Brexit: Good for Luxury Goods Stocks?

While uncertainty in Britain may cause some local consumers to delay purchases, the lower pound and weak euro have in the past proved positives for luxury goods companies

Paul Swinand 30 June, 2016 | 9:35AM

Britain's decision to leave the European Union triggered significant declines in most of our luxury coverage. Wading through the post-volatility prices and valuations, we still see Swatch Group and Richemont as the most undervalued, and Burberry, Prada, LVMH, and Kering are all rated four stars, meaning that they are trading at a discount to their fair value.

The impact on Burberry's fair value is neutral, since costs in pounds are offset by store operations that are global

We believe that overall, both the near- and long-term implications of Brexit, whatever timeline and ultimate rules are implemented, should have a minimal net impact on long-run luxury demand. While uncertainty in Britain may cause some local consumers to delay purchases, the lower pound and weak euro have in the past proved positives for luxury goods companies that have significant local costs and production. Increased purchases by foreign tourists, particularly Chinese and American, should also more than offset drops in local British demand in our view.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Burberry Group PLC1,395.50 GBX-1.83
Cie Financiere Richemont SA59.32 CHF-1.20
Kering SA498.45 EUR-1.63
LVMH Moet Hennessy Louis Vuitton SE388.40 EUR-0.72
The Swatch Group AG ADR11.10 0.00

About Author

Paul Swinand  is an equity analyst at Morningstar covering department stores, luxury goods, sporting goods, apparel and footwear.

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