Swatch: Setting the course

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  Christian Ingerl
  Redaktor

It is still just a sentence that was uttered almost casually. And yet it has attracted as much attention in the watch industry as a quarterly report. “I will not lead the Group for another twenty years,” said Nick Hayek in recent interviews. For the first time, the long-standing CEO of the Swatch Group himself that his time at the operational helm is limited. This brings to the fore a question that has been worrying investors for years: Who will lead the world’s largest watch company through the current bumpy phase, which is characterized by shrinking volumes, high costs and structural overcapacity?

However, it was only a matter of time before this discussion arose. Swatch is under increasing pressure from activist investors who are demanding more transparency, a stronger capital market orientation and less dominance from the founding family. Hayek’s public words therefore seem less coincidental than strategic: the succession debate should obviously be controlled before it escalates from the outside. The crown prince is Marc Hayek, nephew of Nick Hayek, who has been a member of the Board of Directors since 2024. He is responsible for the luxury brands Blancpain, Breguet and Jaquet Droz. Internally, he is regarded as professionally adept, but externally there remains skepticism. Critics complain about the comparatively low appeal of these brands in a global luxury comparison.

2025 remains a transition year

Swatch presented its figures for the past financial year at almost the same time as the speculation about a successor. These in turn confirmed the image of a group in transition. Organic sales fell by 1.3% and the EBIT margin slumped significantly. Operating profit fell to around CHF 135 million, with the production unit alone generating a loss of around CHF 300 million. The bottom line was barely more than a symbolic profit of CHF 25 million. By way of comparison, Swatch had earned CHF 219 million in the previous year, leaving almost CHF 890 million in the cash register in 2023.

And yet there were rays of hope: growth accelerated noticeably in the second half of the year, particularly in the fourth quarter. Inventories were reduced and cash flow was better than feared. The dividend also remained stable, although the market had expected a cut. This development was rewarded on the stock market.

Market revival

Optimists are pinning their hopes on the operating leverage effect. With an increase in orders, capacity utilization of the highly integrated production should improve – and with it profitability. CEO Hayek is forecasting EBIT of CHF 500 to 600 million for 2026 and is even aiming for a figure of more than CHF 1 billion again in the medium term. From a geographical perspective, tailwinds are coming primarily from the USA, where Swatch has recently achieved double-digit growth. China, the most important individual market, also showed initial signs of recovery in the final quarter. Analysts expect that a stabilization of the real estate market and improved consumer sentiment there could trigger stronger demand again from 2026.

Cost structure risk

On the other hand, there are structural risks. The cost base is considered too high for a company with sales of less than CHF 5 billion. Personnel and operating costs have risen by more than 10 percentage points of sales since 2018. Swatch therefore remains heavily dependent on sales growth. Should this fail to materialize, margins are likely to collapse disproportionately. There is also a strategic problem: growth in the lower price segment is structurally weak and there is a lack of genuine innovations with a MoonSwatch effect. At the same time, Swatch is losing market share in the high-price segment. This also applies to the core brand Omega, which should actually be the driving force of the Group.

Share between “Reduce” and bargain

Analysts’ opinions are correspondingly divided. Skeptics consider the share to be ambitiously valued despite the years of share price weakness. They point to the volatile earnings situation, the high cyclicality and a valuation of around 17 times the earnings expected for 2027. Their conclusion: Reduce. Others see precisely this as an opportunity. They argue that the market is penalizing Swatch excessively for its China exposure and vertical integration. Morningstar, for example, sees the fair value at around CHF 214 per share, which makes the stock appear significantly undervalued.

Investment solutions

In the end, both debates – the operational and the personnel one – come to the same point. Swatch not only needs better margins, but also clear strategic leadership for the time after Nick Hayek. It remains to be seen whether Marc Hayek will be able to fulfill this role or whether an external impulse will be necessary. One thing is certain: the question of succession has long been more than just a family issue. It has become a yardstick for the future viability of the entire Group.

And that is precisely why it will continue to occupy investors for a long time to come. A glance at the share price reveals that Swatch’s future prospects have been assessed more favorably again in recent months. In mid-January, the share marked a new high for the year at CHF 188.40. Although this was followed by a correction to just under CHF 161, the dip was quickly ironed out again in the wake of the latest news. If you want to take advantage of the positive momentum, you can achieve a high impact with a small investment by using leverage. The Mini Future Long SY8B8U leverages the price movement of the underlying by a factor of 4.8. The product offers a downside buffer of 18.7% to the stop loss. The threshold is CHF 150.7152. An even more demanding risk/reward ratio is offered by the Mini Future MUHDNT from Leonteq. The leverage for this security is 6.4, the distance to the knock-out is only 13.7%

In the event that the share should take a breather, the Barrier Reverse Convertible RUHADV from Bank Vontobel would be a suitable solution. The product offers the prospect of a sideways return of 9.6% p.a. with a reassuring buffer of 29.8%. The term of the BRC ends on January 22, 2027.