Luxury-goods company Compagnie Financiere Richemont could be overvalued due to political uncertainty in Hong Kong and slowing momentum for its star Cartier brand.
The stock of the Swiss-listed watch and jewelry maker, which also owns high-end Van Cleef & Arpels, Dunhill, and Montblanc, has had a good run in the past three years, up 31.4%. Richemont (ticker: CFR.Switzerland), along with other big players, has shrugged off concerns of a consumer slowdown and trade tensions, with rivals LVMH Moët Hennessy Louis Vuitton (MC.France) gaining 147%, and Tiffany (TIF), 29%, over the same period.
But due to its product mix and exposure to Asia, Richemont is likely to suffer more than most from disruption in Hong Kong, depreciation of the Chinese yuan, and macro issues engulfing the region.
Analysts at UBS have warned the situation in Hong Kong will have a 2% negative impact on Richemont’s organic sales growth next year. UBS has a Sell rating and a target price of 68 Swiss francs ($68.49), 10% lower than its current CHF 75.04. Over the past three months Richemont has seen 8% wiped off its stock, compared with a 1.3% and 1.8% fall at LVMH and Tiffany, respectively.
“We believe the slowing Cartier brand performance and near-term industry headwinds, which are set to put group margins under pressure, are not priced in,” UBS analysts wrote in a Sept. 17 note.
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