(BFM Bourse) – The financial intermediary switched to “hold” on Friday on the value, counting on an operating margin in 2026 significantly lower than the company’s forecast.
EssilorLuxottica delivered mixed annual results earlier this week. The manufacturer of Ray-Ban and Oakley glasses resulting from the (complicated) merger between Essilor and Luxottica has combined satisfactory growth and disappointing profitability.
The ninth market capitalization of the CAC 40 saw its growth stand at 7.1% excluding currency effects in the fourth quarter as well as for the whole of 2023. Which turned out to be higher than the figure of 6.2% anticipated by the consensus. On the other hand, the adjusted operating margin clearly disappointed in the second half, standing at 14.6% when analysts were expecting 15.3%, notes UBS.
“Another publication with a low margin will prevent investors from becoming more constructive on the stock in the short term, although management stressed that the group’s profitability was only ‘temporarily more under pressure in 2023’”, pointed out the Swiss bank.
Indeed, EssilorLuxottica fell 1.4% on Thursday, joining Airbus on the disappointment side of this earnings season.
This Friday, the action fell further, dropping 1.4% around 2:30 p.m. The stock is penalized by Stifel which lowered its recommendation to “hold” from “buy” while adjusting its target to 203 euros compared to 201 euros previously.
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A cruising speed that is difficult to achieve
“The results for the 2023 financial year demonstrated the resilience of EssilorLuxottica’s activities. Investors’ concerns at the start of 2023 regarding American dynamics did not materialize,” agrees the research office.
But the profitability of 2023 (16.5% in adjusted data compared to 16.8% in 2022) “raises questions about the profile of expansion of the company’s margins at cruising speed”, points out Stifel.
In 2022, the specialist in corrective lenses and optical instruments had indicated that it was targeting an adjusted operating margin of between 19% and 20% in 2026, at constant exchange rates. A target which “is largely based on the benefits of the Essilor-Luxottica merger (completed in 2018) and the integration of GrandVision (Dutch distribution specialist acquired in July 2021, Editor’s note)”, underlines Stifel.
However, “these two factors could prove more important in 2023-2024 than in 2025-2026” to the extent that the annual contribution of synergies to the improvement of margins will fade over time, adds the establishment.
The problem is that margin growth needs to accelerate for the group to reach its target by 2026. The adjusted operating margin range of 19% to 20% initially implied an average improvement per year of 60 to 80 points basic (0.6% to 0.8%) over the period 2022-2026.
However, this progression excluding exchange rate effects stood at 60 basis points in 2022 and only 10 basis points in 2023, notes Stifel. Which means that EssilorLuxottica must gain 75 basis points of margin in 2024-2026 to reach the bottom of its range communicated to the market in 2022.
Stifel estimates that this objective can be lowered to a range of 18.5% to 19.5% to take into account currency effects. But even taking this reprocessing into account, the design office thinks that EssilorLuxottica will miss the mark. Stifel expects profitability of only 18% in 2026.
Julien Marion – ©2024 BFM Bourse
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