Prada has packaged its initial public offering in a typically artful way. The Milan-based fashion house has chosen to list in Hong Kong, it says, largely because of its proximity to China, the world’s fastest-growing luxury goods market. But Prada has just 14 stores across the entire mainland, fewer than in Tokyo. Its aggressive expansion plan (the primary justification for selling shares) is to fill holes in its global network rather than in China – it has no stores in Stockholm, Barcelona or Brussels, or anywhere in Russia or Brazil. An outlet on every Chinese corner, after all, makes little sense. High taxes mean that a large portion of luxury items is bought offshore.
If executives were entirely honest, they would admit that the IPO is where it is because that is where valuations for trophy assets are highest. Christie’s, the auctioneer, broke 36 world records at its Hong Kong Spring sales, concluded earlier this month; 10 Pollock’s Path, an 8,302 sq ft propertyon The Peak, sold last week for a record HK$800m (US$103m). If Prada prices on Friday at the midpoint of its indicative range, the equity would be valued at 24 times this year’s earnings, significantly ahead of a clutch-bag of rivals in Paris, London and Milan.
Prada is truly a “trophy asset.” Unlike most of its European competitors, the company has an undiluted exposure to the top end of luxury. It will also be the only Italian stock, and the only luxury stock of size, listed in Hong Kong. That institutions have subscribed for five times the shares available suggests they are ignoring the network expansion, which can only weaken margins. They are essentially showing the same lust for shiny baubles as the taitais queuing outside Prada’s flagship Hong Kong store on Canton Road. You’ve bought the handbag; now buy the share.