We have reviewed L’Oreal shares and feel comfortable with a price target of €195 on the stock.
About L’Oreal
L'Oreal SA is a French cosmetics company headquartered in Clichy, Hauts-de-Seine with a registered office in Paris. It is the world's largest cosmetics company and has developed activities in the field of cosmetics, concentrating on hair colour, skin care, sun protection, make-up, perfume and hair care.
Rationale for our overweight recommendation:
• We have a price target of €195 on the stock which represent a potential upside of 6%
• The shares are trading on an indicative gross dividend yield of 2%
• It’s a world leader in beauty products, currently present in 130 countries
• The two largest departments; skin care and make-up, have constant growth. We expect to see further progression in these departments particularly from emerging markets
• Its last quarter was record in growth in Sales and EBIT and expect further improvement going forward
• We expect a strong growth in combination to the development of the Asian market. Asia’s middle class purchasing power is increasing and this is affecting positively L’Oreal’s revenue
• L’Oreal has seen a really large skin care growth. Mostly by the Asian Market – China, Hong Kong, Japan
• L’Oreal pulled their weight with Lancome, which is growing in territory
• L’Oreal is leader in the e-commerce of beauty products. We also expect that this growth will lower cost as time goes by slowly
• The four largest markets of L’Oreal are USA, China, France and Germany. All of the mentioned countries have strong economies
Risks to the model
• A slowdown in global growth particularly in Asia where the company is benefitting most from growth
• Slower growth from online sales
• A global recession
• Currency headwinds
• Increased competition
Conclusion
L’Oreal should be considered as a core holding in a portfolio. For the long-term investor, the stock offers attractive capital gains and a decent dividend yield. Additional positives in favour of this investment is a management team which is working to improve the efficiency of the company and a business model which is cyclical and will benefit from an improvement in global growth.
Disclaimer:
This article was issued by Bernardo Serrano Vazquez, investment management support officer at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, view 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. 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.