LIVE MARKETS-RBC gets constructive on luxury

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RBC GETS CONSTRUCTIVE ON LUXURY

Luxury stocks have been under pressure in recent months, but RBC analysts are getting more constructive on the space, with recent macro datapoints from the U.S. and China reinforcing their expectations of revenue stabilisation.

"Investor positioning appears favourable (relatively underweight) whilst sentiment is turning more positive based on our discussions which are largely focused on China, US consumer health and the potential timing of inflection in trends," they wrote in a Thursday note.

In a note earlier this month, RBC also flagged U.S. improvement post-election and rallying asset prices, as well as what they dub a "a no-worse China setup", as factors behind their expectations of a stabilisation or normalisation of revenue growth.

And for luxury overall, they forecast 5% sector organic revenue growth (unweighted) by 2025.

Zooming into Europe, RBC analysts say the region's luxury sector trades at a 92% P/E premium to MSCI Europe, above its historical average of 74%, though that valuation premium has normalised closer to historical average levels in recent months.

The RBC analysts prefer LVMH LVMH.PA as well as Burberry BRBY.L and Watches of Switzerland WOSG.L.

In sporting goods, they flag investors asking more about Nike's NKE.N turnaround potential, but that visibility and timing remain low and its valuation is not compelling enough.

Adidas ADSGn.DE meanwhile is their top pick in sporting goods in part given its strong double-digit growth profile.

(Lucy Raitano)

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