Novo Nordisk briefly overtakes LVMH as Europe most valuable company

LVMH, the world's biggest luxury retailer, has been hurt by growing concerns about the outlook for the Chinese economy.

Novo is meanwhile riding a wave of demand for its highly effective diabetes and weight-loss drugs Ozempic and Wegovy, which has sent its earnings and shares to record highs.

Its shares have risen around 17% since it announced on Aug. 8 that a large study had shown Wegovy also had a clear cardiovascular benefit, boosting the company's hopes of moving beyond its image as a lifestyle drug.

As of Friday's close, Novo Nordisk had a market capitalisation of around $424.7 billion including unlisted stock, according to Refinitiv data and company disclosures of its share count.

French-listed LVMH had a market cap of $420.1 billion, having been Europe's biggest listed company since February 2021 when it knocked consumer goods group Nestle off the top spot.

Novo's share price has roughly tripled in the past three years while that of LVMH, home to fashion labels Louis Vuitton and Dior, has doubled.

"Novo closing in on LVMH as Europe's biggest market cap stock is a reflection of Novo's recent product success while LVMH's recent trends have been more mixed," said Marcel Stotzel, co-portfolio manager of Fidelity European Fund and Fidelity European Trust.

Stotzel said both stocks remain key holdings in its funds.

Novo shares are near record highs, highlighting investors' appreciation for a strategy that has given the company a first-mover advantage in a surging market for obesity drugs.

The weight loss drug market is expected to reach $100 bln in annual sales within a decade. Sales currently stand at around $6 billion, according to Barclays.

"The market share should be split relatively equally between Novo Nordisk and Eli Lilly, the two main companies behind obesity treatments," said Axelle Pinon, a member of Carmignac's investment committee.

Eli Lilly and Co is expected to receive a U.S. weight loss approval for its similar drug, Mounjaro, later this year.

Novo said on Aug. 8 that study data showed Wegovy reduced the risk of a major cardiovascular event like a stroke by 20% in overweight or obese people with a history of heart disease, more than had been expected.

That result may help persuade insurers and health authorities to cover the cost of Wegovy, which is $1,300 a month in the United States, for a wider range of patients.

"These results are de-risking the forward adoption curve for these drugs, justifying such a market move," said Carmignac's Pinon.

The rally in Novo's share price is likely to boost its weighting in the region-wide STOXX 600 index, analysts said, which could attract more inflows from passive investors.

Concerns about China's weakening economy have hurt sentiment towards LVMH, which also owns Hennessy cognac and U.S. jeweller Tiffany.

European luxury stocks soared early in 2023 as investors pinned hopes on swift economic rebound after China lifted COVID-19 restrictions.

But recent data and a crisis in the property sector have soured the outlook for the world's No.2 economy, weighing on a luxury sector that is heavily reliant on Chinese consumers.

"There has been a series of weaker than expected data and the Chinese authorities' unwillingness to inject large amounts of stimulus is knocking the outlook for these luxury retailers, which have a large amount of revenue growth coming from China," said City Index market analyst Fiona Cincotta.

Novo Nordisk shares ended Friday up 2.14% while LVMH shares were down 0.8%. LVMH shares have fallen 14.2% from an all-time high hit in April, underperforming Europe's broader STOXX 600 which is down around 2.2% in the same time frame.

Rival Compagnie Financiere Richemont has shed 17.9% since then and Hermes is down about 6.4% since then.