IPOs in the City: Prada Vs. Ferragamo


Italian luxury brands Prada and Ferragamo look likely to wait for better market conditions to list their shares, probably after the summer, financial sources said, but competing timing could hurt their plans.

Both brands have said they plan to list this year and people familiar with the matter said in November they were aiming for initial public offerings (IPOs) in the second quarter.

But market turbulence and a falling dollar mean they are likely to move back their plans, financial sources said.

Prada, whose designer Miuccia Prada specializes in innovative fashions, has abandoned listing plans before and faces a credibility problem if it doesn't go ahead this time, fund managers said.

Its strengths are its rapid growth, territorial diversity and the appeal of newer brand Miu Miu, repositioned to attract wealthy younger clients.

The Milan fashion house "intends to wait for the half-year which ends on July 31, and especially for the shows in July and September, which will provide some visibility on revenues until spring/summer 2009," one financial source said.

Ferragamo, best known for its scarves, ties and leather shoes and bags, also seems to prefer to wait for better times.

"If the market continues to look more reassuring, (Ferragamo) could list in the second part of the year," said a source close to the operation.

But its big exposure to the dollar could cause it to wait. North America sales accounted for 26.4 percent of Ferragamo's revenues in 2007. However, if Ferragamo goes head-to-head with Prada, fund managers are likely to pick just one of them.

"If they list around the same time, I'm inclined to invest only in one of the two," said one manager at a top Milan fund.

Luxury brands appear to be weathering the worst of global financial storms as their customers are less crimped in spending than average income earners. But analysts are wary of predicting the sector could stage a recovery just yet.

"You will only be able to say whether you are talking about just a bounce or something more after the wave of quarterly results coming up," said Elena Sottanella at Abaxbank.

Above Average Multiples

Advisers plan to position Ferragamo and Prada with multiples "higher than the average of a wide basket, which would be around nine times EBITDA ... multiples that look more like (France's) Hermes, without the speculative boost," a market source said.

The Prada IPO could be valued at up to 1.5 billion euros ($2.3 billion), depending on the size of offer, one market source said.

"It could be 25 percent, with maybe another tranche in a couple of years, or maybe more, say 35-40 percent straight away, depending on the market," this source said.

Prada could either go for a sale of existing shares or combine this with a capital increase -- but this would not be more than 20 percent of the total offer.

For Ferragamo, the offer is again likely to be of existing shares, a source close to the operation said. If it offered new shares as well, it would be for a very small amount.

The Tuscany-based brand was looking at an enterprise value of around 1.5-1.8 billion euros last year, but valuations have changed a lot since then, the source said.

Sottanella calculates enterprise value/EBITDA ratios that range from 6.94 for luxury shoe maker Tod's SpA to 18 for Hermes. Santander's Andrea Paladini has a range of eight for jeweller Bulgari SpA to 16 for Switerland's Compagnie Financiere Richemont SA.

Ferragamo's chief executive, Michele Norsa, was brought in to oversee its listing. He has presided over a 34 percent jump in net profit last year to 47 million euros, on sales that have risen 6.5 percent to 687.4 million euros.

The company has picked Mediobanca and JP Morgan as global coordinators and UBS as joint book-runner.

Prada considered an IPO in 2001 but this was derailed by market turbulence after the 9/11 attacks. Since then it has put off listing and turned instead to debt.

"If they put it off again, I won't believe them any more," said one fund manager.

Prada had net profit of 126.8 million euros in 2007, up 65.8 percent on sales which rose 18.8 percent to 1.66 billion euros. It has picked UBM, Goldman Sachs and Intesa Sanpaolo for its listing. Intesa has a stake in it through its Banca IMI unit.