LVMH, the eldest Europe company by market value, entered the list of 10 companies most valuable in the world.
Thanks to an increase in sales during the first quarter, share price soared 5% on Thursday, accumulating an increase of 29% in the year. This, added to the appreciation of the euro once morest the dollarraised the market capitalization of LVMH to $486 billion, briefly ranking it the 10th most valuable company in the world. If it reached $500 billion, it would become the first European company to achieve that milestone.
“This illustrates the rise of the rich around the world, of a polarized society”, said Gilles Guibout, Head of European Equity Strategies at AXA Investment Managers. “The luxury sector is therefore experiencing strong growth”.
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For an increasing number of investors, LVMH and its French luxury rivals are to the European stock market what big tech has been for the US market: dominant companies whose growth is sustained despite the ups and downs of the economy. In the last decade, the shares of LVMH and Hermes International have returned on average more than 20% per year, and those of Kering, 16%. In contrast, the index Stoxx Europe 600 lags far behind, at just 8.3% per year.
“We have always invested in technology and luxury, but the advantage of luxury over technology is that while there are risks, there is less disruption and obsolescence.Guibout said.
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The strong sales of handbags Louis Vuitton and Moët Chandon champagnewhich have boosted LVMH’s share price, have also increased the wealth of its founder, Bernard Arnault, who, with a fortune of US$198,000 millionis the richest person in the world, according to the Bloomberg Billionaires Index.
The catalyst for growth in the luxury industry this year, as in many recent years, is China. Chinese shoppers are splurging on luxury handbags and jewelry. LVMH’s increased sales show that the demand for expensive products has not diminished despite the global economic slowdown.
The rally in shares of luxury goods companies has cemented Paris’s position as Europe’s largest stock market, dwarfing London. Benchmark CAC 40 Index is on a Record Rollwith gains of more than 15% this year, outperforming other major markets.
Recent gains have pushed the valuation of LVMH at 26 times future earnings, twice the CAC 40. This does not worry Nicolas Domont, fund manager at Optigestion in Paris.
“It has become an essential actionDomont said. “If it continues to have this profitability, I have no problem paying the premium.”
Skeptics say the durability of luxury sales has yet to be tested in recent years by a long economic downturn. In a recession, andAll but the wealthiest shoppers are likely to curb their spending, they say.
“I was wrong to advise my clients to stay away from luxury, but I am convinced (and stubborn) that something has to give and that the risk-reward ratio remains unfavourable,” Laurent Lamagnere, an analyst at Alphavalue SAS in Paris, wrote in a note to clients on Thursday. “I’m still not convinced by the idea that luxury is immune to consumption.”
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