Prada: Luxury brand’s listing affected by market tubulence

17th June 2011

Prada's shares start trading on June 24th. The New York Times Dealbook gives the low down on the deal here.

The report also notes that upmarket luggage firm Samsonite shares gained  0.6 percent on early trading today, but at 13.46 Hong Kong dollars, they remained below the issue price of 14.50 Hong Kong dollars.

Experts suggested the poorer performance of Samsonite was one influencing factor in the Prada decision, though Prada has also seen a lower take up than expected from Hong Kong retail investors.

The Prada listing will still make the husband and wife team at the top of the company very rich as this report shows.

As Forbes blogger on the super-rich Clare O'Conner points out Miuccia Prada, creative director and granddaughter of the company's founder, owns a 33.2% stake in the firm, as does her husband, CEO Patrizio Bertelli though the lower price probably mean they are sharing a paper worth of $9bn not the $10bn in the report.

The lower price is not just because of jitters to do with Greece.

Analysts are linking it with the risk of a downturn or at least a slowdown in China given that many investors in Prada would regard it as a direct investment play on the Chinese rich and middle classes huge appetite for luxury brands.

Bloomberg quotes RBS analyst John Guy saying: "There are fears around the (Chinese) monetary tightening position that's going on at the moment and what sort of impact that's going to have on consumer spending".

There are also tax concerns. As Bloomberg reports Hong Kong investors will be subject to a capital- gains tax of 12.5 percent, and a 27 percent tax on dividends, according to its IPO prospectus. The dividend tax will be 'withheld' by Prada, the company said in the prospectus.

But Hong Kong does not have a taxation treaty with Italy where Prada is headquartered and some experts are concerned there has not been enough clarity about the situation, which may the reason retail investors have been put off.

Prada would trade at about 22 times price to earnings ratio at this list price – well above the 18 plus ratio that the much larger LVMH trades at.

Charlie Awdry, manager of Gartmore China Opportunties fund at Henderson, believes that Prada is well positioned to override market volatility.

In a web-based video he says: " What is interesting about the Prada listing is the strong tailwind owing to the growth of consumer discretionary spending in China and the fact that Prada has genuine brand equity value which is relatively rare in China.  

"We are looking at this IPO favourably and believe that the company is well positioned to grow profits over the longer term."

Further reading:

Here website Mashable takes a close look at luxury brands and social media though not with a China focus. It notes that brands that are prepared to embrace social media i.e. Gucci and Mercedes Benz have been very successful.

Leave a Reply

Your email address will not be published. Required fields are marked *