Luxury is set to stay as one of few growth sectors in a subdued macro
environment, according to Exane BNP Paribas, which reinstates coverage of the
sector and rates Richemont, Swatch and Prada 'add'.
"More than ever, luxury goods depend on China and EMs (emerging market)
demand. The good news is that the outlook for China has been rapidly improving,
supporting luxury stocks," analysts at Exane BNP Paribas say in a note, pointing
out that the sector benefits from continued uncertainty in the global outlook.
"The outright elimination of tail risks would prompt a 'value rally' in
which luxury goods stocks underperform in relative terms," the note says.
The luxury sector trades on a median price-to-earnings ratio of 18.2 times,
according to Thomson Reuters data. This compares unfavourably on a pure
valuation basis to banks, who trade at an average P/E ratio of 10.1, their
prices suppressed by uncertainty over the end of the global financial crisis.
Within the luxury sector, Exane BNP Paribas favours Richemont and Swatch for
their management, vertical integration and jewelry operations that are
well-placed to benefit from ageing consumers, as well as their favourable
valuations when compared to LVMH.
Meanwhile above average growth in leather goods stands to benefit Prada
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