Kuka:
This is something that ran over the ticker today with regard to the Kuka case:
CFIUS Likely to Challenge Midea-Kuka Deal, Height Says
By Kasia Klimasinska(Bloomberg) — CFIUS will likely challenge this deal “because Kuka has a direct relationship as a primary robotics supplier to Northrop Grumman,” Height analyst Nils Tracy says.
- “At a minimum, we expect the transaction will face an extended CFIUS review timeline and a number of divestures”
Gaztransport – Dodged the bullet..
Well, that was quick. 2 weeks after I reviewed Gaztransport, they have dislosed the following:
2016-01-29Paris, 29 January 2016 – GTT (Gaztransport & Technigaz) announces that it received today a notification from the Korea Fair Trade Commission informing the company that an inquiry has been opened into its commercial practices with regard to its Korean shipyard clients.
The result: The stock price dropped ~20% in two days:
No analysis of Swatch (part 1 and part 2) would be complete without a look at Hong Kong listed company Hengdeli.
Hengdeli claims to be the largest luxury watch retailer in the world and sells mostly in Hong Kong and Mainland China. According to several sources, Hengdeli has a 35% market share in selling Swiss Watches in China, so they are of course important for Swatch. How important they are, shows another fact. According to the 2014 annual report, Hengedeli’s largest supplier is responsible for 71% (!!!) of all watches sold. The two largest suppliers account for 88% of all watches sold.
It is time to finish the Swatch case. Let’s start with summarizing the first post on Swatch and the post on smart watches:
– I do believe that luxury watches have “staying power” and will not replaced or significantly impacted by smart watches as the main buyers are Emerging Market consumers and collectors
– If we accept that Swatch is in fact a luxury product company, there would be a clear valuation upside compared to other luxury companies
– However the lower range of their products (Swatch, Tissot, Rado, Hamilton etc.) clearly has problems which could become worse over time as the moat here is small to non-existent
So let’s look at some more aspects of how Swatch is run:
Capital allocation:
The company is run like a “family company”, very conservative and “Swiss” and a big contrast to Fossil. As mentioned in my post about the Hayek book, Hayek senior hated banks and Swatch therefore always kept a big cash buffer.
Management summary
In the short term, I don’t think that the Apple Watch is a big danger for Premium Swiss Watch brands. Why ?
– putting some gold on a mass-produced electronic gadget didn’t work for smart phones either
– the smart watch doesn’t have a killer app yet and we don’t see an overall smart watch boom
– the observed decline in Swiss watch exports seems to be mostly caused by overall weakness in Hong kong and Macau
– however lower or medium priced brands could be affected especially in the coming Christmas seasonThe short-term danger to Premium Watches is much more a further cooling of Chinese and Emerging Market demand. Mid to long-term there could be issues as the market seems to be in the early stages of significant technical changes
Before I jump into more details I have to make a confession: I am myself not an expert on watches. As a matter of fact, I haven’t worn a wrist watch for the last 25 years.
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This is basically part 4 and a half of my “watch series”. The founder of Swatch Group, Nicolas Hayek who died in 2010 was such an interesting character so I thought it made sense to read this biography.
The biography is unauthorized, Hayek was against it. The author is one of the most well-known Swiss Journalists. I actually read the German version because it was 10 EUR cheaper as hardcover than the English version.
Hayek was born in Lebanon into the “affluent middle class”. He went to Switzerland because he fell in love with a Swiss Aupair girl. His parents would not let marry him because of”low status” of the girl, so he left and went to Switzerland.
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This is the 4th post in what developed into a kind of “Watch series”, see Fossil part 1 and part 2 plus Movado.
Swatch is the largest wrist watch producer in the world. The company is the brainchild of legendary founder Nicholas Hayek who turned around the whole Swiss Watch industry and created Swatch out of insolvent Swiss watch makers.
Movado is the second US-based company specializing in watches (see my previous posts on Fossil part 1 and part 2). The company has a quite interesting history. Cuban Refugee Gerry Grinberg founded the company in the 1960ties basically as a Swiss Watch importer. Later on they actually acquired the rights to the Movado brand with the iconic Museum Watch.
This is a follow-up to my first post on Fossil. The short summary:
Fossil has a good but not great business with some issues, among others the potential success of smart watches. The reason to dig deeper was the unusual combination of CEO/owner with zero salary and capital allocation with a focus on share buy backs.
Share buy backs
There is a great collection of articles on Teledyne and Henry Singleton “available at CS Investing. One absolute gem inside is a classification of stock buy backs in order of usefulness to shareholders from Hedge Fund Honcho Leon Cooperman:
value and opportunity 