Tuesday, 28 April 2020

Analysis of HM 2020

Logo of H&M 2018

Company: H&M

ISIN SE0000106270 | WKN 872318

Business: Fashion retail with H&M, H&M Home, & Other Stories, COS, Monki, Weekday, Arket, AFound. The currently have online offerings in 51 of their markets.

Active: They have over 5053 stores in 74 markets. They are pretty much half the size of Inditex which shows us how large they can become. The main markets are in Europe where they are well established but also in North America. They have few stores in South America, Asia, Middle East and Africa.

P/E: 16.0

For the previous analysis please see Analysis of HM 2018.

The P/E is fairly reasonable with 16.0 but the P/B is too high with 3.8 which gives it a no go from Graham. The earnings to sales are at 6% which should be higher but the ROE is excellent with 23% and the book to debt ratio is at 0.9.

In the last five years they have seen a yearly revenue growth rate of almost 2.1% which is not good and this leaves us with a motivated P/E between 13 to 18 which means that the market is today fairly valuing H&M at the moment. Corvid-19 will not help.

They pay an excellent dividend (paid out in two portions per year) in the size of 7.5% which on the down side corresponds to 120% of their earnings. So that's not good!

Future: They seem to follow in the vake of Inditex but are not doing as well as them. 50% of their sales goes to the manufacturers and inditex have a much better ratio. Inditex have also kept growing sales, earnings for the last five years while HM has not but then again Inditex is traded at a P/E of 20 while paying a reasonable and sustainable dividend. It is a difficult market with all the online sellers popping up and less people going to the stores. By the look of things HM is not out of the woods yet and unless they can secure better contracts with the manufacturers then as a starting point they will have to strongly reduce the dividends.

Conclusion: Graham says no and I will not invest more money into HM. If anything Inditex looks far more interesting but I am already too exposed to retail with my holdings in Primark (ABF) and TJX as it is.


Anonymous said...


Where are you getting that low historic growth rate from?
Sales 2014: 151 419
Sales 2019: 232 755
232 755 / 151 419 = 1,537
1,537 ^ (1/5) = 1,0897 -> CAGR = almost 9%?
Is your numbers currency adjusted somehow or what am I missing?

Fredrik von Oberhausen said...


I'm not looking at the last six years but I'm looking at the last five years so 2015, 2016, 2017, 2018 and 2019. In these five years H&Ms growth rate has not been very impressive at only 2.1%. The earnings have sadly gone in the other direction with 20.9 bn SEK in 2015 and 13.4 bn in 2019.

Anonymous said...


Ok, so we have different definitions of what 5 years is. That explainse some of it. I belive that the difference in sales between 2019 & 2018 is the difference over 1 year. that gives that the difference between 2019 & 2017 is 2 years, 2019 & 2016 is 3 years, 2019 & 2015 is 4 years and 2019 & 2014 is 5 years.

So then I understand your calculation. You have compared the sales number for 2019 excl VAT with the sales number for 2015 incl VAT.

If we compare sales 2019 excl VAT = 232 755
with sales 2015 excl VAT = 180 861
The growth rate becomes 6,5% per year

If we compare sales 2019 excl VAT = 232 755
with sales 2015 incl VAT = 209 921
and assume that there is 5 years between 2015 & 2019
We land on a CAGR of 2,1%

So then I understand your analysis. Thanks for the clarification!

Fredrik von Oberhausen said...

I stand corrected. It appears as if they in 2018 moved from reporting in sales in their annual report which was indeed including VAT to report net sales excluding VAT which I missed when looking at the report in 2015 and in 2019.

Anyone knows their reason for removing the VAT since 2018 in their sales?

The form is now updated.