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Hermès: Société Générale upgrades 'sell' rating.

(CercleFinance.com) - Reconsidering the Hermès International, Société Générale (SG) analysts have upgraded their previous “sell” rating on the share to “hold”.

Alongside this upgrade, SG analysts have raised their 12-month target price from 406 euros to 460 euros, representing upside potential of around 5%.

Specialists have raised their earnings estimates on the luxury group "mostly on a lower long-term tax rate assumption," SG states in its report. SG indeed takes into account the new French regulation, which will cut the corporate tax rate from its current level of 33.3% to 25% in 2022. Over the long run, this would reduce Hermès' effective tax rate by about seven percentage points to 27%. This is despite the group's tax reaching an "exceptional" rate of 43.3% in 2017.

In addition, Société Générale distinguishes Hermès for its "unmatched brand equity, especially in leather goods, where demand still exceeds supply." Even though growth in the luxury sector is expected to fall from 10-11% in 2017 to 6-7% in 2018, analysts predict, "Hermes should return to an outperformance of the sector in 2018 at the operational level, with organic growth of turnover of 8.9%". However, SG believes that Hermès' business model is "showing signs of maturity", which ultimately calls for strategic changes.

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