Jewellery expected to help Richemont to outshine peers

Fri May 17, 2013 8:51am EDT

* Richemont to outperform luxury market - brokers

* Jewellery is Richemont's fastest-growing segment

* Focus on in-house brands rather than M&A - chairman

By Silke Koltrowitz

ZURICH, May 17 (Reuters) - Luxury goods group Richemont's strong position in the jewellery market and its plans to develop this business further will help it to outperform rivals in coming months, analysts said.

Richemont published full-year results on Thursday, with jewellery sales up 16 percent, led by its Cartier and Van Cleef & Arpels brands.

Jewellery accounts for 27 percent of group sales and Chairman Johann Rupert, who announced on Thursday that he will take a year off, said the company would build on that strength.

Raymond James analyst Marc Willaume noted that Van Cleef & Arpels became the second-largest contributor to Richemont's earnings before interest and tax in 2012, well ahead of Montblanc. "Jewellery is Richemont's main strength," he said

Willaume expects Richemont to extend its leadership in the fragmented and unbranded jewellery market by pursuing a strategy based on product creativity, craftsmanship and exclusive distribution.

ZKB analyst Patrik Schwendimann said: "Thanks to the strong jewellery business, Richemont should be able to grow faster than Swatch Group, and it is also better placed than LVMH ."

Shares in Richemont trade at about 17.8 times estimated earnings for the next 12 months, ahead of Swatch Group's 17.1 but at a discount to LVMH's 18.1.

ACQUISITIONS UNLIKELY

Though consultancy Bain & Co expects the luxury goods market as a whole to grow by 4-5 percent this year, Willaume and Schwendimann expect Richemont to increase sales by 10 and 12 percent respectively in 2013/14.

World No.1 luxury group LVMH bought jewellery brand Bulgari in 2011 and Swatch Group expanded its presence in high-end jewellery through the acquisition of Harry Winston's watches and jewellery business this year.

Richemont's Rupert, however, does not want to expand his company's jewellery business through the acquisition of rivals such as Tiffany.

"I'd rather have Piaget expanding in jewellery than buy another jewellery company," he said.

This cautious approach to mergers and acquisitions was described as reassuring in a note from SocGen analysts.

"Management said it would conduct a closer review of the asset portfolio, potentially pointing to disposals of smaller fashion brands," they said.

Richemont shares, which rose 7.6 percent on Thursday, gained 0.3 percent to 89.05 francs by 1132 GMT.

Bank of America Merrill Lynch, Credit Suisse, Natixis, Vontobel, SocGen, Raymond James, UBS, JP Morgan and S&P Capital IQ all raised their price targets on Richemont stock after the full-year results.