
-Strong global distribution system with
11 subsidiaries around the world
Brand and Product lines
Revenue by
Production
US
Based
10%
Europea
n Based
90%
Source: Inter Parfums http://www.interparfumsinc.com/ir_investor_presentation.html
Brand and Product lines
Brand
Number of
Products
Type
Starting
Expiration
Burberry
8
License
1993
2017
S.T. Dupont
9
License
1997
2016
Paul Smith
8
License
1998
2017
Van Cleef
10
License
2006
2018
Lanvin
9
Acquisition
2007
-
Jimmy Choo
1
License
2009
2021
Montblanc
8
License
2010
2020
Boucheron
3
License
2010
2025
Balmain
0
License
2011
2023
Repetto
0
License
2011
2024
- Expansion through license agreement with new brands
-> Licensed with 5 new brands in 2010 & 4 new brands in 2011
-> Managing operational risk by diversified brand portfolio
- Expansion by increasing the number of product lines
-> Typically one new product line every 2 years
Business Overview
Source: Inter Parfums http://www.interparfumsinc.com/ir_investor_presentation.html
Revenue by Region
100.0%
90.0%
80.0%
11.3%
11.9%
6.7%
8.8%
7.2%
8.5%
70.0%
13.1%
14.4%
15.4%
10.3%
9.9%
9.3%
9.1%
9.9%
7.2%
Asia
60.0%
50.0%
Other
Middle East
44.5%
Central and South America
45.7%
45.2%
40.0%
46.0%
40.0%
Europe
North America
30.0%
20.0%
29.6%
10.0%
24.3%
23.6%
2008
2009
19.8%
24.4%
0.0%
2007
2010
2011
- Sales Growth in North America and Asia shows the effect of diversification
Financial Analysis - Sales
100.00%
90.00%
80.00%
70.00%
Net income
60.00%
Income taxes
50.00%
SG&A
40.00%
Cost of sales
30.00%
20.00%
10.00%
0.00%
2007
• Lower cost of sales
•
2008
2009
2010
2011
Interparfums Luxury Brands, Inc. as a distribution subsidiary in the US
• Higher SG & A
•
More brands introduced in 2010 increased marketing expense
• Improving margin in the long run
Financial Analysis - Asset
120.00%
Goodwill
100.00%
intangible assets
Equipment and leasehold
improvements, net
80.00%
Other current assets
60.00%
Inventories
40.00%
Accounts receivable, net
20.00%
Cash & Short-Term Inv.
0.00%
2007
2008
2009
2010
2011
• Intangible assets
•
•
20% ~ 25% of assets
Basically include trademarks and licenses
• Account receivable & inventories
•
•
47% of assets in 2010, 65% in 2011
Company stated that it is needed to support high sales growth
Financial Analysis –
Cash Conversion
250
days sales outstanding
200
days payable outstanding
days in inventory
150
Cash conversion cycle
100
50
0
2008

2009
2010
2011
days sales outstanding
days payable outstanding
days in inventory
Cash conversion cycle
2008
99
147
218
170
2009
99
119
218
197
Cash conversion cycle has been decreasing
•
By extending their payment to suppliers
2010
79
99
191
171
2011
81
132
219
168
Financial Analysis – Cash Flow
2009
2010
2011
Operating CF
84,640
37,845
(23,721)
Investing CF
(6,301)
(77,279)
36,737
Financing CF
(23,457)
(15,943)
(13,797)
Total Cash Flow
58,063
(62,919)
(1,692)
• 2009
•
•
•
Decreased in sales
Liquidated inventories
Tightened extended payment terms
• 2010
•
•
Increased short-term investment
Increased acquisition of intangible assets
• 2011
•
•
Increased inventories and account receivable
Sold short-term investment
Financial Analysis – Cash Flow

Short term solvency
Current ratio
Cash ratio
•
2007
2.18
60%
2008
2.34
33%
2009
2.88
96%
2010
2.45
69%
2011
2.11
19%
Company’s ability to control their cash flow would be
very critical
Financial Analysis - DuPont
250%
200%
Operating Margin
Interest Burden
150%
Tax Burden
Asset Turnover
100%
Financial Leverage ratio
ROE
50%
0%
2007
2008
Operating Margin
Interest Burden
Tax Burden
Asset Turnover
Financial Leverage ratio
ROE
2009
2010
2007
12%
100%
65%
0.87
2.32
15.88%
2011
2008
11%
91%
65%
1.05
1.66
11.79%
2009
11%
103%
65%
0.98
1.46
10.49%
2010
12%
95%
66%
1.05
1.46
11.89%
2011
11%
101%
64%
1.19
1.59
13.24%
Financial Analysis - Conclusion



Operating margin is likely to improve
Company’s expanding strategy may increase its
financial risk in the near future
Company’s ability to utilize asset is improving
Competitors
Perfume concentrate
• Parlux Fragrances Inc
• International Flavors & Fragrances Inc
Inter Parfums
Beauty & Personal Care Products
•
•
•
•
•
Avon Products Inc.
Elizabeth Arden, Inc.
Estee Lauder Companies Inc.
Revlon, Inc
L’Oreal
Product Segment
Estee Launder
Hair Care
5%
Home
Sales
9%
Other
1%
Fragrance
14%
Fasion
Sales
18%
Skin Care
42%
Makeup
38%
Revlon, Inc. (REV)
Fragrance&
Beauty
Care
38%
Elizabeth Arden, Inc.
(RDEN)
Avon Products Inc. (AVP)
other
2%
Skin Care
18%
Beauty:
fragrance
&color
cosmetics
71%
Active
Cosmetic
7%
Cosmetic
6%
Fragrance
76%
L'Oreal
Professional
Products
14%
Cosmetic
62%
The Body
shopy
4%
Consumer
Product
50%
Luxuary
Product
25%
Source: Bloomberg
Competitors’ Financial Figure
Company Name
Interperfum
Avon Products Inc. (AVP)
Elizabeth Arden, Inc. (RDEN)
Revlon, Inc. (REV)
Parlux Fragrances Inc. (PARL)
Estee Lauder Companies Inc. (EL)
International Flavors &
Fragrances Inc. (IFF)
L'Oreal SA (OR)- Listed in France
Market
Gross Margin
Capitalization
%
($mill)
EBIT
Margin %
EBITDA Net Income
Margin % Margin %
494.99
9,923.67
1,104.42
928.34
117.36
24,300.45
54.5%
63.4%
49.2%
64.3%
46.4%
78.9%
11.0%
10.3%
7.7%
14.0%
(1.7%)
14.7%
13.1%
12.4%
10.3%
15.9%
(0.1%)
17.9%
5.3%
4.5%
4.4%
3.9%
(2.1%)
8.9%
4,720.89
39.6%
17.0%
19.7%
9.6%
72,533.84
71.2%
16.2%
19.2%
12.0%
Source: Bloomberg
Comparable Multiples
Company Name
EV/EBITDA
P/E
P/TangBV
Avon Products Inc. (AVP)
Elizabeth Arden, Inc. (RDEN)
Estee Lauder Companies Inc. (EL)
International Flavors & Fragrances Inc.
(IFF)
Revlon, Inc. (REV)
8.6x
10.3x
14.5x
19.2x
21.4x
29.8x
15.5x
4.9x
15.8x
10.1x
17.9x
11.9x
9.4x
17.6x
-
Mean
Median
Multiplier
Implied Share Price
10.6x
10.1x
80.8
$27.27
21.2x
19.2x
1.05
$22.23
12.0x
13.7x
3.6
$42.78
Total
Asset
- Debt
- Good will&
Intangible Asset
Price range : $22.23 - $42.78
Tangible BV
Financial Projections –
Growth Rate Assumption

IPAR acquired four new brands in 2011, we assume
that company need more time to promote its
business.
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
14.52%
-8.22%
12.44%
33.62%
5.86%
15.32%
12.43%
9.69%
5.78%
Growth Rate in North America
-5.89%
-10.87%
-5.79%
64.47%
2.76%
4.68%
3.39%
2.10%
1.10%
Growth Rate in Europe
17.84%
-9.41%
14.55%
16.15%
2.10%
4.24%
3.65%
1.32%
1.01%
Growth Rate in Central and South America
34.75%
-22.89%
43.00%
45.58%
10.21%
35.65%
27.24%
15.20%
5.10%
Growth Rate in Middle East
50.19%
7.91%
7.57%
25.27%
10.21%
22.32%
15.21%
13.20%
8.20%
Growth Rate in Asia
20.73%
1.13%
24.07%
42.86%
15.15%
39.87%
27.14%
23.25%
14.05%
Growth Rate in Other
16.81%
-20.47%
36.93%
77.16%
5.12%
4.92%
4.11%
3.17%
2.17%
Growth Rate
Average Growth Rate
13.09%
9.82%
North America % Total Sales
29.62%
24.34%
23.64%
19.81%
24.38%
23.67%
21.48%
19.76%
18.39%
17.57%
Europe % Total Sales
44.46%
45.75%
45.16%
46.00%
39.99%
38.56%
34.86%
32.14%
29.68%
28.34%
Central and South America % Total Sales
7.24%
8.52%
7.16%
9.10%
9.92%
10.32%
12.14%
13.74%
14.43%
14.34%
Middle East % Total Sales
6.70%
8.79%
10.33%
9.88%
9.26%
9.65%
10.23%
10.48%
10.82%
11.07%
Asia % Total Sales
11.27%
11.88%
13.09%
14.44%
15.44%
16.80%
20.37%
23.04%
25.88%
27.91%
Other % Total Sales
0.71%
0.72%
0.63%
0.76%
1.01%
1.00%
0.91%
0.85%
0.80%
0.77%
Financial Projections –
Gross Profit Margin Assumption

IPAR sell European prestige products in the U.S. directly to
retailers rather than through a third party distributor, which
generates higher gross margins on our product sales. (10K_2011)
Gross Profit Margin
Average Gross Profit Margin
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
58.89%
56.98%
57.19%
59.51%
62.87%
62.12%
61.86%
61.32%
60.10%
59.98%
59.09%
61.08%
Financial Projections – Taxes Rate
Assumption

The higher rate in 2011 is the result of a tax rate
increase enacted by the French Government
retroactive to 2011. The tax rate for French
operations increased from 34.4% to 36.1%. (10K_2011)
Tax Rate
Average Tax Rate
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
35.27%
35.13%
34.93%
33.74%
36.27%
36.27%
36.27%
36.27%
36.27%
36.27%
35.07%
36.27%
Financial Projections –
The risk of Burberry buy back Licenses


Burberry has until July 31, 2012 to determine
whether it wishes to buy out the unexpired portion
of the license as of December 31, 2012 or continue
the existing contract which runs through December
31, 2017. (10-K_2011)
The purchase price will be the greater of the fair
market value of the unexpired term of the license or
70% of 2010 net wholesale sales of Burberry
products. As of the date of this report, discussions
are continuing. (10-K_2011)
Financial Projections – Discount Rate
CAPM => 12.86%
Return of Equity => 12.76%
Average Return of Equity (50% for Each) => 13.31%
WACC => 13.21%
Discount Rate (Plus 1% Risk Premium) => 14.21%
Financial Projections – Scenario Type



1. Basic Scenario
2. Burberry buy back the License Scenario
3. Worst Scenario but Burberry does not buy back
the License
Financial Projections – Scenario Type
Financial Projections – Scenario Type
2. Burberry buy back the License Scenraio
100.00%
80.00%
Growth Rate
60.00%
Growth Rate in North America
40.00%
Growth Rate in Europe
Growth Rate in Central and South
America
20.00%
Growth Rate in Middle East
0.00%
2010
-20.00%
-40.00%
-60.00%
2011
2012
2013
2014
2015
2016
2017
Growth Rate in Asia
Growth Rate in Other
Financial Projections – Scenario Type
3. Worst Scenraio but Burberry does not buy back the License
90.00%
80.00%
Growth Rate
70.00%
Growth Rate in North America
60.00%
Growth Rate in Europe
50.00%
Growth Rate in Central and South
America
40.00%
Growth Rate in Middle East
30.00%
Growth Rate in Asia
20.00%
Growth Rate in Other
10.00%
0.00%
2010
2011
2012
2013
2014
2015
2016
2017
Financial Projections –
DCF Model in Basic Scenario
$11.30
per share
to
$18.13
per share
Financial Projections –
DCF Model in Burberry buy back Licenses Scenario
$9.32
per share
to
$10.97
per share
Financial Projections – DCF Model in Worst
Scenario but Burberry do not buy back License
$11.31
per share
to
$17.67
per share
Recommendation

Put IPAR in the Watch List
Reason:
 The result in Multiples and DCF Model are quite
different.
 The risk of Burberry buying back license exists.
Q&A
Thank you for your time
Feel free to ask any question