‘Merger clarity’ and US sales growth positives for Essilor – J. Stern’s Rossbach

Christopher Rossbach, Chief Investment Officer at London-based private investment office J. Stern & Co, said:

In Essilor ’s full year 2017 results the sales growth at constant currency came +6.7% with like-for-like growth of +3.1% and bolt-on acquisitions of +3.6%. Currencies had a negative impact of 1.3%, making reported growth of +5.3%. There was a clear acceleration of organic sales growth +5.1% in the fourth quarter, beating the consensus forecast of 3.7%.

The most striking feature of the results was a marked acceleration of US sales growth. This has been the area of the problem in the past year, so it is good to see this has finally turned around - driven by the launch of its Varilux® X series™ progressive lens and the ‘Ultimate Lens Package’ – a premium solution both for progressive and single-vision lens wearers.

Essilor also announced that it has received unconditional regulatory approvals of the merger with Luxottica from both the EU and the US, on top of approvals already received from thirteen other countries including Brazil which will be effective from March 12, 2018. The remaining jurisdiction where the clearance is a condition precedent to the proposed combination is China. The company expects the merger to close in the first half of 2018.

For 2018, Essilor is guiding for like-for-like revenue growth of around +4%, with continued acceleration in the US market, improvement from India, Brazil and China, and continued good growth in ecommerce. In addition, the company expects the resumption of more bolt-on acquisitions to supplement growth. These acquisitions were put on hold during 2017 in order to focus on the regulatory approval of the merger with Luxottica .

In the past 12 months, the stock has been stuck in a holding pattern with investors waiting for the clarity of the merger approval. With China the only remaining required approval for the merger, we are moving closer to the formation of EssilorLuxottica - a formidable force in the world of eye care – and shares have climbed since the merger news. With the underlying business improving at both Essilor and Loxuttica, pre-tax merger synergies between €420m-€600m, we expect a significant upside from the merged company in the next few years and remain a buyer of the stock.

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