Thank you for the valuations that you share! Out of curiosity, how do you project the balance sheet items in your models and to what extent do these impact your valuations? For example, how do you project cash, current and non-current assets, leases, equity (do you take potential dividends / buybacks into account?) etc.? Do you do some sort of a simplified standard approach in each case?
When you properly do a DCF, then the items almost come naturally. Where does net income go? Retained earnings (Balance Sheet). Where do your D&A and CAPEX go? Cash Flow Statement. When you do the cash flow statement, the cash at the bottom goes to the balance sheet, etc. Where does your working capital forecasts go? Balance sheet and cash flow statement. Make sense? I'd suggest you check out what I would call the 'bible' on this - otherwise known as the McKinsey book on Valuation - https://www.amazon.com/Valuation-Measuring-Managing-Companies-Finance-dp-1394279418/dp/1394279418/ref=dp_ob_title_bk
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...
Thank you for the valuations that you share! Out of curiosity, how do you project the balance sheet items in your models and to what extent do these impact your valuations? For example, how do you project cash, current and non-current assets, leases, equity (do you take potential dividends / buybacks into account?) etc.? Do you do some sort of a simplified standard approach in each case?
When you properly do a DCF, then the items almost come naturally. Where does net income go? Retained earnings (Balance Sheet). Where do your D&A and CAPEX go? Cash Flow Statement. When you do the cash flow statement, the cash at the bottom goes to the balance sheet, etc. Where does your working capital forecasts go? Balance sheet and cash flow statement. Make sense? I'd suggest you check out what I would call the 'bible' on this - otherwise known as the McKinsey book on Valuation - https://www.amazon.com/Valuation-Measuring-Managing-Companies-Finance-dp-1394279418/dp/1394279418/ref=dp_ob_title_bk
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...