This management team is not for turning. The realistic best case outcome for minorities here appears to be a take private. The issue is the Hayek's don't have the cash. While they could arrange financing in theory, Hayek abhors leverage (given Swatch's own founding story as a consolidator of a blown up Swiss watch industry). Therefore we are at an impasse. The underlying business is in the wrong post code: tier 2 brands, mass market overexposure, China/Asia overexposure. There might be times when these are the areas to be in but they haven't been recently and likely won't be for a while. In the meantime they will continue to burn cash producing watches market does not need and accumulating inventory. It's staggering that book value of inventory is now larger than the enterprise value of this company. Every dog has its day. Downside in this one is probably limited given all of the above but it's a weird story to buy
Thanks for your comment Sergey. Yes, I agree that the base case scenario is that management doesn't change, and it's the main reason I'm on the sidelines. But probably both China and management are already priced in. The high-end brands there have a lot more potential and a re-positioning of the company would change everything. Perhaps in the future when the company is passed on to the younger generation...
This management team is not for turning. The realistic best case outcome for minorities here appears to be a take private. The issue is the Hayek's don't have the cash. While they could arrange financing in theory, Hayek abhors leverage (given Swatch's own founding story as a consolidator of a blown up Swiss watch industry). Therefore we are at an impasse. The underlying business is in the wrong post code: tier 2 brands, mass market overexposure, China/Asia overexposure. There might be times when these are the areas to be in but they haven't been recently and likely won't be for a while. In the meantime they will continue to burn cash producing watches market does not need and accumulating inventory. It's staggering that book value of inventory is now larger than the enterprise value of this company. Every dog has its day. Downside in this one is probably limited given all of the above but it's a weird story to buy
Thanks for your comment Sergey. Yes, I agree that the base case scenario is that management doesn't change, and it's the main reason I'm on the sidelines. But probably both China and management are already priced in. The high-end brands there have a lot more potential and a re-positioning of the company would change everything. Perhaps in the future when the company is passed on to the younger generation...