Interactive Investor

Insider: Watches of Switzerland among three laggards seeing buying action

Each of these companies has run into trouble that’s knocked their share price. Our City writer explains what’s happened and which boardroom big hitters are building stakes.

11th September 2023 09:01

by Graeme Evans from interactive investor

Share on

watch switzerland 600

Low-flying shares in easyJet (LSE:EZJ) and airport caterer SSP Group (LSE:SSPG) have received boardroom backing after a summer when valuations have resisted optimism on the ground.

Mike Clasper, a veteran of the travel industry who has led the board of the Upper Crust owner since February 2020, spent £140,000 at a price of 232p. This compared with 281p in June.

Sue Clark, who is senior independent director at easyJet, made her £75,000 purchase at 435p having seen shares slide from above 500p earlier in the summer.

The recent weakness comes despite easyJet revealing record profits in the three months to June and SSP outlining strong trading momentum alongside “excitement” about prospects in its fastest-growing market of North America.

At a briefing at New York’s JFK Airport in June, SSP chief executive Patrick Coveney said that revenues in the region are now at 123% of 2019 levels amid the growth of domestic air travel.

A presence in about 30 of the top 80 airports in North America and less than 10% overall market share in the air channel means SSP believes there is scope to go further and faster.

It also regards the Asia market as “hugely exciting” given that only three or four percent of India’s population has ever flown, and this rate is set to double by 2030.

Overall, the FTSE 250-listed company trades from over 600 locations in 36 countries mainly serving customers travelling through airport and railway stations.

Revenues have recovered to 110% of 2019 levels but recent progress has been hampered by foreign exchange movements and the impact of UK rail strikes.

Covenant restrictions have also prevented the company from paying dividends, although July’s bank refinancing means it is expected to resume distributions with 2023 results.

While the company is seen by some City analysts as an attractive way to play the recovery in air travel, the shares have struggled for direction over much of this year.

Boarding time at easyJet?

It’s been a similar story at easyJet, where July’s better-than-expected third quarter profit of £203 million and a forecast of another record haul in the final quarter of the financial year has been met with a 13% fall in shares.

Fears over cost and economic headwinds compounded by the August air traffic control disruption have left the airline trading on just over nine times Deutsche Bank’s forecast 2024 earnings, compared with a long-term historic average of about 13 times.

The weaker sentiment has come despite easyJet reporting good winter booking momentum, with sold ticket yields and load factors ahead year on year and planned capacity up over 15% for the December quarter.

Peel Hunt raised its price target to 850p after the results, backing the holidays division to monetise easyJet’s brand strength, high flow of website traffic and strong airport market share. It forecasts the division will deliver profits of £103 million this year, rising to £314 million in 2026.

The broker said: “easyJet holidays is transforming the group’s outlook, significantly increasing revenue growth, profit margins and return on capital.”

Time to buy after Rolex acquisition

Four directors of Watches of Switzerland Group (LSE:WOSG) who spent £900,000 on shares in a coordinated show of support have failed to inspire a revival in stock market fortunes.

The shares enjoyed a brief flurry after Monday’s disclosure that finance boss Anders Romberg, chair Ian Carter and two non-executive directors had bought shares at around 585p.

A peak of 611p proved to be the high point on Monday evening before selling resumed to leave the FTSE 250-listed stock as low as 577p at one point on Thursday.

The company’s recent descent to a three-year low has been triggered by a surprise move into retail by luxury watches firm Rolex through the acquisition of Switzerland’s Bucherer.

It made the move because the 86-year-old grandson of founder Carl Bucherer has no direct descendants and it wanted to preserve the ties that have existed since 1924.

Rolex said its move had no bearing on distribution arrangements but the purchase of a business with 100 sales outlets worldwide rattled investors as Watches of Switzerland shares unwound 26% the day after the deal was announced.

It more than overshadowed a robust trading update earlier in the month, when the company said demand for luxury watches continued to exceed supply. US sales were 10% higher on a constant currency basis in the first quarter of the financial year, offset by a fall of 8% in the UK and Europe due to the timing of product intake.

Peel Hunt cut its price target to 600p following the Rolex acquisition: “This is potentially Rolex’s first venture into direct-to-consumer retailing. With its product and support so valuable to others, it raises many questions about industry dynamics ahead.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox