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Hermès International Société en commandite par actions (RMS.PA)
- Equity
- France
- Consumer Cyclical
Preparing report
RISK
RETURN
Key risk factors
Negligible price volatility
Strong & resilient to price shocks
Low default risk
Key return factors
Very strong margins and returns
Strong growth
Greatly overvalued vs peers
Company profileHermès International Société en commandite par actions engages in the production, wholesale, and retail of various goods. The company offers leather goods and saddlery, such as bags for men and women, clutches, briefcases, luggage, small leather goods, diaries and writing objects, saddles, bridles, and a range of equestrian products and clothing; ready-to-wear garments for men and women; and accessories, including jewelry, belts, hats, gloves, the Internet of Things products, and shoes. It also provides silk and textiles for men and women; art of living and tableware products; perfumes; and watches. In addition, the company is also involved in weaving, engraving, printing, dyeing, finishing, and producing textiles; and purchasing, tanning, dyeing, finishing, and selling precious leathers. It sells its products through a network of 303 stores worldwide. The company also sells watches, perfumes, and tableware through a network of specialized stores. Hermès International Société en commandite par actions was founded in 1837 and is based in Paris, France. Hermès International Société en commandite par actions operates as a subsidiary of H51 SAS.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
50.70
47.00
PEG
2.60
-
P/B
14.40
11.00
P/S
16.30
14.50
P/FCF
61.00
24.90
EV/EBITDA
32.70
52.70
Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. Specifically, the stock is expensive' on P/E, overvalued on EV/EBITDA, overpriced on P/FCF.
Performance: Mixed
Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Over the past six months the stock has exceeded the performance of this peer group by 18ppts and its growth decelerated by 0ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.
Analyst view: Somewhat favourable
The average target price is 2497 and suggests 18% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 3000.0. This translates into 42% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 1900.0. This is equivalent to 10% downside potential in the worst case.
Profitability: Very strong
RoE
Hermès International Société en commandite par actions reported a return on equity (RoE) of 28.4% in the last 12 months, down from 31.2% in FY23. The market consensus projects an RoE of 27.5% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 21.1% in the last 12 months, a decrease from 22.7% in FY23. The market analysts predict that RoA will be 20.8% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) declined to 25.0%, above the peers. The consensus estimate for FY24 for RoCE is 32.3%, again ahead of the peers.
Net margin
EBITDA margin
Historically, RMS.PA has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 32.1%, a growth from 29.0% in FY22. The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 47.7% in the last 12 months, a decline from 47.8% in FY23.
RoIC / WACC = 5.4(excellent value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 5.4 in the past several years. This ratio implies a excellent shareholder value creation. Growth: Strong
Revenue
EBITDA
EPS
Free cash flow
RMS.PA reported revenue of EUR 13 427mn in the last 12 months, up 16% from FY22. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 28% from FY22 to EUR 41.22. Market expects EPS to reach EUR 44.64 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA has grown rapidly in recent years (positive). This all contributed to very fast EPS growth (strongly positive). Free cash flow naturally followed the growing EBITDA trend. We emphasize the highly volatile dynamics of EBITDA, EPS and FCF.
Dividends: Modest
Dividend paid
Dividend yield
The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is a clear trend. In the past 12 months, the dividend yield has been low and below its peers. On average, the company pays dividends twice a year.
Default risk: Low
The risk of default is low. We note strong positions in its industry, resilient historical revenue growth, robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to excessive margin volatility, and poor working capital management.
Volatility: Negligible
In normal market circumstances, RMS.PA is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible. We would also like to highlight the negligible intraday volatility of the instrument.
Stress-test: Negligible
In highly turbulent market conditions, RMS.PA is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.
Selling difficulty: Small
RMS.PA has above average trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and becomes extremely unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.