Glamorous Prada IPO too rich for many

PUBLISHED : Wednesday, 08 June, 2011, 12:00am
UPDATED : Wednesday, 08 June, 2011, 12:00am


More than 300 fund managers and socialites squeezed into a glamorous roadshow for Prada's planned HK$20.31 billion initial public offering yesterday, but baulked at the valuation of the Italian fashion house.

A 25-minute fashion show overseen by group president Miuccia Prada, a pre-show cocktail complete with champagne and canap?s and a management presentation led by her husband and chief executive Patrizio Bertelli on the group's financial data and plans attracted local celebrities like Stanley Ho Hung-sun's fourth wife, Angela Leong On-kei, and Bank of East Asia's Adrian Li Man-kiu and his wife.

Some fund managers enjoyed the show of Prada's 2011 fall/winter collection, but said the price-earnings ratio was too high.

'It is the most glamorous fund manager presentation event I have been to,' the director of a European fund management house said. 'But the offering is richly priced.'

Another fund manager with a European brokerage said: 'The valuation is even more than LVMH. Unless you are buying [it] for its scarcity on the Hong Kong stock exchange, there are many choices.'

Prada is set to be the first Italian firm and the first luxury Western brand to list in Hong Kong, where it is due to make its debut on June 24. Based on its indicative offer price, ranging between HK$36.50 and HK$48 per share, and its forecast of Euro150.7 million (HK$1.7 billion) net profit in the six months to July 31 this year, the offer means a price of 27 times its PE ratio. It will offer 423.3 million shares.

The prospective PE marks a more than 20 per cent premium to its rival, Burberry, and is 18 times the PE of LVMH, the world's biggest luxury goods firm.

Christfund Securities research director Simon Lam Ka-hang said a fancy fashion show, a China consumption story and high-end brands were one thing, but company valuations were quite another. 'The historical price-earnings ratio is even higher than existing blue chips,' Lam said. 'There is also no clear future dividend policy.'

Still, Miuccia Prada is pinning her hopes on the mainland's rapidly emerging middle class.

Prada plans at least 30 new stores on the mainland by January 31, 2014, up from 18 in January this year.

The number of stores selling handbags and women's wear from its key Miu Miu line, will be expanded, by 30 to 55 by 2014, with more marketing activities such as a fashion show in Shanghai to boost brand awareness.

The affluence of mainland shoppers and the overall economic strength of the Asia-Pacific helped Prada more than double net profit to Euro250.8 million in the year to January 2011 from Euro100.2 million in 2010.

The group forecasts that net profit will be at least Euro150.7 million in the first six months to July.

Prada and Bertelli will be among the group's most highly paid executives, with Prada earning up to Euro8.7 million this year, Euro9 million next year and Euro10 million in 2013 and 2014. Bertelli will earn Euro9 million this year and next year, and Euro10 million in 2013 and 2014. Ahead of the listing, Prada and Bertelli each own 33.2 per cent of the group and Miuccia Prada's brother and sister, Alberto Prada and Marina Prada each own 14.2 per cent stake in the company.