I must be getting jaded, even jaundiced. I’m not a shareholder, but for the life of me I could not rage with righteous indignation at the proposals to pitch a buyout offer to the minority shareholders in property development group Balwin.
Perhaps I’ve just been wallowing too long in the putrefied small-cap sector. There was certainly ample opportunity to snap up sceptically priced Balwin stock over the past few years when the share went as low as 170c. I reckon, take the money and look elsewhere for an opportunity in mispricing. There are plenty. But maybe don’t fixate on the NAV. These days I regard NAV as a fluid concept, a mere reference point … Definitely not a number etched in stone.
I’m not going to go through recent examples (and there are quite a few) of deals pitched below stated NAV. It’s part and parcel of the market, in which lingering scepticism, especially in respect of small-cap companies, can drive a share to a level where “knowledgeable owner shareholders” feel they can easily tempt minorities to capitulate at a price that might not reflect the company’s longer-term potential.
I think all companies should offer shareholders the right to remain onboard the unlisted entity — effectively allowing any dedicated shareholder to follow the “insider money” for the longer term. But that’s another topic entirely. On another day, in more frothy market conditions, “knowledgeable owner shareholders” will pitch shares — possibly in an IPO — at a premium to NAV, and enthusiastic investors will duly rush in.
Speaking of offers, it will be interesting to see how Rupert family-controlled luxury brands conglomerate Richemont’s new share buyback programme proceeds. The group recently closed a three-year share buyback programme that netted 2.95-million A shares. Right now, I’m not sure Richemont offers a heap of value on a forward p:e of close to 25. But these are tremulous times, and there might well be (several) opportunities to snap up stock during any knocks to the market.
Richemont is awash with cash after another financial year of reassuring cash generation of about €4.9bn, which comfortably covered the group’s €1bn capex, €800m lease payments and dividends of €1.9bn. Oh, a corporate bond of €1.5bn, issued in 2018, was also repaid. At the end of March, Richemont’s cash pile sat at €8.5bn — which, for context, is far more than the market value of corporate cousin Remgro (also controlled by the Rupert family) and considerably more than the market values of such popular large-cap stocks as Sasol and Sibanye-Stillwater.
There are two or three bloggers who really don’t have a clue and who are spurring nonsense. Sooner or later, someone should sue them
— Johann Rupert
Understandably, an analyst on Richemont’s investor call asked if the group had set an optimum level for the cash holdings. “Is it an absolute amount? Is it relative to sales?” This question was not directly answered, but Richemont has in the past stressed the importance of a healthy cash balance. While some might expect some expansive moves by cash-flush Richemont, the group has actually sold off (for an undisclosed sum) a long-held maison in the form of watchmaker Baume & Mercier.
There has been speculation on social media that Richemont might look to offload other brands — specifically another watchmaker, Jaeger-LeCoultre, for as much as SF1bn. Apparently this is wide of the mark. Executive chair Johann Rupert bristled: “I mean, please, how could you? Where is UBS? You apparently believed what you read. There are two or three bloggers who really don’t have a clue and who are spurring nonsense. Sooner or later, someone should sue them … because it’s a lie.”
Richemont’s specialist watchmaker segment remains mediocre, with profits down at €107m on a margin of 3.4% — “mediocre”, that is, in comparison with the high-margin jewellery segment with its standout brands such as Cartier and Van Cleef & Arpels (see editorial on page 4). Disappointingly, Richemont’s “other” segment, comprising mostly soft luxury fashion items, remains deep in the red, though the loss improved slightly to €96m. There are strong areas — sportswear specialist Peter Millar (now expanding into a “broader lifestyle proposition”), online second-hand watch dealer Watchfinder, and Alaïa.
But there are enough underwhelming offerings to prompt questions about “business simplification” in this stubbornly unviable segment. Rupert responded that Richemont wanted simplicity rather than complexity. “And, trust me, we are going in that direction. It is a very good question.” It’s churlish to point this out, but if Richemont retained only Cartier, Van Cleef & Arpels, Buccellati and Vhernier, it would present a luxury goods hub with enviable profitability. Figures for the year to end-March showed the jewellery maisons shunting up sales 14% to €16.5bn at constant exchange rates. The margin held at a stout 30.5%, with operating profits up 20% to €5bn at constant rates.
No wonder Rupert reminded analysts that in bad times Richemont tended to outperform its competitors. “And it’s not great at the moment, especially not for some of our competitors. The other interesting thing is … it is easier to gain marketing access and to do deals when other people are cutting their marketing. So, you gain ground in bad times and gain loyalty from trade partners."
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