Sanlorenzo Investment Thesis - The icon of the luxury yachting industry
Moreover, Golar LNG & The Italian Sea Group detailed 3Q24 results analysis
Hi there!
This week
The Week in the Markets: One pager with a concise summary of the markets plus the highlights of the week regarding macroeconomy, liquidity, commodities, Bitcoin, Earnings season…
Sanlorenzo - Updated Investment Thesis: Luxury yacht manufacturer specialized in the 30–40-meter segment but making great strides in the superyacht segment. CEO with more than half of the company's shares, upcoming international expansion, and recent M&As. The leader of the luxury yacht industry has not been immune to fears of a post-COVID demand drop and is trading at 6x EV/EBITDA. Today, we update the thesis on Sanlorenzo, drawing a parallel to an initial Equity Research in one of the most comprehensive analyses we’ve ever shared. A company, which has had a 17.8% CAGR over the last 20 years.
3Q24 Results - Deep analysis from two of the most iconic holdings of our company
The Italian Sea Group and Golar LNG. For those of you who are not familiar with them, you can find the theses, updates over the years, and financial models for these LNG infrastructure and luxury megayacht companies on our website.
Portfolio Management: Including updates on our 3-stage monitor, comments on our portfolio companies, our macro views, portfolio management strategies for the current environment, along with their respective movements in both equities and all asset portfolios
Data Center - Also, updated with all information in our website
Nota: Toda esta publicación está disponible en Español en nuestra web
The Week in the Markets
This hasn’t been the best week for the main indices, which, after the boost from Trump’s election victory, are nearly back to square one. In fact, the first three days were positive (including a CPI figure in line with expectations, which didn’t prompt a market reaction), but Powell’s Thursday speech significantly tempered sentiment with the message that “the economy is not sending any signals that we need to be in a hurry to lower rates.”
The hardest hit were the small caps, which are the most sensitive to shifts in sentiment regarding interest rates, as we’ve seen over the past two years. However, the Nasdaq dropped more than 3%, with declines across all the Mag7 stocks (including Tesla, which ended the week flat but at one point had fallen 15% from its peak earlier in the week. This drop was first triggered by the news that Musk would join the government’s efficiency department, and then by the end of the $7,500 subsidies for electric vehicle purchases).
By sector, the major gainers were financials, benefiting from the idea of “higher rates for longer,” and energy shares, which continued to gain from hopes of deregulation and merger approvals. On the flip side, the healthcare sector was heavily impacted by the nomination of Kennedy to head the Health Department, given his critical stance on the pharmaceutical industry (and his upcoming oversight of Medicare, Medicaid, and other programs that account for 25% of government spending).
The highlight of the week has been Bitcoin, which, at the time of writing, is up 20% and is on track to once again be the best-performing major asset in the market this year. Also noteworthy is the continued strength of the dollar, which has pushed the euro down to 1.05 and wreaked havoc on emerging market currencies. Similarly, European TTF gas prices are hitting new yearly highs amid renewed fears of Russian supply cuts.
Finally, the U.S. 10-year yield has risen sharply, nearing 4.5%, following the CPI data (with areas like shelter and rent not moderating as much as expected) and Powell’s aforementioned comments (image below). Meanwhile, the VIX rebounded from its dramatic drop earlier in the week (from 23 to 14).
Highlights of the week
CPI
The October CPI data came in largely as expected, with a monthly increase of 0.2% and an annual rate of 2.58%, marking the first increase in seven months due to base effects from 2023. Core inflation (excluding food and energy) rose 0.3% MoM, with an annual rate of 3.3%, also in line with expectations. Housing contributed significantly, accounting for over 65% of the annual increase in core inflation. Other notable monthly increases included used cars (2.7%), airfares (3.2%), and healthcare (0.3%).
The key issue remains elevated services inflation (excluding housing), which rose 0.3% in October but remains at 4.6% YoY. While falling goods prices and energy deflation are aiding the broader inflation trend toward the target, a resurgence in these areas could reverse progress.
Retail Sales
U.S. retail sales rose 0.4% in October 2024, beating market expectations of 0.3%, following an upwardly revised 0.8% increase in September. Notable gains came from electronics stores (+2.3%), auto dealers (+1.9%), and food services (+0.7%), while declines were seen in miscellaneous retailers (-1.6%), furniture stores (-1.3%), and sporting goods (-1.1%).
Core retail sales (excluding autos and gasoline) rose only 0.1%, below expectations of 0.3%.
Interest rates
Despite Powell's remarks, the market is pricing in a rate cut at the final meeting of the year. What has changed significantly in recent weeks, and even more so recently, are expectations for rates at the end of 2025, with only two additional rate cuts now anticipated for the entirety of 2025.
Bitcoin ETF Inflows
Bitcoin shattered its previous all-time highs this week, nearing $94,000. As observed, ETF inflows have played a significant role in this surge, and we genuinely expect the trend to continue. It was one of our major bets for the year, and it is meeting expectations.
Some interesting Data about markets this week & YTD
Earning Season
Several companies in our coverage universe are reporting this week, including Solaria – which we have been actively discussing for the past 10 days – Tamburí Investment Partners (updated thesis three weeks ago), Jack in the Box, and Renold.
However, the most significant event of the week, and the entire earnings season, comes this Wednesday after the market close with NVIDIA's results, which, as has been the case for almost a decade of quarters, will, in our opinion, determine the market's short-term trajectory. Attached is a chart showing the performance of the so-called "Magnificent 7" YTD, where it is clear that there is one true Magnificent holding up the markets this year, along with two supporting players.
Sanlorenzo Investment Thesis
Introduction to Sanlorenzo
Sanlorenzo is the luxury boat manufacturer we have probably discussed the most in recent years, second only to The Italian Sea Group. It was founded in 1958 and has historically specialized in the 30–40-meter segment, where they have been global leaders for the past decade. However, the company as it exists today cannot be understood without Massimo Perotti (its current CEO and 60% shareholder), who acquired Sanlorenzo in 2005 and has elevated it to a new level.
Since Mr. Perotti's acquisition, the company's top-line growth has been remarkable, achieving a 17.8% CAGR between 2004 and 2024. In 2007, they inaugurated the new Viareggio shipyard for the production of superyachts. Over the following years, they expanded their traditional yacht business by introducing new lines (SD, SX, SP), launching Bluegame (sport yachts), and increasing their international distribution.
In recent years, after the enormous growth following their IPO in 2019, they have undertaken several investments to expand their capacity of their shipyards and have shifted more towards the superyacht segment, which now represents 31% of their revenue and 46% of their backlog. Similarly, they have been very active in M&A, acquiring Swan Nautor, a well-known sailing yacht brand (which they aim to scale globally by leveraging their distribution network), and a distributor in the APAC region.
We now find it a very interesting time to revisit the company, as the superyacht industry, as we analyzed in detail in our recent publication on the sector, is currently experiencing a slowdown in demand due to post-COVID normalization and the cyclicality of smaller yacht segments. This has caused the stock prices of the two main publicly listed superyacht players, Sanlorenzo and The Italian Sea Group, like the rest of the sector, to plummet (due to fears of significantly lower order intake in the future), and they are currently trading at just 6x EV/EBITDA.
We believe that, in the long term, the industry will benefit from highly favorable trends, such as market growth driven by the increasing number of ultra-wealthy individuals, the rising penetration of luxury yachts, the substantial increase in hours spent onboard, and the greater pricing power of the world’s top brands, such as Sanlorenzo…
Today, we are conducting a complete review of the company (probably, one of the deepest analysis we have never done), as if it were the initial equity research, covering it in full. Starting with its history, business model, segments, facilities, geographic areas, and growth (including an analysis of its recent acquisitions of Swan and Simpson Marine), corporate structure, detailed financial model, and finally, our point of view and how it fits into the portfolio. It is one of the most detailed analyses we have done for a company that undoubtedly deserves it. The financial model is downloadable in the financial models section
