It appears unlikely that a positive fourth quarter will be enough to offset a soft first nine months of the year. Full year (FY17) revenue is expected to be realised within the EUR10 640M and EUR10 703m range. This would equate to a decline of around 3% to 4% from the corresponding financial year (FY16). Net income will find a high base of comparison against the previous financial year where a EUR639 million non-cash gain was included from the merger of The NET-A-PORTER GROUP with YOOX Group. JP Morgan estimates FY17 could see a decline of as much as 40% in net income while consensus of Reuter’s analyst estimates arrive at an implied decline in net income of 27%.
The mean of analyst estimates reported by Reuters arrive at a longer term target price of R105.10 a share (CHF79.64 for the primary Swiss Listing). This suggests Richemont, trading at a share price of R113.65 on its Jse listing and CHF85.55 on its Swiss listing (at the time of writing), might be trading at a 7% to 8% premium to what is widely considered fair value by analysts for the share.
The Richemont group remains a quality company with a strong balance sheet, an enviable portfolio of luxury goods and a retail footprint extending across the globe. The slowing rate of decline in sales from the Asia Pacific region is encouraging, with China the possible future catalyst for long term growth for the company. However trading at a Forward price to Earnings ratio north of 25 (Swiss listing), while earnings growth is not being realised suggests the share to be expensive at current levels.