UK: Luxury goods tout growth, some shares seen pricey
Even with a batch of impressive first half earnings from leading companies this week, some analysts on Thursday stuck to a more sober sector view, warning that the companies' outlooks do not match the current expensive ratings of some shares.
LVMH, which accounts for the largest single slice of $60 billion worldwide annual luxury goods sales, on Thursday raised its profit growth forecast for the full year and said it expected "very sustained growth" in 2001.
At Italian jeweller Bulgari , consolidated net profit doubled on sales which rose by 44 percent in the first six months of 2000.
Chief Executive Francesco Trapani said he was positive about the second half on the basis of a new watch line and fragrance. Concerns about a slowdown were unjustified, he said in an interview. "The market remains in very good health," he told Reuters.
Number two luxury goods group Richemont said it expected to have a "very good" first half operating profit. Chairman Nikolaus Senn told Richemont's annual meeting sales grew by about 30 percent in the five months to August.
First half figures this week from companies, including leather and silks house Hermes and retail group Pinault Printemps Redoute -- which owns 42 percent of Italian fashion house Gucci Group NV -- have landed in line or slightly above market expectations.
But analysts have been less sanguine in their assessment of prospects for shares in luxury goods. The sector has been one of the hottest in the consumer goods business over the past two years with some highly contested takeovers and significant growth rates.
DOUBTS OVER SUSTAINABILITY
Consumer demand for expensive handbags, perfumes, fashion wear, wine and watches is still strong.
But since the summer, market doubts have strengthened over how long dollar and yen strength versus the euro and the U.S. economic boom can continue to justify high share multiples.
"We are neutral on the sector, mainly for valuation reasons," said one analyst on Thursday, who declined to be named.
Several analysts have downgraded LVMH to "neutral" from "buy". Some have treated LVMH as an indicator for all the big companies in the sector, while others remain more positive on individual stocks like Gucci and Bulgari.
LVMH's shares have risen 57 percent in 12 months and Bulgari stock has more than doubled in value. LVMH closed 0.74 percent higher at 88.65 euros, Bulgari was up 3.52 percent at 13.40 euros and Pinault was 1.46 percent higher at 208.0 euros.
Morgan Stanley Dean Witter has LVMH on an Enterprise Value/ EBITDA ratio of 17.9 for 2001 compared to an average 16 for a group of seven luxury houses including LVMH. The multiple sets market cap plus debt against core operating profit.
On Hermes, where net profit grew 42 percent, MSDW wrote this week, "the brand is one of the most prestigious and the management first rate, but we find the shares are fully valued."
Analyst Claire Kent has Hermes on EV/EBITDA of 19.5 for 2001.
LVMH posted a 21 percent rise in first-half net profits to 374 million euros ($325 million) with operating profits up 31 percent to 762 million.
"We are very confident in our group's pursuit of sustained growth for the next 18 months: that is the reason we have raised our targets for growth in 2000," LVMH Managing Director Myron Ullmann said in a statement.
"You're not looking at a second half luxury goods hangover. Just a return to trend growth which is far and away the best in the consumer sector, at about 15 percent," said Andrew Gowen at Lehman Brothers about this week's company results.
Bulgari pushed up its first half consolidated net profit 101 percent to 35.3 million euros compared to the same period last year with fastest growth, 56 percent, in sales in Europe.
The small jeweller remains a favourite even with analysts, who have downgraded other luxury stocks. "Bulgari has not only high but consistent returns -- that's why you buy it," said Gowen who rates it "outperform".
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