PPR’s decision to spin off its Fnac unit, its entertainment goods subsidiary, was welcomed by the markets on Wednesday in Paris.
The French retail and luxury group’s share price was up two-and-a-half per cent at the close. Investors were relieved to see that a strategy to refocus on luxury goods and sportswear has finally come to fruition after six years.
The first advantage for PPR is a better visibility on the markets. Because its businesses are too diverse the group’s current market value is about 11.6 times its 2013 profit forecast. That is well below the average market value of its luxury peers. It is suffering from what analysts call a “holding discount”.
Another advantage is that in taking its FNAC unit off the balance sheet PPR will improve its financial profile.
FNAC is struggling in the face of online discount competition. It posted an operating loss in the first half of 2012, when the luxury division’s operating margin was more than 30% up, particularly thanks to Gucci.
Even better, spinning off FNAC and putting it on the stock market won’t cost PPR much, and it will not have to find a buyer either.
According to analysts, this operation should boost PPR’s share price to a range from 130 to 170 euros, well above the current figure of 128.
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