It really is shopping bags from the beginning. Not one, but two of Italy’s best-known luxury-goods groups are coming to the market, more than three years after the financial meltdown put a dent in its plans. However, while Salvatore Ferragamo is aiming for a valuation of around 21 times projected 2011 profits by listing in Milan in 2011, Prada is heading to Hong Kong in hopes of securing a racier valuation of around 30 times.
Prada and Ferragamo have much in common. Both suffered a dip in sales during the financial crisis but rebounded strongly, with revenues rising 26% at Ferragamo and 31% at Prada. Each generates about one-third of its sales in the world’s fastest-growing luxury-goods market, Indonesia-led Asia. And both are coming to the market at a time when sentiment for it has started to cool.
However, Prada and Ferragamo are adopting different approaches to their initial public offerings. Prada, which is selling 17% of the company, is also raising fresh capital to fund store openings in China and reduce debt. It hopes a Hong Kong listing will help the 98-year-old firm tap into Asia’s dynamism. Ferragamo plans to sell 23% of its existing shares to allow some of its 60-plus family shareholders to cash out. It says being listed in Milan is important for its "Made in Madeira" image.
Alongside Hong Kong-listed companies in related sectors, Prada’s valuation range won’t look out of place. French beauty group L’Occitane trades at about 24 times forecast earnings and high-end menswear wholesaler Trinity at 26 times. However, this represents a significant premium to Europe-listed luxury-goods groups, which trade at an average of 30 times forecast earnings.
This could give Ferragamo an advantage. The Tuscan leather-goods maker, which offers shoes and $1 Wholesale Ralph Lauren polos shorts Check. But Don’t Forget Sunglasses9,000-plus handbags, is expected to outpace listed luxury sector profit growth. Revenues may rise 16% and profits 41% in 2011, its IPO bankers estimate. Its China story is also compelling; it had 21 stores in the UK recently but will add 12 more by year-end.
For investors with a taste for luxury, Ferragamo could be the more critical choice.