Watches of Switzerland Group Plc

Watches of Switzerland Group Plc (LON: WOSG) is an FTSE 250 listed personal goods company based out of the UK and engaged in the business of retailing of watches.

The Company will release the H1 FY2021 report on 17 December 2020.

Investment Highlights - Watches of Switzerland Group Plc – Expensive at GBX 412.68

• As per valuation metrics, EV/sales, EV/EBITDA, Price/Cash Flow and Price/Book Value multiples of the Watches of Switzerland Group Plc is currently higher as compared to the corresponding multiples of the Specialty Retailers industry, reflecting overstretched valuations.
• The Company has a Debt/Equity ratio of 2.54% in FY2020, reflecting an increase in the debt in the capital structure, and is ahead of industry median of 0.95%.
• From the technical standpoint, 14-day RSI is currently supporting downward movement (around 83 level), which means the stock price could decline in the short term.

Key Risks

• Any change in the spending pattern of customers might hamper the financial performance of the company.
• The launching of new operations might increase the regulatory risks for the company. 

Update on Trading Performance for Q2 FY2021 (released on 6 October 2020)

• In the second quarter of FY2021, the revenue increased by 18.3% to £202.7 million. The increase in revenue was stronger than expectations.
• The Company witnessed strong domestic sales in the UK and e-commerce sales surged by 49.9%. The performance in the US business also increased for the quarter to date.
• The Company witnessed strong response on new product launches, with a positive influence on total sales.
• As a part of the store expansion plan, the Company opened a new Rolex Room in Knightsbridge showroom on 18 September 2020.
• The Company acquired Analog Shift, pre-owned and vintage watches retailer in the US, to support growing and strong position in the US. The recently acquired four Fraser Hart stores continue to deliver positive performance.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

Despite the existence of business uncertainties, the Company’s guidance for FY2021 is based on strong demand for luxury watches in the US and the UK. The Company revised the FY2021 guidance and improved it further with higher revenue, Adjusted EBITDA, EBITDA and lower net debt. The Company’s sales performance in Q2 FY2021 is supported by supply-driven business model and strong domestic demand. With the travel restrictions imposed on travelling, the Group witnessed a decline in the trading from travel and tourism business. The improved guidance for FY2021 is based on the assumption that there will be no lockdowns in the US and the UK, as it would impact sales further. The imposed lockdown with impacted the brand partner’s production and will cause localised disruption in remaining FY2021. The stock made a 52-week low and high of GBX 170.80 and GBX 412.00, respectively.

Based on the factors as highlighted above, we believe the stock of Watches of Switzerland Group Plc is “Expensive” at the current price of GBX 412.68 (as on 6 October 2020, before the market close at 10:05 AM GMT+1), with support from few catalysts needs to be evaluated at a later stage such as benefits from improving performance in the UK and US businesses.

Premier Oil Plc

Premier Oil Plc (LON: PMO) is an FTSE All-Share London, United Kingdom-based multinational Oil & Gas Exploration, and Production Company.

Investment Highlights - Premier Oil Plc – Hold at GBX 16.07

• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Cash Flow multiples of the Premier Oil Plc are currently lower as compared to the corresponding multiples of the Oil & Gas industry. It reflects, shares are undervalued as compared to the industry.
• Over the course of 3 years (FY16 – FY19), the company’s revenue surged from USD 122.60 million in FY16 to USD 164.30 million in FY19, compounded at an annual growth rate (CAGR) of ~10.25 per cent.
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 43 level), which means the stock price could increase in the short term.

Key Risks

• The decline in oil prices can impact the cash generation and profitability of the Company.
• The Company can face liquidity risk with insufficient borrowing facilities amid Covid-19 crisis.

Recent News

On 6 October 2020, Premier Oil announced the signing of an agreement with Harbour's UK, regarding the proposed merger between Chrysaor and Premier and reorganisation of cross-currency swaps and debt of Premier. It will be merged through a reverse takeover process. The Company’s (Premier Oil) shareholders’ are expected to have a stake of around 5.45% of the combined group. Harbour, the majority stakeholder of the Chrysaor Holdings Limited is expected to own up to 39.02% stake in the combined group. Once the transaction is completed, the total gross debt of around USD 2.7 billion (Premier Oil) and other hedging liabilities will be cancelled or repaid. The whole transaction is subject to the regulatory approvals, existing creditors consent and approval from the Shareholders (Premier Oil).

Financial & Operational Highlights – H1 FY2020 (30 June 2020)

• Despite the commodity price collapse, the Company generated a decent operating cash flow of US$324 million along with free cash flow of US$25 million and reduced net debt to US$1.97 billion.
• Production averaged 67.3 kboepd in H1 FY2020, due to an unplanned 20-day shutdown on Catcher, and the cessation of production from Huntington and Kyle.
• At the current forward curve, the Company projects to be free cash flow positive in FY2020.
• The Company has a strong liquidity position as on 30 June 2020, with cash resources of US$139.7 million and undrawn facilities of US$329.3 million.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decline in financial performance in the first half of the financial year 2020. Both the top-line and the bottom-line performance declined, with negative profitability margins. The proposed transactions will help Premier Oil in normalise balance sheet and allow it to benefit for additional FCF (free cash flow) generation and reduce debt. Moreover, with rising near-term production, PMO should be able to reinvest in growth projects to deliver value for shareholders. The stock made a 52-week low and high of GBX 10.02 and GBX 120.70, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance for Premier Oil Plc at the current price of GBX 16.07 (as on 6 October 2020, before the market close at 11:55 AM GMT+1) and will recommend fresh buying at the right time.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.

Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.