L'Oréal: Outgrowing Peers & Benefiting From Currency Tailwinds In H1 2022

(Preview) Company Update (OR FP) (Buy)

Summary

• L'Oréal shares are roughly flat in Euros from 6 months ago, despite the Euro's further weakening, and are down nearly 20% year-to-date.

• H1 2022 showed L'Oréal has returned to its long-term growth trajectory, with a 3-year EBIT CAGR of 9.0% from 2019.

• EBIT margin expanded despite input cost inflation, and L'Oréal grew sales faster than both the market and key peer Estée Lauder.

• Relative to the last twelve months' P&L, shares are at a 33x P/E; currency tailwinds have increased recently, so the "real" PE is even lower.

• With shares at €342.00, we expect a total return of 38% (10.4% annualized) by 2025 year-end. Buy.

Introduction

We review our investment case on L'Oréal SA six months after we upgraded our rating to Buy.

Since our upgrade in March, L'Oréal shares trading in Paris have gained just 2.5% in EUR (mostly from its dividend), and remain nearly 20% down year-to-date.

L'Oréal's operational performance has continued to be on track. H1 2022 results released on July 29 showed L'Oréal h…