EUR 850.00 For Business Accounts Only

Morningstar | Essilor's 1H Results Broadly In Line With Expectations as Merger With Luxottica Approved in China

We maintain our EUR 127 per share estimate for wide-moat Essilor, as the company reported first-half results in line with its full-year guidance and our expectations. Stronger growth in the second quarter helped offset a relatively weak start to the year. After the strong share price performance over the recent months, shares are trading approximately in line with our fair value estimate.

On July 26, Essilor and Luxottica obtained merger approval from the Chinese authorities (China was the only remaining country where antitrust approvals are a condition precedent to closing). Encouragingly, no asset disposals were needed for the transaction closure, as the company committed to inform the authorities about all the subsequent acquisitions in the region and maintain an open business model, serving all customers, without product bundling. Although, relatively small in terms of sales for the combined entity, China is the biggest eyewear market by volume and could be on track to become the biggest market by value as incomes rise. Having the established presence in the region with product range to upsell, EssilorLuxottica is well positioned to benefit from premiumisation of the Chinese market.

Lenses and optical division delivered 3.6% like-for-like growth in the first half, with acceleration across regions in the second quarter. The sunglasses and readers division recorded strong high-single-digit growth, as distribution rationalisation efforts in China are finalised and seem to be bearing fruit. Equipment division was largely flat in constant-currency terms, on top of a tougher comparison base last year. US, China and Brazil were among the markets that saw demand acceleration.