Was I the only one not to have attended Roman Abramovich’s New Years Eve party on his new $70m plot in St Barts in the French Caribbean? Yes, the super rich are alive and kicking and not averse to buying sections of luxurious islands to go with their enormous yachts. Rather than playing the “will they or won’t they spend” game regarding the mass consumer, let’s look at the predicted fortunes of Porsche (Frankfurt: PAH3), Sotheby’s (NYSE: BID), LVMH (EPA: LVMH), Hermes (EPA: RMS) and Mulberry (LON: MUL).
Revving our engines with Porsche. Their shares sped off the line this year after the U.S. courts dismissed claims that they manipulated the market in VW shares which was brought by 10 leading hedge funds. The case failed owing to a recent precedent that blocks people suing in the US for what happened overseas and it must be disappointing for these funds to have their case thrown out due to case law rather than on its own merits. They have leave to appeal however. Continental Europe is no closer to best in class corporate governance.
Short interest in Porscheis a non event as is the level of institutional ownership. By this I mean neither of these forces are behind the incredibly strong share price rise. Shares have gone from EUR 60 to 70 in expectation that the merger with Volkswagen will go ahead. The next step along the road to the merger is a form of rights issue and efforts to avoid up to $2bn in tax owed should the tie up be successful.
Lovely as they are, Porsche cars do not get the uber rich too excited. For this we are better off looking at top flight auctioneers like Sotheby’s. On the one hand it wasn’t too long ago that they were in trouble for collusion while at the same time trade is roaring. It’s fascinating that this traditional relationship driven business model does not seem to have been watered down by the trend towards disintermediation. They sold $52m of fine wine in Hong Kong alone last year and will be selling Andrew Lloyd Webber’s (West End theatre supremo) Bordeaux and Burgundy wines there soon. The modern art market has also been incredibly strong these past few years with the super rich setting new sales records frequently. There remains a reasonably sized short position in BID of 5%.
The recent positive share price momentum has not been lost on short sellers who have somewhat reduced the stock on loan from 8% in Q3 2010 to 5% today. Sotheby’s market cap is just over $3bn with $450m of debt after redeeming about $48m of Senior Notes in December. Some analysts are cautiously confident of their future with price targets in the low $50s while the price today is $46.
Institutional investors are more outright in their confidence with a recent spike upward in their BID (what a great ticker!) holdings from 20m shares to 21.5m shares in the last couple of days. This constituency now own 32% of all Sotheby’s shares which would be in the top decile of ownership in the context of the 2000 biggest firms outside the S&P 500. Some must feel that Sotheby’s are a good way to play the continued largesse of the super rich – and yet some feel it is overvalued, so a fascinating story.
It is hard to talk luxury without a mention for France’s refined LVMH (Louis Vitton Moet Hennessy) especially given their recent moves to own so much of Hermes. Volume remains thin here and the short sellers are not active in their French or US listing. Interestingly, we can witness a halving in the quantity of Hermes shares held in lending programs since early November.
Finally, a quick mention for Mulberry. Though a tiny company this British luxury brand and maker of outstanding bags has seen its shares double since November, ostensibly on the back of sales and profit growth. Is there something else afoot here?
Despite the political doom and gloom there is plenty of interest and life in the shares of those companies selling expensive dreams.
