Equity Highlights September 2024

Welcome to Broyhill's Equity Highlights, where we share a few quick takes on recent news across the portfolio every month.  

We aim to make these highlights easy to read and easy to repeat. Feel free to share our work! 

Reckitt starts talks on $7.9 bln homecare assets sale. Earlier this year, Reckitt issued a strategy update informing investors of its intention to focus on power brands and spin out or sell the home care and nutrition brands. After just a few months, Reckitt is already in talks with potential buyers of the home care segment which includes brands like Air Wick air fresheners and Cilit Bang cleaners. The sale of the home care segment should afford the company a greater focus on accelerating core growth.

Universal Music Looks to Subscriptions, Superfans for Fresh Growth. Executives at UMG are laser focused on subscription revenue after growth disappointed in the second quarter. At the most recent investor day, management explained how it is attacking subscription growth from all angles. From converting users on ad-supported tiers to getting premium users to pay more for special features and fan experiences. Universal has plenty of levers to pull to drive topline growth.

Reported ‘Nintendo Switch 2’ Images Are Both Surprising And Not Surprising. Renderings of the Switch 2 console were recently leaked on a Chinese website and posted to Reddit. While we take the leak with a grain of salt, the renderings match rumors we've heard from others throughout the year. If true, the Switch 2 will look very similar to the original model, with the main difference being the Switch 2's ability to play higher-graphic, third-party games. Third-party digital games, which we estimate generate ~80-90% margins, should be incremental to Nintendo's bottom line.

Tapestry's Capri Holdings acquisition faces FTC opposition. The FTC's trial to block the merger of Capri and Tapestry concluded yesterday. Our stance is that the FTC failed to prove that the merger will hurt competition in one of the world's most fragmented industries. Tapestry's intention to reduce discounting of the Michael Kors brand is disconnected from the debate on competition. If Capri could have afforded the short-term loss of wholesale dollars, they would have reduced discounting already. 

Disclosures