L’Oreal reported a revenue figure for Q116 of €6.5bln, higher than the €6.4bln figure reported in Q115. The Company managed to increase sales year-on-year, something which we are not seeing with most companies which have reported results so far.
After the positive results and outlook for 2016, we are confident that the company is on the right track despite global concern issues.
We continue to keep our €162/share price target with a neutral recommendation.
However, we continue to recommend the shares for the following reasons:
• The shares have managed to outperform the market in the very volatility first quarter of this year, limiting the damage on performance
• Year-to-date, L’Oreal is up 4% compared to the CAC 40 Index down 6% and the SX5E Index down 8% - this proves that shares of L’Oreal managed to outperform the market in difficult times
• This outperformance is the result of strong fundamentals coupled with strong growth forecasts despite global growth concerns
• The Group has strong net cash of €11bln enabling it to continue increasing its market share through acquisitions, increase dividends and/or buyback shares
Other positives
• World sales leader in the global beauty market followed by Unilever and Proctor & Gamble
• The Group saw growth in all divisions. We are seeing growth across Europe, the US and emerging markets. The only country which is lagging is Brazil due to the difficult economic situation. Had Brazil not weighed on performance, emerging markets would have contributed double digit growth. We are confident that the Group will continue to increase its sales across all regions as it continues to:
o Gain from economies of scale
o Growth through acquisition – L’Oreal made seven acquisitions in the past two years. We expect management to continue increasing market share by buying additional companies at more attractive prices due to global growth concerns
o Focus on growth in emerging markets as we are seeing the middle class in these markets continue to increase. Management are targeting this new middle class in order to continue increasing its top line
• The company reported its best quarter in almost three years
• Very strong cash position
• Growth of +35% in ecommerce. Growth through sales over the internet is
something which a lot of companies are focusing on. We continue to see growth from online sales and expect this to continue as the company continues to add additional products to its online portal
• The Body Shop which is normally the weak link in the Group and a drag on performance reported an increase in sales. We are confident that The Body Shop could continue generating positive results towards to Group as management continue restructuring the business
• Share buyback - Between February 15 and March 18, 2016, L'Oréal purchased 3,202,500 of its own shares.
The negatives
• Global growth concerns remain a worry
• Increased competition in competition could be a threat to increasing market share
• Currency headwinds
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.