This report is an updated version of the report published on 17 June 2022 at 11:10 AM GMT+1

The Watches of Switzerland Group PLC

The Watches of Switzerland Group PLC (LON: WOSG) is an FTSE 250-listed luxury watch retailer, operating in the UK and US regions.

Investment Rationale for Valuation – Buy at GBX 750.00

• Q4FY22 Update: The Group reported a strong finish to FY22 with 48% y-o-y increase in Group revenue to £304 million in Q4FY22, compared to the prior corresponding period on a constant currency basis. The company witnessed robust growth in revenue from both the geographies of the US and the UK.
• Robust Fundamentals: In FY22, Group revenue grew by 40% to £1,238 million, compared to FY21. Luxury watch sales grew by 36% during the year with increased traction in demand in both the UK and the US.
• Improvement in Debt Profile: Net debt of the company improved to £14 million as of 01 May 2022, compared to levels of £44 million as of 2 May 2021.
• Technical Indicator: The price of the stock is trading close to the lower Bollinger band with 14-day RSI level of ~27.29, reflecting an oversold stance.

Key Risks

• Macro Risk: Central Banks and Regulatory Bodies across the world have put a hike on interest rates in order to curb inflation. However, these measures reflect a hawkish stance and are not supportive of the growth of the economy in the near term.
• COVID-19 Risk: The emergence of COVID-19 again can impact the company’s business leading to reduced footfalls in airports and key retail points.  

Financial Highlights (for the 52 weeks to 01 May 2022, as of 18 May 2022)

(Source: Company Website)

• Segment Sales: Sales in Luxury watches grew by 33% y-o-y to £1,047 million in FY22, compared to £788 million in FY21.      
• EBITDA: The Group expects FY22 Adjusted pre-IFRS 16 EBITDA to be between £160 million and £164 million, compared to £105 million in FY21.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)  

Conclusion

The Group believes that there will be a recovery in footfall and airport traffic going forward and provides the below FY23 guidance on an organic pre-IFRS 16 basis:

(Source: Company Website)

The stock made a 52-week high and low of GBX 1,600 and GBX 748.00, respectively.

Based on the robust fundamentals, optimistic guidance and support from the valuation as done using the above method, we have given a “Buy” recommendation on The Watches of Switzerland Group PLC at the current market price of GBX 750.00 (as of 17 June 2022, at 08:45 AM GMT+1) with lower double-digit upside potential based on 16.30x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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