>>> Affordable again
* At least 10% organic growth a year expected* EBIT could grow by 8% in 2014 on forex, then by more than 15%
* Current price fails to reflect strong outperformance
* Upgrade from Hold to Buy, TP raised from EUR225 to EUR300
* At least 10% organic growth a year expected
Guidance calls for 10% organic growth a year. The group posted 14.7% in
Q1, and we expect 12% in 2014-16. Our estimates assume SSSG of 9% a
year, including 6% from price increases in 2014, and then 4% from 2015
onwards. According to our estimates, the opening of a Maison in Shanghai
could have more than a 1% impact on organic sales growth in 2015.
* EBIT could grow by 8% in 2014 on forex, then by more than 15%
We expect EBIT growth to be 8% in 2014, including the negative impact of
less favourable hedging on the yen than in 2014. The EBIT margin could
then be down by 50bps, but we expect it to rebound and increase by more
than 100bps annually from 2015, thanks to ongoing strong organic growth
and operating leverage.
* Current price fails to reflect strong outperformance
The stock’s performance has been nil over the past 12 months. We think
that the market could again focus on the stock’s strong operating
performance. Based on our estimates, the stock’s fair value is EUR300.
* Upgrade from Hold to Buy, TP raised from EUR225 to EUR300
We upgrade the stock to Buy, seeing c. 15% upside. This estimate does not
include any speculative scenarios: our core scenario is that LVMH’s stake
(currently 23.3%) will not change materially in the near future. The H51
family holding owns 50.31% of Hermès’s capital and has pre-emption
rights on a further 12.65% stake.