YNAP Deal Focuses Richemont on Luxury, Provides an Edge to Farfetch; Both Shares Attractive

We maintain our fair value estimate for wide-moat Richemont following the announcement that the company will sell a 47.5% stake in YNAP to Farfetch and 3.2% to Alabbar. For Richemont, we view the deal positively, as YNAP accounted for a low-single-digit percentage of our Richemont fair value estimate and was struggling with mounting costs and market share losses through Richemont’s ownership. Although Richemont expects to write down the stake in YNAP by about EUR 2.7 billion as a result of the transaction, we note that the Farfetch shares that Richemont is getting as a result are materially undervalued, trading about 50% below our fair value estimate. A 47.5% YNAP share sold to Farfetch will increase Richemont’s stake in Farfetch by 10%-11% of fully diluted capital. We view Richemont's and Farfetch's stocks as undervalued. Strategically, we think the latter firm is set to gain more from the deal, which could add a mid- to high-single-digit percentage to our Farfetch fair value estimate.