February 10, 2025 16:06 GMT
CONSUMER CYCLICALS: L'Oreal; 4Q (to Dec) earnings (x2)
CONSUMER CYCLICALS
(ORFP; Aa1/AA)
Circling back, nothing of concern for credit (gross <1x) but on the slowdown in US and China it is very optimistic on former and sees stabilisation in latter (and is low exposed regardless). Trades to ratings already but a firm name and one we see more favourably over LMVH. Some points below for beauty market read-through (Unilever, Coty are comps). Has single €1b line due in May this year.
- Expects beauty market growth of +4-4.5% and expects to continue outperforming that.
- would be slowest pace for the market since 2016 (ex. covid)
- Assumed China flat, Europe stays consistent (4Q +5%), EM strength to continue and bullish on US growth
Regional trends;
- China was flat over Jan and Feb-to-date which it sees as stabilisation from 2H falls. Has over 28% market share in the country but exposure at the group level is well diversified away.
- EM (ex. China) makes up 16%+ of group sales - more than China now. It also made up 36% of growth this year.
- Despite US making up 25% of group sales already, it still sees it as a growth engine given "one of the few developed markets with actual population growth".
- Notes Latino population growth who it sees "more focused on beauty" and rise in multiracials which it sees requiring "new beauty needs".
- Echoes LVMH (just without the anti-France tax rhetoric); "we see the US as a land of opportunity"
Structural tailwinds;
- The division that is likely to continue logging impressive growth is Dermatologic beauty (brands like La Roche-Posay and CeraVe, 16% of group) which it says is driven by the "unfortunate rise of skin pathologies and the boom of aesthetics".
- It notes Gen-Z "digital savviness and beauty obsession" and goes a step further for Gen Alpha (2010-24) saying they will "come of age" in 2030 and are a "beauty crazy".
- On ageing population in developed countries, older individuals spend more in $s; boomer avg's $400/yr+, twice Gen Y and 2.5x Gen Z spend.
- Notes general longevity craze "I don't know if any of you has watched on Netflix the Don't Die documentary on Bryan Johnson. I think he takes 400 different supplements every day." Is introducing supplements to ride that growth.
- Its flaunting it invests 3% of sales in R&D not far off peers (Beiersdorf-consumer-arm 3.1%, Estee 2.3%, Coty 2.1%) but as world's largest will mean it nominally far outspends peers (L'Oreal €1.4b, EL $360m, Beiersdorf €240m, Coty $127m).
- Worth noting it also competes with pharma's (like Abbvie & J&J) particularly on dermatological products. These co's tend to run double digit R&D spend (across the group - will include other areas).
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