The timing is exquisite. Just a day after China’s government said the country had entered a period of slower growth, along come two companies from opposite ends of the consumer goods spectrum (both French) to illustrate what the change means. Feeling the pain is LVMH, the luxury conglomerate. First quarter sales in Asia (outside Japan) grew by 12 per cent. That is not bad, but it is a slowdown from the 17 per cent growth reported in the same period in 2012.
Danone, the consumer staples group, is having a more encouraging experience in China as mistrust of locally made infant milk formula has driven demand for its products. First quarter sales at the baby nutrition division – its second largest – grew 17 per cent, almost twice the rate of the same period last year.
There is a neat symmetry in the two companies’ share prices, and their ratings. LVMH’s shares fell 3 per cent yesterday; Danone’s rose by a similar amount. That trend has been in place since the start of the year. And although LVMH has been at a premium to Danone for most of the past four years as the luxury growth story won support, both now trade on 17 times forecast earnings. That is fair. Earnings before interest, tax, depreciation and amortisation are expected to grow by a third at both over the next four years.