Moët Hennessy Louis Vuitton (LVMH) is a French multinational luxury goods conglomerate, headquartered in Paris.
In 2014, the Group generated revenues of €30.6bln which came from the following segments; Wines and Spirits (13%), Fashion and Leather Goods (35%), Selective Retailers (30%), Watches & Jewellery (9%), and Perfumes & Cosmetics (13%).
Not bad for a company that many associate with just leather accessories for men and women. Among its largest brands are Louis Vuitton, Hennessy, Moet & Chandon, Parfums Kenzo, Tag Heuer, Bvlgari, Guerlain and Sephora. LVMH has more than 3000 upmarket stores worldwide and around 100,000 employees.
Although most of the brands within the group are pricey for the consumer, investors who held the stock of this company for 5 years are up 120% on their investment. I guess with that kind of return you’d deserve to go in one of their shops and treat yourself to something nice!
But the story does not stop here. In my opinion the company still has much more to give back to shareholders, and this is why:
Managements’ guidance
Management have a reputation of beating its own guidance. With their positive forecasts for the future, the company is on the right track to continue growing its top line.
Low multiples
The shares are currently trading on a Price-to-earnings ratio (P/E) of 14.6x. This is much lower than the industry average of 28.4x. Hugo Boss, Prada and Burberry are trading on a P/E of 23.9x, 30.4x and 25.6x respectively.
Consumer Cyclical Stock
The shares fall under the consumer cyclical sector. The right place to be in the European equity market at this point in time with Quantitative Easing underway by the European Central Bank. With growth expected to pick up both in Europe and the rest of the world, a company like LVMH should continue to increase its return and be at the forefront of a sustained economic recovery and subsequently equity rally.
Asia remains the group’s largest market
This is a positive because it shows that the company’s demand is not dependant on European demand. Also, it is interesting to know that LV products sold in China are pricier than those sold in Europe.
High margins in the Fashion and Leather Business
EBIT margin in this segment was reported at 30% in 2014. I expect margins to improve going forward as the company increases prices in Europe to converge with those charged in China; a new product line launched in the second half of this year and an improvement in global growth should sustain demand.
Keeping up the pace with competition in the Watch Industry
Tag Heuer which is a Swiss based watch company announced a partnership with Google and Intel to produce a "connected" watch based on the android platform, a move clearly designed to counter the impact of the Apple watch, which arrives in a few weeks.
Sephora - yes it also forms part of the group!
If you travelled with your partner I’m sure you had to stop in one of their shops. Sephora is a cosmetics company that is well known and is expected to continue doing well.
One off restructuring costs in 2014 not expected in 2015
The Groups financials suffered from one off restructuring costs at Tag Heuer and Marc Jacobs which are not expected to be incurred in 2015.
Conclusion
I’ve said it time and time again. The European equity market is the place to be. Look beyond short term fluctuations and take a 5 year view. If you do so, I believe that LVMH should form part of a well-diversified portfolio.
This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.