What Is the Fundamental Value of L’Oreal Based On Expected 2019 Results?

by Trefis Team
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L’Oreal (OTCMKTS: LRLCY),  the world’s biggest cosmetics company, has continued on its growth momentum in its recent half yearly earning of 2018 with 6.6% rise in sales to 13.3 Billion euros. The company’s earnings were primarily driven by strong performance in the active cosmetic division, L’Oreal Luxe segments, and emerging new markets, particularly Asia-Pacific which grew +13.2%. All the top brands of the Luxe segment posted more than 10% growth and the Active Cosmetics Division posted double digit growth driven by the success of its La Roche-Posay and SkinCeuticals brands, the new impetus of Vichy, and the dynamism of CeraVe. The Consumer Products Division saw an outstanding performance in China.  In the New Markets, especially the Asia Pacific Zone, China’s consumers’ aspirations for iconic brands remained strong.

E-commerce and Travel retail remained strong for the company. With the acquisition of the Canadian company, ModiFace, the company’s digital acceleration has moved up a gear, which provided  innovative technologies to enhance services and the beauty experience for all the brands. E-commerce sales have increased strongly and continue to rise rapidly, and now account for ~10% of the total sales.

We have summarized our forecasts in an interactive model L’Oreal Fundamental Value Based On Expected FY ’19 Results. You can modify assumptions such as changes in expected segment revenue or EBITDA margins to see how they impact the company’s value. The image below shows one of the key steps in identifying L’Oreal’s valuation sensitivity to changes in its segment revenues. We detail how changes in revenue or segment EBITDA margin impacts total EBITDA, which then impacts value (assuming a constant PE multiple).

L’Oreal’s margins have continuously improved in FY 2018, with growth in each of its segments. Despite entering into new emerging markets, shifting strategies, and making new acquisitions, the company has ensured its structure remains strong, and its operations continue to be efficient. We believe that L’Oreal has the key advantages in terms of innovation, brand power, digital prowess, and the quality of its teams all over the world to continue to drive growth and hold on to its leading position in the Beauty market. If you have a different view, you can modify various inputs to see how changing inputs impacts the company’s valuation. You can share the links to scenarios created on our platform.


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