LVMH have released results for Q417 and FY17, and once again they smashed estimates.
Having gone through our model, we increased the price target from €255 to €290.
We believe LVMH is well-positioned to benefit from future growth. We don’t expect the optimism being reported by the Company on its performance to slow down anytime soon. The strong product mix, favourable environment, strong position in Asia as well as favourable tax rates from the US going forward make LVMH excellently positioned to continue to benefit from global growth.
We recommend that LVMH should form part of the core holdings in a well-diversified portfolio.
Investment rationale below:
· We expect the Group to continue generating an EBIT margin of between 19-20% in the coming years. The current EBIT margin of the Group is 19.41%
· Our price target is based on a forward P/E of 27x. We would not be surprised if this had to increase to 30x given the strong positive momentum we are seeing in the sector
· LVMH 4Q was a strong quarter for the Group and management are seeing the same momentum build in the initial months of 2018
· Management remain optimistic about the future
· Don’t forget this Group outperformed even during the Asian crisis (end 2015/ beginning 2016) 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 and doing exceptionally well
· A large number of product launches are ahead
· Potential for price hikes at Louis Vuitton, if the euro continues to strengthen against other currencies
· Asia is the largest market for LVMH. This is considered as positive, since we expect growth from this region to remain strong in the years ahead
· 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
· Geopolitical risks
· Weakness in global growth
· Continued strength in the Euro
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.
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.