(BFM Bourse) – The research department raised its recommendation to “outperformance” on the cosmetics group and, conversely, lowered that on the agrifood group to “underperformance”. Bernstein considers L’Oréal to be increasingly robust.
With the month of August and the end of the earnings season, some research firms are taking advantage of the lull to revise their estimates and separate the wheat from the chaff in the stocks they cover.
This is the case of Bernstein who updated his recommendations in a note published Monday evening and devoted to agri-food groups and companies in the so-called HPC sector (“household and personal care”), i.e. household goods and personal care.
Two companies in the Paris market are affected by this in-depth review: L’Oréal and Danone. On the cosmetics group, Bernstein is more optimistic, raising its recommendation from “market performance” to “outperformance”, the equivalent of “buying” from the design office. On the contrary, on Danone, the market intermediary, goes from “market performance” to “underperformance”, synonymous with “selling” advice.
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L’Oréal is “more and more robust”
In this note, the Bernstein analysts explain returning to their “fundamental” thesis, consisting in preferring the shares of so-called “quality” companies to those of companies which are implementing plans to restore their financial results.
However, precisely, the financial intermediary considers that two groups of “quality” are “more and more robust”: the Swiss chocolate maker Lindt and L’Oréal.
“At L’Oréal, we are seeing a diversification of growth and the ability to move A&P resources (advertising and promotional spend) across the world, regions, categories, price points, in order to find the growth where it has the most promise. We believe this aspect is still poorly understood and that it makes the company better than we would have estimated it three years ago,” says Bernstein.
The research department estimates the like-for-like growth of the group in the medium term at 7.5% per year and also stresses that the company offers good resistance to negative exchange rate effects. It also has no worries about the quality of its asset portfolio.
Danone’s turnaround under debate
Regarding Danone, the company launched with the arrival of Antoine Saint-Affrique at the helm of the company, in September 2021, an offensive to relaunch its growth and profitability with in particular the “Renew Danone” plan of March 2022, acknowledging that About a quarter of the company’s product portfolio was performing poorly.
If the latest results of the company have, a priori, proven to be of good quality, Bernstein is not convinced for the moment.
“We know that many investors like Danone’s turnaround because the CEO seems to be doing all the right things. We agree…But we see no evidence in the data that (this plan, editor’s note) works and that it significantly improves future growth, brand strength and pricing power”, argues the research office.
Bernstein also believes that the loss of Russian activities will weigh heavily on its results. At the end of July, Danone deconsolidated from its accounts its EDP activities (essential dairy products of plant origin) in Russia following the takeover by the Russian State of these assets. This will lead to a depreciation with an impact on its cash of 200 million euros. “Although Danone no longer has management control of its operations in Russia, the group remains their legal owner,” the company explained.
Another point raised by Bernstein: in a market where risk appetite would return, cheap defensive stocks like Danone would lose their appeal…
Note in passing, still about Danone, that Barclays had written a detailed note on Monday in which the British bank showed itself to be optimistic. She felt that the group’s recovery plan was gaining momentum, with a positive change in margins in the first half, and volumes that should soon increase. Barclays had thus confirmed its recommendation to “overweight”.
On the Paris Stock Exchange on Tuesday, Danone fell 1.2% shortly before 10:15 a.m., while L’Oréal, despite Bernstein’s recommendation increase, lost more (-1.5%). The title of the cosmetics group is probably penalized by poor Chinese statistics published this Tuesday morning, Hermès and LVMH, luxury stocks very sensitive to information on the economy in China, losing 1.5% and 1.4% respectively.
Julien Marion – ©2023 BFM Bourse
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