(BFM Bourse) – The bank raised its opinion on the stock by two notches, as it perceives a change in the dynamics of its flagship brand.
Kering has suffered greatly in this first part of the year. The luxury group, lagging behind LVMH and Hermès in terms of growth, even had to issue a sales warning in March. The company then indicated that it was expecting a 40% to 45% drop in its current operating profit in the first half. This has led its share price to lose more than 15% since the start of the year, while LVMH has only lost 2% and Hermès has gained 14.8%.
Can Kering bounce back? Much will depend on the second half of this year. To breathe new life into its flagship brand Gucci, which accounts for the majority of its results, Kering recruited a new artistic director last year, Sabato de Sarno, a transfer from Valentino.
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The designer’s new collections have so far only reached a handful of stores. In other words, the good reception of these new items, and therefore the potential renaissance of Gucci, will be judged in the second part of the year.
Bank of America has in any case sent an important message of confidence in Kering’s recovery by raising its advice by two notches on Thursday, from “underperform” to “buy” on the stock. The bank raised its price target to 450 euros from 350 euros, which gives a potential of nearly 38% at the close on Wednesday.
On the Paris Stock Exchange, Kering shares are supported by this change in recommendation, gaining 3.7% at the start of the afternoon, the largest increase in the CAC 40.
Weak signals of improvement on Gucci
The establishment explains that it sees first signs of improvement in the brand’s dynamics at Gucci, based in particular on its own indicator, which had previously correctly predicted the slowdown of Gucci from 2020.
This indicator, which is based in particular on searches on Baidu and Google search, compares 42 “soft luxury” brands (clothing and leather goods as opposed to “hard luxury”, which includes watches and jewelry) and ranks them . While Gucci ranked 42nd in Q3 2023, the brand has seen three consecutive quarters of improvement and now sits at 30th. For Bank of America “this suggests that the worst is over”.
Another encouraging signal observed by the bank is that Kering increased its prices by about 4% on 9 of the 20 items that Bank of America monitors. “We believe Gucci’s mid-season price increase is interestingly timed and could indicate improved sales of these items, particularly in light of limited pricing elsewhere in the industry. luxury”, develops the bank.
Bank of America believes that “the increasing availability of new Gucci products by Sabato de Sarno should help translate the early improvement in brand momentum into revenue.” “While Sabato de Sarno products represented only 7% of revenue in the first quarter, they will represent 25% in the second quarter, 30% in the third quarter and 40% in the fourth quarter,” it added.
The bank believes that Kering’s operating margin can recover without reaching the dizzying peak of 2019, when the operating margin at Gucci alone reached 41%.
Moreover, the valuation may prove attractive. Kering’s stock market value is about three times its sales, or 25% less than Prada and Richemont, whose margins were nevertheless lower than those of Kering in 2023, notes Bank of America.
Julien Marion – ©2024 BFM Bourse
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