Morning Note: Market News and positive updates EssilorLuxottica and AstraZeneca.
Market News
Howard Lutnick told Fox News a trade truce extension with China is likely, while Donald Trump said he’s not seeking a summit with Xi Jinping and would only visit China if invited. India overtook China to become the biggest shipper of smartphones to the US for the first time in the quarter through June. The South Asian nation now accounts for 44% of the American market.
Gold held steady at $3,320 an ounce. According to Fidelity International, the yellow metal may hit $4,000 by the end of next year as the Fed lowers interest rates, the dollar drops, and central banks keep expanding holdings. The dollar steadied after climbing the most since May, while the 10-year Treasury yields 4.40%. Brent Crude pushed up towards $70 a barrel.
US equities were little changed last night – S&P 500 (+0.02%); Nasdaq (+0.33%). Recent positive momentum at Nike continued with a 4% rise on the back of a JPMorgan upgrade. Whirlpool plunged 14% post-market after the firm cut its full-year outlook. Visa reports after the close this evening. In Asia this morning, equities slipped as momentum from trade deals faded: Nikkei 225 (-0.8%); Hang Seng (-0.7%).
The FTSE 100 is currently up 0.2% at 9,093. UK food inflation rose 4% in July from a year earlier to its highest in 17 months, driven by rising prices for tea and meat. Sterling trades at $1.3330 and €1.1545.
Rachel Reeves faces calls to increase taxes on the £15bn gambling industry as the Treasury moves to streamline levies on bookmakers and reflect ‘exponential’ growth in online betting. Meanwhile, Keir Starmer was urged by a group of economists, including Thomas Piketty, to implement a wealth tax they claim may raise tens of billions of pounds for the treasury.
Source: Bloomberg
Company News
Yesterday evening, EssilorLuxottica released its H1 results which were pretty much in line with market expectations, with North America seeing a pick-up in the pace of growth despite the impact of tariffs. The company’s new products enjoyed continued strong momentum, in particular Ray-Ban Meta AI glasses. The company doesn’t have guidance in place for the current year, but trading remains strong, and the 2026 revenue target has been reiterated. In response, the shares have been marked up by 5% this morning.
EssilorLuxottica is the global leader (with a 25% share) in the eyecare and eyewear industry with exposure to the design, manufacture, and distribution of ophthalmic lenses, prescription frames, and sunglasses. We believe the long-term outlook for the industry is positive, driven by an ageing population, increased incidence of poor eyesight (caused in part by the increased use of smart phones and tablets), a growing emerging market middle class, increased education regarding sun protection, and the growth of eyewear as a fashion and technology accessory. By 2050, uncorrected poor vision is predicted to reach epidemic proportions with over 50% of the world’s population expected to suffer from myopia (short-sightedness), many with serious vision-threatening side effects and long-term implications.
The company’s competitive advantage is based on its scale, portfolio of premium brands (such as Ray-Ban and Oakley), product innovation, flexible manufacturing base, quality service, routes to consumer, and partnerships. Essilor owns licences for some of the best-known luxury brands, including Chanel, Prada, Armani, and Jimmy Choo. The group also owns a majority interest in GrandVision (GV), a global leader in optical retail and an online presence, ownership of which expands its global retail footprint (to 17,600 stores) and reduces the competitive risk of retailer consolidation.
In addition to underlying market trends, growth is being driven by high quality and differentiated product innovation across the existing product line and in new markets. The company’s myopia management product Stellest has presented a six-year clinical study of its lenses, demonstrating conclusive evidence of their efficacy in slowing down myopia progression in children. Stellest 2.0 is now being rolled out. In the smart glasses category, the company has a long-term partnership with Meta Platforms to develop multi-generational smart eyewear products. The collection, which includes Ray-Ban Meta, is performing better than expected with demand outpacing supply – sales were up more than 200% in the first half of 2025 – and Oakley Meta Performance AI glasses have recently been launched. In addition, Meta Platforms has acquired a near 3% stake in the company (worth €3bn) and is reported to be considering further investments that could build its share to 5% over time.
The company has also diversified into the hearing solutions market with a disruptive new technology (i.e., lenses with acoustic technology) to meet the needs of the 1.2bn consumers suffering from mild to moderate hearing loss. The audio component is completely invisible, removing a psychological barrier that has historically stood in the way of consumer adoption of traditional hearing aids. The product (called Nuance Audio) has now been rolled out in more than 10k doors across the US and Europe in both the wholesale and retail channel.
The company has enhanced its presence in the med-tech space through several acquisitions. The first was an 80% stake in family-owned Heidelberg Engineering, a German company specialising in diagnostic solutions, digital surgical technologies, and healthcare IT for clinical ophthalmology that adds expertise in early detection and diagnosis. The second was Espansione, an Italy-based company specialised in the design and manufacturing of non-invasive medical devices for the diagnosis and treatment of dry-eye, ocular surface and retinal diseases. The third was Optegra, a fast-growing and highly integrated ophthalmology platform operating an extensive network of over 70 eye hospitals and diagnostic facilities across Europe. Most recently, the company announced an agreement with South Korea company PUcore to buy its assets and entities involved in the development, manufacturing, and sale of monomers used in the production of high index ophthalmic lenses.
The company has also owns streetwear brand Supreme, known for its lifestyle apparel, footwear, and accessories. The company runs a digital-first business and 17 stores in the US, Asia, and Europe. At first glance, the $1.5bn move appears a diversification from the group’s core business – the rationale is that it will provide a direct channel to an audience that is very difficult to reach and adds a margin accretive business to the group. We have some reservations and will watch to see if the deal ends up being a misallocation of capital.
The business mix is now optical (c. 75% of total revenue), sun (23%) and the rest being represented by Apparel, Footwear and Accessories (including Supreme brand) and smart-glasses (Ray-Ban Meta).
Back to the results. During the first half of 2025, revenue grew by 7.3% at constant exchange rates (CER) to €14.0bn, in line with the market forecast. In the second quarter, the company also generated growth of 7.3%, the same as the first quarter. Organic growth was in the mid-single digits, with M&A (Supreme and Heidelberg) contributing around 2%.
EssilorLuxottica is a vertically integrated player with two distribution channels. Professional Solutions (PS) includes the supply of products and services to third-party eyecare professionals (i.e., wholesale). In H1, revenue grew by 4.2% at CER to €6,565m. Direct-to-Consumer (DTC) includes the sale of products and services directly to end consumers (i.e. retail), comprised of brick-and-mortar stores and e-commerce platforms. In H1, revenue grew by 10.2% at CER to €7,459m, with Supreme providing a positive uplift.
By geography, North America, the group’s largest region (44% of sales), grew by 4.9% at CER in H1, driven by an acceleration in PS, while DTC maintained a solid pace of growth. Elsewhere, growth was stronger: EMEA (+9.5%); Latin America (+8.7%); and Asia Pacific (+9.0%).
Over time, the company has been able to convert its revenue growth into margin expansion, leveraging its vertically integrated business model and successfully absorbing the inflationary pressures on most cost items. Gross margins are high, albeit down 80 basis points at CER to 63.5% in H1 due to the impact of US import tariffs and higher weighting of wearable revenue, partly counterbalanced by the positive contribution of price-mix. The pro-forma operating margin was stable at CER to 18.3%, despite the headwind represented by tariffs. As a result, operating profit grew by 7.1% at CER to €2,532m, pretty much in line with market expectations.
The business generates strong free cash flow (€951m in H1, a touch below last year) and is financially robust. The group ended the first half with net debt (including lease liabilities) of €11.26bn, a bit higher than expected, albeit still a comfortable 1.7x EBITDA.
The group’s high US revenue exposure versus minimal sourcing in the country means Essilor is exposed to tariffs, particularly for frames which are made in China and exported to the US. In response, the company is implementing two broad measures. Firstly, diversification of the supply chain in a way that doesn’t compromise product quality. Secondly, price hikes – mid single-digit increases were implemented in Q2, the benefit of which will fully flow through in H2.
Looking forward, Essilor doesn’t provide near-term guidance, although on the call, the company highlighted that July has been strong driven by a further acceleration of LensCrafters in the US and optical retail in Europe.
The company remains confident in its strategic vision and its ability to deliver on its outlook for annual revenue growth of mid-single digit between 2022 and 2026 and adjusted operating profit margin of 19%-20% in 2026 (vs 17% in 2024). The target of €27bn-€28bn of revenue in 2026 was reiterated.
Source: Bloomberg
AstraZeneca has today released results for first half of 2025 which were slightly better than expected and provided an update on its R&D programme. Guidance for the full year has been reiterated as pricing pressures and global trade risks remain challenges. In response, the shares are trading up 1% in early trading.
AstraZeneca (AZ) is a global, science-led biopharmaceutical company. The main growth driver has been the group’s key Oncology franchises (including Tagrisso, Lynparza, Enhertu, Imfinzi, and Calquence), which have been supplemented by the other growth platforms of Respiratory & Immunology (R&I), Cardiovascular, Renal, & Metabolic diseases (CVRM), Vaccines & Immune Therapies (V&I), and rare diseases (through Alexion).
AZ currently invests more than 20% of sales in R&D and uses partnerships to gain access to innovative technology. The group has an attractive pipeline of potential new products, the success or failure of which will drive future profitability and the share price.
The group’s ambition is to deliver $80bn of revenue by 2030, up 8.3% p.a. from a 2023 base of $45.8bn. This will be driven by growth in its existing portfolio through geographic expansion and follow-on indications, as well as new products currently in late-stage development, offset by the loss of patent exclusivity in some existing products. The group expects to launch 20 new medicines before the end of the decade, with some products having the potential to generate more than $5bn in peak year revenue. Beyond 2030, the company will seek to drive sustained growth by continuing to invest in transformative new technologies and platforms that will shape the future of medicine.
The aim is to generate a mid-30s core operating margin by 2026, versus 32% in 2023. Beyond 2026, the margin will be influenced by portfolio evolution and the company will target at least the mid-30s percentage range.
The H1 2025, revenue increased by 11% at constant exchange rates (CER) to $28.0bn. Within that, product sales grew by 10% to $26.7bn. In the latest quarter, revenue increased by 11% at CER to $14.46bn, beating the market forecast of $14.15bn.
Performance reflected increasing demand for the group’s medicines across the board, particularly cancer, heart, and kidney disease drugs. By therapy area, product sales grew 16% in Oncology in the first half, 8% in CVRM, 13% in Respiratory & Immunology, 18% in Vaccines & Immunology, and 3% in Rare Diseases.
Core operating expenses rose by 9% in the first half at CER, with R&D and SG&A up 17% and 3%, respectively. The operating margin rose by one percentage point to 33%. Core EPS grew by 17% to $4.66 in the half-year and by 12% to $2.17 in the second quarter, in line with the market forecast of $2.16.
Recent news flow on the pipeline in terms of new data and product approvals has been positive – so far this year, the company delivered has 12 positive Phase III study read-outs and 19 approvals in major regions including for baxdrostat (hypertension), gefurulimab (generalised myasthenia gravis), and Tagrisso (NSCLC). These readouts represent a combined opportunity of more than $10bn.
AZ has a robust balance sheet and generates strong free cash flow. In the first half of the year, net debt rose from $24.6bn to $25.2bn, around 1.4x net debt to EBITDA. The company’s capital allocation priorities include investing in the business and pipeline. To that end, the company expects to increase capital expenditure by 50% in 2025, driven by manufacturing expansion projects and investment in IT systems, to support portfolio growth and build capacity for transformative technologies. In addition, last week the company announced a huge ($50bn) investment in the US for medicine manufacturing and R&D.
M&A remains central to the strategy. During the first half, the company spent a net $2.3bn, including up to $1bn for EsoBiotec, a biotechnology company pioneering in vivo cell therapies that has demonstrated promising early clinical activity.
AZ is also committed to a progressive dividend policy and intends to maintain or grow the payout each year. For 2025, the company is guiding to a dividend of $3.20, up 3%, equating to a yield of 3%, with an interim payment of $1.03 (76.7p) declared today.
Guidance for 2025 has been reiterated: total revenue growth in the high single-digits and Core EPS growth in the low double-digits, both at CER. This implies material operating margin expansion. Note the weak dollar has had a negative impact on earnings.
We believe the outlook for the pharmaceutical sector remains mixed despite the backdrop of an ageing population. Although the business provides some protection against macroeconomic uncertainty and R&D productivity is expected to increase with the help of AI, concerns over drug pricing are likely to remain a headwind, especially at a time when governments are looking for ways to reduce debt levels. However, with a pipeline of innovative and rare products to address unmet patient needs, that can justify higher pricing, we believe AZ is well placed to generate above average revenue and earnings growth. This has been reflected in the strong long-term performance of the shares.
Source: Bloomberg
