Valuation of Hermes International

Amalie Christine Harsting

Student thesis: Master thesis


This paper is a valuation of Hermès, which is a French high fashion house producing silk scarves, leather bags, ready-to-wear and other fashion accessories. The purpose is to estimate the stock price on March 23 2016 with a DCF-model and trough a relative valuation and compare the results with the stock price at that date.
The first part of the thesis consists of the methodical approach, chosen theories and models as well as an introduction to the company. A strategic analysis then follows in the subsequent chapter 3. The analysis follows a top-down approach beginning with PESTEL as the macroeconomic frame- work, while the models Porter's Five Forces clarifies Hermès' position in the personal luxury goods industry. Lastly an internal model called VRIN showcases the company's valuable resources. Over- all the strategic analysis shows a strong-positioned company in a challenging economic environ- ment. Going forward Hermès faces the issues of the new global consumer trends especially online and more transparent prices in a volatile currency market limiting price increases.
A profitability analysis is carried out in chapter 4 where it is showed that Hermès return on invested capital is at a high level compared to the weighted average cost of capital and the competitor Dior's ROIC. The return on equity is equally at a high level compared to Dior and owner's required rate of return, but is affected negatively by Hermès' capital structure with net interest bearing assets.
In chapter 5 the budget is made and used to calculate the free cash flows. The valuation based on those cash flows then follows in chapter 6. The valuation shows a fair stock price March 23 2016 at 266,1 euro. This price is well below the current market price at 320 euro and as a result suggests to sell the stock.
The relative valuation in chapter 7 shows that Hermès is higly priced compared to competitors as well as companies with similar ROE and similar revenue growth. The multiples with the highest estimates yield a stock price between 222,7 euro and 243,1 euro, which is below both the current market price and the DCF valuation. It underpins the recommendation to sell the stock.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2016
Number of pages100