Brokers' view: Midas

Prada, one of Italy’s best-known luxury goods companies, has gone public. Trading commenced in Hong Kong on 24 June 2011, with shares trading as high as HK$40 (up 1.3 per cent), defying expectations of a weak start.  

Over the past five years, Prada has seen strong sales growth of over 9 per cent and an increase in operating profits of 15 per cent per annum.

Prada generates one third of its sales in Asia (excluding Japan), which is the world’s fastest-growing luxury goods region, and analysts estimate that China will account for 20 per cent of the global luxury goods market by 2015.

Living the life
Analysts are predicting annual growth of 8 per cent within the global luxury goods market for 2010, and luxury sector mergers and acquisitions have doubled the pace set for all of 2010 with industry M&A totalling nearly $6 billion by the end of May, against $2.9 billion for 2010. One such deal has been the takeover of the family-owned Bulgari by LVMH Group. LVMH, which is an international group owning over 60 luxury brands, placed a 60 per cent premium on Bulgari’s share price, valuing the company at 27 times EBITDA.

Prada is currently trading on an EV/EBITDA of 14 and is worth 18 times its estimated 2012 profits, or €9.15 billion.  With 2012 net income forecast to rise as much as 32 per cent from an estimated €381 million this year, we see Prada, which is currently being valued at HK$42 a share, as a strong holding for any portfolio.