Will markets chew up Jimmy Choo?
The recent appetite for IPO’s shows no signs of abating despite recent sharp falls in the stock market, but in a week that has seen concerns about stock valuations start to increase you do have to question the timing of yet another luxury retail brand at a time when margins in this particular sector look to be starting to come under significant pressure and scrutiny.
This week we’ve seen the markets blow a raspberry in the direction of Burberry and Mulberry with both share prices sharply lower, over concerns about the earnings outlook.
In the case of Mulberry the company’s problems have been well documented with several profit warnings since 2013 when creative director Emma Hill left after creative differences with the then CEO Bruno Guillon.
Since 2012 the shares have plunged from highs of 2,300p to be trading down near 600p at its lowest levels this year. The company cited difficult trading conditions particularly in the UK, though its international business did appear to be showing some improvement.
Burberry shares have also shown signs of finding the air a little thin above the 1,500p level throughout most of this year as its sales in Asia continue to come under pressure on the back of a slowdown in China and Japan, two of its biggest markets.
While the company was able to report a rise of 14% in first half sales concerns about the outlook appear to be spooking some investors, pushing the shares down towards the lowest levels this year.
It is in this environment that Jimmy Choo will be stepping into the spotlight, looking to raise up to £175m, with a potential market capitalisation of £620m or $1bn.
The company has already pitched its pricing window between 140p and 160p a share, at the lower end of expectations, with the owners looking to growth in Asian markets to keep a floor under the share price.
With a typical pair of shoes costing northwards of £300 the timing of the IPO could have been better, but with the shares fully allotted it would take a significant change of heart for the float to get pulled at this late stage.
The biggest concern surrounding this particular IPO is that the money raised by this float doesn’t appear to be being ploughed back into the business, which does rather raise questions about the motives behind the sale.
The company has about £100m in debt and intends to increase the number of shops in China from 11 to about 30 over the next few years.
It is hard to see how they can do that at a time when most luxury brands are reporting slowing growth while Chinese retail sales growth has been slowing significantly in the past two years.
It is also hard to escape the feeling that given the mixed performance of a lot of the IPO’s this year that this IPO could go the same way, with the added concern is that it is being pitched into the market at a time when there is a lot of concern about growth and valuations.
This could result in early dealings being quite volatile, assuming the IPO isn’t pulled in the meantime, with all the added value that could bring to various headline writers about Jimmy Choo investors getting chewed up by the market.
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