Coty: CoverGirl owner looks for French glow-up

Long considered a global laggard, the French stock market is on a tear. The country’s benchmark CAC 40 Index is up 19 per cent over the past year and hit a new high last month.

Its gains have easily outpaced those of rival bourses. The FTSE 100 is up just 5 per cent while the S&P 500 and the Nasdaq Composite have lost about 1 per cent over the same period.

Coty, the US beauty and fragrance group, is hoping some of this bullishness will rub off on its own stock. The company behind Cover Girl cosmetics said on Friday that it was exploring a dual listing in Paris.

On the surface, this makes sense. Luxury stocks have become for the Paris bourse what tech stocks were for the Nasdaq. Investors piling into a trio of luxury companies, LVMH, Kering, Hermès and cosmetics maker L’Oréal have fuelled the CAC 40’s high-octane run. LVMH, whose market value has jumped 55 per cent over the past 12 months to €441bn, is now bigger than ExxonMobil.

Coty thinks a listing in Paris will create new liquidity and perhaps fetch a higher valuation for the stock. Yet that might not be necessary. Coty’s shares have done well on their own in the US. Under chief executive Sue Y. Nabi, hired in 2020 to turn around the ailing beauty group following a disastrous debt-backed acquisition, Coty has stabilised sales, cut down its debt-pile and reported its first annual profit in six years.

The stock now trades on 29 times forward earnings. While that is below L’Oréal’s multiple of 35 times, it still represents a sharp recovery from three years ago, when the stock was trading on just 5 times.

Further upside will be driven not by a Paris listing, but by Coty’s ability to continue its transition away from low-margin mass market make-up brands like CoverGirl to higher-end offerings such as perfumes. Coty also needs to increase its exposure to beauty-obsessed Asia. Net debt, which stood at $3.9bn at the end 2022, will also need to come down further. There is no easy fix by adding a new address.