Will Swatch benefit from the holiday momentum?

Shares of Swatch Group (UHR.CH), a leading Swiss watchmaking consortium, are up nearly 2.5% today. Are investors slowly starting to evaluate the results for the Christmas quarter, in which sales of watches are usually much better compared to other quarters of the year?

• The company has both a line of Swatch watches as well as other reputable and popular brands of Swiss watchmakers of the middle class (e.g. Tissot), premium (e.g. Certina) and luxury (e.g. Omega, Blancpain). The company also owns the ETA concern, which produces quartz and mechanical movements for dozens of watch brands from around the world;
• It is worth mentioning that some luxury watches are often perceived by investors as investments because selected models, such as the Omega Speedmaster, can maintain or even increase in value, which makes them a potential 'safe haven' investment alternative for precious metals during an economic recession. The results for the last quarter of the year will show whether the sales of the most expensive watches that bring the company the highest margins have really increased;
• The FIS ski federation announced in December that Swatch has become an Official Partner of the FIS Park & Pipe World Cup. The contract will last for four years until the 2025-2026 season;
• The company's CEO, Nick Hayek Jr. yesterday announced that, unlike Rolex, the company sees no need to regulate the currently valued approximately USD 20 billion market of luxury used watches. Deloitte estimates that the luxury pre-owned watch market will grow to $35 billion by 2030. In an interview with Bloomberg TV, Hayek pointed out that the used watch market "regulates itself" through the relationship of supply and demand. The Hayek family controls a majority stake in the Swatch Group. Hayek also told Bloomberg that he was surprised by the size of his company's Omega MoonSwatch success and that he is looking to expand sales in China next year:
• "China is very strong. People are very aware of high-quality products. The potential is huge, but not only on luxury items." Purchases of Swiss watches in China have recently lagged behind the deteriorating economic outlook, inflation and the persistent threat of Covid-19, with HongKong remains one of the main markets for the Swatch group. At the same time, however, sales in the US more than compensated for the weakening China, helping to drive the export of Swiss watches to record volumes in November this year.
• Since October, most analysts, including Jefferies, SBG Securities, AlphaValue and Baader, have raised their recommendations for Swatch Group shares, and Santander analysts have given a neutral rating. According to Jefferies' forecasts from December 7, Swatch should record an annual profit of USD 0.91 per share in the holiday quarter. In 2024, an increase of nearly 20% is forecast, to USD 1.08 per share.
• The increasing return on capital employed (ROCE) for Swatch looks positive and shows that the company has managed to avert the crisis of recent years, at least for now. Potentially, this means that the company takes advantage of its investment initiatives and can continue to develop. This, in turn, is a characteristic feature of the momentum of increasing profits. The ROCE indicator is therefore a measure of the pre-tax profit that a company can generate from the capital involved in its own operations. Based on the twelve months to June 2022, Swatch Group's ROCE was 9.1%, below the luxury industry average of 13%. It is worth noting, however, that the ROCE generated by the company has increased by 27% over the last five years with a simultaneous 34% decrease in the company's shares at the same time (from negative levels), which illustrates the actual improvement in the company's investment efficiency and may position it higher in the long-term trend.

Swatch Group (UHR.CH), interval W1. In recent weeks, the bulls managed to break above the 200 session moving average, which acted as major long-term resistance since 2015. It is worth remembering that another downward impulse may be triggered if the company fails to positively surprise analysts with financial results for the current holiday quarter. Source: xStation5