Tuesday, 21 May 2013 - 20:00
Richemont ? Against the Tide
Compagnie Financière Richemont (Richemont) is one of the world’s top luxury goods groups, with several prestigious brands in its stable and access to markets around the world. In addition to managing its existing portfolio of brands, Richemont also endeavours to identify and acquire lesser-known brands in order to build them up over the long term. The company’s overall growth strategy envisions that each brand should be established in its own right by the development of competitive products and effective marketing programmes.
Richemont has its headquarters in Switzerland, and its listing on the JSE is courtesy of the company’s long-standing link to the Rupert family. The company was created in 1988 when all the international assets owned by the Rembrandt Group were spun off into a separate entity. Richemont then had direct holdings in Cartier Monde and Rothmans, and indirect holdings in Alfred Dunhill, Montblanc, and Chloé. Over the next 20 years Richemont acquired various direct and indirect stakes in Purdey, Vacheron Constantin, Van Cleef & Arpels, Jaeger-LeCoultre, IWC, and A. Lange & Söhne, amongst others. In 2008, Richemont restructured and Reinet Investments was formed as a separately traded vehicle to hold all the non-luxury goods businesses.
Richemont released an impressive set of annual results for FY13 last week, and the market reacted positively with the share price jumping up 8% in a single day. These results were largely driven by an increase in sales, once again proving that economic uncertainty around the world has little effect on the appetite for luxury products.
Richemont reported an increase in sales of 14% to € 10.15b, which amounts to a 9% increase on a constant currency basis. With sales around the globe, varying exchange rates have a huge influence, and in FY13 the company was favoured by a weak Euro. The Group’s solid sales growth across all product segments and regions was mostly the result of growth in the company’s own retail network.
Sales growth in Europe (incl. Middle East and Africa) was especially strong at 17%, and was driven by increasing tourism from Asia and a weaker Euro. Growth in sales in Asia Pacific has slowed down considerably from figures of +36% in FY11 and +45% in FY12 to only +5% in FY13 on a constant currency basis.
When examining sales by product line, it is clear that the larger lines – Watches, Jewellery and Clothing – show strong growth, while the smaller lines are struggling.
Operating profit increased by 18% for the period, and the impressive operating margin was extended by a further 80 basis points to 23.9%.
Operating expenses increased in line with sales at 14%, with the company unable to curb selling, distribution, and administration expenses. Profit for the year and diluted earnings per share both increased by 30%, mostly due to non-cash charges related to the strengthening of the Swiss franc not recurring in FY13.
Richemont has increased its capital expenditure by 27% to € 612m, which is 6% of sales, with an increasing weight given to manufacturing compared to the previous year. The company’s balance sheet remains very healthy, with 17% of the assets available in cash to back any potential acquisitions.
A generous dividend of 1.00 CHF was declared, up 82% from last year’s 0.55 CHF, in order to celebrate 25 years of Richemont and to demonstrate management’s intention to grow dividends steadily over the long term.
The Richemont share price has increased by 70% over the past year, with last week’s jump contributing to 26% growth in the last 30 days alone. At a PE of about 22 the share is a bit more expensive than the market, and the dividend yield of 1.13% is not that attractive compared to other Industrial shares. A low dividend yield for an investment holding company can be seen as encouraging, as management can potentially make better use of cash through acquisitions than paying it out to shareholders.
This share offers an opportunity for local investors to gain international exposure quite easily, and the appeal of Richemont’s products throughout economic cycles will ensure that these investors remain content.
The Seed Equity Fund, which blends a Value and Momentum portfolio, has an exposure of 2.3% to Richemont as part of the Momentum portfolio.
Cor van Deventer
021 914 4966
Tue, 21 May 2013
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Latest Consensus Changes**
|TBS||TIGER BRANDS LTD||HOLD||20/05/2013|
|LHC||LIFE HEALTHCARE GRP HLDG ...||HOLD||17/05/2013|
|PPC||PRETORIA PORT CEMNT||HOLD||17/05/2013||
|Expected||Company Name||Fin. Date|
|22/05/2013||DELRAND||March 2013 (Q)|
|22/05/2013||MEDCLIN||March 2013 (Final)|
|22/05/2013||MRPRICE||March 2013 (Final)|
|22/05/2013||MRPROB||March 2013 (Final)|
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|ABIL PREF||20/05/2013||07/06/2013||18/06/2013||R 3.2200|
|PNR FOODS||20/05/2013||28/06/2013||08/07/2013||R 0.4600|
|BRT||Brimstone Investment Corporation Ltd.||22/05/2013||Confirmed|
|MSMX||Massmart Holdings Ltd.||22/05/2013||Confirmed|
|MSM||Massmart Holdings Ltd.||22/05/2013||Confirmed|
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