The shares of Richemont have underperformed peers significantly over the past five years. There are though a number company specific catalysts that could help shares rerate in the near term. They are centered around the: improved brand recognition. Therefore, we expect a narrowing discount with to the sector average, restructuring of watches division comes to an end, and finally, the reduction in ownership of loss-making online activities which has heavily weighted on sentiment.
- Alike the sector peer group, Richemont has rebounded strongly from the peak of the COVID crisis, especially thanks to trends in China and the US where luxury spending has accelerated.
- Sales in the nine months ended 31 Dec 2021 surged by over 50% year-on-year.
- The company’s financial profile is supported by exceptional liquidity and strong cash flow generation. Activists have taken an interest in the company, potentially calling for M&A which remains a risk given the sector’s ongoing consolidation, albeit chairman Mr. Johann Rupert has repeatedly stated the company is not for sale nor interested in mergers.
Richemont benefits from its ownership of strong luxury goods brands and operates in an industry that has positive credit fundamentals – favorable demographics, stickier customers than for most consumer goods, relatively high price inelasticity, and comprises in the main free cash flow generative businesses.