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Swatch Group - Presentation

Analyst Report summary
by

Mehdi Mahjour

on 17 April 2013

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Transcript of Swatch Group - Presentation

Analyst Report Swatch Group Recent Financial Performance Business Description Industry Overview Global Market of Luxury Goods (in EUR bn) Financial Ratio Analysis Qualitative Analysis Products in the pipeline Overview of 2012

Total gross sales of CHF 8,143 million
Operating profit of CHF 1,984 million
Operating margin increased to 25.4%
Net income of CHF 1,608 million Important Releases 1983 2013 1998 Merger of ASUAG and SSIH Swatch Group 19 brands
Main actor in watchmaking industry
Tourbillon Unique Strategic Positioning Today Yesterday Yesterday Vertical integration
Movement supplier
Distribution channel
Differentiation Recent acquisitions Simon & Membrez (2012)
Harry Winston (2013) Source: “Luxury Industry: a high investment potential”, Derinews (02/2013) - Vontobel bank’s monthly magazine. Main competitors Swatch Group
+
Richemont
+
Rolex
=
40% Europe +20%; Asia +11% in 2012 Short and Long-term prospects Sales growth expected in 2013


Outperformance of Swatch


Exportation to new markets Entry/Mid luxury category Asia major role America, Middle-East & Russia "+10% within 5 years"

Mr Thomas
(Hermès' CEO) Liquidity Industry Average in 2012
Quick Ratio: 1.02
Current Ratio: 1.88 Dupont Analysis Industry Average in 2012
Profit Margin: 19%
Asset Turnover: 56%
Financial Leverage: 1.54
Return On Equity: 16.5% Profitability Industry Average in 2012
EBITDA Margin: 24%
Effective Tax Rate: 26%
Net Margin: 11% Financial Strength Interest expense coverage: 540 (beg. 2013)


Financial leverage: 1.2 (beg. 2013)


Return on invested capital: 9.2% (2012) Industry average: 45 times Industry average: 1.54 Industry average: 5.9% Strategic Acquisitions Development Brand image Competitive advantage Expansion E-commerce Rivalry Currency risk Earnings forecasts "5 to 10% for Swatch Group's growth rate for 2013"

says Mr Nick Hayek (CEO) Refinements Multiplier effect of 2-3 on GDP figures

Austerity measures in Europe

Internal conflict

Integration of Harry Winston

Industrial openings Margins Assumptions 12% sales growth in 2013

Decreasing rate towards 3% in 2017-2023

Perpetual growth rate at 3% Operating margin increased to 25.4% in 2012

EBITDA increased to 28.8%

Net margin increased to 20.6% Other elements Percentage of sales: Depreciation, SG&A and CapEx

7-year historical average Our assumptions vs. Morningstar analysts' figures Net Working Capital Conservative views of Swatch Group

Reduction of spending acquisitions in the future

Analysts consensus: small negative value Tax rate Relatively stable

Last 7-year average of 20.3% as of March 22, 2013 Valuation Beta (over the past 10 years):
Regression (monthly ajd. stock prices)
SMI (43.5% voting rights = board)
10-year Swiss government bond

Cost of equity:
Expected market return = CAGR
Risk free rate = YTM(0) of 10-y Swiss Gov Bond
CAPM

Cost of debt:
Interest expense / Total net debt
No excess cash (cash to sales < 20%) WACC Method of comparables Morningstar's estimations for competitors:
LVMH
Richemont
Hermès TABLEAU MEILLEURE QUALITE
--> ARNOUCHE Messages pour vous autres:
- method of comparable: je ne trouve pas le tableau "source" pour l'avoir en meilleure qualité
- où mettre le camembert de Mathys ?
- comment présenter nos résultats finaux EPS, PE ... ? et où ?
- arranger le graphique de momentumbullshit
- est-ce qu'on parle de "value" company ?
- notez des commentaires sur l'ordre des parties et autres Investment risks to the Price Target Method of comparables Investment risks to the Price Target Quantitative signals Quantitative signals WACC Computation Exchange rate: financial instruments Commodities: various metals Macroeconomic factors Legal: "positive risk" (COMCO) High momentum Financial performance vs. Industry P/E increase of 22% in 2013
EPS decrease of 7.1%
Price to cash flow ratio estimation of 26 (industry average of 14.4) PRICE TARGET Conclusion & Recommendation Recent financial performance - HS
Business description - MM
Industry overview - AS
Financial ratio analysis - AM
Qualitative analysis - AD
Earnings forecasts - HS
Valuation - MM & AM
Conclusion & Recommendation
Full transcript