Glittering jewellery from Cartier or fine watches from IWC have not only become the focus of luxury lovers since the Christmas season. These brands from the domestic company Richemont are already in high demand throughout the year. The Richemont share, on the other hand, has been considerably less brilliant in the past. For three years in a row, the SMI stock lost out to its competitors. While Kering, for example, was able to increase its enterprise value by half between 2018 and 2020, and industry leader LVMH even doubled it, Richemont shares only turned a zero lap during this period.
But that's over now, this year the luxury goods group based in Bellevue in the canton of Geneva is making a comeback on the capital market with full force. Since the beginning of the year, the share price has climbed by more than 70%, not only making its competitors look old, but also putting Richemont well ahead of its rivals in the internal SMI performance rankings. The share got its big boost at the beginning of October after the breakout above the CHF 100 mark in May was put to the test once again. The test of this horizontal and at the same time psychological resistance was successful, which meant that there was hardly any holding back afterwards. Since then, the price of the shares has risen by over 40%.
The fact that the domestic blue chip is currently staging such a rally is not only due to technical reasons. On a fundamental level, events are literally coming thick and fast at the moment. On the one hand, a number of different addresses have set their sights on Richemont, such as the activist investor Third Point. According to media reports, the hedge fund has built up a stake worth billions and is demanding that the company's management take steps to reduce the share's undervaluation. In this regard, Third Point has found an open ear with long-time Richemont shareholder Artisan Partners. Artisan Partners sees the main reason for the valuation discount primarily in the loss-making online subsidiary Yoox Net-a-Porter (YNAP).
Even if Richemont management does not comment on its investors, there seems to be movement in the background. For example, when presenting its half-year results, the group announced that YNAP is to work more closely with rival Farfetch. The online retailer, which specialises in luxury fashion, could even take a stake in the Richemont subsidiary. In addition to a possible (partial) sale of the division and the entry of Third Point, another speculation is doing the rounds: allegedly, competitor Kering is also interested in Richemont. However, Chairman Johann Rupert, who also controls the majority of voting rights, has already spoken out on this matter: "We have clearly stated that Richemont is not for sale and we are not interested in a merger."
The fact that Rupert believes in the company is probably also due to the fact that business is currently booming. Currency-adjusted sales climbed 63% to EUR 8.91 billion in the first six months. That was also more compared to the first half of 2019/20, before the pandemic. The US and China in particular contributed to the growth. In addition, Richemont reported a rise in net profit to EUR 1.25 billion in the six months to September 30, beating analysts' estimates of EUR 1.15 billion. Again, the group beat both the year-ago figure of around EUR 160 million and the pre-Corona level of almost EUR 700 million.
Despite the rapid rise in the share price in recent weeks, the majority of analysts are still positive. However, should Richemont shares now take a break, a barrier reverse convertible would be the product of the hour. This yield-optimization product makes it possible to pay out a coupon regardless of the performance of the underlying instrument. Even setbacks to just below the barrier do not disable the product mechanism. If the barrier remains intact, the maximum return is guaranteed. And the new BRC Richemont Softcallable offers an impressive return. The coupon is 8.00% p.a., while the risk buffer is a comfortable 25%.
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