2023-09-10 05:00:00
(BFM Bourse) – The Sino-British bank HSBC took stock of the values of the luxury sector in a note. She recommends buying LVMH, Richemont, Moncler and Prada.
Luxury was probably the sector not to be missed at the start of the year, with hopes fueled in particular by the economic reopening of China. But the good dynamic has taken a turn for the worse in recent weeks.
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The Chinese situation now worries more than it excites. And several groups reported a marked slowdown in their growth in the United States in the second quarter. The pan-European Stoxx Europe Luxury 10 index, which brings together the big European names in the sector, is now at 3358.6 points compared to 3800 points on July 14, a drop of 11.6%. Symbolically, LVMH lost its status as the largest European capitalization during this movement to the benefit of the Danish pharmaceutical group Novo Nordisk.
HSBC also notes this air gap in a note published this week. “Despite broadly in-line results, stocks in our coverage are on average down 10% since July 14, when the first luxury company in our coverage (Burberry) kicked off the season results,” wrote the financial intermediary on Wednesday.
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Towards an inflection in the fourth quarter?
This while luxury groups will face a demanding basis of comparison in the third quarter.
Other factors might come into play, explains HSBC in its note, which is also full of references to the rock group “The Doors” (the title of the note is also entitled “Riders on the storm”, their best known piece).
The bank explains that sales by local customers in Europe and Japan might begin to normalize, that sales in mainland China are likely to decelerate, and that the “American cluster” (the spending of Americans at home but also abroad foreigner) probably remained “sluggish” this summer.
The situation should nevertheless reverse in the fourth quarter, with a more lenient basis of comparison and, perhaps, a recovery in the United States. “While we understand that aspirational luxury is finding itself a little under pressure in the United States, the market is still somewhat emerging and we see a lot of recruitment of new consumers to come,” emphasizes HSBC.
LVMH has many assets to reassure
In this context, what values can be distinguished? The bank still recommends buying four stocks.
The first is none other than LVMH. Certainly, HSBC reduced its price target on the company, going from 1025 euros to 950 euros. But this target still gives the stock a potential of almost 30%. For the bank, the number one luxury company has “a lot to reassure long-term investors”. She points out that two of the group’s flagship brands, Louis Vuitton and Dior, are currently making investments to support their attractiveness. With promising prospects.
“At Louis Vuitton, Pietro Beccari, the new president and CEO of the brand, a defector from Dior, began to implement ambitious and daring projects in order to move the brand to the next gear”, a brand which “might achieve a turnover of 30 billion euros over the next four or five years”, underlines HSBC. At the start of the year, Bernard Arnault, CEO of LVMH, made a small departure from the rule that the group does not communicate its revenues by brand by revealing that Louis Vuitton had exceeded 20 billion euros in revenues. in 2022.
“Overall (…) we believe that LVMH increasingly stands out from its peers by developing partnerships, real estate opportunities and a brand desirability that will be difficult to match,” considers HSBC.
The establishment expects like-for-like growth of 15% in LVMH sales this year as well as an increase in earnings per share of 13%.
Prada, soon in the big leagues?
Three other values are favored by the Sino-British bank. This is the case of the specialist in luxury down jackets Moncler, listed in Milan, which should outperform other luxury groups with an increase in its sales of 21% on a comparable basis expected this year by HSBC. The company has “a visionary management team”, appreciates the bank.
Listed in Hong Kong, Prada is seeing its momentum accelerate and the brand might join “the first division” in the sector, thanks to strategic decisions which are bearing fruit, underlines the establishment.
Latest value recommended for purchase: Richemont, the parent company of Cartier, which saw its share price plunge (-10.4%) following the publication of its quarterly sales in mid-July. But for HSBC this fall is not justified and the current price “implies an unprecedented level of fear and lack of confidence”.
Hermes too expensive
Concerning other French luxury values, the establishment remains to be “kept” on Hermès. The family group remains a relatively defensive stock within the sector and can even benefit from a “flight to quality” movement in difficult times. But its valuation remains too high for HSBC to buy, with the stock trading at 47.8 times expected earnings in 2023, compared to less than 22 times for the sector as a whole.
The bank also remains a “hold” on Kering, whose flagship Gucci has gone from “stellar” growth to a now disappointing business that underperforms other luxury brands. “Recent management changes show that Kering is tackling Gucci’s problems but the results may take time to appear,” considers HSBC.
Julien Marion – ©2023 BFM Bourse
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