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Peter Marshall Send an email June 14, 2017
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Piling in for a Prize Piece of Dufry

By: Kevin Rozario   •   email: kevin_rozario@yahoo.com

It seems that, Dufry – the world’s biggest duty free and travel retailer – has become a target for at least two big names in the travel and luxury goods spheres. But does that make it a target for takeover or strategic investment?

At the end of April, China’s acquisitive HNA Group – a $30bn conglomerate with muscle in the transport, tourism and financial services sectors – announced a 16.8% stake in the Basel-based DF&TR operator (21% including options).

Meanwhile, the mid-May swoop by Swiss luxury group Richemont for a 5% stake set the retailer’s shares soaring. Richemont – owner of Montblanc, Cartier and other luxe names – has had a tough time as a watch market downturn has hampered sales. Its profit was down -14% in FY2017 (ending March 2017) on a sales fall of -4%.

So in a matter of a few weeks more than 20% of Dufry was snapped up. In these two cases the drivers look to be different. For Richemont it may be that the company is looking at new routes to market – and travel retail remains a promising channel for luxury items.

Dufry itself makes the claim: “The strong fundamentals of the travel retail industry – fuelled by a resilient long-term global passenger growth – are a cornerstone for investing in Dufry.”

Sell-in and sell-out

Why might Richemont be taking that message rather seriously now? Due to a global glut of expensive watches, the company took the hard decision to tidy up its sales to the point that Richemont’s Group Chairman, Johann Rupert, says: “For our major maisons, our sell-in is less than our sell-out, so the stock is gradually reducing.”

Putting stock into a new channel therefore makes sense and, as a result, brands under the Richemont umbrella may become a bigger fixture in DF&TR.

As for HNA, Dufry offers another string to its new bow of airport services. The Hainan-based company recently bought air catering hospitality, provisioning and logistics company, Gategroup. CEO of Gategroup since April 2015 is Xavier Rossinyol who was formerly a leading light at Dufry having been chief financial officer from 2004 to 2012.

Enhanced footprint in Asia?
Dufry’s expansion prospects in Asia will likely be enhanced by the HNA move, and some tie-up with Gategroup to offer a full-service portfolio to airports can’t be ruled out.

Back in Switzerland, from Dufry’s side the interest from HNA and Richemont has boosted its value (see chart). Dufry had a market capitalisation of CHF6.8bn$6.98bn at the end of 2016 and the company’s share price hit a high of CHF135.10 during the year. At the end of May the market cap had climbed to CHF8.7bn/$8.9bn with its share price topping CHF170.0 for the first time. Shareholders must be delighted.

Big opportunity: Dufry + China

HNA has clout in China. Its aviation division has affiliations to several Chinese airlines, plus stakes in others in Brazil, Ghana and France. Meanwhile HNA Holdings’ airport group controls at least eight gateways in China and “cooperates” with several more.

Last year, HNA spent more than $4bn buying air handler Swissport and Gategroup, and this year it also took a $6.5bn (25%) stake in Hilton Worldwide Holdings. Dufry is therefore a piece in a much larger travel and tourism business that HNA is keen to dominate.

In the conglomerate’s home air market there is a boom. Some 66 new airports are slated in the next five years says the Civil Aviation Administration of China while Airbus forecasts that by 2034 airlines in Asia Pacific will fly 36% of total global traffic (RPKs), almost on par with the combined share of North American and European airlines (38%).

Odds will be shorter for a full HNA acquisition in time

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Peter Marshall Send an email June 14, 2017
Less than a minute

Peter Marshall

Founder: trunblocked.com/Marshall Arts
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