LONDON — European analysts weighed in Monday on reports of brewing IPO plans for Net-a-Porter Group by parent Compagnie Financière Richemont.
Richemont has declined to comment on speculation in the press last week that it’s mulling an initial public offering of the luxury e-tailer, which it purchased fully in April 2010.
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Earlier this month, the firm’s chief financial officer Gary Saage insisted that Net — like the other luxury companies in Richemont’s portfolio — was definitely not for sale.
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The Swiss bank Vontobel said in a report it favors a spin-off, rather than an IPO, for the e-commerce site.
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“After the IPO of Zalando this year there were already rumors about a possible IPO of Net-a-Porter,” the note said.
“In 2013 Richemont stated that the company is not up for sale and we would favor a spin-off instead of an IPO as Richemont already has a huge net cash position,” said the bank, referring to the luxury group’s 4.3 billion euros, or $5.33 billion, in cash reserves, equal to 12 percent of its market capitalization.
Vontobel, like other banks, estimates that Net would be worth 2 times the ratio of enterprise value to sales, giving it a valuation of 1.2 billion euros to 1.5 billion euros, or $1.49 billion to $1.86 billion, equal to 3-4 percent of Richemont’s market capitalization.
In a separate note on Monday, Luca Solca, managing director at Exane BNP Paribas, wrote that cynically speaking, the renewed speculation is motivated by money.
“It comes from a move by Net-a-Porter’s senior management to put pressure on Richemont, and enhance their variable compensation prospects,” he said.
“In fact, senior management of different divisions at Richemont receives a very significant amount of compensation as variable compensation, based on value creation. It is obviously in Net’s senior management’s interest to get Richemont to attach as high a valuation on Net as possible,” Solca added.
In his note, Solca reiterated previous comments that Net-a-Porter has a “first-mover advantage, but the luxury industry is waking up to the online opportunity and the space is bound to get crowded.”
He believes that in a world where all luxury brands and department store chains are now online, and all of the major online malls, such as Amazon and Alibaba, have a luxury section, Net’s first-mover advantage will erode.
“It will be difficult to increase profit margin significantly, despite larger scale. Hence, unlocking the value of Net in the short term — through an IPO or otherwise — may not be a bad idea at all,” Solca wrote.