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LVMH shares never go out of fashion

Photo: Shutterstock

Photo: Shutterstock

LVMH Moët Hennessy Louis Vuitton SE released Q1 2018 revenue results and once again impressed the market. Having gone through our model, we increased the price target from €290 to €305.

Main highlights from the Q118 revenue release:

• Good start to year with double-digit growth
• Despite strong negative currency impact partly offset by positive perimeter effect
• All business groups and regions contributed to organic revenue growth
• Good performance of Wines & Spirits
• Creative momentum at Louis Vuitton drove its strong performance
• Christian Dior Couture, integrated since July 2017, continued its good momentum from H2 2017.
• Other fashion brands performed well.
• Continued robust growth at Parfums Christian Dior, driven by all product categories.
• Sustained impressive increases at Bvlgari
• Sephora’s growth continued in key regions
• Strong increases at DFS in Hong Kong and Macao

Investment rationale below:

• We expect the group to continue generating an EBIT margin of 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 1Q was a strong quarter for the group with all business groups and regions contributed to organic revenue growth.
• 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 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 seen as a positive as 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.

Conclusion

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.

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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