Its final valuation ended up at 23 times its annual net income – much closer to rivals like Burberry, which is currently trading at 22.3 times. Nevertheless, it still failed to excite retail investors, who were expected to take 10% of the shares it issued but ended up taking up just 5%, with the other 95% going to institutional investors like pension funds (who were, admittedly, far more enthusiastic – in actual fact, the whole issue was about three times over-subscribed. So not a complete disaster, by any stretch of the imagination).
Part of Prada’s decision to value itself so highly was because of where it had chosen to list: luxury buyers in China accounts for more than a quarter of the global market, and are expected to grow to about $14.6bn by 2014. But there are a couple of issues with that: firstly, Prada only has 14 stores in the entire country (it has more than that just in Tokyo), so it would have needed to expand aggressively for sales to grow enough to justify that valuation. Secondly, taxes in China are so high that although the middle classes have discovered a penchant for astronomically priced shoes (or, more to the point, lurid banana-print skirts), a huge proportion of the luxury goods bought by Chinese people are actually purchased overseas. Or, as one analyst put it, ‘there is no clear future dividend policy’.
So investors are justified to exercise a certain amount of caution. But despite its rocky start, Prada’s by no means a bad prospect. For a start, it takes a long time to build up a brand as prestigious as Prada’s. And with high barriers to entry, the likelihood of some young up-start wading into the market and eating up its share is very, very slim – so it’s a reasonably safe prospect. Also, it may be the first Italian brand to float in Hong Kong (and certainly the largest luxury brand), but the record for luxury brands there hasn’t been bad. Take French skincare company L’Occitane, which floated last year. Like Prada, it had a tough start, but its valuation has expanded dramatically since.
And judging by the performance rivals like Mulberry (which revealed a four-fold rise in profits yesterday), Burberry and LVMH, which are all going from strength to strength, Prada’s price could yet spike. Although whether it’ll go quite as high as this season’s platforms is questionable…