Last week, we wrote about some very exciting changes we made to our Spaceship Universe Portfolio: we bought some stocks! (Namely, Sea and Next Science.)
But because two stocks can’t come in without two stocks moving out, it’s time to talk about what we sold (and why): EssilorLuxottica and Class.
EssilorLuxottica is a French company that designs, manufactures and markets lenses that correct or protect eyesight. And pardon the pun, but it is quite the spectacle right now.
You see, a few years back, Essilor (lenses) and Luxottica (frames) were different companies. Then, in January 2017, they announced a merger of equals. Under the terms of the merger, both sides agreed they would share equal weight in the combined company’s leadership until 2021.
So, the two companies clashed on a number of levels; the entrepreneurial spirit of Luxottica, an Italian company, vs the managerial Essilor, a French company. Both accused the other of violating the original agreement — in particular, in relation to appointing a new CEO.
Neither side could see eye to eye. So much so, the 16-member board was evenly split when they tried to vote for a new chief executive, and as such, there’s currently no CEO.
Given everything that has occurred so far, we believe it will be difficult to effectively integrate the two companies, which is why it falls into the sell bucket for us.
P.S. Sorry for all the puns, but that’s how eye roll.
Class provides cloud-based administration software for self-managed super funds (SMSFs) that allows people to manage and generate reports (e.g. investment reports, live dynamic reporting, operating statement and trial balance) on demand. And like any modern tech company, it’s all done in the cloud.
Unfortunately, we noticed that Class’ growth has been slowing, and we believe it's possibly due to regulatory uncertainty and competition weighing on results. When you’re a software company, slowing growth can be concerning as you usually have low marginal costs. The cost involved in producing the next unit (which, in the case of Class, is software) is low. If you’re not growing, you can’t maximise the benefit from the wonder of low additional software costs.
Right now, Spaceship's investment team would prefer to invest elsewhere.