Table of Contents
Executive summary ........................................................................... 3
Summary EPS and recommendation changes..........................................................................5
Top picks..................................................................................................................................5
Key downgrades .......................................................................................................................6
EM consumers powering on............................................................. 7
Key message 1: Emerging Markets consumers a key force in luxury spending – best exposed
are Swatch, Richemont & LVMH..............................................................................................7
BRICK is making a difference....................................................................................................8
Our updated demand model .....................................................................................................9
EM consumers – a source of growth, and of protection.........................................................12
Best positioned companies.....................................................................................................13
Wholesale: from drag in 2009 to opportunity in 2010? ............... 15
Key message 2: The Wholesale opportunity in 2010 – play Swatch and Richemont..............15
Wholesale significantly underperforming................................................................................15
Wholesale: most exposed companies....................................................................................18
What could happen to wholesale in 2010? .............................................................................18
Companies best positioned for a wholesale rebound.............................................................19
Risks on hard luxury ................................................................................................................20
Are market forecasts right? ............................................................ 21
Key message 3: Consensus looks too low .............................................................................21
Are our new top line forecasts realistic?.................................................................................23
Are our cost assumptions realistic? ........................................................................................25
Mid-cycle margins ........................................................................... 28
Key message 4: A three year recovery path for margins ........................................................28
A three year recovery path......................................................................................................29
Mid-cycle margins: has anything changed compared to the past? .........................................30
Summary estimate revisions.......................................................... 33
Sector valuation still attractive ...................................................... 35
Valuations based on mid cycle margins: highest upside for TOD, LVMH, CFR (Figure 55) ....35
Value Maps for stock selection...............................................................................................37
Historical multiples suggest upside ........................................................................................38
Company pages ............................................................................... 41
Bulgari SpA .............................................................................................................................42
Burberry Group .......................................................................................................................44
Hermes ..................................................................................................................................46
Luxottica ................................................................................................................................48
LVMH.....................................................................................................................................50
PPR ........................................................................................................................................52
Richemont..............................................................................................................................54
Swatch Group .........................................................................................................................56
TOD's Spa..............................................................................................................................58
Appendix - DB Macroeconomic forecasts ..................................... 60
Appendix - FX impact...................................................................... 61
Euro strength becomes a headwind for the sector.................................................................61