LVMH Moët Hennessy Louis Vuitton SE, better known as LVMH, is a French multinational luxury goods conglomerate, native of France and headquartered in Paris. Christian Dior, the luxury goods group, is the main holding company of LVMH, owning 40.9% of its shares, and 59.01% of its voting rights.
Price target increase
Last Tuesday, LVMH released their sales and revenue for Q117 and once again they smashed estimates.
Having gone through my model, we increased the price target from €210 to €225.
The increase in price target is a result of an increase in the forward P/E from 24x to 26x given the resilience and strength of this Group.
Investment rationale:
* The shares have clearly outperformed the market this year given the positive outlook on the Group and sector. Year-to-date, LVMH shares are up 16% compared to the CAC Index which is up 5%. This is an outperformance of 11%.
* LVMH 1Q sales delivered a beat across the board. We expect 2017 and beyond to remain positive for the Group
* Don’t forget this Group outperformed even during the Asian crisis when retail was getting slaughtered due to concerns China was slowing down. LVMH was still managing to outperform consensus
* All brands within the group are well known brands doing exceptionally well
* What was truly impressive though is that ALL divisions were up double-digit, which was last seen in 1Q11. The strength of all group businesses continues to drive outperformance in all key categories:
o Wines & Spirits Q1 17: 13% organic growth (expected 5%)
o Fashion & Leather Goods Q1 17: 15% organic growth (expected 9%)
o Perfume & Cosmetics Q1 17: 12% organic growth (expected 7%)
o Watches & Jewellery Q1 17: 11% organic growth (expected 6%)
o Selective retailing Q1 17: 11% organic growth (expected 8%)
* Other analysts are also increasing their price target on this stock given the strength of this company being priced in
* Management is going through a cost cutting exercise which should improve margins going forward
* LVMH is well positioned to benefit from improved economic conditions
Concerns
* The group stated that the c20% growth in cognac was volume-driven and this could have implications for stock levels later in the year
* The group also indicated that the trends currently being observed ‘cannot reasonably be extrapolated for the full year’
* Geopolitical risks
These figures reported are much better than we expected. Impressively all divisions were in double-digit growth. We expect Fashion & Leather Goods to be the main focus in 2017. If global economic growth continues picking up, LVMH will continue outperforming the market.
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.