The Swatch Group Ltd (SWX: UHRN)

Introduction

Swatch Group has previously been covered on this blog – first on June 7th, 2020, and then again on April 25th, 2021, when it was highlighted as an opportunity to sell the stock at a decent gain, less than a year after the initial write-up.

Since then, the company has experienced some turbulence. Sales have weakened, culminating in a disappointing 2024 financial year with a notably low operating profit. Meanwhile, governance issues, particularly surrounding CEO Nick Hayek, who also represents the company’s largest shareholder group, have drawn negative attention. The combination of operational underperformance and management criticism has driven the share price down to below CHF 27, a stark decline from over CHF 90 in 2018.

Valuation

Despite these headwinds, Swatch’s balance sheet remains strong. As of the end of 2024, the company holds:

• CHF 1+ billion in cash
• CHF 7.6 billion in inventory
• CHF 3.1 billion in property, plant, and equipment
• Virtually no financial debt

This results in total equity of over CHF 12 billion, while the market capitalization currently stands at approximately CHF 6.9 billion. This implies a price-to-book (P/B) ratio of just 0.57x, which appears quite low for a company with a globally recognized brand portfolio. Of course, current profits are depressed, and a turnaround will be needed to unlock value.

What's next?

The numbers are weak, governance is contentious, and many investors have lost patience – leading to selling pressure. That said, Swatch remains financially sound, with high autonomy thanks to its debt-free structure. From a valuation standpoint, the stock looks cheap.

Could investor sentiment turn? It’s possible. A shift in consumer perception or improved profitability might drive renewed interest. Furthermore, rumors persist that the Hayek family pool, the largest shareholder, may look to increase its stake or even consider taking the company private – a scenario that would certainly change the game.

Current Price

CHF 26.47 per registered share

Tonnellerie Francois Freres SA (EPA:TFF)

Intro

Tonnellerie Francois Freres SA (TFF Group) is a leading manufacturer of oak barrels and casks, catering to the wine and spirits industry. With a deep-rooted heritage in cooperage, the company has successfully expanded into whisky and bourbon aging, diversifying its revenue streams beyond traditional wine barrels.

Since its foundation, TFF has remained under the stewardship of the Francois family, now in its fourth generation, which currently holds a 71% ownership stake. The remaining shares have been publicly traded on the Paris stock exchange since 1999.

Valuation

Due to cost pressures and slowing demand, the stock has declined nearly 50%, now trading at a price-to-book (P/B) ratio of approximately 1.08 – just slightly above book value.

Additionally, the company has accumulated a sizable debt position following significant investments in bourbon production capacity to capture anticipated growth. With the majority of these investments now complete, the next phase will likely focus on reducing indebtedness.

Financial years 2023 and 2024 were strong, with earnings per share (EPS) of €2.44 and €2.60, respectively. While financial year 2025 is expected to be more challenging, the company’s long-term fundamentals seem to remain solid.

What’s next?

Looking ahead, TFF's expansion into American whiskey and bourbon cask production is poised to be a key growth driver. While short-term uncertainty persists, the company’s core strength in high-quality barrel production remains intact, positioning it as a compelling long-term opportunity. If TFF can regain solid growth momentum and reduce capital expenditures, significant free cash flow generation could follow.

Current price

€24.70 per share

Disclosure

The author is currently long TFF.

Update Kyndryl Inc. (NYSE:KD)

Nearly three years ago, a note on Kyndryl was published. Since then, the company has made notable progress in reshaping its business following the spin-off from IBM. In November 2024, Kyndryl announced a new growth strategy along with the launch of a share repurchase program, signaling confidence in its future prospects. Recent developments have brought encouraging news.

While there may still be some upside potential, the stock now appears closer to fair value, and the market currently offers a range of other compelling opportunities. Let others enjoy the rest of the ride;) 

Notably, the stock price has risen approximately 115% compared to its level in January 2022.

Current Price
$38.90

Mayr-Melnhof Karton AG (VIE:MMK)

Intro
Mayr-Melnhof Karton (MMK) is a leading global manufacturer of cartonboard and folding cartons active in 33 countries with around 15,000 employees. MMK operates in three divisions: Pharma & Healthcare Packaging, Food & Premium Packaging and Board & Paper. The company promotes sustainable development through innovative, recyclable packaging and paper products.

MMK has been listed on the Vienna Stock Exchange since 1994 and is still controlled by core shareholder families, who own roughly 58% of the share capital. The remaining 42% is free float.

Valuation
Especially in 2021 to 2023, Mayr-Melnhof has been very active in buying other companies (for example Essentra Packaging) or incurring large investment programs (for instance currently at its paper mill in Kwidzyn in Poland). Through these activities, net debt has increased from around €200 million in 2019/2020 to more than €1.2 billion in 2023. 

Leverage ratios have also increased and ought to be reduced in the coming years again.
Historically, MMK has earned a bit less than €10 per share, which would translate into a normalized P/E ratio of around 8x under the assumption that they will return to at least the same profit levels as in the past. The P/B ratio sits also at a rather low value of 0.83x.

What’s next?
The business model of Mayr-Melnhof can be quite cyclical and due to some overcapacities currently prevailing, earnings seem to be distressed, and the firm also lowered its dividend. 

The recently done acquisitions will need to be digested but there is little doubt that the company won’t make it through the current downturn, as there have been many since the founding year in 1888.
Although MMK is already a market leader, there is still a lot of room to grow organically but also through further acquisitions.

Now seems to be a good time to step up to the plate.

Current Price
€84.10 per share

Disclosure
The author is currently neither long nor short Mayr-Melnhof.

Cash in?

In mid-2022, Agios Pharmaceuticals (NASDAQ:AGIO) was mentioned on this blog as kind of a special situation. It was explained that the company was roughly available at its cash value. Some of the value described seems to have materialized now and the stock increased from $17.60 to around $33.00. Because of many other excellent opportunities, this might be a good moment to cash in and realize the profit of almost 90% - congratulations!

Bayer AG (ETR:BAYN)

Intro

When is enough enough? Since Bayer closed the acquisition of Monsanto in 2018, the company hasn’t been the same. Bayer incurred huge litigation costs associated with the takeover, a lot of trust and reputation has been lost and the share price fell from more than €100 per share to below €30 currently. A debacle.

Bayer generates around €50bn in revenues, of which 50% is from crop science, 38% from pharma and the remaining 12% from consumer health.

 

Valuation

The big elephant in the room are the litigation costs and hence free cash flow is impacted by litigation pay-outs and also one-time costs for transformation to reorganize the business.

Bayer currently trades below book value, showing a P/B of 0.85. Just recently, the company basically suspended its dividend (they still pay out a small minimum dividend which is marginal) for the next three years.

Adjusted for the litigation effect, Bayer is still expected to generate an EPS of around €5-6, which translates into an adjusted P/E of roughly 5x.

In sum, if the litigation effect is taken out, rather cheap valuation metrics.

 

What’s next?

Is now enough? Of course, this is impossible to answer. However, it seems like that everybody has left this ship who wants to be out: results have been bad, litigation takes longer than expected and the dividend has basically been suspended. After this last bad news, the stock has held steady might indicating that the worst for the stock is over.

Although it needs a lot of phantasy currently, if we fast forward 3-5 years, the company will presumably have reduced its debt load by approximately €4-6bn, hopefully solved the crop science issues and invested into its crop science as well as pharmaceutical pipeline. And then, we may see a resumption of the dividend payments once again. Time will tell.

 

Current Price

€28.82 per share

 

Disclosure

The author is currently not long Bayer; however, his close relatives have some exposure.

 

Hong Kong Ferry Holdings (HKG:0050)

Intro

Hong Kong Ferry Holdings is mainly engaged in property development and investment. As the name says, they also operate a ferry business and has expanded into the medical field.

Major sources of income are currently rental income from properties and interest income on the cash reserves.

Due to the large cash reserves, the company paid out a special dividend for its 100^th anniversary in 2023 of HK$1 per share besides its ordinary dividend.

Warning: this is – again – a very illiquid stock and hence not suited for everybody.

 

Valuation

The balance sheet as of mid-2023 can be summarized as follows:

• HK$3.5bn of non-current assets (mainly investment properties)

• HK$1.8bn of inventories (mainly properties in development)

• HK$1.8bn of cash

With no financial debt, this leaves equity of HK$6.9bn. Compared to the market cap of HK$1.6bn, the P/B ratio stands at 0.23.

 

What’s next?

At the current stock price, it is possible to buy this 100-year-old company at just the cash in the bank value and all real estate and other business is given on top of that for free.

All in all, although there might be macro risks, this seems to be a solid risk-reward situation.

 

Current Price

HK$4.50 per share

 

Disclosure

As with most shares discussed on here, the author is long Hong Kong Ferry.