Why should you buy Christian Dior International?

Francois d'Hautefeuille

In the first nine months of 2022, the Christian Dior group achieved sales of 56.5 billion euros, up 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 sales of 56.5 billion euros, up 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 world leader in luxury with a portfolio of more than seventy prestigious brands in the fields of wines and spirits, fashion and jewelry, media, distribution, and luxury hotels.

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

Technical feeling: favorable

Christian Dior International has shown an annual stock market performance of 21.75% for 10 years (i.e. 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 consider that from a technical point of view the price of Christian Dior International is testing a particularly important support around 685 EUR (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 consolidated since the end of 2021 and the war in Ukraine despite the continued rise in its profits. We note an underperformance of around 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.

The recent decline of Christian Dior International on the stock market leads us to ask ourselves the question: are current prices close to the actuarial valuation floor of this super growth stock? We conducted a quick analysis of Christian Dior International with this question in mind.

The Christian Dior group achieved sales of 56.5 billion euros in the first nine months of 2022, up 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%, Perfumes and Cosmetics +19%, Watches and Jewelry +23%, Selective Retailing (duty free, Sephora, Le Bon Marché, etc…) +30%, …
Despite the war in Ukraine and following the fall of the Euro against the USD, LVMH’s profit expectations for 2022 have been revised sharply upwards as the LVMH share price has fallen against its 2021 highs. The growth in profits between 2018 and 2023 is from 12.61 EUR in 2018 to 32.05 EUR in 2023, i.e. a 250% increase in profits 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 the ratios of LVMH with 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 against 26.3x for Hermès International, 9.6x for Kering and 10.7x for Richemont. These differences in valuation are primarily explained by different operating margins (42% for Hermès, against around 27% for LVMH, Kering and Richemont). This reflects a different product mix for each of these values.

AI GARP Sentiment: Favorable

Falling equity markets provide major opportunities to “pick” nuggets from the market at reasonable prices. Christian Dior International is clearly part of the exceptional class of “super growth” stocks that ensure exceptional performance. It has many of its fundamental characteristics: shareholding and family management, buoyant economic sector with luxury, major barrier to entry guaranteeing high margins, strong exports outside the Euro zone allowing it to take advantage of the fall in the Euro.

Our Artificial Intelligence indicator Evariste has been long on Christian Dior International 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 not only is the Christian Dior International (CDI) share attractive in terms of valuation, but also that it deserves to be on the “radar screen” of stocks to watch.

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 artificial intelligence-based indicators turned CDI sellers in March 2020 as a result of 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 became positive again.

Conclusion

“Beauty will save the world” wrote Dostoyevsky. Will luxury save France? In any case, France has a major asset for its prosperity thanks to its luxury industry. The Paris stock exchange has thus become the first European stock exchange ahead of London and Frankfurt. LVMH, Hermès or Kering have nothing to envy to the performances of the American GAFAs and the German colossi. 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, the French luxury industry cannot by nature be relocated. It is based on centuries of French know-how, embodied in the “French Touch”, this ability to create beauty through highly sophisticated simplicity, which results from a complex and mathematical process of purifying shapes.

We are therefore buying Christian Dior International and also LVMH on a “buy and hold” basis over the long term. The structural growth of profits ensures a high long-term performance potential on this nugget of the Paris stock exchange.

Methodology of this action research

We value a stock according to three dimensions via a “top down” screening process backed by a “bottom up” fundamental analysis. These dimensions are

  1. Definition of a GARP (Growth at Real Price) Investment Universe
  2. Monthly “top down” artificial intelligence scoring
  3. Fundamental “bottom up” validation.
  1. Our GARP universe is based on the identification of an investment universe of long-term growth equities via quantitative filters selecting stocks within the investable universe (French equities subject to liquidity constraints).
  2. The artificial intelligence scoring identifies on a monthly basis within this universe of 100 multi-cap stocks around 30 long-term growth stocks which are the most attractive in terms of valuation. 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 makes it possible to validate the entire process above by focusing the human research effort and not the machine on stocks already pre-selected via a stack of filters.

Evariste Quant Research is an independent financial analysis and research firm based on Artificial Intelligence solutions applied to asset management.

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

Why should you buy Christian Dior International?