Some highlights from this report:
- The global luxury industry has emerged stronger from the pandemic, accelerating a V-shaped recovery. In particular, European luxury players stand out from their global peers helped by a strong dollar and pricing power. As a result, through the O’Neil quantitative metrics, these players have now popped up among the best-rated names within the European Consumer Cyclical.
- So far, insulated from macro headwinds, the sector is expected to deliver high-single-digit revenue and earnings CAGR in the next two years (FY22-24), following a stellar performance in Q3 with double-digit organic growth reported by key brands.
- Despite the sector’s great outperformance since 2020, European luxury stocks have not been immune to multiple contractions this year. On average, the sector trades at a historically low valuation, in conflict with its strong fundamentals. Thus, we view the European luxury sector as an attractive investment opportunity due to long-term growth prospects led by Gen Y and Gen Z and the sector’s cash generation profile which has led to rapid deleveraging since the 2020 peak.
- Top picks include Focus List names LVMH (LVMH.FR) and Moncler (MONC.IT).
- Watchlist names include Hermes International (RMS.FR) and Brunello Cucinelli SpA (BC.IT).
