Richemont results for the six months to end September this morning

Richemont results for the six months to end September this morning. Sales of 3.259 billion Euros which trounced the same half last year by 37 percent, gross margins better by 44 percent and that translates to an earnings per share increase of 84 percent to 1.144 Euros. That is an excellent outcome for all and sundry. OK, but the stock trades in Switzerland and is quoted in Swiss Francs. And the version here is a 10 for 1 Global Depositary Receipt.



First thing first, let us work out what those Euro earnings are in ZAR. 1.144 Euros at the current exchange rate is 10.85 Rands earnings per share. But you have to divide that by ten and then you get to 108.5 South African cents per share. I remember that Paul said last year that he thought that they could make two Rands worth of earnings per share by year end. Turns out that even his most optimistic call is going to be beaten, what a twist.



There are actually more encouraging signs in these numbers other than the obvious surge in sales and profits. Inventories for instance fell from 20 to 18 months, this is a clear sign that "things" are improving. And margins in both jewellery and watch sales were much better. What is also encouraging is that the traditional markets are also picking up, check out the sales mix globally, by region:







As a percentage of sales the Asia Pacific mix has increased at the expense of Europe and Japan. BUT....we had a client who was just in a Richemont shop in Paris and she said that the shop was full of Asian tourists. All the other luxury shops on the Champs Elysees were full of Asian tourists too. AND....there was a queue outside, the shops were only allowing a batch at a time. A simple point I am trying to make is that even though the goods are reported in that region doesn't mean locals bought them all.




So is the stock expensive at these levels? If you annualise their HEPS number you get close to 220 ZA cents. But the second half is traditionally a bit better. And the stock trades at a little over 36 Rands a share. 16 times forward this year. Dior, LVMH and Hermes trade on plus twenty historic earnings, so you can see that there is still some more juice in the Richemont price.



But hang on a second here guys, this is luxury goods we are talking about, why would their sales be growing gangbusters and surely this is just a bounce of sorts from the lows of 2009. Valid question, let us check it out. Sales from the Asia Pacific region through the collapse of luxury goods through 2009 actually IMPROVED. In fact through 2007 to this reporting period sales in Asia Pacific have nearly doubled whilst sales in Europe have recovered to their highest levels seen in the September 2008 first half and in this recent period were almost a dead ringer. Check out the table above and this one and compare, to see what I mean.









Obviously sales can't continue at this rate of growth in Asia forever, but at their next reporting period it will be their most important geography and stay like that. We continue to buy the stock. We normally are a buyer based on the medium to long term fundamentals. And in this case that means 5 to 10 years.