LVMUY: LVMH - Louis Vuitton Moet Hennessey

[ICUMD]

Happened to be talking with the GF about makeup.  Sephora came up and I happened to do a bit of research on who owns this.  Was shocked to find this European Conglomerate spanning high end wines and spirits, fashion, watches, perfumes and cosmetics.  All very high end items with high margins. 

 

The ADR (LVMUY) trades on the OTC markets.  PE ratio seems to be in the 30 range, and it has had a doubling of the share price in the last year (I always seem to join the party late...).  In any case, was wondering if anyone had any thoughts or knowledge of this company and whether or not it would warrant being a long term accumulate and hold.

[John Hjorth]

ICUMD,

 

I had a similar experience [details omitted here] in the beginning of this week, that caught my attention to this company, based on their products. Wednesday I read an article on a Danish Press website about Mr. Arnault, and I got further interested. He appears to be the wealthiest citizen in Europe as of now. I've seen him mentioned several times before while reading, but I have never dived further into it before.

 

I started looking at Forbes, where he is stated to be #4 on Worlds Billionaire List. Now that really caught my attention.

 

Then on to Wikipedia to read about LVMH.

Then on to Wikipedia to read about Mr. Arnault.

 

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The description of how the company was built in the Wikipedia article about Mr. Arnault is just such a fascinating story about building a great company, almost like the story of the building of Berkshire, Fairfax, Brookfield, Swedish Investor, or something like that.

 

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I have taken a glance at the 2017 financials, too - whoa! - that balance sheet really scared me! - all those intangible assets! - Absolutely not my cup of tea.

 

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Rigth now, I'm reading the 2017 Reference Document, so on/off for the last 2 - 3 days. To me, it seems like a really great document to entry this company.

 

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No conclusions yet for my part, but I feel almost dragged into further reading, it is to me so impressive, this company.

 

My interim perception right now, though, is, that this is a serial acquirer, based on cash flow generation from assets already owned, and I just happen to get soft in my knees when I see a such a thing. [i hope this does not turn out to become a fatal attraction for me [ : - ) ]].

 

To paraphrase Mr. Munger: Mr. Arnault is a squirrel, too - but his nudgets are brands.

[Spekulatius]

LVMH is the luxury powerhouse. They own the best luxury brands in fashion, Champagne. Irreplaceable, since some of the cashe comes from the French origin. The Chinese love them. It’s prime real estate in luxury.

 

They are meticulous about protecting their brands, When something doesn’t sell, they will destroy it. There is no discount/outlet dumping like with Coach, which is way lower in terms of brand status anyways.

 

LVMH could be bought for mid teen PE’s quite a few times, typically when there are issues in the Chinese market.

[John Hjorth]

Thank you, Spekulatius,

 

Your post reads like you have caught interest in LVMH earlier, following it over some years, perhaps many.

 

It's a complicated investment, - at least to me - and a - for me - new space.

 

I remember that you have a long term investment in Nestle, that you have held for now many years, that you have mentioned has done very well for you. [Personally, I have now been tracking Nestle for years, without getting in.] Is this company for you similar to Nestle [perhaps not as an investment as such, with regard to thesis, but more like: "The price does not seem right to me here, so I'll just wait and see"], causing one to stay on the sideline indefinitely?

 

PS:

 

I really have to post some nitpicking here:

 

The full formal company name is: "LVMH Moët Hennessy - Louis Vuitton SE", meaning the abbreviation of the company name is "somehow partially reversed", because the direct abbreviation should be "MHLV", which it just isen't!

[Spekulatius]

Thank you, Spekulatius,

 

Your post reads like you have caught interest in LVMH earlier, following it over some years, perhaps many.

 

It's a complicated investment, - at least to me - and a - for me - new space.

 

I remember that you have a long term investment in Nestle, that you have held for now many years, that you have mentioned has done very well for you. [Personally, I have now been tracking Nestle for years, without getting in.] Is this company for you similar to Nestle [perhaps not as an investment as such, with regard to thesis, but more like: "The price does not seem right to me here, so I'll just wait and see"], causing one to stay on the sideline indefinitely?

 

PS:

 

I really have to post some nitpicking here:

 

The full formal company name is: "LVMH Moët Hennessy - Louis Vuitton SE", meaning the abbreviation of the company name is "somehow partially reversed", because the direct abbreviation should be "MHLV", which it just isen't!

 

Yes, I have followed LVMH over the years, but never owned the stock. I follow most European global company to some extend. I have owned Nestle for a long time (bought in 2003), but had to sell, because my German brokerage where I held the shares would not do business with German citizens living in the US any more, due to more stringent money laundry laws, I never bought again, since the valuation at that point (and now) seems rich.

 

Another company in ultra luxury is Hermès. They are ridiculously profitable, but the shares are expensive (40x earnings). I think the brand cache of the ultra luxury brands is unassailable, because part of it comes from their French origin. I think there are some Italian leather good / assessory companies that are cheap, albeit with less valuable brands equity.

[John Hjorth]

Thank you for your reply here, Spekulatius,

 

I appreciate your input - very much!

 

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The more I think of it, the more it somehow centers about, that what this company is actually doing, is: LVMH is coating global tax on vanity & bon viant behavior.

[rb]

LVMH has a stable of fantastic brands. It also has a fantastic management team that is very good at running, growing, and monetizing those brands. These guys are probably the best in the business. I really admire the company a lot. I'm not as concerned about the intangible assets as john is. They're to be expected in this type of business.

 

Despite my admiration I've never bought in for several reasons. Firstly, It's always been pretty expensive.

 

Secondly, they don't make their money off of the "Sex and the City" crowd. They make the money off of China. This type of company has high fix costs. This means that the incremental dollar(sale) has a huge margin. For a long time now that incremental sale has been China. So even though this is a very well run company with great assets. When you're buying it you're essentially betting on debauchery in China. In my view debauchery in China can come to a stop and right quick for a number of reasons: changing tastes, en economic problem, or a government edict. It may very well be that an end to debauchery will never come and then the shareholders of LVMH will do quite well. But I have no way of weighing the probability of those outcomes and so I cannot make that bet.

[DooDiligence]

Thank you, Spekulatius,

 

Your post reads like you have caught interest in LVMH earlier, following it over some years, perhaps many.

 

It's a complicated investment, - at least to me - and a - for me - new space.

 

I remember that you have a long term investment in Nestle, that you have held for now many years, that you have mentioned has done very well for you. [Personally, I have now been tracking Nestle for years, without getting in.] Is this company for you similar to Nestle [perhaps not as an investment as such, with regard to thesis, but more like: "The price does not seem right to me here, so I'll just wait and see"], causing one to stay on the sideline indefinitely?

 

PS:

 

I really have to post some nitpicking here:

 

The full formal company name is: "LVMH Moët Hennessy - Louis Vuitton SE", meaning the abbreviation of the company name is "somehow partially reversed", because the direct abbreviation should be "MHLV", which it just isen't!

 

Yes, I have followed LVMH over the years, but never owned the stock. I follow most European global company to some extend. I have owned Nestle for a long time (bought in 2003), but had to sell, because my German brokerage where I held the shares would not do business with German citizens living in the US any more, due to more stringent money laundry laws, I never bought again, since the valuation at that point (and now) seems rich.

 

Another company in ultra luxury is Hermès. They are ridiculously profitable, but the shares are expensive (40x earnings). I think the brand cache of the ultra luxury brands is unassailable, because part of it comes from their French origin. I think there are some Italian leather good / assessory companies that are cheap, albeit with less valuable brands equity.

 

I've had Hermes, LVMH & CF Richemont on a watch list forever.

Waiting on recession or bad China news to make them cheap?

[Spekulatius]

All these luxury stocks have been on a steep trajectory for the last year or so. I suspect the installment of a permanent leadership in China without the 5 year purge cycle has something to do with it.

 

A while ago, there was a significant bear market in boozy stocks ( Pernod Richard, LVMH as well to some extend) because the government was cracking down on corruption and apparently those ultra premium cognac etc bottles were the currency. Based on how these stocks are doing and the reports about ultra premium Chinese rice liquor is doing, I am guessing that the winds have changed.

[John Hjorth]

LVMH has a stable of fantastic brands. It also has a fantastic management team that is very good at running, growing, and monetizing those brands. These guys are probably the best in the business. I really admire the company a lot. I'm not as concerned about the intangible assets as john is. They're to be expected in this type of business.

 

Despite my admiration I've never bought in for several reasons. Firstly, It's always been pretty expensive.

 

Secondly, they don't make their money off of the "Sex and the City" crowd. They make the money off of China. This type of company has high fix costs. This means that the incremental dollar(sale) has a huge margin. For a long time now that incremental sale has been China. So even though this is a very well run company with great assets. When you're buying it you're essentially betting on debauchery in China. In my view debauchery in China can come to a stop and right quick for a number of reasons: changing tastes, en economic problem, or a government edict. It may very well be that an end to debauchery will never come and then the shareholders of LVMH will do quite well. But I have no way of weighing the probability of those outcomes and so I cannot make that bet.

 

Thank you for sharing your insights here, rb,

 

I'm understanding from your post, that you've been following this company now for many years.

 

With regard to intangibles on the balance sheet, for my part, I won't call it sceptisism, as such. It's new space for me. So let me just be totally candid and just call it here what it is for me: A black box for me, based on ignorance & lack of knowledge. I can do some work to learn for myself [and share here on CoBF], and I'm extremely stubborn and persistent to that respect, when I see something, that to some degree has some kind of appeal to me.

 

So the right term for my part would more be like "un-opinionated, based on lack of knowledge", instead of "sceptical". [ ; - ) ] In short, I simply need to learn by doing. I may end up buying nothing, but at at least then I've got to know a great European company better.

 

Time and my personal behavior going forward will tell.

 

[KJP]

LVMH has a stable of fantastic brands. It also has a fantastic management team that is very good at running, growing, and monetizing those brands. These guys are probably the best in the business. I really admire the company a lot. I'm not as concerned about the intangible assets as john is. They're to be expected in this type of business.

 

Despite my admiration I've never bought in for several reasons. Firstly, It's always been pretty expensive.

 

Secondly, they don't make their money off of the "Sex and the City" crowd. They make the money off of China. This type of company has high fix costs. This means that the incremental dollar(sale) has a huge margin. For a long time now that incremental sale has been China. So even though this is a very well run company with great assets. When you're buying it you're essentially betting on debauchery in China. In my view debauchery in China can come to a stop and right quick for a number of reasons: changing tastes, en economic problem, or a government edict. It may very well be that an end to debauchery will never come and then the shareholders of LVMH will do quite well. But I have no way of weighing the probability of those outcomes and so I cannot make that bet.

 

Thank you for sharing your insights here, rb,

 

I'm understanding from your post, that you've been following this company now for many years.

 

With regard to intangibles on the balance sheet, for my part, I won't call it sceptisism, as such. It's new space for me. So let me just be totally candid and just call it here what it is for me: A black box for me, based on ignorance & lack of knowledge. I can do some work to learn for myself [and share here on CoBF], and I'm extremely stubborn and persistent to that respect, when I see something, that to some degree has some kind of appeal to me.

 

So the right term for my part would more be like "un-opinionated, based on lack of knowledge", instead of "sceptical". [ ; - ) ] In short, I simply need to learn by doing. I may end up buying nothing, but at at least then I've got to know a great European company better.

 

Time and my personal behavior going forward will tell.

 

By intangible assets I assume you mean the "Brands and other intangible assets" and "Goodwill" lines on the balance sheet.  Both of those entries arise from purchase accounting.  See 2017 LVMH Reference Document at Notes 3.3 and 4.  They are a necessary accounting consequence of any acquisition of a luxury brand.  To invert the issue, if an acquisition price could be attributed entirely to the acquiree's tangible assets, then it would have no brand value at all, much less the super luxury type of brands acquired by LVMH. 

 

In my view, if you're trying to figure out the future economics of the existing businesses, I would ignore all of those intangibles and any amortization related to them.  If you wanted to look at the wisdom of management's past acquisitions, I would include all of the intangibles, add back amortization and any impairments, and look at the incremental returns generated by the acquisitions relative to the capital paid to acquire them. 

[John Hjorth]

Thank you, Spekulatius,

 

Your post reads like you have caught interest in LVMH earlier, following it over some years, perhaps many.

 

It's a complicated investment, - at least to me - and a - for me - new space.

 

I remember that you have a long term investment in Nestle, that you have held for now many years, that you have mentioned has done very well for you. [Personally, I have now been tracking Nestle for years, without getting in.] Is this company for you similar to Nestle [perhaps not as an investment as such, with regard to thesis, but more like: "The price does not seem right to me here, so I'll just wait and see"], causing one to stay on the sideline indefinitely?

 

PS:

 

I really have to post some nitpicking here:

 

The full formal company name is: "LVMH Moët Hennessy - Louis Vuitton SE", meaning the abbreviation of the company name is "somehow partially reversed", because the direct abbreviation should be "MHLV", which it just isen't!

 

Yes, I have followed LVMH over the years, but never owned the stock. I follow most European global company to some extend. I have owned Nestle for a long time (bought in 2003), but had to sell, because my German brokerage where I held the shares would not do business with German citizens living in the US any more, due to more stringent money laundry laws, I never bought again, since the valuation at that point (and now) seems rich.

 

Another company in ultra luxury is Hermès. They are ridiculously profitable, but the shares are expensive (40x earnings). I think the brand cache of the ultra luxury brands is unassailable, because part of it comes from their French origin. I think there are some Italian leather good / assessory companies that are cheap, albeit with less valuable brands equity.

 

I've had Hermes, LVMH & CF Richemont on a watch list forever.

Waiting on recession or bad China news to make them cheap?

 

Have you done the "simple/mini" acid test of this investment, Jeff?

 

The "simple/mini" acid test of every company is to me to look at it during the years 2007, '08 and '09. How did it perform ref. its financials for those years? How did it end getting out on the other side of the GFC?

 

We have access to the LVMH financials since 2002 on the LVMH website. What do you see here?

[rishig]

Thank you, Spekulatius,

 

Your post reads like you have caught interest in LVMH earlier, following it over some years, perhaps many.

 

It's a complicated investment, - at least to me - and a - for me - new space.

 

I remember that you have a long term investment in Nestle, that you have held for now many years, that you have mentioned has done very well for you. [Personally, I have now been tracking Nestle for years, without getting in.] Is this company for you similar to Nestle [perhaps not as an investment as such, with regard to thesis, but more like: "The price does not seem right to me here, so I'll just wait and see"], causing one to stay on the sideline indefinitely?

 

PS:

 

I really have to post some nitpicking here:

 

The full formal company name is: "LVMH Moët Hennessy - Louis Vuitton SE", meaning the abbreviation of the company name is "somehow partially reversed", because the direct abbreviation should be "MHLV", which it just isen't!

 

Yes, I have followed LVMH over the years, but never owned the stock. I follow most European global company to some extend. I have owned Nestle for a long time (bought in 2003), but had to sell, because my German brokerage where I held the shares would not do business with German citizens living in the US any more, due to more stringent money laundry laws, I never bought again, since the valuation at that point (and now) seems rich.

 

Another company in ultra luxury is Hermès. They are ridiculously profitable, but the shares are expensive (40x earnings). I think the brand cache of the ultra luxury brands is unassailable, because part of it comes from their French origin. I think there are some Italian leather good / assessory companies that are cheap, albeit with less valuable brands equity.

 

I've had Hermes, LVMH & CF Richemont on a watch list forever.

Waiting on recession or bad China news to make them cheap?

 

Hermes manages to do reasonably okay, businesswise, during recessions too - simply by keeping the supply and demand curves very far from each other. So, surely, the demand goes down during a recession but the supply is much further down that it doesn't matter. Having a very efficient supply chain, for lack of better words, is a curse for these companies :)

[Guest Cameron]

Thank you, Spekulatius,

 

Your post reads like you have caught interest in LVMH earlier, following it over some years, perhaps many.

 

It's a complicated investment, - at least to me - and a - for me - new space.

 

I remember that you have a long term investment in Nestle, that you have held for now many years, that you have mentioned has done very well for you. [Personally, I have now been tracking Nestle for years, without getting in.] Is this company for you similar to Nestle [perhaps not as an investment as such, with regard to thesis, but more like: "The price does not seem right to me here, so I'll just wait and see"], causing one to stay on the sideline indefinitely?

 

PS:

 

I really have to post some nitpicking here:

 

The full formal company name is: "LVMH Moët Hennessy - Louis Vuitton SE", meaning the abbreviation of the company name is "somehow partially reversed", because the direct abbreviation should be "MHLV", which it just isen't!

 

Yes, I have followed LVMH over the years, but never owned the stock. I follow most European global company to some extend. I have owned Nestle for a long time (bought in 2003), but had to sell, because my German brokerage where I held the shares would not do business with German citizens living in the US any more, due to more stringent money laundry laws, I never bought again, since the valuation at that point (and now) seems rich.

 

Another company in ultra luxury is Hermès. They are ridiculously profitable, but the shares are expensive (40x earnings). I think the brand cache of the ultra luxury brands is unassailable, because part of it comes from their French origin. I think there are some Italian leather good / assessory companies that are cheap, albeit with less valuable brands equity.

 

I've had Hermes, LVMH & CF Richemont on a watch list forever.

Waiting on recession or bad China news to make them cheap?

 

Pandora A/S got smacked recently because of a China slowdown.

[John Hjorth]

I'm trying to take a break for LVMH for now. I'm trying to stay rational here. [i won't promise it'll hold, however.] The stock price is just somehow insane to me. P/E a bit above 30 right now.

[DooDiligence]

Thank you, Spekulatius,

 

Your post reads like you have caught interest in LVMH earlier, following it over some years, perhaps many.

 

It's a complicated investment, - at least to me - and a - for me - new space.

 

I remember that you have a long term investment in Nestle, that you have held for now many years, that you have mentioned has done very well for you. [Personally, I have now been tracking Nestle for years, without getting in.] Is this company for you similar to Nestle [perhaps not as an investment as such, with regard to thesis, but more like: "The price does not seem right to me here, so I'll just wait and see"], causing one to stay on the sideline indefinitely?

 

PS:

 

I really have to post some nitpicking here:

 

The full formal company name is: "LVMH Moët Hennessy - Louis Vuitton SE", meaning the abbreviation of the company name is "somehow partially reversed", because the direct abbreviation should be "MHLV", which it just isen't!

 

Yes, I have followed LVMH over the years, but never owned the stock. I follow most European global company to some extend. I have owned Nestle for a long time (bought in 2003), but had to sell, because my German brokerage where I held the shares would not do business with German citizens living in the US any more, due to more stringent money laundry laws, I never bought again, since the valuation at that point (and now) seems rich.

 

Another company in ultra luxury is Hermès. They are ridiculously profitable, but the shares are expensive (40x earnings). I think the brand cache of the ultra luxury brands is unassailable, because part of it comes from their French origin. I think there are some Italian leather good / assessory companies that are cheap, albeit with less valuable brands equity.

 

I've had Hermes, LVMH & CF Richemont on a watch list forever.

Waiting on recession or bad China news to make them cheap?

 

Have you done the "simple/mini" acid test of this investment, Jeff?

 

The "simple/mini" acid test of every company is to me to look at it during the years 2007, '08 and '09. How did it perform ref. its financials for those years? How did it end getting out on the other side of the GFC?

 

We have access to the LVMH financials since 2002 on the LVMH website. What do you see here?

 

LVMH continued to increased their business & margins as did Hermes & Richemont.

 

Stocks were in the toilet & I was unaware of them.

 

I'd probably buy in the next economic downturn.

[John Hjorth]

CNBC - [today]: 3 tiny interviews with Mr. Arnault about France, a wedding robe & LVMH, respectively - if you just let the videos roll on.

[John Hjorth]

LVMH 2018H1 out today.

 

This behemoth is right now running at ROE in the area of 20 percent. Fascinating, to say the least.

 

I'm not totally rational here, - I simply can't forget this thingy.

[DooDiligence]

LVMH 2018H1 out today.

 

This behemoth is right now running at ROE in the area of 20 percent. Fascinating, to say the least.

 

I'm not totally rational here, - I simply can't forget this thingy.

 

I'll wait until the next recession.

It won't hurt the business but may cause the equity to drop.

[John Hjorth]

LVMH Letter to Shareholders August 2018 [August 2^nd 2018].

[Gregmal]

Curious if anyone else follows/owns this. I know real estate plays are big with some investors here. This was always one of those dual class structures that traded at a massive discount cuz it would never be sold. Now apparently it's on the block and nearly doubled. Interesting to see what transpires given it's not every day you see one of those perpetual management discount stories get put up for auction. Ultimately, I don't think this gets sold.

[DooDiligence]

Price has dropped considerably over the last month.

 

Not saying it's cheap but these guys just keep crushing it.

 

---

 

Old news,

 

https://www.bloomberg.com/news/articles/2017-04-25/arnault-to-buy-dior-for-13-billion-add-couture-brand-to-lvmh

 

I'll bet Arnault is super pissed that he couldn't get control of Hermes, especially after the Apple watch bands appeared.

[John Hjorth]

I finally got my act together and did the work today to get a secondary broker, to start buying - among other things - this company.

 

Starting small - very small - like tiny ... It's not nowhere cheap even after it has come down just some recently. To me, this will most likely be like a good old Russian 5-years plan - prolonged four times. [if I live that long, and don't abort prematurely - this one you have to sit on for long periods of time - otherwise the investment does not make sense. Joel's essay: "Price and Returns" comes to mind here.]

[DooDiligence]

I finally got my act together and did the work today to get a secondary broker, to start buying - among other things - this company.

 

Starting small - very small - like tiny ... It's not nowhere cheap even after it has come down just some recently. To me, this will most likely be like a good old Russian 5-years plan - prolonged four times. [if I live that long, and don't abort prematurely - this one you have to sit on for long periods of time - otherwise the investment does not make sense. Joel's essay: "Price and Returns" comes to mind here.]

 

I agree, not necessarily a multi bagger unless you have patience (which I do.)

I think the business is recession resistant.

 

Fear over slowdowns from Chinese bribery crackdowns are a short term worry IMO.

 

Long term prosperity & aspirational lifestyles seem like nice tailwinds.

 

I'm cooling my jets until I read a bit more about the business, which might take a while because we started melodic organization in class a few weeks ago & the material is nearly incomprehensible & requires multiple readings & exercises. Right as you begin to understand it, the instructors pile on even more abstract concepts with semi-rigid rules attached.

 

Many will drop before the next semester but I will not be one of them.

 

I may just have to take a tiny leap of faith, like yours, in Louis Vuitton, and hope for a nice drop in price to fill up.

[John Hjorth]

I agree, not necessarily a multi bagger unless you have patience (which I do.)

I think the business is recession resistant.

 

Fear over slowdowns from Chinese bribery crackdowns are a short term worry IMO.

 

Long term prosperity & aspirational lifestyles seem like nice tailwinds.

 

I'm cooling my jets until I read a bit more about the business, which might take a while because we started melodic organization in class a few weeks ago & the material is nearly incomprehensible & requires multiple readings & exercises. Right as you begin to understand it, the instructors pile on even more abstract concepts with semi-rigid rules attached.

 

Many will drop before the next semester but I will not be one of them.

 

I may just have to take a tiny leap of faith, like yours, in Louis Vuitton, and hope for a nice drop in price to fill up.

 

Jeff,

 

The most important thing in life is consciously to build & develop your own life into the future, that you want for yourself.

 

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LVMUY P/E right now at ~22. At least a bit easier to swallow than ~30  [some time ago]. Absolutely not my cup of tea - anyway. However, I will try.

 

In a conglomerate now including about 70 "houses", there will always be laggards, and thereby mental worries for the investor.