Richemont results preview | Fin24
 
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Richemont results preview

May 11 2017 12:55
Shaun Murison

Shaun Murison, senior market analyst at IG. (Picture supplied).

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Compagnie Financiere Richemont, which boasts a portfolio of leading luxury goods, particularly in the jewellery and luxury watch divisions, is expected to report a lacklustre financial year once again.

Despite having an improved quarter (ending December 2017), the nine months to December were weak across both regional and business divisions. The below graphs illustrates these in both constant and actual exchange rates.

                                                                                                                                          SOURCE: IG

Estimates

It appears unlikely that a positive fourth quarter will be enough to offset a soft first nine months of the year. Full year revenue for the 2017 financial year (FY17) is expected to be realised within the 10 640M and €10 703m range. This would equate to a decline of around 3% to 4% from the corresponding 2016 financial year. Net income will find a high base of comparison against the previous financial year where a €639 million non-cash gain was included from the merger of The NET-A-PORTER GROUP with YOOX Group. JP Morgan estimates FY17 could see a decline of as much as 40% in net income, while consensus of Reuters analyst estimates arrive at an implied decline in net income of 27%.

The mean of analyst estimates reported by Reuters arrives at a longer-term target price of R105.10/ share, and 79.64 Swiss franc (CHF) for the primary Swiss Listing. This suggests Richemont, trading at a share price of R113.65 on its JSE listing and CHF85.55 on its Swiss listing (at the time of writing), might be trading at a 7% to 8% premium to what is widely considered fair value by analysts for the share. 

Thoughts

The Richemont group remains a quality company with a strong balance sheet, an enviable portfolio of luxury goods and a retail footprint extending across the globe. The slowing rate of decline in sales from the Asia Pacific region is encouraging, with China the possible future catalyst for long-term growth for the company. However trading at a forward PE ratio north of 25 (Swiss listing), while earnings growth is not being realised, suggests the share is expensive at current levels.

Shaun Murison is a senior market analyst at IG.

luxury goods  |  jewellery  |  richemont
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