Tax puts wrinkle in Prada shares

Local investors in the Hong Kong-listed fashion house could be hit with Italian government's proposed levy on financial transactions

PUBLISHED : Saturday, 23 February, 2013, 12:00am
UPDATED : Saturday, 23 February, 2013, 4:52am

Shares in Hong Kong-listed fashion house Prada fell 3.4 per cent to close at HK$76 on Friday amid concerns that investors trading the stock might have to pay a new Italian government tax from next month.

But some analysts and brokers shrugged off the impact of the tax on the stock.

The investor sell-off was triggered by a company filing that the Italian government had put a draft of a new financial transactions tax up for consultation.

If approved, the tax will apply from March 1 to all companies resident in Italy at a rate of 0.22 per cent of the transaction amount of the companies' securities and financial instruments. The rate will be cut to 0.2 per cent from 2014.

"This tax is unlikely to be an important factor considered by investors when they trade the stock," Core Pacific-Yamaichi Securities analyst Castor Pang said.

"Compared to some low-priced stocks, there's much less intraday trading for Prada's stock. The majority of Prada's investors tend to hold the shares for a mid-term to long period in the expectation of a bigger gain."

The majority of Prada's investors tend to hold the shares for a mid-term to long period in the expectation of a bigger gain

Italy is one of 11 European countries that agreed at a European Union meeting in October to impose a tax on financial transactions. The new tax is aimed at curbing speculative trades and to raise funds to tackle the region's debt crisis. Investors in L'Occitane International, the French skincare retailer that listed in Hong Kong in 2010, could face the same problem since France is also part of the tax agreement.

Some market analysts said the Italian government was unlikely to tax Hong Kong investors because it would be costly. But there was still a risk that shareholders might have to pay in the future.

Italian taxes were also an issue for Hong Kong investors when Prada, which also owns top brands Miu Miu and Church's, listed in the city in June 2011. Under Italian law, investors in the city would have had to pay capital gains and withholding taxes on dividends, but the issue was resolved when Italy and Hong Kong signed a double-taxation treaty last month.

Releasing its 2012 sales figures 6on Tuesday, Prada said revenue grew 29 per cent to €3.3 billion (HK$33.74 billion). But same-store sales growth for the fourth quarter fell to a mid-single digit, below many analysts' expectations. Analysts and brokers have a mixed opinion on the company's investment value.

"Prada's price-earnings ratio has climbed to almost 40 times, which is too high considering its future growth prospects," KGI Asia chief operating officer Kwong Man-bun said.

Yet CLSA consumer analyst Aaron Fischer was upbeat about the company's performance this year. "We continue to believe Prada is the best quality-consumer company listed in Asia, with strong growth potential, not only in revenues but more importantly in earnings and cash flow," he said.