SWITZERLAND. Swiss equity research house Kepler Cheuvreux has described Richemont’s newly acquired 5% stake in Dufry as a “strong signal of support” for the world’s largest travel retailer.
It described the move, revealed earlier today by The Moodie Davitt Report, as “strategic” rather than a prelude to any full bid but said it believed China’s HNA Group (Dufry’s second-largest shareholder) will ultimately mount a full takeover effort.
As previously reported, HNA Group announced it was planning to acquire a 16.79% of Dufry in April. That deal is not yet closed.
Dufry’s stock surged this morning on the news, rising +6.54% to CHF171.10 in early trading.
[UPDATE: A spokesperson for Richemont told The Moodie Davitt Report that the move was made in order to aid Richemont’s Maisons’ access to good locations. This was in the context of anticipated increased travelling during the second machine age.]
As revealed by The Moodie Davitt Report this morning, the luxury goods giant has picked up 2,693,856 rights and voting rights, respectively and precisely 5.000001 % as a percentage of voting rights.
“We expect HNA, which is building a global travel business to tap into Chinese travellers, to ultimately take over Dufry” – Kepler Cheuvreux
Kepler Cheuvreux said: “We see the move as strategic, with no plan by Richemont to launch a full bid. Richemont has said it believes that travel and airport retail will become an increasingly important distribution channel for luxury goods. We expect the Dufry stock to react positively. Buy.
“We see the move as strategic, with no plan by Richemont to launch a full bid” – Kepler Cheuvreux
“We view the move as a strong signal of support for Dufry. Last week, Richemont said that it expected travel and airport retail to be a major driver for the luxury goods industry in the future, given strong secular growth trends.
Stakeholding “makes sense”
Richemont’s purchase makes sense, as the luxury goods maker needs more avenues to sell watches at a moment when many ailing retailers hold oversize inventories, Luca Solca, an analyst at Exane BNP Paribas, wrote in a note cited by Bloomberg.
“We don’t believe Richemont has any interest in a takeover. However, it might seek board representation and work with Dufry in developing its own brands within Dufry’s network. We note that LVMH owns duty free unit DFS while Swatch Group has expanded into airport retail with a special unit [Hour Passion -Ed] bidding for watch concessions.”
Richemont owns several of the world’s leading luxury goods companies, with particular strengths in jewellery, luxury watches and premium accessories.
The Group’s luxury interests encompass several of the most prestigious names in the sector, including Cartier, Van Cleef & Arpels, Piaget, Vacheron Constantin, Jaeger-LeCoultre, IWC Schaffhausen, Panerai and Montblanc.
Richemont’s arch luxury goods rival LVMH is the majority shareholder in Dufry sector peer, DFS Group. Co-Founder Robert Miller remains DFS’s co-owner.
HNA remains in “driving seat”
The equity research house said, “We believe HNA remains in the driving seat regarding any potential takeover of Dufry. It has a 17% stake (21% when options are included) in the group [or will have when the transaction closes -Ed], compared to TRI, which has 18.5% (TRI is a shareholders’ pact mostly made up of management and the board). We expect HNA to take a seat on the board and work with Dufry in expanding its China business.
“We see an outside chance that Dufry could make an acquisition in China (where Sunrise and China Duty Free Group are the main players). Foreign companies are currently not allowed to operate in China in duty free. Expansion into China and tapping Chinese travellers would obviously be of interest to Richemont.
“We expect HNA, which is building a global travel business to tap into Chinese travellers, to ultimately take over Dufry. We have suggested a 14x EV/EBITDA multiple would be appropriate (and this was also Dufry’s multiple for WDF). At our CHF200 TP, the stock would trade at 14x EV/EBITDA 2017E (and 12x EV/EBITDA 2018). Buy.”
JP Morgan Cazenove commented this week in a note published after its Global Consumer and Retail Conference and a Dufry presentation: “Dufry management welcomes HNA as a new shareholder and will aim to organise a formal meeting in due course to clarify HNA’s intentions. Without any view and only looking factually at existing HNA investments, management observes that ‘for companies the size of Dufry’, HNA has historically taken 10% to 30% minority stakes, requested board representation, and been involved in strategy.”