Lux companies face 'sharp reversal' in case of de-escalation in Iran - Deutsche Bank

Deutsche Bank has allowed a rapid recovery of the European luxury sector in the event of an easing of the conflict in the Middle East, writes CNBC. The bank is confident that the current drawdown is temporary and reflects external shocks rather than the fundamental deterioration of companies' business.

Shares of major European luxury companies, including LVMH - owner of brands Louis Vuitton and Dior, Kering, including Gucci and Saint Laurent, Richemont, which owns Cartier and Van Cleef & Arpels, as well as Hermès, known for bags Birkin and Kelly, fell in price by 10-20% since the beginning of the war between the U.S. and Israel against Iran. However, this dynamic is temporary, and the shares may show a "sharp reversal" when the macroeconomic situation improves, according to analysts at Deutsche Bank. Their opinion quotes CNBC.

As a result of the fall, the market capitalization of these luxury goods manufacturers has decreased by about $100 billion, the channel points out. The bank considers what is happening a "cyclical revaluation downward" and expects a recovery of the sector's valuations.

Although the Middle East only accounts for about 6% of global luxury sales, the region has remained one of the few sources of growth for the struggling sector as a whole, CNBC notes.

Deutsche Bank has worsened its forecasts for luxury segment profits in the first quarter: it now expects growth of 3% instead of the previous 6%. Investors initially expected a gradual recovery in the sector after weak sales during the Lunar New Year, a key consumption season in China, analysts said. However, those hopes were "decisively undermined" by the protracted conflict in the Middle East and the ongoing slowdown in the economies of China and the US.

Nevertheless, Deutsche Bank remains optimistic. "The timing remains uncertain, but we expect a return to the previous growth trajectory driven by demand from consumers in the US and China," the analysts wrote.

Deutsche Bank lowered its target price on LVMH shares from €705 to €620, confirming its recommendation to buy these securities. The new target assumes growth of quotations by 32% relative to the last closing. The bank also worsened the targets on Burberry, Hermès, Moncler and Kering by 2-5%, CNBC reports.

"We favor Hermès due to its more resilient profile, Burberry on the back of the business turnaround already evident, Richemont for outperforming revenue growth, and LVMH as a key bet on a macro-sensitive sector recovery," said analysts led by Adam Cochrane.

Last week, analysts at Barclays said LVMH could face a negative impact equivalent to three weeks of lost sales from tourists in the Middle East amid the ongoing war. They too warned of a "challenging quarter" for the company. A similar situation generally applies to rivals Richemon and Hermès, Barclays noted.

- LVMH shares added 0.5% at the trades on April 2, since the beginning of the year they have lost about 27%. Consensus of analysts on shares of the company looks moderately positive: 15 experts out of 27 recommend to buy these securities, 11 - take a neutral position. Only one analyst advises to sell the shares.

- Shares of Kering grew by 1.6%, since the beginning of the year they are in minus by 11.8%. Analysts' opinions on the securities of this company are mostly neutral: the majority - 14 experts out of 24 - recommend to hold the securities. Six experts recommend buying, four - selling.

- Quotes Richemont in trading on April 2 fell by 0.1%, since the beginning of the year, the company's capitalization fell by 17%. The consensus on the shares of the company "bullish": 16 analysts out of 26 recommend them to buy. Another 10 advise to hold positions. "Bearish" ratings Richemont has no.

- Hermès shares added 1.8% on Thursday and 21.4% since the beginning of the year. 13 analysts out of 22 advise to buy them, eight analysts adhere to a neutral position. Only one suggests selling the luxury player's shares.

This article was AI-translated and verified by a human editor