Welcome to the Sustainable Money Mail š We think investing should be about trying to beat the market while providing capital to companies that make the world a better place. This week, Bernard Arnaultās net worth surpassed $200 billion, so weāre going to look at LVMH, the company that made him one of the richest men ever.
Headlines:
EU sets out to source 43% of energy from solar and wind by 2030 [Yahoo]Ā
Gender equality ETFs are beating benchmarks [FT]
Biden unveils billion dollar biotech strategy to battle climate change [Energy.Gov]
Exxon predicts sustainables segment could grow bigger than oil & gas [Reuters]
Fund managers seek ESG opportunities in European Football [IFA]
ESG Investment Manager Mirova appoints new U.S CEO [ESG Today]
Octopus Energy enters Asian Renewables market [solarpowerportal]
Tesla builds Megapack battery factory in Shanghai [Reuters]
Stock Pick: LVMH (ā¬MC)
Should you invest in the company that has made CEO Bernard Arnault the worldās richest man? Shares in French luxury conglomerate LVMH (Louis Vuitton Moet Hennessy) are up 19.5% this year, giving it a $420 billion market cap, the largest of any company based in the EU. So hereās what we like about this stock:
LVMH shares are listed on the EPA (Euronext Paris Eurolist) in France. Theyāre up 194% in the past 5 years, and currently trade around all time highs of ā¬820 - ā¬850 per share.
It manages 60 subsidiaries, owning over 75 leading luxury goods brands which produce high end clothing, watches, yachts, jewelry, alcohol, cosmetics and luggage.
LVMH is one of only twelve companies to receive a triple-A ESG rating, and is particularly recognized for its
LVMH reported full year revenue of ā¬79.2 billion for 2022, up 23% y/y, and net profit from recurring operations of ā¬21.1 billion, also up 23% y/y. Operating margin remained at 27%
It reported net debt reduced of 4% from ā¬9.6 billion to ā¬9.2 billion, against operating FCF of ā¬10 billion.
Fashion & Leather Goods reached record levels, with organic revenue growth of 20%. The Louis Vuitton, Christian Dior, Celine and Marc Jacobs brands all gained market share globally. The Sephora make-up brand confirmed its position as U.S market leader in beauty outlets
Sales in Europe, the U.S and Japan rose sharply thanks to strong natural demand. China growth was weaker, but can be expected to rise when economic growth picks up.
Currency had a positive impact of ā¬161mm, mostly related to USD and Euro strength. A reversal of the USD bull run could hurt its NA business this year.
LVMH has invested ā¬5 billion, mainly dedicated to the expansion of the store network, the development of production facilities and employment.Ā Tiffanyās collaboration with Nike, Bulgariās with K-pop band BLACKPINK, and TAG Heuer with Formula 1, are all expected to drive revenue in 2023, particularly targeting the younger demographic.
Pietro Beccari was appointed the new CEO of the flagship Louis Vuitton brand in February this year. His last job at Christian Dior saw him turn the brand onto the path for growth. Heās known for his āgo big or go homeā mantra, a departure from the brandās history of conservative decision-making. Louis Vuitton opened the āLV Dreamā free exhibition in Paris last December, which is attracting significant footfall to Louis Vuittonās flagship store. Expect similar big bets over the coming years from Beccari as he looks to aggressively raise LVās brand profile.
Over the past ten years, LVMHās EPS grew 15% CAGR. The key question is whether it can win market share and repeat the outsized growth of the past few years.
LVMH is trading at a forward p/e ratio of 26x (vs 18x for Kering and 21x for Richemont), and although LVMH has a clean balance sheet and few market risks, thereās little to get excited about. We generally like companies with prospects for rapid growth into new markets, and while LVMH is starting to target younger customers through its brand collabs, theyāll need to do a lot right to maintain their growth and avoid obsolescence. Moreover, LVMHās reliance on its core NA/EUR market means that any risk of a recession could tank its share price.
That being said, Louis Vuitton has been thriving since 1854, and MoĆ«t et Chandon and Hennessy both date back to the era of King Louis XV. So I certainly wouldnāt be betting against these companies any time soon.
Note:
All opinions are the authorās own. This is not investment advice. Please consult your financial advisor before making investment decisions.Ā
Disclosure:
The SMM and its writers do not have a position in LVMH, but may buy, increase or sell a position at any time.
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