Weak re­sults but new highs pos­si­ble

The lux­ury goods group saw op­er­at­ing profit plum­met in the past year, but chair­man Jo­hann Ru­pert be­lieves the busi­ness has ex­cel­lent long-term prospects.

Finweek English Edition - - MARKET PLACE - Edi­to­rial@fin­week.co.za Mox­ima Gama has been rated as one of the top five tech­ni­cal an­a­lysts in South Africa. She has been a tech­ni­cal an­a­lyst for 10 years, work­ing for BJM, Noah Fi­nan­cial In­no­va­tion and for Stan­dard Bank as part of the re­search team in t


goods group Richemont had a chal­leng­ing year, with sales de­clin­ing by 4% yearon-year in the 12 months to end March, and op­er­at­ing profit de­clin­ing by a mas­sive 14%.

Richemont, which was founded by bil­lion­aire busi­ness­man Jo­hann Ru­pert, owns some of the world’s lead­ing high-end brands, in­clud­ing Cartier, Van Cleef & Ar­pels, Pi­aget, Chloé, Alfred Dun­hill and Mont­blanc.

The group re­ported a chal­leng­ing en­vi­ron­ment in its lux­ury watches busi­ness in par­tic­u­lar, which saw sales de­cline by 11% to €2.88bn and op­er­at­ing profit fall 57% to €226m. These de­clines were partly at­trib­uted to a buy­back pro­gramme by the whole­sale busi­ness to re­move ex­cess sup­ply from re­tail stores. The watches that were bought back were then de­stroyed.

Speak­ing at the re­lease of the re­sults on 12 May, Ru­pert said

It re­ported growth in sales in the US, its largest mar­ket, as well as in main­land China, Korea, the UK and Macau.

Richemont made a de­ci­sion to act on pro­duc­tion over­ca­pac­ity in the face of slow­ing de­mand, but that its com­peti­tors con­tinue “force feed­ing the sys­tem like geese pro­duc­ing foie gras. I think from our side, we will be fine but if the whole in­dus­try would act ra­tio­nally, it would be quicker for ev­ery­one,” Mon­ey­web re­ported.

Its jew­ellery di­vi­sion re­ported a 2% de­cline in sales to €5.9bn, while other busi­nesses, which in­clude leather goods and writ­ing in­stru­ments, saw a 2% in­crease in sales to €1.8bn, Richemont said. It re­ported growth in sales in the US, its largest mar­ket, as well as in main­land China, Korea, the UK and Macau. Sales in Europe de­clined 9% to €3bn, while the Mid­dle East and Africa saw a sim­i­lar de­cline with sales fall­ing 9% to €885m.

Head­line earn­ings per share were €1.913, com­pared with €2.882 in the 2016 fi­nan­cial year. Richemont said volatil­ity and un­cer­tainty in the geopo­lit­i­cal and trad­ing en­vi­ron­ments are “likely to pre­vail”, but that it be­lieves its busi­ness is “unique” with “ex­cel­lent long-term prospects”.

Tech­ni­cal anal­y­sis:

Af­ter form­ing a high at 12 175c/ share, Richemont pulled back to­wards the sup­port trend­line of its pri­mary bull trend. It man­aged to bounce on that trend­line and re­cu­per­ate most of its losses. Though, Richemont is now range-bound be­tween 12 175c/ share and 7 850c/share, and up­side mo­men­tum seems to be de­cel­er­at­ing as Richemont ap­proaches its prior high at 12 175c/share.

How­ever, if sup­port holds at 10 650c/share, Richemont will most likely trade through 12 175c/share and form new highs. De­spite the global eas­ing in de­mand for lux­ury goods, Richemont is work­ing on im­prov­ing the com­pany and re­mains an at­trac­tive in­vest­ment. (Also see page 19.) It has strong cash flows and a ro­bust bal­ance sheet. Richemont pro­posed an in­crease in the div­i­dend of 5.9% to 1.80 Swiss francs a share. Go long: Sup­port re­tained at 10 650c/share could see Richemont defy cur­rent re­sis­tance at 12 175c/share. Go long above that level as the up­side short-term tar­get is at 16 500c/share. Go short: Down­side through 10 650c/share could see Richemont retest the 9 500c/ share level. Con­tin­ued sell­ing would high­light key sup­port at 7 850c/share or Richemont could re­verse above its sup­port trend­line – as it has done be­fore.

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