Gemfields’ (LON:GEM) management has a track record of delivering growth, and will be looking to rejuvenate Fabergé when the iconic brand joins the fold.
Broker Canaccord Genuity argues, however, that the current valuation of the shares takes no account of the prospects for Fabergé or, for that matter, the firm’s ruby assets in Mozambique.
“At the current valuation, we believe both Fabergé and the exciting ruby development project in Mozambique are included for free,” argues Canaccord’s Jeremy Dibb.
Dibb acknowledges that loss-making Fabergé will initially dilute earnings per share (EPS), and the shares issued to pay for the acquisition will also depress EPS.
However, “Fabergé will provide Gemfields with direct control over a high-end luxury goods platform and a global brand with a heritage dating back over 170 years. More specifically, a jewellery retailer with a history of producing coloured gemstone pieces,” Dibb notes.
“It is difficult to think of a retail jewellery acquisition, at any price, that would have been a better fit,” Dibb adds.
The broker is sticking with its ‘buy’ recommendation and has trimmed its share price target to 39p from 40p, and warns investors that Gemfields may need some time to get a handle on the recently relaunched Fabergé before embarking on ambitious growth plans.
The broker is also concerned that management has “a lot of balls in the air”, what with the Fabergé expansion, a move underground at the Kagem emerald mine and the development of a new ruby mine in Mozambique.
“The management team has been stable and has previously delivered an incredible turnaround at Kagem, though the next 12 months are likely to be the biggest test to date. If these risks can be managed then we believe shareholders will be well rewarded for putting their faith in management,” Dibb concludes.