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Graff looks beyond the precious few

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Bankers started sounding out fund managers on May 7 on their interest for the long-awaited Graff Diamonds initial public offering.

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The process - known as pre-marketing or, more commonly these days, pre-deal investor education - puts the US$1 billion (approximate) deal on track for a June 7 listing.

As part of this, banks are distributing pre-deal research reports that offer insight into this closely held, upscale jeweller.

For example: 13 of Graff Diamonds' 31 stores are franchises, not directly owned. The company's five Asian stores represented 19 per cent of sales last year, but the addition of five stores in Macau, Japan and on the mainland this year, as well as another five next year, should see the region's contribution increase significantly - as was the case with Prada, another luxury group that listed in Hong Kong last year.

The group has scale, too. Expectations are for its turnover to reach almost US$900 million this year, with a net profit margin in the region of 19 per cent. Net income should also grow to just below US$265 million in 2014 from about US$166 million this year.

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What is most striking, though, is the concentration of Graff's client base. Fewer than 5,000 items of jewellery were sold to just 4,000 buyers last year - not really surprising for a company with a minimum price list of US$100,000.

But 44 per cent of those sales were made to just 20 customers who, one can only imagine, must feature quite prominently on jeweller Lawrence Graff's Rolodex.

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