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LVMH, Europe’s largest company by market value, has now made it to the world’s top 10.
A first-quarter sales beat sparked a 5 per cent increase in the share price on Thursday (Paris time), giving the luxury powerhouse a 29 per cent rally for the year.
That, along with a gain in the euro against the dollar, lifted LVMH’s market capitalisation to $US486 billion ($716 billion), briefly ranking it as the world’s 10th biggest company. Should it reach $US500 billion, it would become the first European company to achieve that milestone.
“This illustrates the rise of wealthy people across the world, of a polarised society,” said Gilles Guibout, head of European equity strategies at AXA Investment Managers. “The luxury sector is therefore experiencing strong growth.”
For a growing crowd of investors, LVMH and its French luxury rivals are to the European stock market what big tech has been to the United States: dominant businesses whose growth holds up even as the economy waxes and wanes.
Sales of Louis Vuitton handbags have been robust.Credit: Jessica Shapiro
Shares of LVMH and Hermes International have on average returned more than 20 per cent annually the past decade, and Kering has returned 16 per cent. The Stoxx Europe 600 Index lags at 8.3 per cent annually.
“We have always invested in tech and in luxury, but the advantage of luxury on tech is that, while there are risks, disruption and obsolescence are lower,” said Guibout.
The robust sales of Louis Vuitton handbags and Moet Chandon champagne that have lifted LVMH’s share price also have bolstered the wealth of its founder, Bernard Arnault. He’s the world’s richest person, with a $US198 billion fortune, according to the Bloomberg Billionaires Index.
The catalyst for this year’s luxury gains, as in many recent years, is China. Coming out of the world’s strictest lockdowns, Chinese shoppers are splurging on luxury handbags and jewellery. LVMH’s soaring sales shows that demand for highly priced goods remains unabated even as a global economic slowdown looms.
Hermes International’s quarterly sales jumped as the maker of Kelly bags continued to see strong demand from Chinese customers. First-quarter revenue was up 23 per cent, Hermes said in a statement on Friday. Analysts had expected a gain of 16 per cent. Asia-Pacific excluding Japan was up 22.5 per cent. Hermes said it had a “very good” Chinese New Year.
The rally in luxury shares has cemented Paris’s standing as Europe’s biggest stock market, eclipsing London. The benchmark CAC 40 Index is on a record-setting spree, with gains of more than 15 per cent this year, outpacing other major markets.
The recent gains have taken LVMH’s valuation to 26 times forward earnings, twice that of the CAC 40. That doesn’t bother Nicolas Domont, a fund manager at Optigestion in Paris.
‘This illustrates the rise of wealthy people across the world, of a polarised society.’
Chinese shoppers are splurging on luxury items after coming out of the world’s strictest lockdowns.Credit: Anthony Kwan/Bloomberg
“It has become a must-have stock,” said Domont. “If it continues to deliver, I don’t have any problem paying the premium.”
LVMH shares closed 5.7 per cent higher at 883.9 euros on Thursday.
Sceptics say the durability of luxury sales in recent years has yet to be tested by a long economic downturn. In a recession, all but the wealthiest of shoppers are likely to curb their spending, they say.
“I have been dead wrong advising clients to stay away from luxury, but I am convinced [and stubborn] that something has to give in and that the risk-reward is still unfavorable,” Laurent Lamagnere, equity sales at Alphavalue in Paris, wrote in a note to clients on Thursday.
“I still don’t buy the idea that luxury is immune to consumption.”
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