Korea’s beauty boom
Korean cosmetics companies may be small fry compared with multinationals, but they have been profiting nicely from a growing interest in Korean culture across Asia, says Alex Williams.
Face creams made from snail slime, sea-kelp and starfish extract may sound unappealing, but they are big business for Korean firms in the unending quest to fight frown lines, enlarged pores and uneven skin tone. Makeup based on the unlikeliest of ingredients has become a boom market for companies such as AmorePacific as they spread their products across China and the US and their shares are rocketing in response.
Perhaps surprisingly, cosmetics firms usually do well when the economy is shaky, says Andrea Felsted on Bloomberg Gadfly. "Women facing an uncertain environment turn to beauty products as an affordable indulgence." However, Western firms are grappling with falling footfall in department stores in the US and UK. Large stores are typically the biggest direct buyers of cosmetics products, but many are closing down, dampening sales growth for Western makeup giants, including Este Lauder. It's a similar story for Japan's Shiseido, the leading Asian player in the industry, which is seeing sliding market share, lower margins and higher advertising costs. A new chief executive is trying to implement a turnaround, but the firm's shares have been sliding.
However, Korean beauty companies have been doing far better, helped by growing interest in Korean culture across Asia. Young Chinese customers listen to new Korean pop music and follow Korean TV dramas. Firms such as AmorePacific and LG Household & Health Care have ridden this wave, helped by a cleverly cultivated "gentle, nature-meets-technology ethos", says Dana Wood in The Wall Street Journal. This image leadscustomers to imagine they use fewer chemicals than other brands, even if the evidence is sometimes lacking. A flare for whimsical packaging, shaped like pandas or hard-boiled eggs, and nonsensical brand names, such as "Tonymoly", has also helped. Hence AmorePacific has doubled sales in US dollar terms in five years.
Korean cosmetics groups are "still small fry" compared with multinationals such as Procter & Gamble and L'Oral, says Nisha Gopalan on Bloomberg Gadfly. But Western groups are keeping a close eye on them and are keen to grab a piece of the same boom. Goldman Sachs and Bain Capital recently signed a deal to buy into Carver, a Korean cosmetics firm, while Paris-based luxury goods giant LVMH has bought a stake in Clio Cosmetics, another small fast-growing South Korean makeup brand. Investors may still be getting a little carried away; AmorePacific is the most-purchased stock by foreign investors on the Korean stock exchange and trades on 33 times earnings. But booming demand from the "selfie generation", says Felsted, means makeup is a growth market.
Bids & deals: Mondelez abandons bid for Hershey
Hershey may still come under pressure to revisit the deal in future. The firmis controlled by a charitable trust, set up by founder Milton Hershey a century ago, which has been criticised for poor corporate governance. Reforms could loosen the trust's hold over the company and other investors who are dissatisfied with Hershey's management after a failed effort to expand into China may be more willing to sell.
The potential prize for Mondelez is large. The firm took over British chocolate maker Cadbury in 2010;combining its existing brands with Hershey would give it a fifth of the world's sweet sales. However, the failure to agree the deal with Hershey could see it turn from hunter to hunted before it has a chance to bid again. While Mondelez's market value of around $70bn would make it too big a mouthful for most potential purchasers, certain rivals, such as Kraft Heinz or PepsiCo, might be able to bring off a takeover. For now, Mondelez says it will focus on cutting costs in an attempt to grow profits.
Big movers
Shawbrook - up 22%
New banks operating in the UK, including Shawbrook, which was founded in 2011, look set to get a shot in the arm from fiscal stimulus measures introduced by the government in the wake of Brexit, analysts at Merrill Lynch predicted this week. Potential moves include changes to stamp duty aimed at boosting the property and mortgage markets. Shares in Aldermore and Virgin Money also rose.
Cranswick - up 5%
Hull-based sausage maker Cranswick is moving higher, after the company revealed that a drop in the pound has delivered an unexpected benefit. The company has a small export business, which has seen sales rise, while a fall in sterling against the euro has also forced British supermarkets to reduce purchases from abroad and turn to UK suppliers. British pork is pricier than pork from the EU, but the price gap has fallen by 10%-15% in the last year, said Cranswick CEO Adam Couch.
Just Eat -down 6%
Shares in online takeaway business Just Eat fell amid signs of tougher competition in its market. Take Eat Easy and Takeaway.com, two smaller rivals, have both shut their UK businesses, saying growth is "insufficient". Deliveroo, a major delivery firm in London, is meanwhile upping investment, while California-based Uber is expanding from taxis into food deliveries.
Randgold - down 8%
After a strong start to the year, shares in FTSE 100 gold miner Randgold continue to gyrate with the gold price. The company's share price is down by more than 25% since reaching a recent high in early July, in part due to production problems at two mines in Cte d'Ivoire and the Democratic Republic of Congo during the second quarter. Fellow FTSE 100 miner Fresnillo is also down by more than 20% over the same period.