Prada and China could make for an odd ensemble
Prada may be about to mix haute couture with financial fashion. The Italian label is considering an initial public offering, possibly in Hong Kong. This could make for an odd ensemble.
An IPO is a vintage theme for Prada, which has toyed with a stock market listing at least three times over the last decade. That it failed each time was hardly the company’s fault — its first attempt was scheduled for Sept. 18, 2001 — but when the IPO plans were shelved, high debts left Prada exposed.
Now Prada’s debt is under control, China adds a new twist. The country will be the world’s biggest luxury market by 2015, predicts a Chinese state think tank. Luxury apartment prices, a key indicator of demand for high-end goods, are rising at almost 20 percent year on year. That shows in Prada’s numbers: first-half revenue from the Far East grew 47 percent, year on year.
Chinese investors may also pay up for a good growth story. If Prada can meet expectations for 25 percent sales growth this year, then grow a further 10 percent next year, its sales would be just short of $3 billion in 2011. Apply today’s 24 percent EBITDA margin, pop it on a multiple of 10 times — a small discount to mega-rival LVMH — and deduct $600 million of net debt, and the equity could be worth $6.5 billion.
The question is whether Prada is ready to mix with the masses. Its borrowings are now barely bigger than one year’s EBITDA, but the company still lacks a track record of financial discipline.
And while shareholders in Hong Kong are used to big founder-shareholders, Prada’s management quirks might be too much. Chief executive Patrizio Bertelli and his wife, designer Miuccia Prada hold 95 percent of the shares. Unlike at rivals LVMH, Versace and Gucci Group, there is no clear divide between creative and financial management. This can make for inspired risk-taking — or wasteful indulgence.
Being the first western luxury label to float in Hong Kong may appeal to Bertelli. The likes of Ferragamo, Armani and Versace may well follow. But for a company like Prada, the idea looks a bit too edgy for comfort.