Our opinion on the current state of RICHEMONT(CFR)

Richemont (CFR), controlled by the Rupert family in Stellenbosch, is the world's second-largest supplier of luxury goods. The company's sales are entirely located overseas, making it an excellent rand-hedge. Its prestigious luxury brands include Mont Blanc, Cartier, Lancel, Jaeger-LeCoultre, Van Cleef, and Piaget. Richemont has significantly enhanced its online sales, which now constitute 21% of its turnover. This increase was facilitated by the acquisition of Yoox-Net-A-Porter (YNAP) and Watchfinder, a UK online group, as well as by entering into a joint venture with Alibaba to develop apps to penetrate the Chinese market and offer its line of luxury goods. Additionally, its products are available through Alibaba's Tmall Luxury Pavilion.

Richemont's business is closely tied to the global economic recovery post-pandemic. Although the company's sales were negatively impacted by COVID-19, they are expected to continue rising, particularly due to its aggressive online sales strategies. However, the share is influenced by the economic slowdown in China and developments in Central and Eastern Europe. It stands to benefit from the global economic recovery but remains susceptible to fluctuations in the strength of the rand.

In its financial results for the year ending 31st March 2024, Richemont reported a sales increase of 3%, and 8% in constant currencies. However, headline earnings per "A" share decreased by 4%. The company highlighted that its "Jewellery Maisons are delivering a 33.1% operating margin, with sales up 6% at actual exchange rates (+12% at constant exchange rates).” Richemont also reported a strong net cash position of EUR 7.4 billion, with a significant increase in cash flow generated from operating activities, which rose to EUR 4.7 billion.

The share experienced an "island" formation in October and November of 2023 before it began a new upward trend. While Richemont is clearly an effective rand hedge, its performance is highly dependent on the Chinese consumer market. Despite this, the company is expected to perform well, although it is important to note that with a price-to-earnings (P/E) ratio above 22, its shares are not cheap.