About the company

LVMH is a French multinational luxury goods conglomerate, headquartered in Paris. The company was formed by the 1987 merger of fashion house Louis Vuitton with Moët Hennessy, a company formed after the 1971 merger between the champagne producer Moët & Chandon and Hennessy, the cognac manufacturer.

Investment Thesis

Since the start of the year LVMH shares have outperformed the CAC 40 index by 7%. LVMH are up 11% year-to-date compared to the CAC 40 which is up 3%.

This outperformance came mainly due to the strong results reported by the company and resilient outlook. LVMH is well-positioned to continue to benefit as global growth picks up.

We maintain our overweight stance on LVMH and increase our price target to €210 from €200/share. The main reason for this increase is improved margins going forward, mainly due to a lower capex/sales ratio.

Rationale for our Overweight Recommendation

We remain overweight on LVMH with a price target of €210 per share for the following reasons:

• Well-diversified portfolio of different brands – over 50 brands across 5 sectors
• We expect to continue to see a pick-up in sales of wines and spirits. The Group is no longer going through a destocking phase like in 2015.
• We expect to continue to see Tag Heuer and Bulgari outperform expectations in their respective categories
• We expect to see continued improvement from the fashion and leather goods segment after the launch of new products by Louis Vuitton in the first quarter of this year
• We expect high margins due to lower capex/sales ratio. Having said this, our price target of €210 is assuming constant margins in the years ahead in order not to be too optimistic.
• The pick-up in global growth is favourable for cyclical stocks like LVMH
• The Group is benefitting from emerging market growth
• Political risks are abating in France as Macron seems to be taking the lead in the Presidential race. A positive for French equities
• We expect a stable tax rate of 32% going forward
• LVMH plans to pay a final dividend of €2.6 a share to shareholders on the record as at 20.04.2017 (it goes ex div on 19.04.2017)

Outlook

What interests us most was managements’ positive outlook for 2017 which we believe the Group will be able to achieve. They said the Group is well-equipped to cope with a climate of geopolitical and currency uncertainties and to maintain growth momentum across all business areas in 2017.

Disclaimer:
This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is 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. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

 

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