Sharpen up on Richemont luxury group

20 january 2006

Richemont, the luxury goods maker that rates as one of the JSE’s top five performing stocks over the past twelve months, is expected to report an increase of about 15% in sales for the three months to 31 December 2005.

The update, expected on Monday, is expected to show ‘constant currency’ (Euro) sales as having risen about 13%, the same as the previous comparable period.

The stock was quoted at just above 57 Swiss francs on Friday, close to its recent multi-year highs of CHF58,35.

Analysts remain positively committed to the stock, not least those at Morgan Stanley, with a recent reiteration of ‘overweight’. Richemont’s continued focus on improving its efficiency in upcoming years is seen as likely to reduce the group’s cyclicality.

JP Morgan has maintained a ‘neutral’ rating on Richemont and HSBC has remained overweight, despite Richemont’s stock price gain of 52% in 2005. The stock trades broadly in line with competitors LVMH and Bulgari.

Richemont was separately lifted last month, when the Illinois Supreme Court ruled in favour of Philip Morris. Richemont holds a near-29% stake in British American Tobacco (BAT), which accounts for a material part of its value.

Analysts have recently put 12-month stock price targets for Richemont as high as CHF68.

Richemont, the world’s No 2 luxury goods maker, by size, comprehensively beat consensus market expectations in its trading update for the five months to August 31, delivered in September at its annual general meeting in Geneva. Where analysts saw five-months sales rising 11% in constant currency terms, the actual result came in at 16%.

At the time, a flood of positive upgrades saw Deutsche Bank raise its target for Richemont from CHF54 to CHF58; Morgan Stanley raised from CHF54 to CHF57; Goldman Sachs saw fair value at CHF59; Kepler Equities raised from CHF53 from CHF56; Sarasin lifted from CHF47 to CHF55, and WestLB raised from CHF49 to CHF53.

Richemont’s luxury goods – which include Cartier, Van Cleef & Arpels, Alfred Dunhill, Montblanc, Lancel, Jaeger-LeCoultre, Piaget, Baume & Mercier, IWC,

Vacheron Constantin, A.Lange & Sohne, and Officine Panerai - are sold across the world.

The group manages four geographical divisions, Europe (43% of annual sales to March 31, 2005), Asia-Pacific (21%), Japan (17%) and Americas (19%). Watches contributed 48% to 2005 turnover, followed by jewellery, clothing and other, writing instruments and leather goods.

Richemont Luxury Group: Cartier, Van Cleef & Arpels, Piaget, Baume & Mercier, IWC, Jaeger-LeCoultre, A.Lange & Sohne, Panerai, Vacheron Constantin, Dunhill, Lancel, Montblanc, Montegrappa, Purdey, Chloé, Old England, Shanghai Tang