Growth slowed in the third quarter. Luxury cosmetics are also suffering from the fall in Chinese consumption.
L’Oréal is structured around four divisions. Its professional products (11% of turnover (CA)) are intended for hairdressing salons and beauty institutes. Of excellent quality, they are not available in local drugstores, which gives them a certain exclusivity, which allows the group to sell them more expensively and increase its margins. Consumer Products (37%) consist of cosmetics and skin care. The Luxury division (36%) targets more exclusive sales channels (also available in stores). Dermatological Beauty (16%) focuses on solutions responding to problems linked to skin pathologies or aesthetic requirements. Consumers love dermatologist-approved ingredients and products. These products developed by but also for dermatologists are available in clinics and pharmacies.
The figures for the third quarter are mixed. Organic growth is in line with that of the first six months for Professional Products (6.1%) and progresses for Luxury (5.8%; in China, however, turnover fell 15%), but slowed down in the Dermatological Beauty (0.8%) and Consumer Products (1.4%) divisions. Unfavorable weather conditions have affected sales of solar products.
Conclusion
L’Oréal shares are currently trading at 26.5 times estimated earnings for 2024. This is a correct valuation from a historical perspective, despite the recent plunge. The growth in turnover and margins, and the share buyback and dividend (yield of 2.1% today), should bring in around 10% per year. The long-term outlook is satisfactory. Only long-term investors can buy the stock at its current price. For others, we can only reiterate our “keep” advice.
Tip: keep/wait
Risk: medium
Rating : 2B
Course: 332.12 euros
Ticker : OR FP
Code ISIN : FR0000120321
Market: Euronext Paris
Capit. stock market: 207.4 billion EUR
C/B 2023 : 28,5
Expected P/E 2024: 26.5
Perf. price over 12 months: -23%
Perf. price since 1/1: -25%
Dividend yield: 2.1%
Belgium
