Back To The Future
18 October 2021
"See you later... much later!" is how Professor Brown says goodbye to Marty McFly as he leaves for a trip back in time in the iconic 80s saga.
Let's do the same with the financial markets (going back in time can be interesting to understand the present): over the last 6 years, valuation multiples have increased at the same speed as the famous De Lorean of the movie.
- LVMH was paying 17x its net income in 2015 against 31x* today (+80%) ;
- EssilorLuxotica: 28x net income vs. 42x* (+50%) ;
- Dassault Systèmes: 43x versus 93x* (+120%!) ;
- Worldline: 27x versus 94x* (+350%).
This is shocking enough to be noted: all the market increase of the last 6 years comes from the increase in valuation multiples.
And for those who will ask me if this is due to a change in context, nay! At the end of 2015, French interest rates were almost as low as they are today (< 1%) and financial markets were already generously valued (the CAC was flirting with 5000 points).
The observation is therefore simple: since 2015, the companies mentioned above have seen their net profits multiply between 1.5 and 2.5 times. On the other hand, their capitalization has multiplied between 3.5x and 5x - why? Because it's a bubble.
If we return to the same multiple levels as in 2015 (which is very likely in a similar macro context), here are the expected price changes:
- LVMH : -45%
- Essilor : -35%
- Dassault : -55%
- Wordline : -70%
And these are far from being isolated cases...
Have a great week,
Max
*On the net result of the last 12 months
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