Part 2: KPCSC wants Russia to help end impasse on new definition of conflict diamonds

In the first installment of this two-part exclusive interview with Shamiso Mtisi, the coordinator of the Kimberley Process Civil Society Coalition (KPCSC), we focused on illegal diamond mining in the continent and where the contraband ends up...

Today

Part 1: KPCSC gives insight into illegal diamond mining, trading in Africa

Although the diamond watchdog Kimberley Process (KP) prides itself for significantly reducing the flow of conflict goods since its establishment in 2003, the Kimberley Process Civil Society Coalition (KPCSC) alleged that illegal diamond...

18 october 2021

The jewelry industry in Russia needs to be upgraded in a serious way

Dina Nasyrova is a vice-president of the International Jewelry Exhibition-Congress J-1 recently hosted by the Atrium of Gostiny Dvor in Moscow. As a partner and the Muse of the famous jeweler Ilgiz Fazulzyanov, she actively participated in the preparation...

11 october 2021

Smiling Rocks, a philanthropic business model, inspires companies to work for betterment of the world

Zulu Ghevriya, the CEO and Co-Founder of Smiling Rocks, Founder of Vedantti Jewellery and Managing Director of Prism Group has been in the diamond and jewellery industry for over 20 years. Zulu started his business, Prism Group, as a natural diamond...

04 october 2021

Work hard and you will find success

Eduard Utkin, Director General of the “Jewellers’ Guild of Russia” Association, expert of the RF Chamber of Commerce and Industry’s Committee on Precious Metals and Precious Stones, told R&P about implementing the SIIS PMPS (State Integrated Information...

27 september 2021

Polished diamonds for investor: Is it so rewarding to buy them?

01 february 2021

Among many surprises brought by 2020, there was an unprecedented surge in the interest of the Russian residents in the stock market as the number of brokerage accounts increased from 4.2 to 8.8 million. The trading volume in the stock market hit an all-time record to double the 2019 result. But the main interest of the Russian investors was focused on the foreign, primarily, US issuers. Through the portfolio investments, the Russian residents transferred $10.2 bn abroad, which is 5 times more than in 2019. The beneficiary of this process was the St. Petersburg Stock Exchange that offers over 1,500 most liquid foreign instruments to the Russian investors and increased its turnover from $5 bn to $25 bn in 2020.

The main reasons that the Russian residents prefer the assets in US dollars are clear. This is, first of all, the desire to indemnify from the depreciation of the rouble and diversify the portfolio through the instruments that are completely absent or underrepresented by the Russian companies. For example, in the pharmaceutical sector that looks especially attractive due to the COVID-19 pandemic, the Russian counterparts of Pfizer, Merck or Johnson & Johnson simply do not exist. The same can be said about a dozen more sectors of the economy - unfortunately, the Russian stock market is catastrophically narrow in comparison with the US one. Jewelry retail also belongs to such sectors. There are no Russian issuers here, and the St. Petersburg Stock Exchange offers the investors the shares of the US-based Signet Jewelers Limited (NYSE: SIG), the largest diamond jewelry retailer, which have been showing very interesting dynamics lately.

Signet Jewelers Limited was founded in 1949 (until 1993, it was called the ‘Ratner Group’). Currently, it is an offshore company registered in Bermuda and operating in the USA, Canada and the UK. It operates over 3,000 stores and offers its jewelry to the customers under the brands like Kay Jewelers, Zales Jewelers, Jared, JamesAllen.com, Piercing Pagoda, Peoples Jewellers, Mappins Jewellers, H. Samuel, Ernest Jones, and others. Signet also has a cutting and polishing factory in Botswana and is a client of De Beers and ALROSA. Today, the SIG’s capitalization is about $2 bn and it controls about 7% of the US diamond jewelry market, which is quite a lot considering that more than 70% of the US jewelry market operators are relatively small non-public companies.

The dynamics of the SIG’s share price since 2011 (i. e., since the beginning of the steady recovery of the US market after the 2008-2009 crisis) to the present day look as follows:

analyt_01022021_1.png

And the sales dynamics over the same years look as follows:

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SIG’s sales dynamics quite accurately correlate with the state of the US diamond jewelry market: after a significant decline in 2009-2010 caused by the consequences of the financial and economic crisis, there was a steady growth turning into a stable plateau. But the SIG’s capitalization collapsed as from 2015 through March 2020, the share price steadily decreased from $150 to $7, by more than 20 times. As the demand for diamond jewelry was relatively stable during these years, the reasons for such a disappointing result for investors should be sought for in the internal conflicts and poor corporate governance. Indeed, from 2017 to 2019, the company had to settle a series of lawsuits that ranged from the allegations of the discrimination against the female employees to the fraud charges with the customers’ credit cards. The reputational damage, controversial decisions in the field of mergers and acquisitions in order to expand the line of the controlled brands and the subsequent drop in profits had an extremely negative impact on the stock price dynamics.

In July 2017, Virginia Drosos, who had many years of management experience at Procter & Gamble, took over as the SIG CEO, and the management team changed significantly. In March 2018, the company announced a three-year programme ‘Signet’s Path to Brilliance’ aimed at both reducing the costs and developing its analytics, marketing and especially e-commerce. Significant efforts were made to differentiate the SIG-controlled brands, the e-trading platforms were also meticulously tuned to the specific audience of each brand, and the innovative solutions were applied to display the information and create the most customer-friendly interface. Much attention was paid to retraining the personnel and reducing the management chains.

Of course, this revolutionary business restructuring programme was not cheap and SIG had a net loss in fiscal 2019 and stopped paying the dividends in 2020. These circumstances coupled with the general failure in March finally pushed the quotes to the bottom: on March 23, 2020, the share price dropped to $5.84, the lowest in the last 10 years. Despite the subsequent sluggish rebound from this level, the opinion of the stock market analysts were almost unanimous - ‘sell’. Neither in April, nor in May, nor even in June, no one believed that SIG would revive. The SIG chart looked especially gloomy against the backdrop of the dynamics of the shares of the US pharmaceutical giants, which were the beneficiaries of the coronavirus hysteria and were rapidly returning to their pre-crisis levels.

However, starting from August 2020, the situation suddenly began to change radically as from August to November, the share price tripled, from $10.76 to $31.39, and in January 2021, it reached $40.93 exceeding the 2020 minimum by 7 times ... Although this is very far from the figures of 2015, it can still be said that SIG has become a kind of a beneficiary of the second wave of the Covid-19 crisis. The reason is obvious. The preliminary estimate of the total sales in the holiday season was $1.8 bn similar to that a year ago, while the e-commerce sales were up 60.8% year-over-year. Obviously, the stake on the innovations in marketing and e-commerce has worked and the ‘Signet’s Path to Brilliance’ plan has paid off.

Can this relative success be considered a stable basis and guarantee of the future growth in the SIG’s capitalization? Unfortunately, two circumstances keep us from giving a positive answer to this question. First, the success came amidst a rather tough lockdown when many companies indirectly competing with jewelry retail were artificially cut off from the market. For obvious reasons, the tourism sector and the sectors providing the tourist infrastructure were effectively blocked. Some part of the money intended by the consumer for travelling, entertainment and vacations undoubtedly flowed into the jewelry retail. And it’s not at all because of the advantages or disadvantages of the e-commerce platforms. What’s the use of developing a cruise operator’s internet platform if the borders are closed and travelling is prohibited? Second, the success came amidst a generous ‘rain’ of ‘helicopter money’ on the US citizens without regard to their real financial condition. Of course, for some people, $600-$2,000 is a critical amount for their living, but for many people, it is a pleasant bonus that mitigates the Covid-19 impact and fits well into the average bill for the SIG products.

When (and if) the Covid-19 lockdown becomes a history, SIG - as an investment tool and not as a jewelry retailer (it is the undisputed leader in this sector) - will inevitably have to face its powerful competitors, whose capitalization, dividend policy and balance sheet look much more attractive. Therefore, the assessment of SIG by the analysts of the popular simplywall.st portal looks close to the objective one: ‘Mediocre balance sheet with moderate growth potential.’

Sergey Goryainov, Rough&Polished