EU Luxury Stocks Don’t Price in Risk of Recession
The prospect of more subdued global GDP growth is the “big elephant in the room” that may affect luxury growth in 2016, Exane says in note.
- Global GDP growth consensus of 3.4% suggests luxury industry would expand 5% in 2016; however, GDP growth consensus falling
- FX may become “trickier” for European luxury cos.
- Sees more limited retail space growth possibilities and softer price inflation for sector; luxury cos. need to adapt to “new normal” growth of 3%-5% vs recent 7%-8%; this requires more cash discipline, focus on efficiency, smarter M&A
- Luxury stock prices have moderated, aren’t pricing in “tail risk” of global recession
- In “high quality” stocks prefers Richemont (outperform) over LVMH, which is cut to neutral
- In “high beta” prefers Kering (outperform) over Swatch, cuts to neutral
- “Defensives” such as Hermes, Luxottica look pricey
- Cuts PTs on Burberry, Hugo Boss, Kering, Luxottica, LVMH, Prada, Swatch