Deceleration in LVMH Watches and Jewellery Sales but Fashion and Leather Still Strong; Shares Pricey

We are increasing our fair value estimate for LVMH to EUR 394 per share to account for time value of money and the continuation of strong performance in third-quarter 2021. Organic growth came in at 11% for the quarter compared with 2019, in line with the first half and slightly decelerating from 14% recorded in the second quarter. The deceleration was mainly led by the watches and jewellery division (1% growth in the third quarter versus 2019 and 5% growth in the first half versus 2019), with some weakness for Bulgari in Asia due to increased coronavirus containment measures, which may be a negative read-across for Richemont’s jewellery divisions, and which have high exposure to the region (although those have been gaining market share so far through the pandemic and may cushion the blow). The most profitable division fashion and leather goods, which comprises Louis Vuitton and Dior, continued to perform strongly with 38% organic growth from 2019 levels, in line with the first half of the year. Management noted a significant portion of growth in past years for the division (midteens on average since 2017 compared with 7% from 2010 to 2016) and Louis Vuitton in particular, was due to positive mix effect, rather than pure volume, which should help preserve the exclusivity perception of the brand. We believe continuing double-digit growth of the main brand is baked into its current valuation, which we view as optimistic.