Source: Bloomberg

Richemont was established in 1988 by Johann Rupert, originating from a spinoff of the international assets of what is now Remgro. The company expanded significantly through acquisitions and has since become the world’s second-largest luxury conglomerate and the third-largest luxury company.

The Cartier owner’s outperformance during this period can be attributed to the segment of the population their brands serve. High-net-worth individuals have driven growth in 2023 and 2024, rather than aspirational consumers, according to Edouard Aubin, a luxury analyst at Morgan Stanley. A lower-end Cartier bracelet costs £3,000 (approx. R70k), which is substantially more expensive compared to a £400 (approx. R9k) high-end sneaker from Gucci. This discrepancy between ultra-high-end luxury and ‘mass-affluent’ luxury has led to a divergence in performance among different luxury companies. For instance, Kering issued a rare profit warning in March, citing a decline in Gucci sales. Their share price is down 26.6% year-to-date. Other names, such as Burberry and Hugo Boss, have also reported declining sales in their latest earnings updates and experienced significant drops in their share prices, which fell by 43.3% and 45.6% each, respectively.

Another luxury name within our holdings is LVMH, the owner of Hennessy. The French company is the largest luxury goods producer in the world, owning household names such as Louis Vuitton, Dior, and Tag Heuer. LVMH’s performance has not been as resilient as Richemont’s, with a return of -12.3% year-to-date. Despite broad sector weakness, the company continues to grow sales in a challenging environment, highlighting its strength within the ultra-high-end goods segment.

We are confident in the enduring strength of LVMH and its portfolio of brands. Their history of resilience is undeniable, and we anticipate continued outperformance despite current challenges. Similarly, Richemont’s proven track record positions it for sustained growth in the future. This has even garnered the attention of Bernard Arnault, the current CEO of LVMH and the third-richest man in the world, who publicly announced that he has invested a personal stake in Richemont.

The Bad: Crowd Strikes Out

Most people would have expected one of the largest outages in internet history to have been caused by a cyberattack—the very threat CrowdStrike’s Falcon Platform aims to prevent. Ironically, it was not a malicious attack that triggered the global disruption, but rather a faulty update in CrowdStrike’s software. Their software platform, which is designed to detect malware and suspicious activity on laptops, phones and servers, requires regular updates to combat evolving threats. While software updates from other security vendors such as Kaspersky and Microsoft’s Windows Defender have triggered similar system crashes in the past, the scale in CrowdStrike’s case is unprecedented.

The outage triggered a global system failure on an estimated 8.5 million devices running Microsoft Windows across critical sectors, including banking, air travel, healthcare, and financial markets. This resulted in severe disruptions to daily life and caused billions of dollars in losses. The good news is that CrowdStrike was not hacked, which is a cybersecurity company’s worst nightmare. While CrowdStrike’s potential liability for damages remains uncertain, they are likely protected from substantial claims due to contractual limitations in its service agreements. Nevertheless, the threat of a class action lawsuit remains as does the potential loss of customers to competitors. The company’s share price fell 12% on the day the news broke. 

Source: NDTV

This event highlighted just how interconnected the world’s digital system is, which CrowdStrike is deeply ingrained in. While the event raises concerns about CrowdStrike’s operational capabilities which may temporarily affect customer growth, their established technology leadership in threat detection is likely to prevent widespread customer exodus. The company also acted swiftly to identify the issue, deploying a fix in just 79 minutes. In the short term, the ramifications of this isolated event will likely remain an overhang on the stock price. However, we believe the long term story is still intact, given their capacity to maintain their market leading position in the threat detection space.

& A Walk Along the High Street – Part Five: A Solution to Take Retirement Savings Beyond South Africa

 Following the conclusion of ‘Meet the Managers,’ our ‘A Walk Along the High Street’ campaign concludes with its final edition. In this feature, we highlight the High Street Balanced Prescient Fund, exploring its mandate of maximising offshore exposure while adhering to Regulation 28 of the Pension Funds Act. We also discuss why boutique asset managers can benefit from their larger local investible universe, as well as why there has been a divergence in performance between the local market and its international counterparts. To read the article, please click on the link below:

A Walk Along The High Street – Part Five

Source: High Street Asset Management