BROKERS’ NOTES: Buy Richemont, take profit from Harmony Gold

Chantal Marx, head of investment research and content: FNB Wealth & Investments

Buy: Richemont 

Richemont has staged a recovery since releasing solid quarterly results a little more than a week ago. The numbers reflect a robust performance across all regions, led by the jewellery businesses. While the performance in the last quarter showed a sequential slowdown in sales momentum (4Q24: +2% vs 3Q24: +8%), this was still ahead of expectations (consensus: +0.5%).

We think the price offers an attractive entry point for long-term investors. Fundamentally, the stock looks cheap on a forward p:e of 20, particularly relative to its longer-term average rating of about 24. We like the company’s exposure to “hard luxury”, specifically in branded jewellery where we continue to see structural growth. Importantly, Richemont’s cash balance is robust, and a strong balance sheet allows it to fund growth — both organically and acquisitively — and to continue growing its dividend.

Technically, the stock has bounced off its 200-day moving average and there is still room for upside, considering the relative strength index is just below 60. Our first short-term price target is R3,252.

Take profit: Harmony Gold

We continue to see support for the gold price near term amid geopolitical concerns, rampant central bank bullion buying, sticky inflation and solid gold jewellery demand. Additionally, there are several traditional drivers of gold that have not yet fired up. Despite Chinese buying, physically-backed exchange traded funds in fact sustained net outflows for much of last year and into this year.

Harmony Gold, however, has far outperformed the rand gold price since the start of the current bull run (sparked by Russia’s invasion of Ukraine). For reference, Harmony is up 176% on a total return basis vs the gold price in rand of 43%. There is operating leverage to consider, but the outperformance becomes particularly pronounced considering that some of the local gold names have come up short on this basis. AngloGold, DRDGold and Pan African Resources stand out as notable underperformers. We would consider taking profit on Harmony Gold and holding the cash to deploy in one of these names when the opportunity presents itself.