If you have penchant for classic timepieces and £4,000 to spend, as the average Watches of Switzerland shopper does, would you treat yourself to a sleek Omega Seamaster 300 or a Breitling Avenger Blackbird? Or should you pick up just over 1,400 shares in the newly listed company itself? At today’s price, that’s what £4,000 would get you (Ashley Armstrong writes).
Watches of Switzerland was floated in London in May, valued at 270p-a-share. Britain’s biggest retailer of Rolex, Cariter, Tag Heuer and Breitling timepieces has a 35 per cent share of the luxury watch market, 104 shops in the UK (including the Goldsmiths and Mappin & Webb brands) and 24 in the United States. The Mappin & Webb business traces its roots back to a silver workshop in 1775 and it has held royal warrants since Queen Victoria.
As part of its pre-float marketing exercise, the company was rebranded from Aurum last year, which was bought by Apollo in 2012 from lenders to Baugur, the defunct Icelandic investment vehicle. Apollo sold shares worth £220 million in the initial public offering, which also cut the company’s debt from £240 million to £135 million in the process. Watches of Switzerland has reduced the risk of a private equity-inflicted hangover by already repaying its expensive high-yield bond debt with a £120 million loan that’s more appropriate for life as a public company, reducing its annual interest service by £17 million a year.
Watches of Switzerland has already spent £45 million over the past five years refurbishing 93 per cent of its British shops. Indeed, Brian Duffy, 65, chief executive, is passionate about turning the company’s shops into stylish showrooms that make wealthy shoppers feel comfortable enough to start spending thousands of pounds. Yesterday proved that the refurbishments were paying off, with sales in spruced-up shops revealed to have enjoyed a 26.8 per cent jump in their first year. So far the retailer has reported a 2.2 times return on its capital expenditure, with roughly 10 per cent of people that walk through the doors making a purchase.
Watches of Switzerland expects to spend another £12 million this year on its more dramatic refurbishments, with another £20 million dedicated to transforming the Mayors business in the United States, where there is considerable opportunity. Mr Duffy believes that America has “nowhere near the level of penetration” for a luxury watches market that is 1.6 times the size of that in the UK, but, given the long list of British retailers that have tried in vain to break America, it’s reassuring to note that Mr Duffy is targeting only those states where there are sufficient big spenders.
In Britain, just under a fifth of sales are driven by tourists, half of them Chinese who have seized on a weaker sterling to pick up cheaper watches. However, the core remains loyal domestic shoppers who partake in “rational indulgence”.
Over the past five years, Watches of Switzerland has delivered 9 per cent like-for-like sales growth and the newly floated business yesterday announced a 10.8 per cent rise in the first quarter. Total sales grew by 17.8 per cent to £209.4 million, helped by its new openings. Shares in the business edged up a penny yesterday, or 0.3 per cent, to 285p.
Despite his enthusiasm for the consumer demand for watches, Mr Duffy still noted uncertainty from Brexit and a potential recession in the US which could give even the wealthiest of shoppers pause for thought. Expensive watch purchases can be deferred and, with no dividends on the horizon, it could be wise to wait for more time to pass for further proof that Watches of Switzerland can deliver.
ADVICE Hold
WHY Good growth potential in a resilient corner of the retail market but risks remain
JPJ Group
Given the outperformance reported by JPJ Group in the first half, the 0.5 per cent fall in the online bingo operator’s share price to 654p looks decidedly niggardly (Dominic Walsh writes).
Gaming revenues were up 14 per cent, active monthly customers jumped by 7 per cent, net debt fell by more than £30 million and it is about to close on an acquisition that will propel it into the FTSE 250 index. What’s not to like?
Like other online gambling companies, the Jackpotjoy operator has been hit hard by more stringent regulation in Britain and Sweden, sending its shares down by more than a third over the past 12 months, but its numbers surely deserved a more generous response — or did they?
Part of the explanation could be the big contribution to its growth from its Japanese business. This is an unregulated online market, with little visibility on metrics such as market share and growth prospects, so it is difficult to judge how sustainable this contribution is. Moreover, investors’ scepticism of unregulated earnings remains a tough nut to crack.
The other reason the shares failed to respond yesterday was likely the screening the evening before of a Panorama documentary on gambling addiction that featured a JPJ customer, although, as Neil Goulden, 65, the group’s executive chairman pointed out, the case featured dated back to 2014, since when systems to prevent problem gambling have been overhauled and “tens of thousands” of customer accounts closed.
The impending £490 million acquisition of Gamesys in a cash-and-shares deal will provide scale and games and brand licences including Virgin Casino and Heart Bingo. It also simplifies the business, as Gamesys used to own the Jackpotjoy brand, selling it to what is now JPJ Group four years ago. The roulette wheel will come full circle when JPJ changes its name to Gamesys after completion.
Some experts believe that, in a consolidating industry, the enlarged company will become a more attractive target to suitors, although Mr Goulden is not the sort to sit on his hands waiting for something that might never happen. “We’re looking at lots of opportunities,” he said.
ADVICE Buy
WHY Well-run company with strong cashflow set to return to growth in the UK
