Why Caspar Sees Great Potential In This British Spectacle Maker

Why Caspar Sees Great Potential In This British Spectacle Maker

over 2 years ago3 mins

Mentioned in story

Summary:

  • This UK-based company sells spectacles in more than 80 countries, a growing and highly profitable business
  • The reduction in COVID-related restrictions on retail offers an opportunity, but it still has a long way to go to compete with industry heavyweight EssilorLuxottica

Tell us about yourself, Caspar

I’m a structural engineer and part-time computer science student. I've been investing since 2018 and always looking to learn more.

What’s the pitch?

Long-term investment in Inspecs Group (ticker: SPEC). This young, vertically integrated eyewear design and manufacturing company is expanding globally – both organically and through acquisitions – and is operating in a growing, non-cyclical market.

What does Inspecs do?

Inspecs produces eyewear for a global portfolio of fashion, sports, and lifestyle brands and patented concept eyewear. It licenses, designs, patents, manufactures, and distributes globally from bases in the UK, US, China, Hong Kong, Vietnam, Portugal, and Scandinavia. The company sells in more than 80 countries, at over 30,000 points of sale. Inspecs purchased both Eschenbach and Norville in 2020, increasing its geographical reach in continental Europe and the US – along with its brand catalogue, lens expertise, and manufacturing capabilities.

The manufacturing operations in China, Vietnam, UK, and Italy make Inspecs one of only a few vertically integrated global eyewear companies that can supply branded and private label optical and sunglasses frames to retailers in large volumes.

Key brands produced under licence include Superdry, O’Neill, Caterpillar, and Radley. While major customers include global optical retailers (including Specsavers, Boots, and Vision Express), global non-optical retailers (including ASOS, Costco, and WalMart), independent opticians, web-based retailers (including GlassesUSA.com), as well as global distributors of eyewear (including Bode and Vistan Brillen).

What’s your three-point investment thesis?

  • Growing and non-cyclical market: Eyewear is a non-cyclical market: people that need glasses buy glasses. The global market was valued at $148 billion in 2020 and is expected to grow by an annualized 8.5% between 2021 and 2028.
  • Vertically integrated model: Inspecs’ vertically integrated model allows it to have greater control over its supply chain, which should improve costs and quality over the long run. While this model will incur higher capital costs initially, it will make the business more sustainable and less dependent on outside organizations.
  • High growth rate and strong profit margins: The company increased revenue by 6.9% between 2018 and 2019, whilst maintaining a gross profit margin of about 45%. Broker Peel Hunt has forecast a jump in sales from $45 million to $241 million from 2020 to 2021.

What are the key events you’re watching?

  • COVID-19 bounce back: The company suffered in 2020 from the enforced closure of opticians and other bricks-and-mortar retailers that sell their products and manufacturing/distribution challenges during the pandemic. I will be interested to see if the company can return to or outdo the levels of sales made during 2019.
  • Further acquisitions made and licensing deals.

What’s the upside potential if your thesis is correct?

At the time of writing, the share price is 380p. I estimate at least a 50% upside if the company recovers fully from the pandemic and meets its forecast sales growth rate.

What are the big risk factors you’ve spotted, and how do you plan to mitigate them?

  • Analyst coverage of the stock is very limited, meaning I have little ability to monitor the performance of the company outside of reporting periods. Given that I intend this to be a long-term hold, I am not too concerned about the infrequency of updates.
  • The company’s business model is partially dependent on striking licensing deals with good brands. If Inspecs is unable to licence popular brands, their products may not sell as well as “cooler” brands, such as those owned by competitors like industry giant EssilorLuxottica.

Do you buy into Caspar’s Inspecs pitch? Drop us a line here.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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