How Richemont Actually Works

One of our longest-standing stock picks in JSE portfolios is luxury goods-maker Richemont. We like the top-end of the retail market, where the margins are wide and the customers are loyal.

As you all know, Richemont is controlled by is founder and CEO Johann Rupert. The group has South African roots but its head-office is in Switzerland, and its top brands include Cartier, IWC Schaffhausen, Jaeger-LeCoultre, Montblanc and Van Cleef & Arpels.

Richemont shares have done fairly well over the last five years, but not as well as competitor LVMH. Like many stocks, it has been punished in 2022.

Tim Cohen at the Daily Maverick wrote an excellent column about their recent results, which you can read in full here: The tricky adventures of Richemont, Johann Rupert and nominative determinism.

Tim is a great writer, and here are some choice paragraphs.

"If you look at how Richemont actually works, there is very little indication of bearishness anywhere. Rupert might like to sound bearish, but the company is on a tear."

"During the results presentation, Rupert was - and you are not going to believe this - bearish. He said his "gut feeling" was that the Chinese economy would suffer more from the impacts of Covid and lockdowns, it would last longer than most people think, and the rebound would be slower. In the US and Europe, he said, political polarisation ran the risk of dampening the "feel-good factor" that drives luxury consumption."

"Oddly, he didn't mention the possibility of locust invitations or rivers running with blood. After listening to all of this, clearly, the investor community was shell-shocked. We mostly know to take Rupert's bearishness with a pinch of salt, but clearly, some don't. After the presentation, the share just got smashed, down 13% on the day. This is the same day, recall, the company announced a 44% year-on-year increase in sales."

"For investors, the thing to do is to ignore all this idle chit-chat and note that this is a terrific business. The margins they are making are just fabulous. Caution or not, the growth of the company has been strong and steady over decades without big acquisitions or big mergers."