It has been almost five years since the internationally active luxury goods group Lalique moved from the BX Swiss stock exchange to SIX Swiss Exchange. The last half-decade has seen luxury stocks endure crises but also record strong recovery surges. However, Lalique shares have lagged well behind the big industry names such as LVMH and Richemont. So is this an unjustified discount attributable to the company’s modest size, or is it the result of poor business performance? Or indeed a case of the stock simply being overlooked by investors and analysts – and therefore possessing unrecognized upside potential?
The distinctively named company has already been subjected to scrutiny on one occasion by schweizeraktien.net, namely in April 2018 when it floated on SIX. The company’s history, strengths, changes of ownership, diversification strategy and more were examined in our article published to accompany the IPO, entitled „A touch of luxury for the stock exchange (German)“.
Now and five years ago – a comparison in figures
Five years on, Lalique appears to have succeeded in regaining the ground lost due to the negative repercussions of the pandemic, but its earnings development still does not impress. In the first half of the 2022 financial year sales came in at EUR 83.2 million, a rise of 29% on the prior-year period. In 2017, i.e. prior to the switch to SIX, sales amounted to EUR 128.8 million. EBIT stood at EUR 7.5 million in 2017, and at EUR 8 million in the first half of 2022. However, the development of net profit has so far failed to keep pace with EBIT: Earnings per share amounted to EUR 1.40 in 2017, but came in at just EUR 0.74 for the first half of 2022.
Disappointing price performance
Back in the spring of 2018, the shares started trading on SIX at CHF 50. Over the following 12 months the price drifted sideways, without ever rising above the level of CHF 54. At the stock market nadir of the COVID crisis in March 2020, the shares hit a low of CHF 23. Since then, Lalique shares have come close to the CHF 40 mark on numerous occasions but without ever breaking through this resistance level, and are currently trading in the region of CHF 32. The trend of the last 12 months has been downwards.
Comparison with industry leader LVMH
A look at these figures and the corresponding share price development hardly sets the pulse racing. Particularly in a comparison with the performance of the industry giants. For example, at the point of publication of our article to accompany Lalique’s IPO, the market cap of LVMH stood at EUR 144 bn. Today that figure stands at EUR 350 bn. LVMH’s share price performance amounts to 188% over the five-year period in question.
The long road to top table in the luxury business
It should be remembered that LVMH and the other large caps of the luxury goods industry were themselves relatively small fish once upon a time, and endured lean periods of their own. A common feature is that they embarked on a diversification and expansion strategy that was ideal for their particular situation, which then brought them to where they are today. In almost all cases, an entrepreneurial person or family with a long-term strategy lies behind the company’s successful positioning over the last few decades. The Arnaults at LVMH, the Pinaults at Kering …
Lalique’s shareholder base – and its billionaires
So too in the case of Lalique. The largest shareholder, with a stake of some 58%, is Silvio Denz, who can be found in Bilanz’s rankings of the most affluent Swiss, on the Forbes global rich list, etc. The Indian conglomerate Dharampal Satyapal, which was founded back in 1929, holds 12.3%. Saudi Arabia’s Tamer Group, which started off as a humble pharmacy back in 1922 but now encompasses a range of beauty and luxury activities, holds a further 3.3%. Tamer Group is also responsible for distributing Lalique perfumes in the Middle East. Another major shareholder since the IPO is Hansjörg Wyss, with a stake of 6.3%. The free float currently stands at around 20%. In other words, only some CHF 45 million of the company’s market capitalization of CHF 230 million is actually tradeable. That said, the majority of the shares are in very secure hands.
It can safely be assumed that the billionaires and entrepreneurs involved take a calm and patient approach in pursuit of their long-term objectives. What matters to them is not a short-term rise of one or two francs in the share price, but the full exploitation of Lalique’s potential over a longer timeframe.
Diversification and expansion
A look at the 2022 half-year report reveals an array of wholly new names, brands, and activities compared to 2018. For example, the company has now launched its third Brioni perfume. The exclusive global licensing rights to this brand were acquired in 2019, and the first perfume was launched at the end of 2020. This Italian luxury house, which was founded in Rome in 1945, currently belongs to Kering. In the first half 2022, sales of Brioni perfumes amounted to just over EUR 1 million. Sales are rising, as indeed they are for Bentley perfumes, up 67% to a most recent level of EUR 5 million.
Jaguar and Ultrasun
The Jaguar perfume brand, which has been built up over a longer period, now contributes EUR 11.3 million to half-year sales. The sun protection brand Ultrasun, which has a particularly high profile in Switzerland, likewise contributes EUR 11.3 million to sales. The appeal of the luxury perfume and cosmetics business lies in its unusually high profit margins. However, these first have to be earned and then defended through marketing and brand-building work. Thousands of new fragrances come onto the market every year, but the majority will then disappear again. At around 17%, the EBIT margin on the Jaguar perfume brand is already adequate.
Strong momentum behind luxury hotels and restaurants
Another new development is the five-star luxury hotel – opened in 2018 and initially operated under licence – with its own gourmet restaurant in the Château Lafaurie-Peyraguey, a historic French vineyard producing high-end wines, which has been owned by Silvio Denz since 2014. This hotel-restaurant was acquired by Lalique for CHF 4.4 million in 2021. Not only is the „Lalique“ restaurant designed and fitted out in the unmistakable corporate style, it has also already been awarded two stars by Michelin.
Villa Florhof in Zurich to open in 2024
The portfolio currently contains three luxury hotels with restaurants, and a fourth will soon be opening in Zurich. Together with billionaire Peter Spuhler, Denz purchased the traditional Hotel Florhof from the previous owners, a community of heirs whose intention was to close the hotel. It is now being lavishly renovated in the Lalique style and is set to reopen as Villa Florhof in 2024. The hotel-restaurant will initially be managed under licence. A later takeover can not be ruled out.
Single malts – and another Michelin star
A good example of how expansion can lead to diversification and synergies is Glenturret. By acquiring this Scottish whisky house, which was founded in 1763 (giving it the distinction of being the oldest Scottish distillery), the company has expanded its portfolio to the realm of single malt Scotch whisky, a product area increasingly coveted by collectors and investors alike, while at the same time strengthening its hospitality & gastronomy offering by opening the Glenturret Lalique Restaurant in July 2021. Within just seven months of opening, the restaurant was awarded its coveted first Michelin star. Indeed, this was the first Michelin star ever awarded to a distillery.
Synergies
The portfolio is therefore being expanded in a targeted way through the exploitation or creation of opportunities. This includes new licensing deals for perfumes, most recently with the UK fashion brand Superdry, the takeover of Zurich silk clothing label Fabric Frontline, which was announced only in September 2022, and the strengthening of the hospitality area. The individual experience of luxury in hotels and restaurants is the ideal setting in which to communicate and convey the brand messages of the various Lalique activities.
First sustainability report published in 2020
As is the case for the big players in the luxury goods business, sustainability of processes, materials and products plays an important role at Lalique. Buyers of luxury products attach particular importance to clean and fairly-produced goods that are residue-free and entail no health-damaging consequences. Lalique has recognized the importance of these concerns, and in its second Sustainability Report (in 2021, running to 16 pages), reported on its objectives, priorities, and measures already realized in this area. Lalique takes the 17 Sustainable Development Goals of the UN as its reference point here, concentrating on the eight SDGs that are of relevance to the company.
Priorities
One priority is the decarbonization of company activities. To this end, the company’s furnace for crystal manufacturing has now been renovated. At Glenturret in Scotland, 30% of the distillery’s agricultural machinery has been switched to electrical energy, with the goal of reaching 100% in a few years. In the cosmetics and perfumes area, only certified and residue-free ingredients are used in order to avoid provoking allergies and skin irritations. The ingredients used are also vegan and cruelty-free, as well as containing no genetically modified organisms. Ultrasun products are also free of hazardous chemical products, thereby posing no risk of endocrine disruption in consumers.
Concrete ESG measures with impact
The security and health of employees is a further priority, with a focus above all on the aspects of safety, training, and education. Where the environment and resources are concerned, the use of energy and water is being reduced, while packaging is being avoided, reduced, or reused. Waste volumes are likewise being brought down. Lalique’s vehicle fleet has been switched to electric over the last few years. Lighting has largely been converted to LED, with sensors installed to improve efficiency.
Renewal of means of production
Glass manufacturing is an energy-intensive process. For that reason, waste heat is now used to heat both office areas and the water used in the production process. Air compressors also help to improve the company’s energy footprint. Countless relevant metrics are measured with a view to delivering ongoing improvements. The treatment of waste water from crystal production is now handled by a new state-of-the-art facility that eliminates toxins more effectively. The volume of investment in sustainable business operations now runs to several million francs a year.
Summary
From an investor’s perspective, what might appear unspectacular at superficial first glance looks much more attractive upon closer inspection of the detail, the new directions being taken, and the long-term strategy of key shareholders. The luxury group Lalique is still very much in the build-up and expansion phase. Opportunistic acquisitions, new licences, investments, renovations, and ESG-compliant new facilities come at a cost, which partly explains the company’s below-average earnings development. But once the many ventures have emerged from their initial phase and the synergies kick in, the kind of high profit margins typical of the industry do not look to be out of reach.
However, investors should not pin their hopes on short-term developments, as it is likely to be a number of years until the various jewels in Lalique’s luxury portfolio shine in all their full glory. The ESG initiatives and increased decarbonization drive will also broaden the company’s appeal to new circles of customers. For example, Ultrasun products are designed to prevent customers from suffering asthma attacks and allergic reactions, which puts their price into context and without doubt enhances customer loyalty.
