Deutsche turns more positive on luxury

DEUTSCHE TURNS POSITIVE ON LUXURY

European luxury stocks have had their moments in the last few years, but they've been few and far between. Now Deutsche Bank, which has long been cautious on the sector, has a note out saying this might be the time to buy.

An index of 10 top European luxury names has generally underperformed the market, up 5% this year, compared to 13% for the STOXX 600, an underperformance that goes back a few years, even if on a 10 year time frame they've outperformed dramatically.

So what's changing now?

For some big beasts, it's partly that things have been bad enough recently that the coming quarters will look good in comparison.

LVMH MC has some of the easiest comparatives for the second half of this year, Deutsche says, but the sector as a whole should be able to see sequential improvement in sales growth.

In addition, they say "a few years have passed since the egregious COVID-related price increases, new creative directors should increase the excitement around new products, price architecture has widened with more entry level products and opex management has moved up the corporate agenda."

"All of these together have created an interesting set-up with scope for positive earnings surprises in 2026."

They have upgraded Burberry BRBY and LVMH to buy, and also have buy ratings on Hermes, RMS Zegna ZGN and Pandora PNDORA.

They also see potential upside for Richemont CFR, Kering KER and Moncler MONC but have hold ratings because of valuations and tougher comparatives.

(Alun John)

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