LVMH is worth more than 400 billion euros, a first in Europe

Paris Fashion Week, Men’s Summer 2023 season begins today under the best patronage: the capitalization of the world’s number one luxury goods company LVMH exceeded 400 billion euros for the first time in its history at a meeting on Tuesday. This is the first time a European company has exceeded this limit. By the way, this new record puts the Arnault family (again) at the top of the world’s great fortunes, with a 47.44% stake through the Dior SE holding company. Overall, LVMH confirms its position as the leading European capitalization and now ranks thirteenth in terms of global capitalization, far behind the world number 1 Apple and its 2,000 billion euros. The group was ranked eighteenth in the world just a year ago.

This performance reflects the good health of luxury stocks. After 2022, which once again demonstrated the resilience of the stock sector, they continued to rise strongly from the beginning of the year. Thus, LVMH gains around 16%, Hermès or L’Oréal 14%, and Kering 17% after a more difficult year. It is also the luxury sector with an overweight in the CAC 40 index (30%), which outperforms the Paris Stock Exchange by almost 7,000 points.

China award

This sudden increase appears to be somewhat chaotic after three years of health restrictions, among the strictest in the world, but it benefits from China’s economic reopening. However, the stock market performance of luxury stocks is above all based on solid results for the first nine months of 2022. This showed in passing that these stocks could do very well without Chinese customers. Thus, despite an already excellent 2021, LVMH grew by 28% to 56.5 billion euros as of September 30, 2022. Leather goods have confirmed their status as a luxury jackpot by an indecent margin. This made the fortune of Hermes, whose capitalization increased sevenfold in ten years.

“These good results (from LVMH, editor’s note) mainly due to the currency effect, which had an 8% positive impact on the group’s internal growth”, Antoine Fraysse-Soulier, financial analyst at eToro, says. American customers (or those from the dollar zone) really took advantage of the weakness of the euro against the dollar to buy luxury goods, thus making up for the lack of Asian customers.

2023 also looks promising for the sector. A return to growth in China and potentially a return of Chinese tourists – which should be fairly slow-moving though – is mechanically a plus for luxury group turnover.

But growth relays are not limited to Asia. “High social categories still have a lot of savings, which should limit a possible reduction in their consumption in the event of an economic slowdown in 2023. “, says Frédéric Ducrozet, head of macroeconomic research at Picter Wealth Management.

High prices

The only cause for concern might be the high valuation levels that Tech stars have nothing to envy. Hermès pays around 50 times its estimated 2022 earnings, while LVMH is capitalized at more than 25 times its 2022 earnings (versus the Eurostoxx 50 average of 12).

We can expect consolidation as these values ​​may have risen too quickly Alexandre Baradez, head of market analysis at IG France, warns. The latter explains that Chinese consumption may be slowing with the real estate crisis affecting the savings of the middle and upper classes. ” We are also not immune to China’s recapture, which would be very bad news for the sector. “, adds Antoine Fraysse-Soulier, but he does not think that luxury companies are currently overvalued. “We will have to wait until the second quarter of 2023 to see the positive results of China’s reopening. Frederic Ducrozet says.

The reality above all is that the appetite of investors remains unchanged: all managers want luxury in their portfolios, including those who claim a growth management style, and passive management cannot do without the sector, at least in Europe.

Different trajectories

However, not all value in the sector is created equal. ” Diversification is important in this sector “, insists Antoine Fraysse-Soulier. Thus, LVMH, which diversified strongly in the United States with the acquisition of jeweler Tiffany in 2021, took full advantage of the rising dollar.

Kering, on the other hand, is struggling to extricate itself from the weight of Gucci, which accounts for more than half of turnover, but above all 75% of operating profit in 2021. However, the wildly successful Gucci’s profits have been running out of steam in recent years, and the departure of its emblematic artistic director, Alessandro Michele, and a radical change in the house’s style have logically unsettled investors.

Hermes is an example of an exchange running for a title based on exceptional margins. It was Hermès who practically invented the constant sales concept: increasing prices rather than production. And it works, and customers sometimes have to wait a year before they can buy certain iconic bags from the range (despite the very high prices). We come across a bit of the world of luxury “supercars” like Ferrari or Lamborghini.

The brand has very loyal customers who are willing to buy their products even if the prices are too high Antoine Fraysse-Soulier confirms. Thus, Hermès posts a net profit margin of 28% in 2022, versus 18% for LVMH and 19% for Kering. But LVMH’s younger brother is also more fragile. ” Hermès is not very diversified and is valued more expensively than its competitors on the stock marketFrom them many times more than LVMH”, nuance analyst.