In our previous article on long-term investment strategy we outlined the qualities that we seek out in companies and investment opportunities as part of a strategy that prioritises value from fundamentals, rather than increasing multiples. Here we apply that lens to two iconic brands in the luxury goods market.

Tailored offerings for the new rich list
The names Ferrari and Hermes conjure up ideas of exclusivity, aspiration and wish fulfilment. As with all luxury companies, they are exposed to key structural growth trends in terms of emerging wealth around the globe, particularly the rise of the new super rich in Asia and the Middle East.

The global high-net worth population – defined as having net assets exceeding US$5 million – is expected to increase by one million people over the next five years; while the super-rich population (defined as net assets exceeding US$50 million) is expected to grow by 10 per cent per annum¹.

But while these two companies are generally classified under the luxury goods category, in many respects they are in a class all of their own and the envy of their peers.

Exclusivity drives pricing power
The differentiated features of each product and the exclusivity of the brand are their main competitive advantages, yielding enormous pricing power. Waiting lists …