Why Prada should just get on with it

The 24^th January 1990 was when the ‘old’ Luxottica pursued its IPO, only it did so in the US on NYSE, the first corporate to do so in my recollection as a single listing outside of its country of origin, in the form of ADRs. It went for a US listing because it was by far its largest market at the time, was better known there (Luxottica who? was the comment in Italy) and was growing fast as a manufacturer and distributor (retail came much later primarily via the PTO on US Shoe Corporation Inc) driven by its licence with Armani which was a phenomenal cash flow generator and vied with Gucci (at Safilo) as the biggest eyewear designer brand at the time (a concept that had originally been pioneered by French company L’Amy but never developed there). Luxottica, perhaps with Pirelli at the time the only real Italian multinational company, traded as an ADR only on the NYSE for a decade, until the Milan listing a decade later in December 2000 – it became a dual listing with virtually no secondary offering at all in Milan. By then Luxottica was a fully integrated market leader and had acquired RayBan as a de facto broken division of Bausch & Lomb, as well as building its licensed brand portfolio aggressively. So it pursued a dual listing only when it was bigger and better known: volumes traded on the NYSE dwindled over time and in 2017 when it delisted from the US the ADR listing, accounted for <4% of transactions only.

This set an important precedent: it highlighted the primacy of the Milan (read European) listing to broaden the investor base globally and did so well ahead of the Essilor move. 

Natuzzi, who followed in Luxottica’s US footsteps, took a different view and never followed up with a European listing prior to its gradual demise.

Gucci, the Florentine Luxury brand now part of Kering (indeed Gucci Group IS Kering now pretty much) went even bolder under Investcorp and listed in NY, Amsterdam and (partly) London rather than Milan in 1995, ahead of its well-known Arnault vs Pinault saga. The failure of Milan to secure the listing due to technicalities and delays was an important lesson for all.

Why do we look back in time at some key past listing strategies of Italian corporates in the consumer space outside of Italy and Europe ? Because it matters today, and it matters for Luxury. It matters for Prada.

Following from Ferretti Group’s decision to pursue the dual listing in Milan this year, after the original Hong Kong IPO in 2022, the spotlight focused on the big one: Prada, even more so after the recent likelihood of a l’Occitane delisting from, yet again, Hong Kong (whereas Samsonite, also listed in HK, have made no such move, yet).

In my view the dual listing (which may or may not be a temporary one à la Luxottica) for Prada is an essential development that needs to happen soon.

The old theory that Asia was a good place for European consumer brands to list because that was where the bulk of future growth was going to come from (true, by the way) is largely nonsense and is not even the reason Prada listed there in the first place in 2011.

There were several attempts at a Prada IPO looking at different options and locations which mostly came to nothing, given the Group’s balance sheet at the time (a matter of structure and debt) was rather different from today’s. I do not know whether the rumours of an ‘easier’ IPO path into Hong Kong at the time are true. I do know however that the valuation multiples secured were certainly higher than what was likely to be attained in Milan/Europe. So perhaps it made perfect sense at the time. No more.

Prada management has been increasingly less evasive on the topic, and market consensus is that this will happen sooner rather than later: the presence of Andrea Guerra, who as Luxottica’s IPO at the time managed the liquidity drain away from the US and is very familiar with the dual listing concept, should not be underestimated.

So why should Prada list in Milan and why will it matter?

• The Milan stock exchange is a far cry from that of 1995 which lost the Gucci listing

• Much broader investor base would be enabled: in my experience almost ¾ of Luxury investors of note cannot own Prada until there is an alternative to the Hong Kong listing. Similarly, albeit less important, broker coverage would grow too. 

• Liquidity on the stock is poor and even investors who ARE able to own it lament this: a tangible offering in Milan (so unlike Luxottica, unless this is a similar longer term plan in terms of liquidity shift) would make a real difference

• The brand is on a high in spite of an increasingly challenging market: this kind of newsflow would focus investor minds and global attention in a significant manner. Things will get tougher in coming years: acting when things still look good makes sense.

• Prada is a European brand and thus also relies on its heritage and storytelling which is evidently diluted by the Hong Kong listing

• Possible bolt-on opportunities in the Luxury space are unlikely to be in Asia

• There are no other Luxury players listed there (ignore Lanvin Group please)

• Hong Kong in 2023 is not Hong Kong in 2011: a de facto China-only listing carries geopolitical risks which were not there previously

The old theory that a listing close to the core growth markets helped with business has been proven to be nonsense. Respect the local customs in Asia yes, play by the local rules also, but no need for a local listing at all and a dual listing maintains the link in some form for diplomacy’s sake.

Are there risks ?

Apart from the greater cost and complexities of a dual listing in markets 6/7 hours apart (but reporting and communication is already based on European hours to satisfy the few US shareholders too) and the diplomatic aspect of the move (aka as ‘we are not leaving Hong Kong, we are just adding to it’), we just see one relevant one: valuation.

Greater liquidity and directly comparable multiples to its European peers make a tangible premium, as is partly the case today, more difficult to sustain. A Milan listing would allow for a more meaningful comparison between Prada and, say, Moncler. That said, it would be, in my view, a very clear statement of strength and confidence for a group that has evolved so much since 2011 and in the context of a much bigger (I think the sector size has exactly doubled since then) and much more relevant and high-profile global Luxury goods sector.

If I were Bertelli, I would get Guerra even busier, list in Milan fast and future-proof the brand. When the window of opportunity closes failure to act will be a source of much regret. Feed the appetite whilst it’s still strong.