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Can Prada get away with a luxury valuation? Add to ...

Italian bling house Prada has had no fewer than three initial public offering attempts in the last decade. Each was yanked. The fourth attempt -- this time on the Hong Kong exchange -- looks set to go. But the price range looks rich. The question is whether the voracious Chinese appetite for luxury brands will let Prada get away with a luxury valuation.

Prada is shopping the retail side of the offering today [Monday]. The shares will be priced on June 17 and start trading on the Hong Kong market on June 24. According to the IPO prospectus circulated on Sunday, Prada and the company’s minority shareholder, Italy’s Intesa Sanpaolo bank, are selling 433.3-million shares at HK$36.50 to HK$48 each.

If the shares were sold at the top end of the range, Prada would have a market value of HK$122.8-billion, the equivalent of about $15-billion (U.S.). The IPO itself may raise as much as $2.6-billion (U.S.), turning Miuccia Prada and her husband, Prada CEO Patrizio Bertelli, into billionaires.

The IPO, the first of an Italian company in Hong Kong, values Prada at as much as 28 times the company’s estimated 2011 profit. Six other luxury-goods companies, among the LVMH and Burberry, trade at an average of 21 times forecast earnings, according to a May Goldman Sachs report. In spite of the fat valuation, the issue’s institutional tranche is said to be several times oversubscribed.

Prada is gambling that its profit bounce back, its glamorous brand and its potential for growth in Asia, especially China, will overcome any investor resistance to price the shares at a premium level. But as we know from the previous IPO attempts, Prada’s timing leaves something to be desired, and the timing this time may be less than brilliant.

Note that Hong Kong’s Hang Seng Index ended last week at a 12-week low, and that the Dow has been in retreat for six consecutive weeks.

Hong Kong’s hot IPO market seems to be cooling down. On Friday, luggage maker Samsonite, another luxury goods brand, had to price its HK$12.5-billion IPO at the bottom end of the price range. Australian coal company Resourcehouse pulled its Hong Kong IPO a week ago, blaming weak market conditions. Several other luxury-goods names on the Hong Kong market have lost ground in recent days, including French skin care company L’Occitane International.

Of course, a soggy IPO and stock market may not be the end of the world for Prada. It may just force investors to be more choosy about the names they tuck into their portfolio. Prada’s brand name is strong in China, where it is galloping ahead with store openings. According to the Chinese Academy of Social Sciences, China’s luxury goods market will be worth almost US$15-billion by 2014, surpassing Japan’s, up from the current $9.4-billion (U.S.). That’s why Prada didn’t even consider listing in Europe.

Follow on Twitter: @ereguly

 

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