Australia Strategy: Global leaders update: Featuring LVMH

About the author:

Tom Sartor
Author name:
By Tom Sartor
Job title:
Senior Analyst
Date posted:
20 September 2021, 7:00 AM
Sectors Covered:
Junior (Emerging) Resources, Bulk Materials

  • Our Asset Allocation update – Q3 2021 details the logic behind our recommended 26% exposure to international equities for investors with a Balanced risk profile.
  • Recent quarterly results again exceeded expectations across the global leaders, supported by steady progress toward the post-pandemic re-opening.
  • We add luxury brands behemoth Louis Vuitton, computer-chip suppliers Nvidia and ASML and digital payments innovator Square to our watchlist.

International exposure in portfolios

As global momentum builds toward “living with COVID”, we think the cyclical rotation in global stock markets has further to run, driven by a strong economic recovery coupled with significant pent-up demand.

With governments willing to deploy fiscal policy and central banks prepared to let inflation run for now, we think the reflationary backdrop will continue to favour investment in global equities. The strengthening AUD will be a headwind for US exposure, so tactically we prefer hedged exposures.

Profiling LVMH Moet Hennessy Louis Vuitton (LVMH)

LVMH is a France based luxury goods retailer with a portfolio of leading global brands across Fashion, Wines & Spirits, Perfumes & Cosmetics and Watches & Jewellery. Louis Vuitton is the most iconic, and many others including Moet & Chandon, Christian Dior and Hennessy also date back well over 100 years. LVMH is a retailing giant with +€60bn p.a. of turnover and a €340bn market cap.

The global vaccine roll-out has significantly brightened the outlook for consumer spending on luxury goods, particularly in key Asian growth markets. LVMH’s appeal is amplified by its brand power, enabling it to raise prices during the inflationary periods that accompany economic expansion.

Wealthy consumers are already willing to pay more for luxury items, so keeping ahead of inflation shouldn’t be too hard for LVMH.

Recent comments by Xi Jinping have hinted at plans to regulate and redistribute ‘excessive wealth’ within China. His comments caused concern among investors in the luxury goods sector and triggered price weakness. We see no need to panic, but this serves as a reminder of the double-edged sword that China represents for LVMH and its peers, as both its main growth driver and its main risk.

We do note that the healthy integration of global consumer franchises is central to China’s ambitions to transition to a consumer-driven economy, but investors should size their exposure according to their risk tolerance.

22 of 28 analysts covering LVMH rate it a Buy, offering ~24% of capital upside within 12 months. LVMH looks expensive on a 28x PE 12mf but the company is expected to exit the pandemic with earnings +55% higher than when it entered, with potential to further accelerate. This may explain why the Chairman has spent +€440m on acquiring stock in recent months, on confidence that demand for LVMH’s products will thrive after the pandemic.

Recent weakness in LVMH is comparable to other franchises growing into China

Growth stocks have had a choppy ride since the onset of the pandemic

Source: IRESS, Morgans

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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