Live Markets: Time to go idiosyncratic on luxury - BofA

Ermenegildo Zegna NV

02/10/2024 12:55

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    TIME TO GO IDIOSYNCRATIC ON LUXURY - BofA
    Luxury names have rallied across the board on hopes for
China stimulus, but it's time to start getting more specific, at
least according to BofA analysts. 
    Consensus for luxury sector EPS is falling fast, they say, 
having last week slashed their own estimates by 17%. 
    Despite the negativity, the luxury space has rallied since
China announced a swathe of new monetary stimulus last week. 
    In Europe for instance, a basket of luxury stocks is up 9%
since Sept 23., versus a 0.7% rise in the STOXX 600. 
    For BofA such upwards moves were "almost indiscriminate, and
largely positioning driven".
    Now, they say, investors would do well to shift their focus
to more idiosyncratic stories, given dispersion is likely to
pick up through 3Q reporting.
    "We see the most EPS downside risk to Burberry, Swatch and
Kering. We are also below consensus on LVMH F&L (the most
important sentiment driver for the stock). Hermes is one of the
few companies where we are (very slightly) above consensus,"
they wrote in a note. 
    The question of how important China is for luxury goods is
pretty undisputed - BofA says luxury companies generate 30% of
revenues from the Chinese consumer, of which 20% is in Mainland
China and 10% spent abroad. 
    They estimate that Swatch, Hermes, Zegna and Moncler are
most exposed to China/Chinese consumer, whilst Pandora, Hugo
Boss and Brunello Cucinelli have the lowest exposure.
    They expect Chinese luxury spend to grow by 3% in 2024, and
to remain flat in 2025. 
    
    (Lucy Raitano)
    *****


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