Swatch Sales Show Solid Growth in First Half Despite Lockdowns in China; Shares Attractive

We are maintaining our fair value estimate of CHF 341 per share for narrow-moat Swatch as the company reported solid improvement in revenue and profits in the first half of the year, even despite lockdowns in China, the company’s major market. Sales were up 7.4% in the first half at constant currencies and would have been 18% higher if CHF 400 million in lost sales due to lockdowns in China were included. Our forecasts call for 4.7% growth in revenue for the full year, implying deceleration in the second half of the year, factoring in some demand cooling from inflationary pressures and weaker asset markets. Management remains sanguine with double-digit local currency growth expected for the remainder of the year. Even so, we view shares of Swatch as inexpensive, trading in 4-star territory with some 45% upside to our fair value estimate.