Prada Interim Results Six Months Ended Jul 31 2017

I was been taught that you should always check whether it is the earning season before you place your order and I forgot this rule. I happily sold my shares in toy makers Dreams International, Playmates and apparel wear Best Pacific International, thinking to move from small cap stocks to better quality stocks. I am thinking of seeking revenge on Prada stock which made me lose money in 2016. I bought at an average price of HKD 27.35 including brokerage fees and last Friday the results came out and the Monday that just passed showed a steep drop of 13% in a single day. 

I took a position of 4000 shares, thank God I didn't add more because at the back of my mind I was thinking of going in at about HKD 25. Since it didn't come down then, I enter to take a position. Now let's look into the numbers.

Net Revenues for July 31 2017 was at EUR 1,468,636 thousands vs Net Revenues July 31 2016 EUR 1,554,172 thousands, there was a drop of 5.5%. EPS dropped from EUR 0.055 in 1H 2016 to EUR 0.045 1H 2017 which is a drop of 18.4%. Net operating cashflow is still positive but down 22% as compared to 1H 2016 EUR 266,728 vs 1H 2017 EUR 208,156.

The gross margin improved from the same period of the previous year as the decline in sales volumes was compensated by better ratio of full price sales to discounted sales. E-commerce was implemented for all brands which include an omnichannel growth strategy focusing on merchandising and territorial coverage, new websites and digital marketing campaigns to acquire new client.

The overhaul of processes and cost structure helps to reduce operating expenses which is consistent to last reporting. The net operating working capital at H1 2017 is EUR 552.7 million which is unchanged compared to January 31 2017. The net financial indebtedness amounts to EUR 223.4 million, after the dividend payment of EUR 307.1 m and a reduction of EUR 40.6m resulting from the exchange rates fluctuations.

I read that all net sales by geographical areas are dropping for 1H 2017 compared to 1H 2016. Europe, Japan and Middle East registered a big decline in sales. Decline for brands sales will show that Prada dropped the least at -4.6% whereas Church's shows the largest drop of -15%. 

I done my calculation for total FCF average to be EUR 306m and present intrinsic value of Prada is about HKD 21. Presently, the share price is overvalued. Till date, the stock price has recovered from lowest HKD 24 to HKD 26, filling its gap of HKD 27. Let's see when I can get out of this.

9/10/2017

I have successfully sold on the 4th October at HKD 28.45 

I know HK market seems to be in bull run again but I want to clear this company from my portfolio.