Compagnie Financière Richemont (JSE: CFR) closed a second week in three in the red last week, following a decline of 5.43% on Friday after reporting a disappointing double miss for the first half of the 2024 fiscal year.
The Swiss luxury giant reported its 1st half of 2024 results, revealing a revenue of R205.409 billion, slightly below the forecast of R207.79 billion. Earnings for the same period stood at R74.86, missing the forecasted R77.493. The sales for the six months ended September 2023 showed a 6% increase, reaching €10.221 billion, with a gross profit of €6.973 billion. Operating profit, however, experienced a 2% decline, landing at €2.655 billion.
The adoption of Farfetch technology for Richemont labels’ online business has been a key focus. Executives expressed satisfaction with the technology, emphasizing its enhancement of their business model, though uncertainties persist regarding the deal’s progress and potential risks.
Market sentiment has been mixed, with concerns about Farfetch’s financial troubles affecting the agreement. Richemont’s stock has declined by almost 2% YTD, partly attributed to slower sales growth in H1 FY24, influenced by a weakening European market and unfavourable exchange rates. Despite sales challenges, profits remain stable, and there is potential for continued growth if profit margins are sustained.
Technical Analysis:
Richemont’s stock faces a challenging scenario as it currently trades within a descending channel pattern. Price is below key SMAs (50, 100, 200), indicating a bearish sentiment. The recent crossing of the 50-SMA (green line) below both the 100-SMA (blue line) and 200-SMA (red line)adds to the bearish outlook.
The RSI, after a sharp decline, is currently flat, indicating a potential stabilization in the short term. Short-term trading opportunities could exist towards the resistance level at the R2,329.18 price level should the bulls sustain a push above the 50-SMA. A break above the initial resistance could confirm bullish momentum, targeting the resistance levels at R2,411.41 and R2,586.15.
However, failure to sustain upward momentum may lead to short-term trading opportunities toward the initial support at R2,154.44. A break below this level could bring the R2,047.54 support into play.
Summary:
Richemont faces challenges in the luxury goods sector amid global economic uncertainties. While sales growth has slowed, stable profits and potential future growth suggest a resilient business model.
The stock is currently fairly valued, and short-to-medium-term investors may wait for further financial updates. The technical outlook suggests cautious trading, with the R2,154.44 support and R2,329.18 resistance levels likely to act as levels of interest.
Sources: TradingView, Compagnie Financière Richemont, Seeking Alpha, Dow Jones Newswire, MT Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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