Stock Price: €73 ($109.49)
Conclusion: Stock price close to our valuation range (€75-80 per share). Current P/E look fair considering the resilience of Vuitton (LVMH.PK) but also the low visibility affecting the rest of the portfolio.
Q3 sales down 0.6% reported and 3% like for like. No guidance given for the year.
Less de-stocking in Q3 but continuing weak demand for luxury products.
As expected, like for like growth improved from -7% in H1 to -3% in Q3 (-6% nine months). The bulk of the improvement comes from the segments which fared the worst during H1, watches, spirits and perfumes were less impacted by de-stocking in Q3. The activities which proved more resistant in H1, leather goods and retail, did not really improve in Q3. Vuitton was the exception with sales up around 7% like for like slightly up versus H1.
Q4 will face an easier comparison base (last year, sales were down 1%) notably in wines, spirits and in watches. According to the CFO, champagne and watches will continue to be affected by high inventories. In addition, reported numbers will be impacted by a negative forex swing, leading to -1.5% sales for the year.
We expect EBIT to decline by around 10% and EPS to fall 9.5% to €3.81 in 2009.
A quick turnaround in 2010 looks improbable.
China might again drive sales growth next year. Chinese people make up around 18% of Vuitton sale and 15% of cognac revenues.
However, we do not expect a strong rebound in Europe, the US and in Japan which still account for the bulk of the spending. According to Bain experts, luxury sales could grow by only 1% next year, following 8% decline in 2009. Much of the industry’s upturn will depend on aspirational middle class customers who suffered from the crisis. Wines and spirits could grow faster helped by an easier comparison base.
Reported growth will also be held back by weaker dollar related currencies. We look for 2% growth in sales and 9% EPS to €4.17 per share.
We would be surprised by the sale of MH stake to Diageo at the bottom of the cycle. It would make sense if LVMH could acquire Hermes, Bulgari or Richemont…which are not for sale.
We think that LVMH should further concentrate resources on its key brands, Vuitton, Dior, Moet-Hennessy, Tag Heuer and Sephora. We are less convinced that investing in Kenzo, DKNY, Loewe, Celine or DFS will create shareholder value.
LVMH trades at 19.1x and 17.5x P/E based on our 2009 and 2010 estimates.
We estimate the valuation range between €75-80 per share, which does not leave much upside. Further rerating would require a return to high single digit growth momentum in sales, which seems difficult to achieve next year.