Morningstar | Best Idea Richemont’s 1Q Slightly Weaker Than Expected. FVE Maintained
We maintain our fair value estimate of CHF 91 for wide-moat Richemont because the company reported first-quarter sales somewhat below our estimates. Jewellery maisons sales were up 7% in constant currencies versus 6.4% our annual expectations, while the specialist watchmaker division's sales declined by 2% versus 4.2% growth we expect for the full year and compared with 5% growth in Swiss watch exports during April to May (led by the more expensive ranges). Richemont is still taking a prudent approach to wholesale supplies and new product launches will be weighted toward the second quarter. Other segments declined by 3% or were down 1% if the Lancel divestment is excluded. This compares with our 3.4% annual growth expectation.While still trading at a discount to our CHF 91 fair value estimate, shares are up more than 30% since the start of 2019 and we believe the margin of error for investing has shrunk significantly. Our valuation is based on high-single-digit mid-term revenue growth and margin expansion to 17%-18% versus a 13.9% margin in fiscal year 2019.
Compagnie Financiere Richemont is engaged in the luxury goods market. Co.'s interests encompass some names such as Cartier, Van Cleef & Arpels, Piaget, Vacheron Constantin, Jaeger-LeCoultre, IWC, Alfred Dunhill, Montblanc and Net-a-Porter. Co.'s luxury goods businesses are separated into four segments: Jewellery Maisons (design, manufacture and distribution of jewellery products), Specialist Watchmakers (design, manufacture and distribution of precision timepieces), Montblanc Maison (design, manufacture and distribution of writing instruments) and Other Businesses (Alfred Dunhill, Lancel, ChloA(c), Net-a-Porter, Purdey, textile brands and other manufacturing entities).
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