Why should you buy Christian Dior International? – 25/11/2022 at 9:25 am

François d'Hautefeuille

In the first nine months of 2022, the Christian Dior group achieved a turnover of 56.5 billion euros, an increase of 28% compared to the same period of 2021. (credit: midnightbreakfastcafe / Flickr / CC BY 2.0)

In the first nine months of 2022, the Christian Dior group achieved a turnover of 56.5 billion euros, an increase of 28% compared to the same period of 2021. (credit: midnightbreakfastcafe / Flickr / CC BY 2.0)

Christian Dior International is the family holding company of LVMH. LVMH is the global leader in luxury with a portfolio of more than seventy prestigious brands in wine and spirits, fashion and jewelry, media, distribution and luxury hotels.

The main shareholders of Christian Dior International are the Arnaud family with 97.5% through Financière Agache, Mr. Bernard Arnault 0.3%, the Norwegian sovereign wealth fund with 0.175%. The share has a market capitalization of approximately EUR 124 billion. LVMH has a market capitalization of EUR 350 billion or 11.63% of the CAC 40. It is the 1st capitalization of the CAC 40 ahead of Total Energies at 9.45% and the 2nd capitalization of the EuroStoxx50 behind ASML Holdings).

Sentiment Technique: Beneficial

Christian Dior International has shown an annual stock market performance of 21.75% over 10 years (ie a total performance of 605%!) compared to 6.62% for the Euro Stoxx 50 and 20.32% for LVMH, 20.05% for Hermès and 7.62% for the Compagnie Financière Richemont (which controls Cartier).

We believe that from a technical point of view, the price of Christian Dior International is testing a particularly important support around EUR 685 (long-term bullish corridor).

Source: Bloomberg LLP and Evariste Quant Research.  Bloomberg LLP is not responsible for this analysis.

Source: Bloomberg LLP and Evariste Quant Research. Bloomberg LLP is not responsible for this analysis.

The recent decline offers us an attractive entry point. The price of Christian Dior International has been consolidated since the end of 2021 and the war in Ukraine, despite the continued increase in profits. We note an underperformance of about 50% over 5 years for Christian Dior International compared to LVMH.

Source: Bloomberg LLP and Evariste Quant Research.  Bloomberg is not responsible for this analysis.

Source: Bloomberg LLP and Evariste Quant Research. Bloomberg is not responsible for this analysis.

Christian Dior International’s recent fall in the stock market leads us to ask ourselves: are current prices close to the actuarial valuation floor of this super-growth stock? With this question in mind, we did a quick analysis of Christian Dior International.

The Christian Dior group achieved a turnover of 56.5 billion euros in the first nine months of 2022, an increase of 28% compared to the same period of 2021. The growth rates for 2022/2021 (9 months) are impressive: Wines and Spirits +23%, Fashion and Leather Goods +31%, Perfume and Cosmetics +19%, Watches and Jewelery +23%, Selective Retail (Tax Free, Sephora, Le Bon Marché, etc…) +30%, …
Despite the war in Ukraine and after the fall of the Euro against the USD, LVMH earnings expectations for 2022 have been revised sharply upwards as the LVMH share price has fallen from 2021 highs. between 2018 and 2023 is from EUR 12.61 in 2018 to EUR 32.05 in 2023, i.e. a profit increase of 250% in 5 years! And this despite the slowdown in China, the COVID crisis and the war in Ukraine!

Source: Bloomberg LLP, Bloomberg is not responsible for this analysis.

Source: Bloomberg LLP, Bloomberg is not responsible for this analysis.

We will now compare LVMH’s proportions to Hermès International and Kering, the other stars of French luxury. LVMH’s PE is 22x against 43.8x for Hermès International, 15.9x for Kering and 19.4x for Richemont. The Enterprise Value to EBITDA is 10.1x versus 26.3x for Hermès International, 9.6x for Kering and 10.7x for Richemont. These valuation differences are mainly explained by different operating margins (42% for Hermès, against about 27% for LVMH, Kering and Richemont). This reflects a different product mix for each of these values.

AI GARP Sentiment: Favorable

Falling stock markets offer great opportunities to ‘pluck’ gold nuggets from the market at reasonable prices. Christian Dior International is clearly part of the exceptional class of “super growth” stocks that deliver exceptional performance. It has many of its fundamental features: shareholding and family management, thriving economic sector with luxury, large barrier to entry that guarantees high margins, strong exports outside the Eurozone that allow it to benefit from the decline of the Euro.

Our Artificial Intelligence indicator Evariste has been on Christian Dior International for a long time since July 2022.

Source: Evariste Quant Research

Source: Evariste Quant Research

Our Christian Dior International ‘Artificial Intelligence Sentiment’ indicator is buying. This indicator shows that the Christian Dior International (CDI) share is not only attractive in terms of valuation, but also deserves to be tracked on the stock ‘radar screen’.

Source: Bloomberg LLP and Evariste Quant Research.  Bloomberg LLP is not responsible for this analysis.

Source: Bloomberg LLP and Evariste Quant Research. Bloomberg LLP is not responsible for this analysis.

Our AI-based indicators became CDI sellers in March 2020 due to the COVID crisis. They resumed buying in October 2020 for Hermès and November 2020 for LVMH, well after the April 2020 market recovery. Hermès was sold in December 2021 and LVMH in April 2022. But from July 2022, the CDI indicator turned positive again.

Conclusion

“Beauty will save the world,” wrote Dostoyevsky. Will luxury save France? In any case, France has a great asset for its prosperity thanks to its luxury industry. The Paris stock exchange has thus become the first European stock exchange before London and Frankfurt. LVMH, Hermès or Kering have nothing to envy to the achievements of the American GAFAs and the German behemoths. We have an alignment of the interests of the country and the great founding families: Bernard Arnault (2nd world fortune behind Elon Musk), Hermès-Dumas family (Hermès International), François-Henri Pineau (Kering). In fact, by its very nature, the French luxury industry cannot be moved. It is based on centuries of French know-how, embodied in the “French Touch”, this ability to create beauty through highly sophisticated simplicity, which is the result of a complex and mathematical process of purifying forms.

That’s why we buy Christian Dior International and also LVMH on a long-term buy and hold basis. The structural profit growth ensures high long-term performance potential on this gold nugget of the Paris stock exchange.

Methodology of this action research

We value a stock based on three dimensions through a top-down screening process supported by bottom-up fundamental analysis. These sizes are

  1. Definition of a GARP (real price growth) investment universe.
  2. Monthly “top-down” artificial intelligence score
  3. Fundamental validation «bottom up».
  1. Our GARP universe is based on the identification of an investment universe of long-term growth stocks through quantitative filters that select stocks within the investable universe (French equities subject to liquidity constraints).
  2. Within this universe of 100 multi-cap stocks, the artificial intelligence score identifies approximately 30 long-term growth stocks that are the most attractive in terms of valuation each month. The goal is to identify value-priced growth stocks, ie stocks whose price is attractive relative to their long-term value.
  3. Finally, the final fundamental analysis allows validating the entire process above by concentrating the human investigative effort and not the machine on stocks that have already been pre-selected through a stack of filters.

Evariste Quant Research is an independent financial analysis and research firm based on artificial intelligence solutions applied to wealth management.

This financial analysis is not investment advice. Evariste Quant Research and their clients may own securities mentioned in this analysis.

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