European Luxury Goods: Great uncertainty but valuation fair
*HUGO BOSS – Downgrade to EW from OW.Lower PT to €82.00 from €98.00
*JIMMY CHOO – Downgrade to EW from OW. Lower PT to 155p from 190p
*LVMH – Downgrade to EW from OW. Lower PT to €155.00 from €184.00
*ADIDAS (EW) Lower PT to €85.00 from €88.00
*BURBERRY (EW) Lower PT to Lower PT to £12.00 from £14.25
*GRANDVISION (OW) Raise PT to €30.00 from €28.50
*KERING (OW) Lower PT to €170.00 from €200.00
*LUXOTTICA (OW) Lower PT to €67.00 from €70.00
*MULBERRY (EW) Raise PT to £10.00 from £9.50
*RICHEMONT (OW) Lower PT to CHF85.00 from CHF95.00
*FERRAGAMO (EW) Lower PT to €24.00 from €28.00
*SWATCH (EW) Lower PT to CHF350.00 from CHF410.00
*TOD’S (UW) Lower PT to €72.00 from €75.00
The short-term outlook for luxury is uncertain with China macro issues a key sector concern triggering weak global stock markets that can also have a knock-on effect in trading. Given we are against a relatively tough H1 comparative, we have decided to cut LVMH, Hugo Boss and Jimmy Choo to EW from OW. We believe that the leather goods operations will continue to struggle as price differentials globally have undermined pricing power. We believe further price increases in Europe are likely and we have some concerns on the impact this has on the European domestic consumer. Watch destocking continues apace with no sign of any slowdown. We believe confidence will only return once organic growth momentum improves which seems unlikely in H1. Kering and Richemont are our preferred luxury investments. By contrast the eyewear and sportswear businesses continue to show strong growth and we remain positive on Luxottica and GrandVision.