The acquisition of Swiss watch merchant Bucherer by Rolex has become a hot-button topic for Watches of Switzerland Group PLC (LSE:WOSG), the FTSE 250 incumbent retailer of high-end timepieces.
Watches of Switzerland shares tanked when the deal was announced in August, but following today’s second-quarter trading update, some City analysts are calling the Rolex-Bucherer merger a non-issue.
Shore Capital Markets, for instance, maintained that the acquisition “does not compromise the company's underlying prospects”.
Indeed, Rolex’s acquisition of Bucherer was not even mentioned in Watches of Switzerland’s trading update, nor its updated long-range plan (though stakeholders may press management during this afternoon’s presentation).
Yet Watches of Switzerland’s heavily reduced valuation (currently 32% lower year to date with a 10x price-to-earnings ratio) is there for all to see.
Shore Cap pointed to “weakened consumer sentiment and the normalisation of second-hand prices” as additional factors playing into the group’s discounted share price.
Putting these headwinds aside, the group “demonstrated a strong trading performance, a testament to its resilient business model and the effective execution of strategic initiatives amid a challenging consumer environment”, according to analysts.
They added: “Despite the temporary closure of several high-turnover showrooms for upgrades, the company managed to exit the quarter with a return to year-on-year growth in October, signalling robust underlying demand.”
Though Watches of Switzerland shares have a steep hill to climb, early market reactions to today’s update and guidance were positive, with shares adding around 10% on Tuesday morning.