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Analysts in agreement over Richemont

Analysts in agreement over Richemont

Tuesday, 28 September 2010
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Christophe Roulet
Editor-in-chief, HH Journal

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With five-month sales for the current fiscal up 22% at constant exchange rates, analysts have issued a buy recommendation for Richemont shares.

The least one can say about Richemont is that it has everyone in agreement. Following publication, at its annual general meeting, of five-month sales, the Group is once again a hit with analysts, all of whom have issued “buy” or “overweight” ratings. With 22% revenue growth at constant exchange rates, excluding the acquisition of net-a-porter.com (37% at actual exchange rates), Richemont has easily beat forecasts.

The company could deliver a stronger than expected margin recovery in the next couple of years.

Citigroup notes the Group’s strengths by quoting its high exposure to emerging markets, a portfolio of first-class brands, a clearly defined distribution strategy, continued cost control, a healthy balance sheet, and excellent capacity to generate cashflow. All of which, says the financial institution, makes for excellent long-term growth potential: “Provided the macroeconomic outlook does not deteriorate ahead of the key Christmas period, we believe the company could deliver a stronger than expected margin recovery in the next couple of years.”

One of the best-positioned luxury players

This view is echoed by Barclays Capital, which raised its forecast earnings per share for the current fiscal while noting the positive contribution that net-a-porter.com should make in the second half (Richemont acquired the equity it didn’t already own in the online retailer earlier this year). According to Merrill Lynch, Richemont offers a combination of factors that can interest investors, quoting the geographic spread of sales with Asia accounting for 36% of revenues, above-average exposure to tourist influx in Europe, a highly positive retail situation (+24% on a like-for-like basis) and strong innovation based on quality production resources.

Investors have clearly singled out the Group's shares as a compelling buy opportunity.

Exane BNP Paribas has reiterated its recommendation to “overweight” Richemont shares and upped its forecast earnings per share by 6% for the current fiscal, stating that among luxury players, Richemont is best-positioned to post above-average sales growth, which leaves scope for positive surprises in terms of profitability. JP Morgan is openly optimistic and raised its price target 4% to CHF 54, meaning upside potential of some 25% versus the mid-September share price. Despite cautious comments by Johann Rupert, chairman and chief executive of Richemont, investors have clearly singled out the Group’s shares as a compelling buy opportunity.

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