Bridgeport Stock Talk Episode 3: LVMH

Bridgeport Stock Talk is a podcast discussing top stock picks and is hosted by Ian Hardacre, Senior VP & Head, Public Equities, and Michael Cannon, Investment Analyst. This time, the team looks at a stock in the Bridgeport US Equity Fund: LVMH.

LVMH, Moet Hennessy, Louis Vuitton, is a company based in Paris and is the world’s largest luxury brand company with over 75 luxury brands across the world.

“What can you tell us about the company?”

So LVMH, Moet Hennessy, Louis Vuitton, it’s a company based in Paris, the world’s largest luxury brand company. It has six main divisions. Now, the majority of the earnings is from one division, which is leather goods and fashion, which is Louis Vuitton and Dior, the primary brands. Beyond that, they have watches and jewelry, which is a major contributor, which includes Tiffany. They also have champagne and wines, high end champagne and wines such as Hennessy and Dom Perignon. And they also own stores such as Sephora. They have 75 global luxury brands around the world.

“We’re pretty picky about what stocks we put into the fund. So why did LVMH make the cut?”

So as people are aware that are watching, we only own 20 stocks in each of our funds. So we have a very high bar for a company to enter into the fund. LVMH has been a strong compounder over time since 1989, the stocks compounded over 10% per year. We look at each company, as I’ve spoken about before, for a business management valuation.

Excellent organic growth potential in the business as it grows mid to high single digits. Historically, luxury brands have large moats around their businesses and they can also grow inorganically as well. They purchased Tiffany a few years ago because the company generates so much free cash flow. Management team is excellent. Divisional leads are very good and they do move around from division to division. The valuation was one of the best valuations that we’ve seen in a long time. So that’s why it’s entered the fund and it has great potential over the next 3 to 5 years.

“You mentioned it is headquartered in Paris. That’s Paris, France. Why do we own it in our US fund?”

We own a few ADR so you can buy large global companies on the US market that are foreign based. So the head office is in Paris. I’ve actually visited them a number of times in their head office and met with them over time. This is the first time I’ve ever actually owned it. The reason we were able to buy it was because there’s been a slowdown in the business somewhat. People are concerned about the slowdown in China because obviously the Chinese consumer is a big part of their client base.

And one of the things about luxury brands is that luxury brands are aspirational. So as developing nations continue to grow, people have more money, and people generally in those countries want to buy luxury brands that they see other people around the world having. So we were able to buy it at a really good multiple. It’s actually the lowest valuation it’s been since the meltdown just after COVID. So we were buying the company at less than 20 times earnings, which may seem like a high price. But for this type of business, it’s not. And about 11 times EBITDA, which is a proxy, as some of you know, for cash flow. So a very, very opportunistic purchase for a company that we’ve been following for a long time