{"id":92049,"date":"2024-09-15T02:14:46","date_gmt":"2024-09-15T06:14:46","guid":{"rendered":"https:\/\/ifintechworld.com\/?p=92049"},"modified":"2024-09-15T02:14:58","modified_gmt":"2024-09-15T06:14:58","slug":"watches-of-switzerland-a-contrarian-bet-otcmktswosgf","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=92049","title":{"rendered":"Watches of Switzerland: A Contrarian Bet (OTCMKTS:WOSGF)"},"content":{"rendered":"
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Watches of Switzerland Group or ‘WOSG’ (OTCPK:WOSGF) is among the largest luxury watch dealers in the world (mainly Rolex but also Audemars, Patek Philippe, Cartier, etc.) with clear leadership in the UK market, as well as a fast-growing US presence. The underlying WOSG economics has long been very attractive, combining best-in-class >20% ROEs with steady earnings growth through the cycles. This perception has drastically changed over the last year, however, mainly on concerns about Rolex going downstream <\/span>post-acquisition of its Swiss distributor Bucherer. Not helping matters either were a series of weak trading updates and a big profit warning earlier this year.<\/span><\/p>\n

If more recent data points are any indication, though, the worst may finally be over for WOSG. Yet, the market has kept WOSG stock firmly in the penalty box, and at the current ~10x forward P\/E, the Rolex disintermediation risk is likely over-handicapped in the price. Also, not properly priced, in my view, is WOSG’s ‘floor’ value as a Bucherer-type M&A target down the line (arguably the most logical vertical integration path for Rolex).<\/span><\/p>\n

All this simultaneously leaves WOSG investors with a healthy dose of safety margin against future execution mishaps and plenty of upside if the company gets anywhere near its ambitious “long-range growth plan” (or ‘LRP’). In sum, a favorable risk\/reward here.<\/p>\n

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Data by YCharts<\/figcaption><\/figure>\n<\/p>\n

Another In-Line Trading Update<\/h2>\n

WOSG has had its fair share of earnings disappointments; the most recent being a massive profit warning at the start of this year citing “challenging macroeconomic conditions” <\/em>that sent the stock plunging >30% lower. Since the big reset, however, trading updates have been mostly in line with management expectations.<\/p>\n

The post-AGM commentary earlier this month was more of the same. To recap, the company reiterated the (pre-IFRS 16) FY25 outlook it initially set out in its FY24 results. For the P&L, key targets remain a GBP1.67-1.73bn top-line (implied constant currency growth of 9% – 12%) and +0.2 to +0.6 percentage points of EBIT margin expansion. Elsewhere, the GBP60-70m capex and ~70% free cash flow conversion targets are intact. Also, positive was that the integration of Roberto Coin Inc., for which the company now owns distribution rights in the US\/Canada\/Central America, is “progressing to plan.”<\/em><\/p>\n

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FY25 Guidance<\/strong><\/p>\n<\/td>\n<\/tr>\n

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Revenue<\/p>\n<\/td>\n

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GBP1.67 to GBP1.73bn (+9% – 12% constant currency growth)<\/p>\n<\/td>\n<\/tr>\n

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Adjusted EBIT margin %<\/p>\n<\/td>\n

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+0.2 to +0.6% points YoY expansion<\/p>\n<\/td>\n<\/tr>\n

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Total finance costs<\/p>\n<\/td>\n

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GBP13m (including Roberto Coin Inc. financing)<\/p>\n<\/td>\n<\/tr>\n

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Underlying tax rate<\/p>\n<\/td>\n

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28% to 30%<\/p>\n<\/td>\n<\/tr>\n

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Capex<\/p>\n<\/td>\n

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GBP60 to GBP70 million<\/p>\n<\/td>\n<\/tr>\n

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Free cash flow conversion<\/p>\n<\/td>\n

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~70%<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

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