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