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Louis Vuitton remains fashionable in equity portfolios

A strong Q3 for the luxury brand

Photo: Shutterstock

Photo: Shutterstock

LVMH released their sales and revenue for Q3 17 and once again they smashed estimates. 

Having gone through our model, we increased the price target from €225 to €255. 

About the Group

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.

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 34% compared to the CAC Index which is up 14%. This is an outperformance of 20%.

· We expect the Group to continue generating an EBIT margin of between 19-20% in the coming years

· LVMH 3Q 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 continue to register strong growth. The strength of all group businesses continues to drive outperformance in all key categories:

o Wines & Spirits Q3 17: 4% organic growth 

o Fashion & Leather Goods Q3 17: 13% organic growth 

o Perfume & Cosmetics Q3 17: 17% organic growth 

o Watches & Jewellery Q3 17: 14% organic growth

o Selective retailing Q3 17: 14% organic growth 

· Other analysts are also increasing their price target on this stock, given the strength of this company

· 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

· Cognac was the weakest part driven by supply constraints as the group has warned all year

· The group also indicated that the trends currently being observed ‘cannot reasonably be extrapolated for the full year’

· Geopolitical risks 

Conclusion

These figures reported are much better than we expected. Impressively, all divisions continue to report strong growth figures. 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.  

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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