Natixis: Caution with Luxury Industry Valuations

According to analysts of this company, valuations of major companies in the luxury sector do not currently reflect the risk of a deeper slowdown in global economic growth. Natixis estimates that current forecasts of global GDP growth for 2016, currently at 3.4%, are suggesting an expansion of the industry by 5%.

However, it warns that these GDP forecasts are falling, which could affect the growth of the industry. In its view, several factors may weigh on results in the luxury sector. One is the evolution of the currency market, which has helped a lot this year, especially to European companies. Natixis fears that next year FX market may become “trickier”.

On the other hand, these experts believe that retail space growth possibilities are limited and notice prices will rise “softer”, so companies should get used to living in 3-5% growth environments over previous 7-8%. This will require greater efficiency, more financial discipline and optimal mergers and acquisitions.

Natixis has also developed a list of preferred and less attractive stocks. Among the high quality stocks, it prefers Richemont (recommending overweight) over LVMH (cut its rating to neutral). Among the high-beta stocks, it likes more Kering (overweight) than Swatch (also worsened to neutral). For Natixis, defensive stocks such as Hermes and Luxottica seem to be pricey. Finally, in the report it has reduced target prices of companies across the sector, including Burberry, Hugo Boss, Kering, Luxottica, LVMH and Prada, among others.