Deutsche Bank Highlights LVMH´s Defensive Character

Deutsche Bank believes that the luxury sector faces a tough macroeconomic scenario, with many risks in Europe, among other factors.

Leeson. 15/07/2015
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In recent days, several analysts have agreed that LVMH is one of the best options to invest in the luxury industry thanks to its defensive positioning. The most optimistic has been Deutsche Bank, which has even improved its rating on LVMH to «buy» with a target price of €175. For the analysts of the German bank, Louis Vuitton has several defensive qualities that place it as a preferred option for an industry that is not at its best time, which is facing tough times.

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Deutsche Bank believes that the luxury sector faces a tough macroeconomic scenario, with risks in Europe, falling customer traffic in Hong Kong and a pricing structure on a global level that is too wide, leading to inefficiencies (for example, prices in mainland China are 50% up vs. France). Within the sector, however, they highlight the company led by Bernard Arnault.

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In their opinion, LVMH has defensive characteristics like product (and brand) diversity and momentum, as it is launching new products and increasing prices. This price increase should support business growth in the second half of this year. This effect, combined with the repositioning that is taking place with several of its brands, can help sustain these higher average selling prices.

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Regarding its units, Deutsche Bank experts emphasize the behavior of its cognac business, led by Henessy. Last year, the profit of this division fell 25%, while this year may grow back in the second half in China. In its report, Deutsche Bank points out that the next catalyst may encourage (or discourage) purchases will be its first-half results, which will be announced on July 28.

Cognac Hennessy
Hennessy Cognac

Its stock market value has been encouraged by the report. After the collapse last week, which it fell below €150 per share, its shares are now trading back above €160, with a potential rise to 10% to reach the target price set by Deutsche Bank. LVMH rises 20% so far this year and it´s worth €80 billion.

Disclosure: The author is not responsible for the views expressed in the article. The text was written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.


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