LVMH could lead year of return to luxury | Financial markets
Luxury brand Moët Hennessy Louis Vuitton (LVMH) is shining again in the market after starting the year with a slump. The improvement came after the presentation of 2023 results, where record profits were achieved with an increase of 8%. That said, the company has already added nearly 10% to the stock market’s gain this year and is demonstrating its strength in the face of an adverse consumer environment such as rising interest rates and escalating inflation. HE …
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Luxury brand Moët Hennessy Louis Vuitton (LVMH) is shining again in the market after starting the year with a slump. The improvement came after the presentation of 2023 results, where record profits were achieved with an increase of 8%. That said, the company has already added nearly 10% to the stock market’s gain this year and is demonstrating its strength in the face of an adverse consumer environment such as rising interest rates and escalating inflation. It is again the European company with the highest valuation, at €403.68 billion, compared to Novo Nordisk’s €363.4 billion.
The market continues to believe in the continuation of this trend (71% of analysts recommend buying, 26% – holding) and again hopes for a positive year, although not without uncertainty. “LVMH will demonstrate its resilience in 2024,” says Bank of America (BofA), which counts the French firm as one of its favorites in the sector. The bank notes that the latest results “are further proof of LVMH’s unique qualities” and states: “Above all, the expansion in margins in the second half of 2023 shows its ability to quickly adjust its costs and benefit from the diversification provided by its many divisions. On the other hand, management’s focus on the brand is reflected in constant product innovation, which drives both volume and price-to-business ratios.”
Moreover, after falling 26% between April and October last year and despite the recovery achieved, BofA believes that the current multiple (PER of 21 times) “does not reflect the characteristics of its investment: industry market leader in structural growth, with high barriers to entry and strong pricing power, a solid portfolio of brands and divisions that provide a unique balance between strong cash generation and a defensive and cyclical approach.
The bank forecasts a slowdown in the sector in 2024 (especially in the first half, where it estimates growth of 1%), “mainly due to a consistent decline in demand from the Americans and Europeans, which in turn creates tough competition, although LVMH has proven in the past that it takes a defensive position in weaker situations.”
According to Elena Fernandez-Trapiella Janssen of Bankinter, “a healthy financial position (net debt/EBITDA of 0.4 times) and strong cash generation capacity give the group the opportunity to continue investing in innovation and marketing and capture market share while improving shareholder policies. reward. Although visibility is limited in the next two quarters, in addition, on a demanding comparison, the group demonstrates the ability to maintain growth and protect these profits.” Citi agrees with the company that “2024 could be another year of normalcy, more calm than difficult.” In his view, the keys will be “confidence in continued growth and margin protection in 2024 with lower interest rates and inflation, a post-election demand boom in the US and increased domestic spending in China”, which accounts for more than 30% of sales.
On the other hand, Divacons AlphaValue highlights the potential of retail brands such as Sephora and DFS (duty free), owners LVMH, which account for 19% of total sales, being the second revenue-generating segment. “These networks are strong for two reasons: they provide important beauty synergies through large distribution networks and sell competing products without being forced to invest in acquisitions. Therefore, they have access to a wide range of products at different price levels,” the company comments.
Higher target price and little potential
Up to 1000 euros. Market consensus compiled by Bloomberg has set the average target price for LVMH shares at 831.32 euros, just 3% above current levels. However, some analysts are raising their estimates. This is the case with Goldman Sachs, whose valuation rose from 980 to 1000 euros and is the highest at the moment. “We continue to favor brands that can demonstrate market share leadership and strong pricing power, scalable revenues and the ability to sustain margin expansion, and favorable growth-adjusted valuation metrics.” “In this context, we believe LVMH looks attractive relative to its peers,” they said. The French group will hold a shareholders meeting on April 18 and will pay a gross dividend of 7.5 euros on the 25th.
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