Horses and riders were out and about in the heart of Paris last weekend. The 14th edition of the "Saut Hermès" took place not far from the Eiffel Tower. In addition to the global elite of show jumping, promising talents competed at the Grand Palais Éphémère. The supporting program included an outdoor paddock where children could try their hand at riding Shetland ponies. The event is of great importance to Hermès. In the presentation of its 2023 figures, the luxury group listed the "Saut Hermès" among the highlights of the new year. And for good reason: the company's long history began in 1837 with a harness and later saddle manufactory. Leather goods still dominate the business today: in 2023, the "Leather Goods and Saddlery" division accounted for 41% of Group sales.
The product range is dominated less by equestrian sports and more by high-priced bags and shoes. The handmade natural leather bags from Birkin are particularly popular with affluent customers. The label, named after the US actress Jane Birkin, is celebrating its 40th anniversary this year. Hermès also offers designer fashion, jewelry, watches, furniture and countless other accessories in its 300 stores. In addition to the luxury stores spread across 45 countries, the Group uses the Internet as a sales channel. Regardless of the sales channel, the French are benefiting from increasing prosperity and the resulting run on exclusive consumer goods. Over the past ten years, the average growth rate in sales has been 13.60%. Over the same period, profit per year has even risen by an average of almost 19% (see chart). In 2023, Hermès successfully countered cost inflation with price increases. CEO Axel Dumas is sticking to this policy and wants to raise prices by a further 8% to 9% this year.
As is usual in the sector, China plays an important role in the luxury group's success. Hermès opened new stores in Tianjin and Chengdu in 2023. In addition, the exclusive store in the "Peninsula", a 5-star hotel in Beijing, was renovated. Despite a sluggish economy, business in China has developed "dynamically" according to the company. "The trend is unbroken," said CEO Duma at the latest presentation of figures. In any case, Hermès had started the year full of confidence. In this context, the boss referred to the balanced distribution network and the loyalty of customers. In fact, the economic environment plays a rather subordinate role for consumers who can afford bags costing USD 10,000 and more. Hermès is also generating enthusiasm among investors: Since the turn of the year alone, the share price has risen by almost a quarter.
However, the valuation premium of the large cap has widened along with the share price. Reuters estimates the price/earnings ratio (P/E ratio) of Hermès at almost 50 based on the results expected for the next 12 months. This figure is only around half as high for industry giant LVMH. In this respect and due to the steeply upward pointing chart, a partially protected position could make sense. The protection threshold for a new soft callable barrier reverse convertible is 69% of the initial level. As long as Hermès does not fall to or below this level, which is in the region of the 52-week low, during the 18-month term, the product will yield the maximum return. The highest possible return corresponds to the coupon. In the product currency CHF, the coupon payment is 6.00% p.a. If you opt for the EUR variant, you can expect a fixed quarterly coupon of 8.00% p.a.. In the event that the underlying touches or falls below the barrier, the partial protection expires. The investment would then be directly linked to the price performance of Hermès. Please also note the soft callable function. It makes early termination and redemption possible. The issuer is the particularly solvent Basler Kantonalbank.
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