Kering
Is Gucci really only worth 7.7x PE?
Taking a relatively simplistic approach to a sum of the parts based on PE, we believe Gucci is currently valued at 7.7x 2016E. Within this we assume that Bottega Veneta, Saint Laurent and Other luxury will be valued at 21x – the same as Tod’s, Ferragamo and Prada while Puma is valued at its current quoted value. To reach our price target, Gucci would be valued at 14.7x PE – still a 20% discount to the sector. While Q3 will not be a blockbuster quarter, we do not believe it will be worse than current weak expectations and see limited downside at this time. With the new Cruise collection now launched and the new creative director ramping up the product portfolio, we believe the worst is over for Gucci and retain our OW rating and €200 price target.
- We expect Gucci to show no growth in Q3 ahead of the new collections
- Kering Q3 to show similar growth to H1
- Valuation remains very cheap: we believe that BV and Saint Laurent together with the other luxury operations would have a value near the monobrand Italian stocks Tod’s (21.4x), Prada (20.0x) and Ferragamo (23.1x). With Puma quoted on 38.8x, this results in Gucci being valued at just 7.7x assuming EBIT is a good proxy for net income. We believe this offers real value given the size of the brand and its excellent distribution. We value the group at €200 implying a multiple of c14.7x for Gucci.