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AIMprospector

AIM star has bags of class

Few listed companies can claim to produce anything with as much cache as a Mulberry handbag. Known the world over, manufacturer Mulberry plc is part of AIM royalty. Headquartered outside the village of Chilcompton in Somerset, approximately 10 miles from Bath, few AIM companies could be located more remotely. Mulberry produces leather goods, predominantly ladies handbags for the seriously solvent. Put simply, Mulberry successfully sells handbags for the kind of money that a lot of people would only spend on a car. A quick look at Mulberry’s website shows a ‘Blossom Pochette’, no larger than a DL envelope (but at 6.5cm, significantly fatter) priced at £275. That’s the cheap option. If you really want to splash out, go for the £7,500 ‘Bayswater’ handbag.

dividend paying since 2006 Mulberry is what you buy if you think that Gucci is getting a bit common. Nevertheless, Mulberry plc doesn’t make as much as might be expected. Indeed, the last two years have been 12

pretty rotten and no recovery to the level of earnings enjoyed four years ago is expected soon.

period) and wholesale delivering 26%. Among the three channels, digital grew most quickly. Wholesale revenues were 11% lower, due to tougher trading conditions in Asia. Despite all of the effort that goes into supporting an online sales channel, digital revenues will be significantly higher margin that retail/wholesale. The rate of growth here is encouraging. Mulberry has been dividend paying since 2006, although no growth has been forthcoming for the last four years. Consensus forecasts are for EPS of just 5.2p this year, rising to 10p. That puts the shares on a massive rating, that could only be justified by a return to profits at a level not delivered since 2011.

forecasts are for EPS of just 5.2p last two years have been pretty rotten While Mulberry established itself as the must-have handbag manufacturer, it appears that management may have gotten ahead of itself, grossly overestimating the size of the market for handbags priced into four figures. This overpricing led to a near double-digit decline in shop sales in the 2014 financial year. Subsequent trading statements have referred to a refocussing on women’s handbags priced £500–800. The company sells through three channels: retail (its own stores), wholesale (to other stores, such as Harrods) and digital (online). The last results showed digital sales accounting for 12% of total group sales (up from 10% in the previous

The apparently elevated share price can perhaps be explained by the concentrated ownership of the company, with three holders accounting for 90% of the equity between them. Challice Limited, a company controlled by Singaporean businesswoman Christina Ong, owns 56% by itself. Mulberry Group (LON:MUL) FOR Strong brand Trophy asset AGAINST High valuation Vulnerable to fashion change Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£622m 1,025p:1,040p 198.9 0.5% 825p:1050p

www.aimprospector.co.uk

May 2016 AIM Prospector  
May 2016 AIM Prospector  

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