Investors have a golden opportunity to buy Johann Rupert’s crown jewel

Johann Rupert’s Richemont is attractively priced for investors, with the company’s earnings surging while its share price remains flat. 

The company’s earnings have also proven remarkably resilient amid heightened geopolitical tensions over the past five years. 

Richemont was created as the holding company for the Ruperts’ offshore assets, with Remgro holding the South African businesses. 

The company is now a luxury conglomerate, owning brands such as Cartier, Montblanc, Van Cleef & Arpels, and IWC. It is particularly dominant in the luxury jewellery space. 

Its luxury watches are gaining market share after adopting many of the practices used by centuries-old jewellery maisons to protect how a brand is marketed and how products are sold. 

These changes have helped Richemont triple its earnings over the past five years, and it has marched on despite global headwinds. 

Global uncertainty typically negatively impacts luxury brands quite significantly, as richer individuals hold off on purchases or resellers flood the market with products. 

However, Richemont appears to be a juggernaut that has ploughed through the impact of the Russian invasion of Ukraine, US-China tensions, and conflict in the Middle East. 

In its latest full-year results, Richemont revealed that sales rose by 11%, which is higher than analysts’ estimate of 9.78%. 

The company’s jewellery maisons, which include Cartier and Van Cleef & Arpels, generated €16.5 billion in sales with an operating margin of 30.5%. 

Crucially, nearly 80% of this segment’s sales are direct-to-client, which gives these brands significant control over supply to the market and how products are marketed. 

In the past year, Richemont disposed of Baume & Mercier, which it said was too wholesale-heavy and accessible for the luxury conglomerate. 

Richemont has also invested heavily in upgrading its retail boutiques around the world to enhance the presence of its brands and drive further direct-to-client sales. 

Its watchmaking business lags the jewellery maisons with regard to direct-to-client sales, as it has traditionally been a wholesale business. 

Richemont has invested heavily in opening its own boutiques for its watchmakers and in boosting online sales to improve direct-to-client sales. 

This is yielding results, with direct-to-client sales now accounting for over 65% of watchmaking sales. 

Richemont is cheap

Despite this strong performance in the past financial year and in previous years, Richemont’s share price has not responded positively. 

Shares of the company in its primary listing on Zurich are down 9%. This is better than some of its peers, such as LVMH, which has seen its shares plunge 27%. 

This makes the company an attractive investment at current valuations, FNB Wealth & Investments head of research Chantal Marx told Business Day TV. 

“Richemont released results, and the bottom line was slightly disappointing, with some margin pressure coming through from things that were completely outside of their control,” Marx said. 

“But importantly, the top line is growing very strongly. It exceeded expectations, and momentum is very strong in that jewellery business.” 

Marx also noted that Richemont’s non-jewellery brands are increasingly coming to the fore and driving strong growth for the company.

In particular, its watchmaking brands have grown strongly in recent years and continue to take market share from competitors. 

This is set to be further boosted, with speciality watchmakers becoming increasingly popular among the emerging global elite operating in that space. 

“In watchmaking, there have been a few interesting developments. Swatch launched a pocket watch this week that actually caused riots,” Marx said. 

“There does seem to be a shift back towards analogue watches. Richemont are the absolute market leader in fine luxury watches, so there is scope for that to pick up in the next year or two.” 

This sets Richemont up for strong future growth, which the market has not priced in, as it remains cautious due to the ongoing conflict in the Middle East. 

“I think they are an exceptionally well-managed company. They play in a cool part of the market not necessarily exposed to economic cyclicality,” Marx explained. 

“The valuation looks decent, and the stock has not performed well over the last six months or so. It is a good entry point for a long-term investor.”