Market Overview

Morgan Stanley: Swiss Watchmakers Face Challenging Environment


The Swatch Group SA (VTX: UHR) and Compagnie Financiere Richemont SA (VTX: CFR) dropped 20 percent last week following the Swiss National Bank's move to de-peg the Swiss franc from the euro. As a result, analysts at Morgan Stanley took a look at how the two companies are responding.

For Swatch, Morgan Stanley sees the higher Swiss as a 15 percent impact on profit, the result of an 8 percent impact on sales, as well as a higher cost base for production. To counteract an impact on profit, Swatch announced price hikes of 5-10 percent.

The analysts note that they prefer Richemont, which may have potential to move some of its production outside of Switzerland  (the Cartier brand for example.) Morgan Stanley estimates that a 10 percent move in the Franc will result in a 12 percent impact on Richemont’s earnings. Richemont has announced price increases in the “mid-single digits.”

Morgan Stanley notes that it was already a challenging environment, with demand in China and Hong Kong declining precipitously.

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