Oroton shares in two-year lows

Shares in OrotonGroup sank to their lowest point in more than two years after the Australian accessories group lost its licence deal with American fashion house Ralph Lauren.

Oroton shares plunged $1.41, or down 18 per cent, on Friday to close $6.33 after coming out of a trading halt imposed ahead of the retail group's startling announcement.

The stock hasn't traded around those levels since May 2010.

After the market closed on Thursday, Oroton revealed its 23-year licence deal to distribute Ralph Lauren goods would not be renewed or extended once it expires on June 30, 2013.

Oroton's Ralph Lauren business makes up about 45 per cent of the group's sales, half its assets and 35 per cent of its net profit.

RBS Morgans retail analyst Jo Little said Oroton shares were holding up better than expected because the market had factored it would inevitably lose the license one day.

She said the market ascribed the most value to the Oroton brand itself, rather than Ralph Lauren.

"The real value in where the growth was, was always in the Oroton brand, and that's the part which deserves the premium multiple," Ms Little said.

With the US designer choosing go it alone in Australia, Ralph Lauren will have to pay Oroton for its stock and stores, which Oroton estimates are worth about $30 million.

That will provide extra capital for the luxury accessories brand to pursue its expansion plans, particularly in the lucrative Asian market.

"We are pleased to be in a position to accelerate the expansion of the Oroton brand in Asia and potentially pursue other opportunities including capital management," chairman Ross Lane said in a statement Thursday.

Investors are hoping those plans come to fruition soon, with many putting their faith in the track record of the management team.

"People are prepared to back (chief executive) Sally Macdonald and the board to replace those earnings in an efficient way, and redeploy the capital to make up the earnings gap in the short period of time," Ms Little said.

"The big growth opportunity is the lucrative Asian market - the excess capital may well be applied to accelerate the store layout in Asia."

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    0.9327-0.0005-0.05%
    AUDUSD=X
    0.5555-0.0003-0.05%
    AUDGBP=X
    0.6753-0.0003-0.05%
    AUDEUR=X
  • Commodities
    Commodities
    NamePriceChange% Chg