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Analyst tips Avon for success

By Guy Montague-Jones , 08-Oct-2008

Avon has been tipped as a company likely to survive and even thrive a recession thanks to its business model and broad geographical spread.

In a client note, Citi Investment Research analyst, Wendy Nicholson said the company is built to withstand economic weakness because of its geographic diversity.

Geographical spread

Less than a quarter of Avon’s sales are made in North America and the company has a strong presence in some of the best performing emerging markets such as China and Latin America.

Nicholson also drew attention to the company’s pricing strategy which should attract beauty consumers who are looking to keep a close eye on their spending.

Trading down

The analyst said a weak economy is beneficial because women who would normally spend their income on more expensive merchandise end up buying Avon products.

Going into troubled economic waters Avon has history on its side, according to Nicholson.

“The company has delivered remarkably good local currency sales growth during financial crises,” she said.

Timely restructuring

Another reason to support the theory that history is set to repeat itself is the completion of Avon’s recent restructuring programme that Nicholson said will help drive investment and widen operating margins.

“Given our expectation that Avon will once again be able to deliver healthy local currency sales growth, despite the tough macro environment, as well as our conviction in Avon's ability to meaningfully expand its operating margins, we believe that Avon represents the best fundamental story in our group,” Nicholson said.

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