Share price: R93.82 JSE code: CFR
SELL IT SEEMS ILLOGICAL TO PUNT Richemont as a “sell”. The share price, despite a mini-rally earlier this month, is well off the R120 high seen in October last year.
Some market watchers will argue that at current levels investors are able to buy into a top-quality business with a balance sheet that is able to withstand political upheaval, terror attacks and epidemics. That’s true. But reckons its prospects remain fragile, and the firm’s radical shake-up of its board suggests more than a little concern at ensuring it remains relevant in a fast-changing market.
Profit performances have been drab, but there are hints that domestic markets in China are stirring. Restructuring to boost performance at smaller Maisons seems to have gained traction, but contributions from the fashion segments remain underwhelming.
Executive chairman Johann Rupert has reiterated that the long-term goal is to increase dividends by 10%-15%/year, which underlines his contention that the luxury goods market always recovers. Cash flows remain reassuring, and there is capacity on the balance sheet for the company to take advantage of acquisition opportunities that a stressed luxury brands market might present.
Richemont may well spur a recovery in revenues, but profit growth probably won’t be enough to justify the rich earnings multiples tagged on the share. And if tourism flows are disrupted and consumer mood dampened, there could be further downside.