Coty: CoverGirl owner goes for a French glow

Long considered a global laggard, the French stock market is in crisis. The country’s benchmark CAC 40 index is up 19% over the past year and hit a new high last month.

Its earnings easily surpassed those of rival exchanges. The FTSE 100 is up just 5%, while the S&P 500 and the Nasdaq Composite have lost about 1% over the same period.

Coty, the US beauty and fragrance group, is hoping that some of this rise will be reflected in its shares. The company behind Cover Girl cosmetics said Friday that she was explore a double list in Paris.

On the surface, this makes sense. Luxury stocks have become to the Paris Stock Exchange what tech stocks were to the Nasdaq. Investors piling into a trio of luxury companies, LVMH, Kering, Hermès and cosmetics maker L’Oréal fueled the high-octane rush of the CAC 40. LVMH, whose market value jumped by 55 % over the past 12 months at 441 billion, is now bigger than ExxonMobil.

Coty thinks a Paris listing will create new liquidity and perhaps get a higher valuation for the stock. Yet it may not be necessary. Coty’s stock has done well on its own in the United States. Under CEO Sue Y. Nabi, hired in 2020 to turn around the ailing beauty group following a disastrous debt-backed takeover, Coty has stabilized sales, reduced its debt pile and reported its first annual profit in six years.

The stock is now trading at 29 times forward earnings. While it is lower than L’Oréal’s 35x multiple, it still represents a marked recovery from three years ago, when the stock traded just 5 times.

Further upside will be driven not by a Paris listing but by Coty’s ability to continue its transition from low-margin, mass-market makeup brands like CoverGirl to high-end offerings like fragrances. Coty also needs to increase her exposure to beauty-obsessed Asia. Net debt, which stood at $3.9 billion at the end of 2022, will also need to fall further. There is no simple solution by adding a new address.