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About the company

LVMH is a French multinational luxury goods conglomerate, headquartered in Paris. The company was formed by the 1987 merger of fashion house Louis Vuitton with Moët Hennessy, a company formed after the 1971 merger between the champagne producer Moët & Chandon and Hennessy, the cognac manufacturer.

Investment Thesis

We maintain our Overweight stance on LVMH with a price target of €200/share. Post the 2016 results, we are confident that the Group delivered and will continue to deliver positive results in the years ahead.

About the Results

LVMH Moet Hennessy Louis Vuitton reported results last week which were above our expectations after the company experienced signs of a strong comeback in the luxury sector. And it’s not just the strong demand for Louis Vuitton and Fendi bags that made 2016 an excellent year for the Group but all categories within the Group were star performers, each pulling their weight.

The Louis Vuitton Brand managed to make a strong comeback thanks to store refurbishments combined with new products. The positive trend and strong demand we saw in 2016 is expected to continue in 2017.

TAG Heuer (another premium brand in the Group) gained market share and benefited from new collections and its connected watch.

LVMH Spirits which account for 34% of sales and 56% of operating profit continued to see expansion in sales, helped by a pick-up in demand from China.

Outlook

What interests us most was managements’ positive outlook for 2017 which we believe the Group will be able to achieve. They said the Group is well-equipped to cope with a climate of geopolitical and currency uncertainties and to maintain growth momentum across all business areas in 2017.

Rationale for our Overweight Recommendation

We remain overweight on LVMH with a price target of €200 per share for the following reasons:

  • Well diversified portfolio of different brands – over 50 brands across 5 sectors
  • We expect to continue to see a pick-up in sales of wines and spirits. The Group is no longer going through a destocking phase like in 2015.
  • We expect to continue to see Tag Heuer and Bulgari outperform expectations in their respective categories
  • We expect to see continued improvement from the fashion and leather goods segment after the launch of new products by Louis Vuitton in the first quarter of this year
  • We expect to see stable margins at this stage. Although it would have been better to see an improvement in margins, given the current global risks, we expect margins to come in line with last year.
  • LVMH plans to pay a final dividend of €2.6 a share