Editing LVMH Moët Hennessy - Louis Vuitton, Société Européenne
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== Business Description == | == Business Description == | ||
LVMH Moët Hennessy - Louis Vuitton, Société Européenne operates as a luxury goods company worldwide. The company offers champagnes, wines, and spirits under the Clos des Lambrays, Château d'Yquem, Dom Pérignon, Ruinart, Moët & Chandon, Hennessy, Veuve Clicquot, Ardbeg, Château Cheval Blanc, Glenmorangie, Krug, Mercier, Chandon, Cape Mentelle, Newton Vineyard, Cloudy Bay, Belvedere, Terrazas de los Andes, Bodega Numanthia, Cheval des Andes, Woodinville, Ao Yun, Clos19, and Volcan de mi Tierra brands. | LVMH Moët Hennessy - Louis Vuitton, Société Européenne operates as a luxury goods company worldwide. The company offers champagnes, wines, and spirits under the Clos des Lambrays, Château d'Yquem, Dom Pérignon, Ruinart, Moët & Chandon, Hennessy, Veuve Clicquot, Ardbeg, Château Cheval Blanc, Glenmorangie, Krug, Mercier, Chandon, Cape Mentelle, Newton Vineyard, Cloudy Bay, Belvedere, Terrazas de los Andes, Bodega Numanthia, Cheval des Andes, Woodinville, Ao Yun, Clos19, and Volcan de mi Tierra brands. It also provides fashion and leather products under the Berluti, Celine, Christian Dior, Emilio Pucci, FENDI, Givenchy, Kenzo, Loewe, Loro Piana, Louis Vuitton, Marc Jacobs, Moynat, Patou, and RIMOWA brands. In addition, the company offers perfumes and cosmetics under the Acqua di Parma, Benefit Cosmetics, Cha Ling, Fenty Beauty by Rihanna, Fresh, Givenchy Parfums, Guerlain, KVD Beauty, Kenzo Parfums, Maison Francis Kurkdjian, Make Up For Ever, Marc Jacobs Beauty, Officine Universelle Buly, Parfums Christian Dior, and Perfumes Loewe brands; watches and jewelry under the Bulgari, Chaumet, Fred, Hublot, Repossi, TAG Heuer, Tiffany & Co., and Zenith brands; and custom-designed yachts under the Feadship brand name, as well as designs and builds luxury yachts under the Royal Van Lent brand. Further, it provides daily newspapers under the Les Échos brand; Belmond, a luxury tourism service; home other activities under the Belmond, Cheval Blanc, Connaissance des Arts, Cova, Investir, Jardin d'Acclimatation, La Samaritaine, Le Parisien, and Radio Classique brands; and selective retailing products under the DFS, La Grande Epicerie de Paris, Le Bon Marché Rive Gauche, Sephora, and Starboard Cruise Services brands, as well as operates Jardin d'Acclimatation, a leisure and amusement park. The company operates 5,556 stores. LVMH Moët Hennessy - Louis Vuitton, Société Européenne was incorporated in 1923 and is headquartered in Paris, France. | ||
It also provides fashion and leather products under the Berluti, Celine, Christian Dior, Emilio Pucci, FENDI, Givenchy, Kenzo, Loewe, Loro Piana, Louis Vuitton, Marc Jacobs, Moynat, Patou, and RIMOWA brands. | |||
In addition, the company offers perfumes and cosmetics under the Acqua di Parma, Benefit Cosmetics, Cha Ling, Fenty Beauty by Rihanna, Fresh, Givenchy Parfums, Guerlain, KVD Beauty, Kenzo Parfums, Maison Francis Kurkdjian, Make Up For Ever, Marc Jacobs Beauty, Officine Universelle Buly, Parfums Christian Dior, and Perfumes Loewe brands | |||
LVMH Moët Hennessy - Louis Vuitton was | |||
=== What's the mission of the company? === | === What's the mission of the company? === | ||
“Our success is only worthwhile if it is also | “Our success is only worthwhile if it is also virtuous” Success can only last if it is fair. And if it benefits everyone, then it will be even greater. What’s the point of inspiring dreams with magnificent products if they don’t meet the highest social and environmental standards? We apply those standards for the benefit of our employees and our customers of course, for our stakeholders as well, but above all for our future.” Bernard Arnault | ||
==== 2023 Objectives to further increase LVMH's global leadership position: ==== | ==== 2023 Objectives to further increase LVMH's global leadership position: ==== | ||
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# Commitment: preserve the environment and corporate responsibilities. | # Commitment: preserve the environment and corporate responsibilities. | ||
# Vigilance: maintain vigilance within current economic and geopolitical context. | # Vigilance: maintain vigilance within current economic and geopolitical context. | ||
# Entrepreneurial spirit | # Entrepreneurial spirit. | ||
==== LIFE 360: LVMH environmental strategy for new luxury: ==== | |||
# Biodiversity: 2030 -> 5 millions hectares of flora and fauna preserved. | |||
# Climate: | |||
## 2026 -> 50% reduction in energy- related greenhouse gas (GHG) emissions. | |||
## 2030 -> 55% reduction and/or avoidance of Scope 3 GHG emissions per unit of added value. | |||
# Create circularity: 2030 -> 100% of new products covered by a sustainable design approach. | |||
# Traceability: 2030 -> 100% of strategic chains covered by a dedicated traceability system. | |||
== Macro Analysis and Trends == | == Macro Analysis and Trends == | ||
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The industry has experienced significant growth in recent years, and it is expected to continue to grow in the coming years. Looking ahead, this growth will be driven by a number of macro trends: | The industry has experienced significant growth in recent years, and it is expected to continue to grow in the coming years. Looking ahead, this growth will be driven by a number of macro trends: | ||
1. '''The growth of the middle class in emerging markets''': The growth of the middle class in emerging markets is one of the most important trends in the global economy. | 1. '''The growth of the middle class in emerging markets''': The growth of the middle class in emerging markets is one of the most important trends in the global economy. This trend is driving demand for luxury goods in emerging markets. Despite a disappointing first half of 2023, China still represents the largest emerging market for luxury goods its economy is expected to grow by 5.2% in 2023.<ref>https://www.reuters.com/markets/asia/sp-global-cuts-china-2023-growth-forecast-52-55-2023-06-26/</ref> | ||
2. '''Generational trends''': Millennials are increasingly becoming the target market for luxury goods brands. This is because millennials have more disposable income than previous generations, and they are more likely to spend money on luxury goods. Additionally, “Gen Z” are expected to represent one-third of the market by 2030 and their spending is set to grow three times faster than for other generations until 2030.<ref>https://www.bain.com/about/media-center/press-releases/2022/global-luxury-goods-market-takes-2022-leap-forward-and-remains-poised--for-further-growth-despite-economic-turbulence/#:~:text=Global%20luxury%20goods%20market%20takes%202022%20leap%20forward,60%25%2B%20market%20growth%20to%202030%20...%20More%20items</ref> | 2. '''Generational trends''': Millennials are increasingly becoming the target market for luxury goods brands. This is because millennials have more disposable income than previous generations, and they are more likely to spend money on luxury goods. Additionally, “Gen Z” are expected to represent one-third of the market by 2030 and their spending is set to grow three times faster than for other generations until 2030.<ref>https://www.bain.com/about/media-center/press-releases/2022/global-luxury-goods-market-takes-2022-leap-forward-and-remains-poised--for-further-growth-despite-economic-turbulence/#:~:text=Global%20luxury%20goods%20market%20takes%202022%20leap%20forward,60%25%2B%20market%20growth%20to%202030%20...%20More%20items</ref> | ||
3. '''The growth of online shopping''': The growth of online shopping is another important trend that is impacting the luxury goods industry. Online shopping is making it easier for consumers to buy luxury goods from around the world | 3. '''The growth of online shopping''': The growth of online shopping is another important trend that is impacting the luxury goods industry. Online shopping is making it easier for consumers to buy luxury goods from around the world. | ||
4. '''The demand for sustainable luxury goods''': There is a growing demand for sustainable luxury goods. This is because consumers are becoming more aware of the environmental impact of luxury goods production. | 4. '''The demand for sustainable luxury goods''': There is a growing demand for sustainable luxury goods. This is because consumers are becoming more aware of the environmental impact of luxury goods production. | ||
== Key Professionals <ref>https://www.capitaliq.com/CIQDotNet/Company/Professionals.aspx?CompanyId=195488</ref> == | == Key Professionals <ref>https://www.capitaliq.com/CIQDotNet/Company/Professionals.aspx?CompanyId=195488</ref> == | ||
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LVMH has undertaken the following initiatives: | LVMH has undertaken the following initiatives: | ||
- | - Life 360 | ||
- 2025 CSR | - 2025 CSR | ||
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- Diversity & Inclusion | - Diversity & Inclusion | ||
- | - Dîner des Maisons engages (Fund raising dinner - Sickle cell anemia) | ||
- EllesVMH (Group initiative for Gender Equity) | |||
- Heart Fund | |||
- LIVE (help people back into work after long-term unemployment) | |||
- Disability Inclusion | - Disability Inclusion | ||
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=== Total Addressable Market === | === Total Addressable Market === | ||
Here, the total addressable market (TAM) is defined as the luxury goods global market, and based on a number of assumptions, it is estimated that the size of the market as of today (6<sup>th</sup> July 2023) in terms of revenue, is US$354.80bn, and is expected to grow at a CAGR of 3.38% in the forecast period of 2023- | Here, the total addressable market (TAM) is defined as the luxury goods global market, and based on a number of assumptions, it is estimated that the size of the market as of today (6<sup>th</sup> July 2023) in terms of revenue, is US$354.80bn, and is expected to grow at a CAGR of 3.38% in the forecast period of 2023- 2028.<ref name=":0">Luxury Goods - Worldwide | Statista Market Forecast</ref> | ||
== Financial Highlights <ref name=":2" /> == | |||
{| class="wikitable" | |||
!'''Key Consolidated Data ''(EUR Millions)''''' | |||
!'''2020''' | |||
!'''2021''' | |||
!'''2022''' | |||
|- | |||
|Revenue | |||
|44,651 | |||
|64,215 | |||
|79,184 | |||
|- | |||
|Profit from recurring operations | |||
|8,305 | |||
|17,151 | |||
|21,055 | |||
|- | |||
|Net profit | |||
|4,955 | |||
|12,698 | |||
|14,751 | |||
|- | |||
|Net profit, Group share | |||
|4,702 | |||
|12,036 | |||
|14,084 | |||
|- | |||
|Cash from operations before changes in working capital | |||
|13,997 | |||
|22,621 | |||
|26770 | |||
|- | |||
|Operating investment | |||
|2.478 | |||
|2,664 | |||
|4,969 | |||
|- | |||
|Operating free cash flow | |||
|6,117 | |||
|13,531 | |||
|10,113 | |||
|- | |||
|Total equity <sup>(a)</sup> | |||
|38,829 | |||
|48,909 | |||
|56,604 | |||
|- | |||
|Net financial debt <sup>(b)</sup> | |||
|4,241 | |||
|9,607 | |||
|9201 | |||
|- | |||
|Adjusted net financial debt/Equity ratio | |||
|10.9% | |||
|19.60% | |||
|14.30% | |||
|} | |||
<small>''(a) Including minority interests''</small> | |||
<small>''(b) Excluding “Lease liabilities” and “Purchase commitments for minority interests’ shares” included in “Other non-current liabilities”''</small> | |||
=== Business Group - Highlights === | === Business Group - Highlights === | ||
{| class="wikitable" | {| class="wikitable" | ||
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|'''21,055''' | |'''21,055''' | ||
|} | |} | ||
== Financial Statements<ref>lvmh_2022_annual-report.pdf (lvmh-static.com)</ref> == | == Financial Statements<ref>lvmh_2022_annual-report.pdf (lvmh-static.com)</ref> == | ||
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==== Most recent quarter ==== | ==== Most recent quarter ==== | ||
Comparing Q1 2023 to Q1 2022, in euro millions, the total LVMH group has experienced a 17% reported and organic increase in revenue from 18,003 to 21,035 respectively. | Comparing Q1 2023 to Q1 2022, in euro millions, the total LVMH group has experienced a 17% reported and organic increase in revenue from 18,003 to 21,035 respectively. The Wines & Spirits business group recorded a revenue growth of 3% with an organic revenue growth of 14% of the Champagne & Wines sector, due to a strong start to year driven by positive price effect, and a 5% organic revenue decrease of the Cognac & Spirits sector, due to China recovering from Covid impact while US impacted by softer economic environment. The Fashion & Leather Goods business group recorded a revenue growth of 18%, due to exceptional performance, driven by creativity and iconic products, specially in Louis Vuitton. The greatest revenue evolution was observed in the Selective Retailing sector, where an increase of 28% was recorded due to Sephora's strong performance, DFS benefiting from recovery in travel, notably in Asia and Le Bon Marché with its creative animations.<ref>Présentation PowerPoint (lvmh-static.com)</ref> | ||
The Wines & Spirits business group recorded a revenue growth of 3% with an organic revenue growth of 14% of the Champagne & Wines sector, due to a strong start to year driven by positive price effect | |||
The Fashion & Leather Goods business group recorded a revenue growth of 18%, due to exceptional performance, driven by creativity and iconic products, specially in Louis Vuitton. | |||
The greatest revenue evolution was observed in the Selective Retailing sector, where an increase of 28% was recorded due to Sephora's strong performance, DFS benefiting from recovery in travel, notably in Asia and Le Bon Marché with its creative animations.<ref>Présentation PowerPoint (lvmh-static.com)</ref> | |||
==== Most recent year ==== | ==== Most recent year ==== | ||
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Other important financial indicators include:<ref>Présentation PowerPoint (lvmh-static.com)</ref> | Other important financial indicators include:<ref>Présentation PowerPoint (lvmh-static.com)</ref> | ||
* a decrease in operating free cash flow by 3.418 billion euros in comparison with 2021. | |||
* dividend of 12 euros in 2022, increased by 20% compared to 2021. | * dividend of 12 euros in 2022, increased by 20% compared to 2021. | ||
* Gearing of 16% compared to a gearing of 20% in 2021. (Gearing: the ratio of a company's debt to equity) | * Gearing of 16% compared to a gearing of 20% in 2021. (Gearing: the ratio of a company's debt to equity) | ||
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|'''26,720''' | |'''26,720''' | ||
|} | |} | ||
[[File:LVMH Annual Income Statement.png|left|thumb|465x465px]] | |||
=== LVMH's Annual Balance Sheet === | === LVMH's Annual Balance Sheet === | ||
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|'''35,147''' | |'''35,147''' | ||
|} | |} | ||
[[File:LVMH Balance Sheet.png|left|thumb|443x443px]] | |||
=== LVMH's Cash Flow Statement === | === LVMH's Cash Flow Statement === | ||
{| class="wikitable" | {| class="wikitable" | ||
!'''EUR''' €, Millions | !'''EUR''' €, Millions | ||
Line 1,191: | Line 1,230: | ||
|'''10,113''' | |'''10,113''' | ||
|} | |} | ||
=== Financial Forecast === | === Financial Forecast === | ||
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|What’s the estimated current size of the total addressable market? | |What’s the estimated current size of the total addressable market? | ||
|$354,800,000,000 | |$354,800,000,000 | ||
|The total addressable market is defined as the luxury goods global market and , it is estimated that the size of the market as of today (6<sup>th</sup> July 2023) in terms of revenue, is US$354.80bn. | |The total addressable market is defined as the luxury goods global market and , it is estimated that the size of the market as of today (6<sup>th</sup> July 2023) in terms of revenue, is US$354.80bn.<ref name=":0" /> | ||
|- | |- | ||
|What growth stage is the company in? | |What growth stage is the company in? | ||
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|80 years | |80 years | ||
|LVMH employees approximately 196,000, making the company a large organisation, research has proven that the average life span of a large company is approximately 50 years. Due to LVMHs exponential revenue growth in the last 36 years, and assuming that the company is in the maturity stage of growth which is approximately 50% of a companies lifecycle, I am going to | |LVMH employees approximately 196,000, making the company a large organisation, research has proven that the average life span of a large company is approximately 50 years.<ref>Stadler, Enduring Success, 3–5.</ref> Due to LVMHs exponential revenue growth in the last 36 years, and assuming that the company is in the maturity stage of growth which is approximately 50% of a companies lifecycle,<ref name=":1">http://escml.umd.edu/Papers/ObsCPMT.pdf</ref> I am going to assume a life span of 80 years. | ||
|- | |- | ||
|What is the estimated annual growth of the total addressable market over the lifecycle of the company? | |What is the estimated annual growth of the total addressable market over the lifecycle of the company? | ||
|3.38% | |3.38% | ||
|The market is estimated to grow at a 3.38% CAGR (Compound Annual Growth Rate) in the forecast period of 2023- 2028. | |The market is estimated to grow at a 3.38% CAGR (Compound Annual Growth Rate) in the forecast period of 2023- 2028.<ref name=":0" /> | ||
|- | |- | ||
|What is the estimated company peak market share? | |What is the estimated company peak market share? | ||
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|Which distribution function do you want to use to estimate company revenue? | |Which distribution function do you want to use to estimate company revenue? | ||
|Gaussian | |Gaussian | ||
|Research has suggested that the revenue pattern of companies is similar to the pattern produced by the gaussian distribution. | |Research has suggested that the revenue pattern of companies is similar to the pattern produced by the gaussian distribution.<ref name=":1" /> | ||
|- | |||
|What is the estimated standard deviation of company revenue? | |||
| | |||
| | |||
|- | |||
| | |||
| | |||
| | |||
|} | |} | ||
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| +/- | | +/- | ||
|} | |} | ||
== Valuation == | == Valuation == | ||
[[File:Screenshot 2023-07-06 at 11.10.01.png|thumb|Unlevered Free Cash Flow [[File:Screenshot 2023-07-06 at 11.10.11.png|thumb|Fixed Assets[[File:Screenshot 2023-07-06 at 11.10.21.png|thumb|Net Working Capital[[File:Screenshot 2023-07-06 at 11.10.54.png|thumb|Weighted Average of Capital[[File:Screenshot 2023-07-06 at 11.11.11.png|thumb|Implied Share Price and Sensitivity Table[[File:Screenshot 2023-07-06 at 11.59.35.png|thumb|Base Case, Bear Case, Bull Case]]]]]]]]]]]] | |||
In the following section, there are 2 valuation methods, DCF model and the relative valuation. | |||
For the DCF model, the base case implied share price is $1175.92, which has a 27.64% potential upside; the bull case implied share is 1436.27, which has a 55.90% upside; the bear case implied share is 782.49, which has a 15.07% downside. Therefore, for a weighted average of 50% bull case, 25% bull case and 25% bear case, we get 1142.65, which has a 31.09% upside. We take these weighted average percentage is because the inflation rate remains high, the FED has 95% chance to increase the interested rate in the next FOMC meeting, due to this uncertainty, a conservative prediction is applied. Also, we assumed that all the growth is constant in the next 5 years of projection, taking the average from the past 5 years for the base case. The bull case and bear case is calculated with the earnings in EV/EBITDA and Net Debt/EBITDA, and the Free Cash Flow Equity Yield based on their free cash flow, both earning price target and the FCFE price target are weighted 50% each. Throughout the calculation, we obtained the WACC with 13.33% and the CAPM is 14.08%. | |||
For the relative valuation, | |||
== Growth Drivers and Catalysts == | == Growth Drivers and Catalysts == | ||
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== Competitors Comparison == | == Competitors Comparison == | ||
'''LVMH Overview''': In 2023, LVMH reported a Q1 FY 2023 revenue of 21 billion euros, showing a significant increase of 17% compared to the same period in 2022. LVMH's strength lies in its high level of customer loyalty and diverse portfolio of 75 prestigious brands across various luxury sectors. | '''LVMH Overview''': In 2023, LVMH reported a Q1 FY 2023 revenue of 21 billion euros, showing a significant increase of 17% compared to the same period in 2022. LVMH's strength lies in its high level of customer loyalty and diverse portfolio of 75 prestigious brands across various luxury sectors. | ||
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1. Richemont could be a big competitor: Based on the revenue data and performance analysis, LVMH remains the market leader in the luxury industry. However, it faces major challenges from Richemont, each with its own strengths and weaknesses. LVMH should focus on expanding its presence in the jewellery industry to compete more effectively with Richemont. Besides, The decision of Richemont to reject the acquisition proposal from LVMH could potentially impact Richemont's stock and attract more attention, particularly from investors who value the "more boutique in core business" mindset. | 1. Richemont could be a big competitor: Based on the revenue data and performance analysis, LVMH remains the market leader in the luxury industry. However, it faces major challenges from Richemont, each with its own strengths and weaknesses. LVMH should focus on expanding its presence in the jewellery industry to compete more effectively with Richemont. Besides, The decision of Richemont to reject the acquisition proposal from LVMH could potentially impact Richemont's stock and attract more attention, particularly from investors who value the "more boutique in core business" mindset. | ||
2. Geographical Factor: LVMH has a strong geographical presence in the Asia Pacific region, with most sectors and revenue generated from Asia in 2022. Particularly in China, where the Covid policies have allowed for reopening, the spending power of Chinese consumers continues to rise. The total revenue in Asia will be very significant in 2023. Richemont also generates a significant portion of its revenue from the Asian market. The 2023 total revenue in Asia Pacific of Richemont would be positive to be expected. On the other hand, Kering's performance has been negative, experiencing a decline of 7% from Q1 2022 to Q4 2022. The pace of growth was well below that of competitors. | |||
Overall, LVMH's performance is expected to continue to increase, and there is optimism regarding its total revenue for 2023. | Overall, LVMH's performance is expected to continue to increase, and there is optimism regarding its total revenue for 2023. |