Company Reports

We keep our CHF 154 fair value estimate for wide-moat Richemont after solid third-quarter sales. We view shares as attractive at current levels. We believe Richemont should fare better than its competition in an industry slowdown, thanks to the strength of its jewelry brands—as top brands in the category typically outperform in crises—and exposure to a more affluent clientele.

We maintain our fair value estimate of CHF 154 for wide-moat Richemont as the firm reported solid, but slowing growth in the fiscal second quarter. Revenue came in at 12% at constant exchange rates for the first half with a 5% increase in the second quarter, below 19% delivered in the first quarter. Overall, Richemont confirmed the slowing luxury industry growth trend while a weakening margin was viewed negatively by the market, sending shares 7% lower. We think shares look cheap based on our assumptions for long-term revenue growth of 6% and some margin expansion. We see cyclical weakness as an opportunity to build a stake in this very high-quality stock.

Wide-moat Richemont is the number-three global luxury goods conglomerate by revenue. Over the years, the group has amassed and developed a portfolio of very successful global brands, mostly in the hard luxury segment. Despite more pronounced cyclicality, hard luxury goods benefit from much longer product cycles and lower fashion risk. Most of the group’s brands are at least a century old, have iconic collections lasting 40-80 years, and have historically commanded significant pricing power. Prices of more than $5,000 for most of Richemont’s watch brands and the prestige value attached to them protect the group’s watch business from the emerging technological disruption. Additionally, control over distribution and higher entry barriers in the jewellery business, along with diversification by brand, give us confidence that the company will be able to generate economic profits well into the future, despite cyclicality.

We are maintaining our fair value estimate of CHF 140 per share for wide-moat Richemont as the company reported solid growth in the first fiscal quarter, led by the Asia-Pacific region.

We maintain our fair value estimate for wide-moat Richemont as the company reported a strong set of full-year results. Revenue and profits came practically in line with our estimates. Revenue showed a 19% increase at actual and 14% at constant exchange rates (19.4% and 13.4% in our model, respectively). Operating margin reached 25.2% (25.6% in our model). Remarkably, in the fourth quarter, sales growth accelerated to 22% from 5% in the third quarter and to 27% for Jewellery Maisons, the most profitable and biggest division, at the higher end of industry peers for the same calendar period. We believe Richemont’s strong presence in China and the rest of Asia (Asia excluding Japan accounted for 40% of revenue in fiscal 2022-23), exposure to more-affluent clientele that so far has been insulated from macroeconomic difficulties in the developed markets, and the strength of its jewellery brands, which have been gaining share at a faster pace since the start of the pandemic, should position the company resiliently against peers. Richemont is also one of the few fairly valued names in a largely overvalued luxury sector.

We are maintaining our fair value estimate of CHF 140 for wide-moat Richemont as the company reported a deceleration in sales growth during the third quarter. A strong rally at the end of 2022 left shares trading in line with our estimates.

Wide-moat Richemont is the number-three global luxury goods conglomerate by revenue. Over the years, the group has amassed and developed a portfolio of very successful global brands, mostly in the hard luxury segment. Despite more pronounced cyclicality, hard luxury goods benefit from much longer product cycles and lower fashion risk. Most of the group’s brands are at least a century old, have iconic collections lasting 40-80 years, and have historically commanded significant pricing power. Prices of more than $5,000 for most of Richemont’s watch brands and the prestige value attached to them protect the group’s watch business from the emerging technological disruption. Additionally, control over distribution and higher entry barriers in the jewellery business, along with diversification by brand, give us confidence that the company will be able to generate economic profits well into the future, despite cyclicality.

We expect to increase our fair value estimate for Richemont by a low- to mid-single-digit percentage to reflect continuous strong operating and financial results in the first half. Shares look attractive at current levels, trading in 4-star territory, and Richemont remains our top pick in the luxury segment on a strong combination of quality and valuation.

We maintain our fair value estimate for wide-moat Richemont following the announcement that the company will sell a 47.5% stake in YNAP to Farfetch and 3.2% to Alabbar. For Richemont, we view the deal positively, as YNAP accounted for a low-single-digit percentage of our Richemont fair value estimate and was struggling with mounting costs and market share losses through Richemont’s ownership. Although Richemont expects to write down the stake in YNAP by about EUR 2.7 billion as a result of the transaction, we note that the Farfetch shares that Richemont is getting as a result are materially undervalued, trading about 50% below our fair value estimate. A 47.5% YNAP share sold to Farfetch will increase Richemont’s stake in Farfetch by 10%-11% of fully diluted capital. We view Richemont's and Farfetch's stocks as undervalued. Strategically, we think the latter firm is set to gain more from the deal, which could add a mid- to high-single-digit percentage to our Farfetch fair value estimate.

Wide-moat Richemont is the number-three global luxury goods conglomerate by revenue. Over the years, the group has amassed and developed a portfolio of very successful global brands, mostly in the hard luxury segment. Despite more pronounced cyclicality, hard luxury goods benefit from much longer product cycles and lower fashion risk. Most of the group’s brands are at least a century old, have iconic collections lasting 40-80 years, and have historically commanded significant pricing power. Prices of more than $5,000 for most of Richemont’s watch brands and the prestige value attached to them protect the group’s watch business from the emerging technological disruption. Additionally, control over distribution and higher entry barriers in the jewellery business, along with diversification by brand, give us confidence that the company will be able to generate economic profits well into the future, despite cyclicality.

We are maintaining our fair value estimate of CHF 123 per share for wide-moat Richemont as the company reported solid growth in first-quarter sales despite lockdowns in China. Richemont is our preferred company in the luxury segment at the moment, trading in 4-star territory, at a 20% discount to our fair value estimate. We specifically like Richemont’s jewellery brands, Cartier and Van Cleef & Arpels (86% of EBIT), which are the most profitable and fastest-growing brands in the luxury jewellery industry, with very high entry barriers and strong growth prospects. Its watchmaking businesses are improving and the balance sheet is very strong with EUR 5.4 billion in net cash, allowing it to invest countercyclically.

We maintain our CHF 123 fair value estimate for wide-moat Richemont after the company reported stronger annual sales but weaker profitability for fiscal 2022 than we and consensus expected. We believe the recent share price pullback presents an interesting opportunity to build a position in this high-quality company.

We are increasing our fair value estimate for wide-moat Richemont as the company delivered accelerated sales growth in fiscal third-quarter 2021/22. After tripling from 2020 lows, we see our original positive stance on the strength of Richemont’s business model also reflected in the shares. Further, we believe current growth is helped by transitory tailwinds (savings from foregone experiences, strong asset prices, and psychological need for reward after stress) that we are weary to extrapolate into the future.

Wide-moat Richemont is the number-three global luxury goods conglomerate by revenue. Over the years, the group has amassed and developed a portfolio of very successful global brands, mostly in the hard luxury segment. Despite more pronounced cyclicality, hard luxury goods benefit from much longer product cycles and lower fashion risk. Most of the group’s brands are at least a century old, have iconic collections lasting 40-80 years, and have historically commanded significant pricing power. Prices of more than $5,000 for most of Richemont’s watch brands and the prestige value attached to them protect the group’s watch business from the emerging technological disruption. Additionally, control over distribution and higher entry barriers in the jewellery business, along with diversification by brand, give us confidence that the company will be able to generate economic profits well into the future, despite cyclicality.

We are increasing our fair value estimate for wide-moat Richemont to CHF 115 per share following very strong first-half performance across divisions, with continuing strength in jewellery, stark improvement in specialist watchmakers, and a decent showing in other divisions. Although the shares trade above our fair value estimate, we think they present a good quality/valuation trade-off in a largely overvalued luxury universe. We still see some tailwinds (such as U.S. demand strength) as temporary.

Wide-moat Richemont is the number-three global luxury goods conglomerate by revenue. Over the years, the group has amassed and developed a portfolio of very successful global brands, mostly in the hard luxury segment. Despite more pronounced cyclicality, hard luxury goods benefit from much longer product cycles and lower fashion risk. Most of the group’s brands are at least a century old, have iconic collections lasting 40-80 years, and have historically commanded significant pricing power. Prices of more than $5,000 for most of Richemont’s watch brands and the prestige value attached to them protect the group’s watch business from the emerging technological disruption. Additionally, control over distribution and higher entry barriers in the jewellery business, along with diversification by brand, give us confidence that the company will be able to generate economic profits well into the future, despite cyclicality.

Wide-moat Richemont is the number-three global luxury goods conglomerate by revenue. Over the years, the group has amassed and developed a portfolio of very successful global brands, mostly in the hard luxury segment. Despite more pronounced cyclicality, hard luxury goods benefit from much longer product cycles and lower fashion risk. Most of the group’s brands are at least a century old, have iconic collections lasting 40-80 years, and have historically commanded significant pricing power. Prices of more than $5,000 for most of Richemont’s watch brands and the prestige value attached to them protect the group’s watch business from the emerging technological disruption. Additionally, control over distribution and higher entry barriers in the jewellery business, along with diversification by brand, give us confidence that the company will be able to generate economic profits well into the future, despite cyclicality.

We are maintaining our fair value estimate of CHF 96 per share for wide-moat Richemont as the company reported a solid increase in first-quarter revenue. Revenue was up by 129% against 2020 levels and 22% against 2019 levels at constant exchange rates. The first quarter was the most affected by coronavirus lockdowns in 2020; we expect the comparison base to get tougher in the quarters to come. We forecast sales in 2021/22 to be 9% above 2019/20 levels and 18% higher than in 2020/21. As expected, the most profitable Jewellery Maisons, which comprises Cartier and Van Cleef & Arpels, led growth with a 43% jump from 2019 levels at constant exchange rates. This should bode well for the company’s margins, given the division's EBIT margin of over 30%. The specialist watchmaker division’s sales also outstripped 2019 levels with 6% constant-currency increase. Online distributors were up 8% versus 2019 comparables, while the "other businesses" division, which includes fashion and leather goods, was down 7% versus 2019 but up 124% against 2020 levels. The Middle East and Africa, Americas and Asia led growth for the group, while Europe and Japan remained in the red compared with 2019 (albeit still rebounding strongly from 2020).

Wide-moat Richemont is the number-three global luxury goods conglomerate by revenue. Over the years, the group has amassed and developed a portfolio of very successful global brands, mostly in the hard luxury segment. Despite more pronounced cyclicality, hard luxury goods benefit from much longer product cycles and lower fashion risk. Most of the group’s brands are at least a century old, have iconic collections lasting 40-80 years, and have historically commanded significant pricing power. Prices of more than $5,000 for most of Richemont’s watch brands and the prestige value attached to them protect the group’s watch business from the emerging technological disruption. Additionally, control over distribution and higher entry barriers in the jewellery business, along with diversification by brand, give us confidence that the company will be able to generate economic profits well into the future, despite cyclicality.

We maintain our fair value estimate for wide-moat Cie Financiere Richemont. The company reported fiscal 2021 results that largely matched our expectations. Within this, the group’s biggest and most profitable division Jewellery Maisons outperformed with sales growing beyond precoronavirus levels and margins improving to 31%, driven by strong double-digit sales growth in the second half of the year, in line with our expectations. Although the company experienced a tough first half with sales contracting by 25% at constant exchange rates due to pandemic-led closures of point-of-sale stores and a significant slowdown in international tourism, Richemont's performance rebounded sharply in the second half as lockdowns started to ease, with sales growing 17% at constant exchange rates (up 12% at actual rates). Fourth-quarter performance in particular, with sales growth of 36% at constant exchange rates (up 30% at actual rates), helped partially offset the decline in full year sales to 5% at constant exchange rates (up 8% at actual rates). Regionally, the group recorded 19% sales growth in the Asia-Pacific region, with triple-digit year-on-year growth in the fourth quarter, driven by a "strong performance" in mainland China. This strong top-line growth performance was coupled with improvements in operating margins at 11.2%, positively affected by net finance income. Given the improving economic and industry backdrop in combination with solid cash flow generation, the board proposed to double the cash dividend to CHF 2 per "A" share (versus CHF 1 per share before).