Thursday 17 July 2014

Analysis of Oriflame

Oriflame, a Swiss cosmetics company

Company: Oriflame

ISIN SE0001174889 | WKN A0B9NJ   

Business: A Swedish/Luxembourg soon to be Swedish/Swiss cosmetic company. By the look of it they move where the taxes are the most favourable. Oriflame have six product lines: Skin Care (for every age and skin type), Colour Cosmetics (three different lines directed to different ages of women), Fragrances (from modest to exclusively priced and developed in France), Personal & Hair Care (body care, oral hygiene, sun care, baby care etc.), Accessories (belts, pedicure sets, towels, bracelets, necklaces, earrings, etc.) and finally Wellness (shakes, bars... etc. anything that will help to make you beautiful from within).

Active: Currently selling their products in over 60 countries world wide with a 3 million large sales force (so called consultants) and 7,500 employees.

P/E: 11.9

Comment: Last time when I met my friends from Poland I was talking to them about Oriflame. The interesting thing was that almost every woman in Poland have one product from Oriflame (something similar to the Nivea from Beiersdorf (analysis of Beiersdorf 2014)) but what they said was that Oriflame is loosing ground. People in Poland today are prepared to pay slightly more for the cosmetics but maybe more importantly they want to go to a cosmetic store to buy it! So by the sound of it if Oriflame would have swapped from their sales consultants to putting up stores then they would have been able to keep their market share instead of loosing it as they seem to do these days.

This company was analysed due to a request from Chris Bailey posted on the Summary of April 2014 article.

contrarian values of P/E, P/B, ROE as well as dividend for Oriflame

The P/E of Oriflame is fully acceptable with 11.9 but the P/B is too high for me with 5.6 which gives in total a no go from Graham. The earnings to sales are ok with 6% but the ROE is excellent with 47%! The ROE can maybe be explained with the book to debt ratio that is very bad with a ratio of 0.3 and is most likely leveraging the ROE higher.
In the last five years they have grown only 1.3% which I find very poor based on them pushing their products in the emerging markets that are seeing much higher growth rates on their own. This then gives us a motivated P/E of 9 to 12 which means that Oriflame is today fairly valued by the market. They pay a very nice dividend of 6% which on the other hand correspond to almost 71% of their earnings so they seriously need to start pushing up those earnings!

Conclusion: Graham says no and I think that also I say no to this one. The P/E, ROE and dividend are all excellent but I do not like the P/B, the debt and the future. The biggest reason for why I say no to this one is due to my friends in Poland. Oriflame was very early there and they did manage to establish themselves on the market but failed to turn the cape when the wind started blowing and just as an example L'Oreal already have stores in shopping centres in Poland and Oriflame are still running around with their consultants on the countryside.

If this analysis is outdated then you can request a new one.

1 comment:

Fredrik von Oberhausen said...

The Swedish newspaper DI reported today that the Russian daughter company of Oriflame is suspected to have avoided paying 3.5 billion RUB in taxes to the Russian government.

Oriflame answered that it was not correct and the shareholders seem to accept that answer since nothing much happened to the share price.