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This month’s update happens to feature three stocks listed in the UK. That does not reflect any top-down view or excitement about the country’s macro prospects, and future (and previous) updates will include stocks listed in other countries.
However, my bottom-up work continues to lead me towards UK stocks, and I think it is worth reposting this chart from Neil Woodford’s blog:
The chart shows that US stocks are trading on 22.5x forward P/E and above the 90th percentile towards expensive, whereas UK stocks trade on 11x P/E and the 10th percentile towards cheap. Both ranges reflect those market’s historic multiples.
We imagine that if adjusted for large vs small cap and ‘growth’ vs ‘value’ stocks, UK and other International small cap value stocks would look incredibly cheap.
Watches of Switzerland (WOSG.L)
Watches of Switzerland are reporting their fiscal Q3 trading update on February 6, and I think there is a good chance of another positive surprise.
There has been a significant amount of positive data in the last month:
Richemont reported a strong fiscal Q3, sending the stock up 19% on the day.
The decline in their global watch business reduced to -8% from -16% in fiscal H1, with all regions growing except APAC. Americas was called out as having a double-digit increase, which is a positive read-through for Watches of Switzerland’s US business.
The read-through from revenue growth by region at a group level is less useful as most of Richemont’s business is selling jewelry rather than watches. Nevertheless, the trends were positive with Europe accelerating to +19% (+6% in FH1) and Americas to +22% (+11% in FH1).
Swatch’s trading update stated that for watches & jewelry:
"Sales in December were very positive, particularly for the Omega, Tissot and Hamilton brands with double-digit growth, while sales for brands in the prestige segment were still below those of the previous year. The USA, Canada, as well as certain European countries such as the UK, the Netherlands or Belgium, exceeded the previous year's sales by 20% or more…practically all markets worldwide are on course for growth, and issues with consumption are only being seen in the Greater China region."
LVMH’s Q4 results were also positive with watches & jewelry growth accelerating to +3% (vs -2% to -4% in Q1-Q3). However, this was partially due to initatives at Tiffany and easier comps.
Rolex raised prices by 4.8% in the US and UK, after a 4.0% increase in 2024 and 7.8% increase in 2023. That suggests demand and waiting lists have remained strong.
Swiss watch exports also suggest that growth in the UK continues to be about flat, albeit with a dip post the October budget. The US continues to see mid-single-digit supply growth.
Note that the Federation of the Swiss Watch industry does not break this data out by brand. However, the data does show that watches over CHF 3,000 are performing better than watches between CHF 500 and CHF 3,000. That implies more expensive watches like Rolex are performing better, which is positive for Watches of Switzerland.
Finally, data scrapped from customers online suggests that waitlists continue to remain healthy.
Putting this all together, my expectations for Watches of Switzerland’s results are for: