Swatch's Revenue Under Pressure but Cost Control and Efficiencies Are Encouraging; Shares Attractive

We expect to reduce our fair value estimate for Swatch group by a low-single-digit percentage as we incorporate worse-than-expected 2020 results. We still expect sales to rebound strongly in 2021 when the situation with pandemic normalizes. Swatch’s revenue was down by 28.7% at constant and by 32% at actual exchange rates (versus 25% decline we anticipated), which was weaker than Swiss watch export numbers (down by 21% in value terms in 2020). The company’s exposure to lower priced segments is higher than the industry’s at around 24% of revenue in 2019 versus 10% for the industry in value terms, we estimate. Watches in the industry priced below CHF 500 at export level declined by 34% versus around 20% decline for those priced above this threshold. Weak sales in Switzerland and low levels of e-commerce penetration may also have weighed on the watch performance. Only 5.5% of sales were done with own online channels in 2020 versus 2.6% in 2019 and higher end brands such as Breguet, Blancpain, and Harry Winston don’t have e-commerce, while Omega doesn’t have e-commerce in China.