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The Swatch Group AG ADR SWGAY

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Morningstar’s Analysis

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Capital Allocation

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

Jelena Sokolova, CFA Equity Analyst

Analyst Note

| Jelena Sokolova, CFA |

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. 

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Company Profile

Business Description

Swatch Group’s biggest brands are Omega (number-two Swiss watch brand by sales after Rolex), Longines (the largest premium watch brand and number four by sales globally), Breguet, Tissot (the leader in midrange Swiss watches with around 4 million annual unit sales), and Swatch. Swatch group employs over 33,000 people, half of them in Switzerland. We estimate that Swatch Group makes about 30% of its sales from Omega, 10% from ultraluxury brands, 19% from Longines, 13% from Tissot, and 4% from Swatch. We estimate Omega and Longines to be the group’s most profitable brands.

Contact
Seevorstadt 6
Bienne, 2501, Switzerland
T +41 323436811
Sector Consumer Cyclical
Industry Luxury Goods
Most Recent Earnings
Fiscal Year End Dec 31, 2020
Stock Type
Employees 36,089

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