HSBC Buys Prada
By Shuli Ren
HSBC made a daredevil call, upgrading Prada (1913.Hong Kong) to Buy ahead of the luxury designer’s earnings on December 15.
Many things have gone wrong for Prada. The Milan-based designer brand was opening stores at a time when luxury sales are slowing and its competitors are reining in their expansions.
As a result, while the luxury industry likely saw its earnings margin drop around 3 percentage points from 2012, Prada’s profit margin may have gone from 27% to less than 16% now.
Second, Prada is losing its cool. Prada is no longer among the most prized brands in Chinese consumers’ eyes.
But these issues are well-understood, according to HSBC’s Erwan Rambourg. Trading at only 18.2 times consensus earnings, Prada’s suppressed share price reflects “the tough macro environment.” Historically, Prada traded at 21.4 times.
While “9% below consensus on EBIT for the current year”, HSBC nonetheless has a price target of 32 Hong Kong dollars. Prada is trading at HK$25.80.
Source: Barron's Asia