Beware the excess baggage of Samsonite
PRADA and Samsonite will go cap in hand to Hong Kong investors for a combined $4bn (£2.4bn) when they launch their IPOs this month. Both will claim membership of the luxury goods sector, which is booming in Asia. One is a century-old Italian doyen of haute couture, a byword for sophistication and class. The other makes suitcases. We prefer the first.
The valuation implied by the HK$36.50-HK$48 a share price range for Prada’s IPO is certainly rich, at 27 times 2011 earnings forecasts. Burberry, its closest rival, trades at 22.3 times the same multiple.
But no-one can deny that Prada, which counts Asia Pacific as its single largest market, is well-exposed to China et al’s insatiable demand for European luxury goods. In the year to January, its sales in the region surged by 63 per cent to €645.7m. China accounts for seven per cent of its sales; adding Macau and Hong Kong takes it to 19 per cent.
The bankers handling Samsonite’s IPO also point to booming demand for “luxury luggage” in Asia as reason for their price range, which implies a valuation of 17 to 22 times 2011 earnings estimates.
We’re not sure we buy into the notion of a suitcase as a luxury item akin to a Prada bag or pair of shoes. But even if we did, Samsonite is still massively exposed to mature economies like North America and Europe, which accounted for around 60 per cent of 2010 net sales.
No wonder existing shareholders CVC and RBS, which had to step in amid funding difficulties in 2009, are selling 40 per cent of their shares in the IPO. Investors would be wise to eschew the offer and spend their money on Prada instead.
david.crow@cityam.com