LVMH: UBS remains a Buy
(AOF) – UBS reiterates its Buy recommendation on LVMH and raises its target price to €832 from €749. The analyst maintains this is due to “the resilience of LVMH brands, especially in the face of a possible slowdown, product upgrades, prices in an inflationary environment and the continued support of the mix due to the upside risks of China’s reopening.”
UBS also believes that “LVMH offers investors the most defensive growth profile in the luxury industry (around 25%) thanks to the combination of its well-managed brands and exposure to ‘consumer’ products”. Furthermore, the analyst believes that “the group’s historically disciplined Capital allocation approach offers even better potential through future mergers and acquisitions.”
AOF – DETAILS
Key points
– born in 1987, a world leader that includes 75 luxury houses, including 25 centenaries (Louis Vuitton, Moët Hennessy, Dior, Céline, Givenchy, Guerlain, Kenzo, Bulgari, TagHeuer, Tiffany, etc.);
– Strong geographical positions with €44.7 billion in revenue between 8% France, 16% Europe, 24% USA, 7% Japan and 34% Asia;
– Balanced division of activities between two historical businesses – 47% fashion and leather goods, 11% wines and spirits and selective distribution for 23%, 12% perfumes and cosmetics and watches and jewelry;
– Operating model based on 6 pillars: decentralized organization, vertical integration of supply to distribution channels (DFS, Miami Cruise, Sephora and Le Bon Marché in Asia), continuity of know-how, balance of activities and locations, synergy and internal growth;
– Capital held by the Arnault family group (47.3% of the capital directly and indirectly and 2/3 of the voting rights), Bernard Arnault is the chairman and CEO of the 15-member board of directors.
Challenges
– Innovation strategy serving 3 challenges: talent attraction: Institute of Fashion Excellence Professions, “Inside LVMH” program for students, DARE program for internal innovation, hosting 50 start-ups in “LVMH Luxury Lab” incubator / cosmetics R&D (200 patents and “research centers) / digitization of distribution networks and customer experience;
– “LIFE 360” environmental strategy: creative circularity: 100% eco-design of products and zero-residue plastic packaging in 2030 / transparency with traceability of all supply chains in 2030 / climate commitment (15° trajectory and 100% for retail renewable energy) sites in 2030) / biodiversity: 5 Mha in 2030 (2026) ecosystem protection and flora and fauna regeneration certification;
– Possibility of price increase in jewelry and watches, very competitive sectors.
Learn more about the luxury sector
A few more years of market boom
According to Bain & Company, the global luxury market (fashion, cars, hotels, wines and spirits, cruises, etc.) will register a 21% increase in sales in 2022, reaching 1.384 billion euros. The luxury personal goods segment (jewellery, clothing, watches, leather goods, etc.) should grow by 22% and again by 3% to 8% in 2023, despite the expected economic slowdown. By 2030, the growth will reach 60% and should continue in the following years! American spending in Europe more than doubled between 2019 and 2022, according to Bain. This development is mainly explained by the strong dollar. On the other hand, the Chinese market is at half-mast due to the “zero Covid” policy and strict lockdowns.
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