Les Billets de Monocle

L'Oréal, because you are worth it

03 January 2022

The world's number 1 cosmetics company is now paying 55x its earnings.

This morning, L'Oréal's share price is back to its highs, at 430€. An increase of +70% since its pre-pandemic level (250€).

Yet, here is what L'Oréal should generate in 2021:
- €32 billion in sales (vs. €30 billion in 2019)
- €7 billion in free cash flow (vs. €5.5 billion in 2019)
- €4.5 billion in net income (vs. €3.8 billion in 2019)

- Sales have been growing at 3% per year since 2019, so we won't call it a breakneck pace.
- Net income has grown 9% per year, driven by the growth of e-commerce sales - a distribution channel that is significantly more profitable than physical stores (no rent, less staff, inventory optimization, etc.). The pandemic has pushed the customer to consume on the internet, but the closer we get to the post-covid era, the more this effect will fade away.

Conclusion: good asset, bad price - it is not the fundamentals that explain the rise in the share price. Remember that over the last 20 years, for 14 of them, L'Oréal has paid less than 30 times its earnings.

Have a great week,

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This presentation is a promotional document. The content of this document is communicated by and is the property of Monocle Asset Management. Monocle Asset Management is a portfolio management company approved by the Autorité des Marchés Financiers under number GP-20000040 and registered with the ORIAS as an insurance broker under number 10058146. No information contained in this document should be construed as having any contractual value. This document is produced for information purposes only. The prospects mentioned are subject to change and do not constitute a commitment or a guarantee. Access to the products and services presented here may be subject to restrictions for certain persons or countries. Tax treatment depends on individual circumstances. The fund mentioned in this document (Monocle Fund SICAV) is authorized for marketing in France and possibly in other countries where the law permits. Before making any investment, it is advisable to check whether the investor is legally entitled to subscribe to the fund. The risks, costs and recommended investment period of the funds presented are described in the KIDD (key investor information documents) and the prospectus, available free of charge from Monocle Asset Management and on the website. The KIDD must be given to the subscribers before the subscription. Past performances are not a reliable indicator of future performances. Monocle Asset Management cannot be held responsible for any decision taken or not taken on the basis of information contained in this document, nor for the use that could be made by a third party. The investor may lose all or part of the amount of capital invested, as the funds are not capital guaranteed.

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