RESEARCH
The art of our quality analysis: Gain an insight into our investment process
Example of a Quality company: its history
A “Quality Company” is a manufacturer of high-end luxury goods. The Company’s origins date back to the 1830s, when the founder opened a harness shop in the French town of Basse-du-Rempart to meet the nobility’s need for simple, lightweight but modern leather goods and accessories.
Analysis of the quality of the business model
200 years later, “Quality Company” is a brand, known and coveted by wealthy people from all parts of the world. This is an important target group, as the purchasing power of wealthy individuals tends to remain very stable over various economic cycles.
And although the company has grown massively over the years, going global, expanding into adjacent categories, and experiencing several generational changes at its helm, one thing has remained the same – an unequivocal dedication to heritage. Despite a multitude of product lines, “Quality Company” still has a brand name that exudes the same values and the retention of a traditional, artisanal approach to manufacturing – something quite unique in our modern world of automation.
Competitive analysis
The luxury industry is fiercely competitive, but for the “Quality Company”, competition does not matter because it has built a brand with an image of high desirability, timeless design, and uncompromising quality. This is the main feature of the company, reinforced by careful management of supply-demand dynamics – “Quality Company” always produces just a little fewer of its most popular items than are in demand, leading to “waiting lists” and a sense of rarity.
This is the perfect combination for long-term profit, giving a company enormous power – both over consumers’ perceptions and their wallets.
Analysis of the financial fundamentals
(Financial Excellence Check)
This strength is also reflected in the finances of the “Quality Company”, which has shown steady growth in turnover over the years (excluding the “pandemic year”) and remarkable profitability.
The “Quality Company” has never issued licenses and can only expand its capacity as fast as it can build “ateliers” and train its craftsmen.
As a result, the company’s strong cash-generating capacity has always enabled it to finance its cautious expansion with its own funds; consequently, the balance sheet shows a net cash surplus. This is particularly valuable in an environment of rising interest rates, where servicing debt is becoming increasingly expensive.
Corporate Governance analysis
Through a holding company, the members of the founding family remain the largest shareholders of the “Quality Company” with a share of more than 50%, and they have committed to keep this share for at least another 20 years. The company’s dual leadership ensures that the “Quality Company” runs smoothly and is protected from hostile takeover attempts, of which there have been few throughout history. The company also has an impressive executive committee, where the average length of service of members is 19 years and where women are strongly present.
Growth Analysis
The global personal luxury goods market is expected to exceed €350 billion in 2022, representing 22% year-on-year growth. In the longer term, growth rates will slow to 4 – 5% per year. The leather goods category – the largest category for” Quality Company ” – will grow above average in line with historical trends. It is expected that Chinese customers will account for 50% of global sales by 2025, compared to only one-third in 2019. This is a great opportunity for “Quality Company” as the brand positioning in this country is the strongest despite the very low presence in social media.