Insider Trading Alert? Essilor's BuyBack Unleashed!Essilor Luxottica is a non-crypto company with all the facets of token modus operandi. I call it "the unstoppable" due to the heavy "slow" manipulation it is subjected to. "Slow" because it's a European asset, so it moves with less volume.
Introduction: Given the delicate period and general uncertainty, this IDEA does not intend to discredit the company's work. Furthermore, it is not financial advice but merely evaluations that can be made by anyone reading official reports. Let's start.
DEFLIN HOLDING
Delfin is the multinational holding company of the Del Vecchio family ( delfinsarl.com ).
As of September 28, 2021, its main investments are:
EssilorLuxottica 32.15%
Covivio 27.24%
Assicurazioni Generali 5.19%
Mediobanca 18.89%
Luxair S.A. 13%
UniCredit 1.92%
Delfin plays a key role in Luxottica and the Del Vecchio family. One noteworthy event was in 2006 when it controlled 61.35% of Luxottica. During that time, it moved to Luxembourg and issued preferred shares for dividends. ( see news here )
It's like a "mint of NFTs" to compare it to the present day. However, this caught the attention of the tax authorities and resulted in a hefty fine of 146 million.
The Delfin fund has grown from 9.3 billion in 2009 to around 27 billion in 2021.
Currently, Delfin is a "stake Hodler" with 32% ownership in Luxottica.
ESSILOR LUXOTTICA: OUTSTANDING SHARES
Now let's dive in. The question that should arise is: How many outstanding shares does Luxottica have compared to those issued?
There are 439 million shares
Of which
32% owned by Delfin
43.32% owned by Institutional Investors
It's somewhat like cryptocurrencies: 30% to the DEVs and 45% to the Whales, with 75% locked.
The remaining shares are held by a few entities. Employees hold 4.27% (we'll discuss this later), and retail holds 3.58%. In essence, if we sum them all up, 83.7% of the shares are "locked" somewhere . It's 80% if we exclude the 3.58% held by Individual Shareholders.
Let's focus on the 4.27% held by employees. They are the true LUX Maximalists, given the high-level compensation and benefits, their loyalty extends to holding the company's stock. There's nothing wrong with that, and it's understandable.
BUYBACK PROGRAM
However, there are interesting aspects and clauses related to these movements, and it's all connected to the BuyBack Program, which is cleverly designed. (See: "Informativa sull'acquisto di azioni proprie" section)
This practice is common and legal and makes sense. When a company is aware of its operational strength and has some aces up its sleeve for the coming years, it's logical to buy back its own shares as it's akin to holding a growing treasure. This, in turn, encourages investors to buy.
From the reports, which are always the same, we can see that buybacks usually occur once a year, typically around March. The reason is often mentioned: Airdrop to employees and executives.
Interesting! Moreover, employees can also purchase the shares "at a discount."
However, some of these Airdrops have a time constraint, let's call it a loyalty bonus. They cannot be sold immediately but after a certain period. Additionally, the trick lies in the "custodial." Most of these shares are parked in the wallet of the parent exchange, essentially owned by Luxottica itself because employees don't hold other financial assets elsewhere.
You get the idea.
Although it's a small amount, given that we're talking about 4%, it's still an Airdrop that ends up where it was launched. This piques my curiosity. What happens with each BuyBack? Timing, my friends, timing 😎
I must admit that the company managing the share buybacks and the timing of the board are true Long snipers. The only one that didn't go as planned was just before the war in Russia.
Considering that the buyback was up to $200 in the program, we can deduce that the February 2022 buyback aimed to push Luxottica's shares beyond $200, triggering the ultimate FOMO (a crazy Short Squeeze and incredible Mass Sell).
And it all makes sense, the end-of-year 2021 report is remarkable , 400 pages of pure company description. Wow!
ESSILOR YESTERDAY TODAY TOMORROW
In 2022, Essilor Luxottica made significant moves, taking advantage of the "crisis discounts." It made important acquisitions and incorporated well-known chains into its structure. It also formed a partnership with Swarovski , very recently.
So, the facade of the company seems solid, and I'm sure they're doing their best. One note mentioned that with the increasing use of electronic devices, the coming decades will see an increase in myopia. It's a long-term investment.
THE FINANCIALS DON'T ADD UP
But there's something that doesn't add up in the financials. The price didn't reach $200.
At the beginning of 2022, they spent for the BuyBack:
$261 million
then $130 million
then $76 million
The note stated a maximum of:
10% of capital
or 1.5 million shares
or $200 per share
But the buybacks were only half of the previous amounts.
Why stop there? Or did the pump do its thing... but no, it didn't reach $200. These BuyBacks seem more to support the price. However, it's quite concerning that there's less and less liquidity to push it.
Let's go back to the percentages: 83% locked and 17% free.
Each buyback of 1.5 million shares affects the price of 17% of the circulating supply.
Just like MIL:BTC and CRYPTOCAP:BNB , for example, in the crypto realm. For instance, Binance has 160 million CRYPTOCAP:BNB circulating, of which 152 million are locked in-house, around 95%. Every time 1 million BNB is moved, the price changes by 5%. Easy, right?
This means that the repurchase of own shares moves the price every time:
449 million * 0.17 = 76 million
1.5 / 76 = 2%
With a 2% buyback, they can trigger pumps over the long term (60-70 days) of about 25% / 30%
THE NEW BUYBACK 2023
News from a few days ago, Essilor Luxottica plans a significant BuyBack of up to 3.5 million shares by March 2024 ( news here ).
Let's do some calculations for the holders. Usually, the average spending on buybacks is around a maximum of $400 million in a year. If they intend to buy at the current price (let's say $175), it means they can acquire about 2.3 million shares.
If, instead, they want to buy low to avoid a company collapse, their price limit would be around $120 (calculation: $400,000,000 budget / 3,500,000 million maximum shares).
If they have a lot of capital available, it means that for the BuyBack, they could inject up to $600 million at the current price (calculation: 3,500,000 million max shares * $175 average price).
In summary, with rough calculations, we can deduce that Essilor can afford to spend between $400 million and $600 million to repurchase its own shares, in line with what they call "the company's confidence in its ability to create value and its long-term prospects."
Note of Curiosity:
The month before the holders' meeting, the price pumped. Right after the meeting, there was a massive sell-off. Insider trading? I believe so... and probably not over.
LONG AND SHORT PROBABILITIES
Considering that Luxottica's goal of over $200 has not been reached yet, a BuyBack is now crucial, but at the same time, it's a huge risk as the price is too close to the All-Time High (around $190).
Considering a deviation of about 25% due to the BuyBack, we can identify some targets.
If the buyback occurs at these prices, the target goal would be around $220 in 80 days.
If the buyback is meant to prevent Luxottica's price from collapsing, it means that the holding company knows in advance what's about to happen: a drop in price to a minimum of $120/$130 right before the repurchase.
Personally, I think investing in this company at this price ($175) is madness. Apart from the recent communication about a new acquisition dedicated to hearing devices (a fairly niche market with little competition), there's not much else on the table. The first glasses with hearing devices are expected to be available in the second half of 2024. Beyond that and an increase in myopia, Essilor Luxottica might be expanding too much in a contracting world. The moves are correct but ahead of the looming recession.
Who knows if this year's BuyBack will be executed with the right timing or if, like in February 2022, it will be a high-risk failure.
CONCLUSIONS
Luxottica has made good moves. It has provided employment and money to many families and is playing a well-planned long-term bullish game.
However, after Del Vecchio's death, Delfin's fund is in the hands of 8 people. And, realistically, such growth, with 10% inflation and increasing global problems, is quite unusual in 2022. It wasn't in 2021, but...
I sincerely hope that this company can meet expectations and support all the families involved (and its investors).
DISCLAIMER
The information provided in this document is for informational purposes only and does not constitute financial or investment advice. All opinions, analyses, forecasts, or other information expressed here reflect the author's personal opinion and do not necessarily represent the position of any financial institution or entity.
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