Richemont rise and shine

The figures speak for themselves: over the twelve months to mid-September, shares in Compagnie Financière Richemont rallied 31.4% compared with a rise of 10.5% for Swatch and 21.1% for Switzerland’s blue-chip stock market index, the SMI. Some observers are convinced Richemont shares have the potential to make further gains, and are predicting an increase in the region of 30% in the mid-term. This optimism on the part of investors, seconded by analysts, was bolstered when the group reported its five-month sales ahead of its annual general meeting on September 5th.

Richemont’s announcement of sales growth from April to August of 13% at constant exchange rates (23% at current rates) will keep the financial community smiling, particularly as growth for August is in line with the average for that period. In addition, the forecast increase in first-half operating and net profit growth is confirmed at between 20% and 40%. Unsurprisingly, given these figures, analysts rate the group highly within the sector.

Confidence is contagious

According to Citi Research analysis, Richemont remains one of the most attractive valuations on a long-term view. It believes the market has failed to fully recognise the group’s above-average profit growth, the strength of its brand portfolio, its coherent long-term strategy, the low risk in terms of mergers and acquisitions, and its healthy balance sheet. Citi makes a buy recommendation for Richemont and raises its price target by 25%. Barclays, which maintains its neutral rating, is even more enthusiastic with a forecast up 34%. Analysts confirm that Richemont remains one of the bank’s preferred stock in the sector, citing its attractive valuation at 13 times estimated profit for 2013, strong positioning in the retail segment, ongoing potential to increase prices, and favourable prospects on the Chinese market.

The only cloud on the horizon is the possible build-up of inventory within the watch industry in the widest sense, as export figures for July – up 15.4% – suggest. Increased stock is generally a bad sign for short-term business. Still, with EUR 2.9 billion in liquid assets, Richemont maintains its investment programme despite prevailing economic uncertainties, as Johann Rupert, executive chairman and chief executive officer, confirmed. And when you’re smiling, the whole world smiles with you.