(BFM Bourse) – The bank initiated its purchase coverage on the saddler this Friday, preferring Hermès to Ferrari and Brunello Cucinelli.
An excellent stock market student, Hermès displays growth which hardly seems to be experiencing the crisis. In the first quarter, the saddler again saw its sales increase by 17% on a comparable basis, whereas LVMH recorded growth in its fashion and leather goods division limited to 2%, on these same bases, while Kering saw its revenues increase. fall back by 10%.
The operational qualities of Hermès are indisputable and the debates focus more on its stock market potential in view of its generous valuation. Is the stock too expensive to buy?
This Friday, Jefferies responded in the negative. The bank was already following (among others) Kering and LVMH. It has now decided to extend its coverage to “the upper end of luxury”, that is to say on three stocks: Hermès, therefore, as well as Ferrari and the Italian group Brunello Cucinelli.
Regarding Hermès, the bank begins its monitoring with a purchase recommendation and a price target of 2,650 euros, which grants a potential of around 15% to the stock at its current price. This Friday, the stock only benefited modestly from this positive advice, with an increase of 0.4% around 3:45 p.m.
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“Higher margins”
Hermès also has Jefferies’ preference over Ferrari and Brunello Cucinelli, a group in which Jefferies is to be “retained”.
The establishment cites, among the valuable elements of the company, its “higher margins”. The bank assumes annual growth of more than 10% in its forecast model, with 13.3% in 2024, 11.8% in 2025, and 11% in 2026 and 2027, with, for each year, a significantly higher operating margin. greater than 40% (more than 44% even). Performance which will, according to her, be facilitated by future “very dynamic” product innovation measures.
“All our data indicates remarkable brand influence and strong revenue growth in the quarters to come,” underlines Jefferies. Enough to justify, according to her, a stock market multiple valuing 51.9 times the expected profits in 2025.
Certainly, Hermès’ clientele includes, according to Jefferies, more aspirational buyers (young consumers who are interested in the most affordable products of a brand) than Ferrari and Brunello Cucinelli. This clientele has found itself somewhat under pressure in recent quarters, due to difficult macroeconomic conditions, with rising interest rates.
But “the recent growth in Hermès’ turnover reassures us that the progress made in terms of brand extension remains the main driver of turnover, and this is proving more powerful than any what cyclical pressure,” Jefferies explains.
A “skillful” extension
“The group has demonstrated great skill in extending the brand’s reach by expanding product offerings at both ends of the price architecture. For example, most recently, Hermès’ Oran ‘H’ sandals (selling price 595 euros) had a particularly strong response, at the same time as the furniture proved extremely popular (for example, the Sellier 2-seater Sofa with a selling price of 54,000 euros)”, develops Jefferies.
More broadly, the bank says it is confident in the group’s plans to expand its product offering in many areas. Jefferies cites several examples, such as watchmaking, which has experienced “robust” growth in recent years, clothing and accessories, jewelry and the home world.
In its largest division, leather goods and saddlery, Jefferies expects the group to continue to post an increase in its “mid single digit to high single digit” volumes, i.e. between 5% and 9%, and an increase of its prices “low single to mid-single digit”, i.e. between 1% and 5%.
In summary, “despite the relative valuation peaks from which Hermès already benefits, we are convinced that the growth trajectory (of the group) is well mapped, and we believe that this should allow it to surpass the performance of its most important reference group. close (on the Stock Exchange, Editor’s note) in the coming months”, concludes Jefferies.
Julien Marion – ©2024 BFM Bourse
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