Analysts predict some upside for Richemont
Improvement in Swiss watch sales and better GDP numbers from China, one of Richemont’s biggest markets, bode well for the company
As the JSE flirts with new highs, analysts are divided as to whether one of its top performers, Richemont, can continue to support the market into the last quarter of 2017.
Greg Katzenellenbogen of Sanlam Private Wealth says Richemont continues to have the "wind behind its back", thanks to an improvement in Swiss watch sales and better GDP numbers from China, one of Richemont’s biggest markets.
But Katzenellenbogen is cautious about whether another big share price leap is on the cards.
Richemont has gained 28% in the year to date on the JSE and in Switzerland, it is up just more than 26%, but appears to have run ahead of itself, according to consensus forecasts.
The stock is trading at about Sf85 ($87), but Bloomberg’s 12-month price target is Sf82.47. However, it is still off its high of Sf95.55, which was reached on August 14 2013. PSG Wealth analyst Ricus Reeders says he "can see" another Sf10 in the share.
Locally, however, and perhaps due to expectations that the rand will end 2017 weaker, the 12-month price target for Richemont is R134, implying a gain of about 16% from Tuesday’s close.
While Richemont is trading at a steamy price-to-earnings multiple of 24.85, this is not out of line with its global peers in the luxury goods sector; LVMH (Moet Hennessy Louis Vuitton) and Tiffany are priced on forward price-to-earnings of 23.
LVMH’s shares have rallied almost 24% in 2017 and Sasfin Securities’ David Shapiro says there has been a "revival in demand" for luxury goods.
That is most apparent in the stunning 88% gain made by Italian sports car maker Ferrari, which started 2017 at $58.94 and closed at $111 on Tuesday.
While LVMH sells across the luxury goods spectrum — from champagne to handbags — Swiss watch exports appear to be enjoying a revival.
Swatch CEO Nick Hayek told the Financial Times in July that Swatch factories were running at "maximum capacity" after reporting a "spectacular" increase in sales for the first half of 2017. This experience is borne out by figures from the Swiss watch industry federation, which reported a 5.3% rise in June exports year on year, following May’s 9% gain.
Richemont’s decision to buy back 10-million shares — equivalent to 1.7% of its market capitalisation — over the next three years, is likely to help prop up its shares, offsetting the drag produced by net cash of €5.8bn on its balance sheet as of the financial year ended March.