No. of Recommendations: 2
Cyberschreiber,
Swedish, what a spectacular error that was. Of course it’s Swiss. Very very different nations!
I have been learning all about Swatch since my original post and you have highlighted a few things I did not come across. Most concerning are the failed diversification attempts. Hard to justify that.
The article in the FT today I believe mentions that the CEO once published financial reports in Swiss German only to annoy investors. I also saw a proxy statement saying there is a shareholder discount on watches but we only ship inside Switzerland. Then there are the take private comments and lack of shareholder engagement.
Clearly this management is not going to take advice from an American hedge fund manager, that is for certain. That would be completely at odds with the Swiss culture.
Breguet is an incredible story I was not aware of. Marie Antoinette, the theft etc. Breguet is out of favour due to poor management perhaps but has a history and quality standard that is hard to match. It appears to be the true collectors watch and has incredible potential.
There are a lot of brands in the Swatch stable obviously and a few are doing really well despite the wider groups challenges particularly in China in 2024. Omega is performing very well and is an extremely valuable asset. Same with Harry Winston and Tissot.
Buying the company today at the value of the inventory is grossly under valuing brands like Omega (official Paris Olympic sponsor, Rory McElroy ambassador, rich legacy e.g. first watch on the moon.)
I think you are correct about wait for change before buying. Management are not concerned with other shareholders and have an unusually, almost petulant view of outsiders. Which is unfair. The reality is management control 43% or something, which is significant but external shareholders also have rights and needs.
It looks to me like the watch business boomed post COVID and then collapsed. And then collapsed further, when China went into a depression. Now the global economic uncertainties in 2025 will extend the pain for luxury goods even further. I notice that Cartier owner, Richmont, reported numbers up to 31 March 2025. Watch businesses declined less in Quarter end 31 Dec but then declined further in quarter ended 31 March. And Asia is a bloodbath.
I noticed Swatch management said after the first half results of 2014, that the second half would improve and effects of cost savings would help. In fact, the second half of 2024 got worse. Now management are saying 2025 will be better. We will see how that plays out.
If demand did continue to fall, it would push them into a loss making situation. Surely they would be forced to cut back production and lay off staff if that happened. Something they are proud not to have done to date.
At such a crazy valuation for such quality brands and manufacturing capabilities, it’s hard to imagine the share price falling further but I would not be shocked if management were happy enough with that happening and then jumping in with a take private offer when they have personal visibility on a bottoming of demand.
I might buy some if the trading pain continues this year and it gets even cheaper. But in truth, it is almost uninvestable. That said, Swatch owns some of the world’s greatest brands and owns some of the highest quality watches in the world and the Swiss reputation for true quality is not going to fade anytime soon. In the luxury goods market, that matters and it’s not hard to see these brands being very relevant and profitable for decades to come.
Thank you for your comments.
