Thursday, September 20, 2007

Investing Based on Demographics – DIS, RET.A

Disney (DIS)
I think everyone basically knows Disney...Mickey Mouse, Donald Duck etc… However there is a lot more to Disney than their famous classic characters. Although, their roots are certainly in animation they are now a massive international media company that operates in four major business units:

1. Studio Entertainment - Pixar Animation Studios, Touchstone Pictures, Miramax Films
2. Parks and Resorts – 5 Disney Land resorts in 4 different countries, Disney Cruise Lines
3. Consumer Products – Disney stores, largest publisher of childrens books
4. Media Networks – ABC, ESPN as well as a many broadcast, cable, radio, publishing and Internet businesses

I’ve listed some of the brands in each of the 4 categories but to view their entire holdings please follow this link.

Dividend Yield:0.9%
Dividend Yield 5yr Avg: 1.0%
ROE: 14.27%
ROI: 10.45%
PE: 16X
Estimated 2007 PE: 18X
Estimated 2008 PE: 16.3X
S&P Rating: 5 stars, strong buy, $45 price target
Argus Rating: buy, $41 price target

THESIS: A fellow blogger “The Money Gardener” who is the author of has provided the thesis behind investing in Disney as a demographics play. His thesis is as follows:

“My thesis on Disney is that if there is one thing that boomers over 55 value, it’s their Grandkids. My parents were absolutely ecstatic when they found out they were going to be Grandparents. Kids today have more people, and wealthier people willing to purchase toys, movies, trips, etc. for them. Also, because today’s society is based more on dual income families they tend to buy their kids affection with Disney products, and have more income and wherewithal to take a vacation to Disney Resorts. Disney has become somewhat of a status symbol for the middle class. I once heard a Father say ‘my goal is to earn enough money this year to take my family to Disneyland’.”

Reitmans (RET.A)
“Reitmans Canada Ltd. has grown to include over 800 stores operating under eight divisions: Reitmans, Smart-Set, RW & CO., Penningtons, MXM, Thyme Maternity, Addition-Elle and Cassis. Today there are 343 Reitmans stores across Canada, offering a full line of ready-to-wear clothing and accessories that cater to the active woman and her daughter-everything from careerwear to casual wear, all available in petite to full sizes. At Reitmans, you'll always find friendly service, stylish clothing, quality products and unbeatable prices that all add up to great value. To view their website please click here.

Dividend Yield:3.30%
Dividend Yield 5yr Avg: 1.5%
ROE: 19.96%
PE: 14.3X
Estimated 2008 PE: 14.18X

THESIS: Well...the thesis is easy here...women like to shop and women like to look good (regardless of how old they are). Although Reitman’s does have some banners that appeal to the 35 and under age group (Smart Set, RW & CO, Thyme Maternity) they have recognized the upcoming shift in Canadian demographics and lifestyle and have a number of divisions that will be huge beneficiaries of both the aging, and fattening, of the Canadian population (let’s face it as a society we tend to fatten up with age) as both Penningtons and Addition-Elle cater specifically to plus sized women. While Cassis is designed to appeal to older women who want to look great but at the same time more mature and sophisticated. The banner on the front of their website reads “WE’RE GETTING YOUNGER EVERYDAY”. In my opinion this is going to be a huge growth market and RET.A is positioning itself to capitalize on it. This post was basically my first look at RET.A but it is definitely one that I’m am going to add to my personal watch list (and maybe even my portfolio.)


MG (moneygardener) said...

Yes, but is this a buying opportunity for Reitmans?

Middle Class Millionaire said...

I don't think it is yet. I'd be more comfortable buying a clothing company when their forward earnings multiple is closer to the 10 to 12 range. I'm going to read up some more on this name though.


Nice post on Demographics.