Investors are indecisive about Coty. Here’s why…

Share prices peaked at $32 in 2015, when the $12.5bn P&G acquisition was confirmed last year, but have fallen back to the mid $20s so far in 2016, figures that reflect both the enormous potential Coty’s expansion plans entail, as well as the challenges

For the financial year 2015 Coty’s revenues came in at $4.4bn a decrease of 3% compared to the previous year, but that was largely impacted by negative currency translations.

With the acquisition of the Hypermarcas and P&G brand portfolios, that turnover could well triple once the brands are integrated into the Coty’s portfolio, reflecting the enormity of the challenge executives have taken on and tremendous opportunity.

Business infrastructure​

Those Coty executives are making moves to put the right business infrastructure in place, including the announcement that it will move its global headquarters to London to reflect the more global outlook of the business.

Likewise, the company also acquired digital marketing business Beamly, a move that aims to help it grow its all-important presence in the digital sphere, where the future lies for the engagement of younger consumers.

The challenges of a smaller business taking on a larger business are obvious, but Coty is well-placed in two of the fastest growing segments in the global cosmetics and personal care market – premium color cosmetics and fragrances.

Focus on fastest growing categories and portfolio diversity​

Furthermore, the acquisition of the Hypermarcas brands has diversified the business, giving it exposure to mass market hair care and skin care brands, although that is likely to be more of a long-term investment, given the current state of the market in Brazil.

But the main way forward for Coty is likely to continue to be in the premium market, where fast growth continues to be observed, particularly for fragrance and color cosmetics.

This direction was underlined by last month’s announcement that the company had secured the fragrance license for Tiffany’s & Co., one of the world’s most renowned upmarket retailers and a deal that is likely to be highly lucrative for Coty.

Although Coty’s short-term future has many hurdles to overcome, if those challenges can be successfully tackled, in the longer-term Coty has positioned itself to be one of the world’s top cosmetic companies and a force to be reckoned with, which could make it a good bet for longer-term investors.