British fashion retailer Farfetch soars as it acquires stake in YOOX Net-A-Porter

British online luxury fashion retail platform Farfetch (GB:FTCH) saw shares rise 26.15% on the long-awaited news that it was to acquire a 47.5% stake in YOOX Net-A-Porter, a subsidiary of Swiss luxury giant Richemont (CFRUY).

Richemont shares also rose 3.5% on the news, as Farfetch became one of the day’s top gainers on TipRanks.

Farfetch will acquire a 47.5% stake in YOOX Net-A-Porter in exchange for 50 million FarFetch shares, valued at $440 million.

Source of losses for Richemont

Richemont said it expected a 2.7 billion Euro writedown relating to the agreement: the group acquired full control of YNAP at a valuation of five billion Euros.

Farfetch CEO Jose Neves said, “This investment and work we will do with Farfetch Platform Solutions for YNAP will pave the way to a potential acquisition by Farfetch, which would create a complementary portfolio of iconic luxury destinations, appealing to different demographics, price points and regions.”

Bernstein analyst Luca Solca wrote in a research note, “This seems very good news for both companies. Richemont will finally remove YNAP from its perimeter … Farfetch secures the number two in multi-brand digital distribution.

“Prima facie, this seems an excellent deal for Farfetch.”

Solca said that Richemont will remove a “continuing source of losses”

View from the City

According to TipRanks’ analyst rating consensus, Farfetch stock is a Moderate Buy. This is based on ratings from 11 analysts, out of which seven are Buy and four are Hold.

The average price target is $15.36, which shows an increase of 95.42% on the current price. The analyst price target has a high and low forecast of $30 and $8, respectively.

Why is Farfetch so popular?

The deal will see Farfetch benefit from a boost to traffic from e-concession deals with Richemont labels, analysts believe.