No. of Recommendations: 7
Can’t decide if it’s a cigar butt that will not give a final puff due to inability to control the company, or if it’s a high quality watch manufacturer with 300 year old brands with the market for mechanical watches growing and they have temporarily stumbled and it’s a 5x waiting to happen. If only it was that easy.
This is a very interesting one with Swatch Group, if thinking from the Ben Graham style valuation alone. The price to book ratio is now at 0.61, and it has a net cash position of CHF 2 billion (market cap is $9.5b and enterprise value is $7.5b - the difference of 2 billion.
However what strikes me is the risk of the family ownership, and history of poor management and also imagining the executive incomes plus dividends. The Hayek family is actively involved in running Swatch Group and likely derives income primarily from salaries and dividends, with capital gains being secondary due to their long-term commitment to control.
In that situation, the fact that it trades at 0.61 of book value probably doesn't greatly bother them so I would say the main risk with the company from an investing perspective - you probably shouldn't be expected to 'squeeze' out that 0.39 of value any time soon. The management are unlikely incentivized to disrupt the status quo. (This is a trend with a lot of, but of course not all, business mentality in Europe also - this is considered more cultured than shaking things up).
PS: You write very well and clearly, with some of the most liked posts, so I hope you don't defer to AI too much!
- Manlobbi
