Kering Earnings: Changes Management; Makes Acquisitions As Growth Trails Peers; Margins Contract

We maintain our EUR 650 fair value estimate for narrow-moat Kering as the company reported continued weakness in its first-half results and announced the acquisition of a 30% stake in Valentino. Despite a weaker sales trajectory than peers, we believe shares look attractive at current levels, trading in 4-star territory with 25% upside to our fair value estimate. We believe it is highly unlikely that Kering, the second-largest luxury conglomerate, with established strong luxury brands and access to financial resources for marketing and executive and creative talent, would continuously lag competitors. This scenario currently seems to be priced into shares (17 times forward earnings and more than a 20% discount to a peer median of 22 times).