Financial Mail - Investors Monthly - - Opening Bell - Mark Hasenfuss IM

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.

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