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Natuzzi SpA Message Board

  • astral_tsar astral_tsar Oct 1, 2004 5:16 PM Flag

    What If

    What if the dollar continues to fall against the euro? Just a what-if.

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    • "What if the dollar continues to fall against the euro? Just a what-if..."

      astral... FWIW I reckon the USD/Fx overvaluation problem lies with China, Korea, Mexico etc. It's the emerging market countries where there seems to be a significant US trade imbalance. If the USD corrects say 20% then this is where it will be felt most.

      I don't think there is much of a trade imbalance with the EURO region.

      Further, a EURO in the 1.20 - 1.30 range is pretty much where it has been for the past decade, long before the USD had large trade imbalance issues.

      Check EURO 'purchasing power parity' (ppp) at the OECD website or...

      If anything the EURO is over 'ppp' at 1.25 and 1.13 is a more neutral figure.

      On a micro level the evidence is obvious in the soft sales figures of NTZ high end European manufactured seats. The US consumer is so price sensitive because he is already so leveraged.

      No one has mentioned this yet, but its glaring to me... NTZ is opening their branded stores everywhere in the world except the USA. They especially concentrate their store opening efforts on strong robust growth economies.

      NTZ recognise they have the capacity to sell quality medium/high end to the other 70% of the world thats not the USA (i.e. where the consumer is not as leveraged).

      This basket of currency sales is one of the reasons NTZ is a safer bet than most.

      Cheers WBplc

      • 1 Reply to wbplc1998
      • "FWIW I reckon the USD/Fx overvaluation problem lies with China, Korea, Mexico etc."

        I reckon similarly. The USD undervaluation is mostly with Asia, ex-Japan, in my opinion. Don't know about Mexico, not informed enough.

        The Euro is as overvalued as the USD, in my opinion. The CHF is even more overvalued and the GBP less so than the Euro.

        Agree that with NTZ selling and producing on multiple continents, it's regular operations provide significant natural hedges.

    • "What if the dollar continues to fall against the euro? Just a what-if."

      Half the sales are in Europe, the other half, in the U.S.

      The value of one goes up, the other goes down.

      What happens? I'm not sure, but then again, I was never really good at math.

      IMHO, Jim

      • 1 Reply to Rickson9
      • Already stated, sales are @ 1/2 & 1/2

        The rate of change is what will swing eps short term. If there was a rapid USD decline then margins would be compressed short term because it takes time for consumers to adjust to retail prices. A falling USD by axiom means the US standard of living (purchasing power) is declining.

        The compensation hedge for NTZ is its China/Yuan/USD pegged manufacturing of low end product. Sales of EURO cost high end product would likely decline in the US market but the growth in USD/Yuan cost low end product may well accelerate even faster in the US market than the present 20% p.a. as it would have more price/point 'space' in the market.

        The US is 30% of world GDP, NOT more or less. If you are a global company you always have these issues. It's better being exposed to a 30% Fx effect than a 0% effect (your not global) or a 100% effect (your only domestic), that's business.

        What's more important is paying a cheap price for the company especially given most global companies are exposed to the same Fx possibility.

        If you have a long time horizon most of these issues become insignificant. It took 40 years for NTZ to become the world leader with @ 10% market share. What's the problem holding them for 10+ years and watching them grow to 20% market share.

        Cheers WBplc

    • Then margins will most likely be further compressed especially in the US. However given that roughly half the sales originate in Europe this helps to balance the effects.
      The company continues to make investments in stores in Europe where the effect of Euro appreciation will not be as pronounced and margins are higher. Currently the company is capable of achieving 6% margins at 1.20 exchange rate which is impressive and I believe shows the inherent ability for organisations to adjust to circumstances as long as they are cash producers rather than consumers. The absolute exchange rate isn't the problem for a company like this it is the rate of change. I think it is unlikely that the Euro will rapidly appreciate from currently levels given that OECD PPP puts it around 1.11 which means the Euro is likely 10% over valued at its current levels. Still as we know there is no reason why a currency will not trade substantially higher or lower than PPP as the Euro has shown over short periods of time (5 yrs) but not indefinitely. Given the cash in the bank and the profitability of this company I still do not understand why it trades at such a discount to IV. I am happy to hold and watch the cash come in. The company has proven over the last 5-10 years that it is a prudent allocator of cash, through specials, buybacks and brand building when required.



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