Decryption AOF of the CAC 40 list at the mid-session of Wednesday, November 21, 2018 – Biggest drop

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(AOF) – ESSILOR LUXOTTICA (- 1.17% to 110 euros)

The title is penalized by HSBC's recommendation degradation, from Buy to Keep.


Strengths of value

– World leader in ophthalmic optics with more than 25% of the market, more than 1 billion people under Varilux, Crizal, Transitions, Eyezen, Bolon, Costa, Eyezen and Xperio brands;

– A very buoyant market worth around € 300 billion, with bad vision being the world's leading handicap, affecting 2/3 of the population, 1/3 not correcting it;

– Strong presence in the United States where half of sales are made;

– Sales of € 7.5 billion divided between lenses (87% of sales of € 7.5 billion), pre-assembled and solar glasses (9.1%) and equipment;

– Leadership acquired through a sustained pace of innovation (30% of turnover achieved with products under 3 years old) and by "networking" countries through partnerships and acquisitions (more than 250 in 10 years);

– Rising digital power brings € 500 million in revenue;

– Towards a strengthening of sunglasses by merging, in mid-2018, with Italian Luxottica;

– The group's ability to maintain margins, including in periods of economic slowdown and strong competition;

– Total rate of return for the shareholder of 18% per annum since 1975;

– Solid financial structure, reinforced by a generation of free cash flow close to one billion euros.

Weaknesses in value

– Rising competition from ophthalmic surgery and contact lenses;

– Competition from cheaper Asian products with improved quality;

– Weakness of activity in Brazil, India and Australia;

– Strong negative exchange rate effect (real, yuan, British pound and dollar) on turnover;

– Growth in activity in the first half of the year lower than the annual target;

– Delays of the American and European competition authorities in the merger, which weighs on the stock market price.

How to follow the value

– Defensive growth value (purchase of glasses that can be postponed but not canceled) related to the health market;

– Follow the results of the 2018 Strategic Plan:

– Waiting for the recovery in Brazil and in the glasses branch;

– Modality and execution of the merger with Luxottica, unconditionally approved by the European and American competition authorities, expected by the end of the first half of the year and preceded by the general meeting of the new EssilorLuxottica group, on July 25;

– Achievement of the 2018 target of revenue growth of around 4% and an operating margin greater than or equal to 18.3%;

– Group theoretically operable but highly valued on the stock market and hostile to expect staff, the largest shareholder with 8.4% of the capital and 14.5% of voting rights.

Consumer goods

Consumer goods giants face a number of challenges. Consumers seem to be gradually turning away from major international brands in favor of more local products. In India, the group, Patanjali Ayurved is now progressing faster in certain segments than the world giants. In 2016-2017, its sales jumped 150% compared to 2015-2016, to 1.67 billion dollars, and it could even double this year. Another challenge is price comparison between products and the development of consumer ratings. Actors react by moving upmarket and seeking savings through online advertising. They are also exploring new segments such as paraben, dye and phthalate free products.