Luxury & Consumer Goods : A more uncertain backdrop short term

News published on October Wednesday 10, 2012
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As a whole, the Luxury sector has performed well since the beginning of the year, with our sample of stocks gaining 15% on average, even though the shares have had a more stable ride on average over the past three months. We are slightly more cautious on the sector and have downgraded our recommendations on LVMH, Christian Dior, Swatch and BIC from Buy to Neutral. We initiate Prada with a BUY and a HKD70 FV.

  • Whereas Q1 was still very dynamic with organic sales growth of 18% on averagefor the groups in our Luxury sample, Q2 growth slowed to 13%, implying average growth over H1 of 15% (13% excluding Prada). 
  • H2 2012 is set to confirm this slowdown, which could even worsen. Excluding Prada, we are forecasting average growth of 8-9% in H2 2012, thereby pointing to FY sales growth of 10%. This slowdown is set to stem from: (i) local clients in Europe who are victims of higher selling prices and a disadvantageous tax backdrop, (ii) a less-attractive situation in China due to the combination of economic slowdown, political aspects (18th Communist Party Congress), slower momentum in the gifting market and Chinese consumers seeking out new brands and product lines. 
  • Within the sector, we have downgraded our recommendations on LVMH (FV: EUR140), Christian Dior (FV: EUR127) and Swatch (FV: CHF420) from Buy to Neutralin order to take account of a more uncertain backdrop. We have also downgraded BIC from Buy to Neutral in view of its now limited upside following the share's 36% rally since the beginning of 2012. We have made no change to our recommendations on other stocks in the sector.  
Our Top Picks are Luxottica (FV: EUR31) and above all Prada, for which we have initiated our coverage at Buy (FV: HKD70).

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