(BFM Stock Exchange) – Royal of Bank Canada has initiated the follow -up of the title of the leather maker -Sellier in “outperformance”. If the valuation of the action remains very high, it is justified by the defensive virtues of the action. Hermès sits at the top of the pyramid in terms of power of its brand and should display an average growth of 10% per year over the next five years.

If Royal Bank of Canada (RBC) so far followed the luxury sector in Europe with great attention, Hermès was curiously absent from its coverage. This while the leather maker-Sellier is in the shoulder-to LVMH to keep its status of greatest value of luxury, in terms of market capitalization.

The Canadian Bank ended this paradox this Monday, May 12, starting the monitoring of the value with a advice to “overlap” and a course target at 2,600 euros.

On the Paris Stock Exchange, the Hermès action takes 4% at 2,550 euros around 4:50 p.m. However, the title is probably more supported by the lull on customs duties, the United States and China having announced a 90-day truce. Moreover, Kering and LVMH gain even more, with increases of 7.2% and 6.9%, respectively.

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At the top of the pyramid

To return to RBC’s recommendation, the British bank recognizes that the title is expensive, but, like other brokers, it believes that it has for its money.

“In the more difficult current context of the demand for luxury products, we believe that the more ‘defensive’ profile of Hermès offers better protection against the risk of declines, even if it has a cost in terms of valuation premium,” she summarizes.

The design office, recalls that the Hermès action has released the highest yield over the last 20 years among luxury groups, with total return (dividend included therefore) of 17% over the last twenty years.

Hermès combines defensive virtues with strong growth. The Canadian Bank anticipates an average annual increase in group sales of 10% in comparable data for the next five years, compared to 5% for the luxury sector in its entirety.

Many reasons are invoked by RBC to justify this outperformance in its forecasts. In particular the strength of his brand. The Canadian Bank Place Hermès at the top of the pyramid among the groups of “soft luxury” (leather goods, clothes), above impressive names like Chanel, Loro Piana, Brunello Cucinelli, Dior and Louis Vuitton.

Crafts as an asset

“Hermès’ engagement in favor of exceptional quality (Primacy of the Product on the Image) is a factor contributing to the absolute luxury positioning of Hermès,” said the Canadian bank.

“Hermès has succeeded by retaining historical artisanal production techniques, with an internal manufacturing level higher than that of its peers (75% in total, 100% for leather goods), and by handling its most exclusive products (…) which allows it to ensure increased monitoring and control, as well as the training and stability of its staff”, develops the establishment.

In addition, contrary to what certain investors may think, the company presents diversified income, argues Royal Bank of Canada. The brand’s iconic bags, namely Kelly and Birkin, would represent only 10% of its total income and 33% of its turnover in the leather goods division, according to estimates by Royal Bank of Canada, for a total of 1.5 billion euros.

Recall that its products are one of the few examples (with Ferrari cars) where the prices of the occasion exceed those of the new. This shows how much the activity depends on supply than on an obviously very high demand.

“One of Hermès’s least visible characteristics is his discipline, which is not to overexploit his most popular products, limiting the offer and introducing new products in the leather category and focusing on other categories such as ready-to-wear,” said Royal Bank of Canada.