SMCP: Accessible Luxury With Margin Upside and High FCF Yield

Brian Chingono of Verdad presented his investment thesis on European equities and SMCP (France: SMCP) at European Investing Summit 2025.

Thesis summary:

SMCP is a Parisian fashion holding company operating in the accessible luxury segment with a €485 million market cap. The company manages a global footprint of stores for its brands, including Sandro, Maje, and Claudie Pierlot. SMCP was previously owned by the LVMH-affiliated private equity firm L Catterton. The thesis sees upside potential driven by internal efficiency measures and an eventual recovery in discretionary spending.

The company’s stock appears depressed due to its exposure to consumer discretionary spending, which has been pressured by recent inflation and high interest rates. This specific headwind aligns with the broader consensus pessimism surrounding European equities, which have faced slowing growth, capital outflows, and geopolitical shocks. This environment has left corporate Europe, despite being healthy, trading at a steep discount to US peers.

The investment thesis rests on the view that this pessimism regarding SMCP is overdone. The company is executing efficiency measures and cost-cutting plans which are progressing as expected. Management is targeting adjusted EBIT margin expansion to 10% in 2H 2026, up from 7.1% in 1H 2025. This operational turnaround is stewarded by a capable CFO, a 15-year LVMH veteran who previously served as CFO of Givenchy.

The company exhibits healthy quality metrics, including a 35.6% gross profit to assets ratio. The balance sheet is also actively being deleveraged, with net debt reduced by 13% since December 2024 and 30% since June 2024. Beyond the operational turnaround, a potential upside catalyst exists from the eventual sale of a stake held by creditors of a former shareholder.

Reflecting the macro pressures and pessimism, the shares recently traded at low multiples. The stock was valued at 5.7x EV/EBITDA and 0.4x P/B. This valuation corresponds to a 17.7% FCF yield. This pricing exemplifies the opportunity in European micro-caps, which are trading at discounts to their own history and offer a compelling entry point for value-oriented investors.

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About the instructor:

Brian Chingono serves as Partner, Director of Quantitative Research, and Europe Portfolio Manager at Verdad, a highly regarded global asset management firm. He worked at Dimensional Fund Advisors and Credit Suisse before joining Verdad. Brian earned an AB from Harvard College and an MBA with honors from the University of Chicago Booth School of Business. As a graduate student, Brian co-authored two research papers related to Verdad’s investment strategy: Leveraged Small Value Equities and Forecasting Debt Paydown Among Leveraged Equities.