May 7, 2012 / 12:37 PM / 7 years ago

Goldman sees Graff profit growth double Tiffany's

HONG KONG (Reuters) - Goldman Sachs (GS.N) expects IPO hopeful Graff Diamonds’ profit to grow an annualized 31 percent from 2011-14, driven by an increase in sales and higher profit margins, a research note obtained by Thomson Reuters publication IFR on Monday showed.

The profit growth at high-end jeweler Graff will be nearly double the 15.8 percent expected for rival U.S. jeweler Tiffany (TIF.N) and below the 47 percent forecast for Chow Tai Fook Jewelry Group (1929.HK), Goldman analysts estimated in the report dated May 5.

The research note from Goldman, one of the joint global coordinators of Graff’s up to $1 billion Hong Kong initial public offering, gives a first peek into the finances of a company that has remained private since Laurence Graff founded it in 1960.

London-based Graff started meeting with investors on Monday to gauge demand for its IPO, with a roadshow set to kick off on May 21, sources told Reuters on Sunday.

In the coming two weeks, the company, its bankers and advisers will meet with fund managers and institutional investors around the world, before deciding on a price range for the deal ahead of the roadshow.

Investors will have a better view on Graff’s valuation versus its peers after the price range is set.

Graff’s profit should reach $264 million in 2014 from $117 million in 2011, but the growth rate is forecast to slow in the coming years. Profit was expected to rise 42 percent in 2012 from 2011, 29 percent in 2013 and 23 percent in 2014, the research note showed.

Sales are forecast to grow 16.2 percent a year through 2014, above Tiffany’s 12.6 percent, but lower than the 38.7 percent for Chow Tai Fook, according to Goldman’s estimates. Chow Tai Fook, which trades at a 2012 price-to-earnings ratio of 14.6 times, raised about $2 billion in a Hong Kong IPO in December.

Graff would be tapping Hong Kong equity markets after the worst start for IPOs in the Asia-Pacific region in about four years, with overall equity market activity down about a fifth from last year.

The company is betting on resilient demand for diamonds and high-end jewelry in the coming years, its founder said in a interview in November.

Goldman expects jewelry demand in China to rise 26 percent per year from 2010-20, in line with overall demand for luxury goods and driven by an increase in wealthy individuals in the country.

Credit Suisse Group CSGN.VX, Deutsche Bank (DBKGn.DE), Goldman, and Morgan Stanley (MS.N) were hired as joint global coordinators on the IPO.

Writing by Elzio Barreto; Editing by Denny Thomas and Helen Massy-Beresford

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