A Compelling Compounder at a Retailer's Multiple

### Executive Summary

Watches of Switzerland Group (LSE: WOSG) is not a retailer. It is the dominant distributor of scarce luxury goods in the world's largest and fastest-growing luxury watch market, with a nascent high-margin jewellery distribution business that the market has not yet begun to price correctly. Following FY26 results published on 14 May 2026 — record revenues of £1.83 billion, EBIT of £152-155 million ahead of guidance, net debt reduced to £57 million and a robust FY27 outlook — the stock has re-rated sharply from its lows but still trades at approximately 10x forward EBIT. A business of this quality, with this growth profile and this degree of management alignment, deserves further re-rating.

Our blended DCF price target is **845p**, representing **+18% upside** from current levels. The bull case, which assumes continued US market share gains and successful Roberto Coin expansion, reaches **1,027p (+43%)**.

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### The Business Nobody Fully Understands

Most analysts cover WOSG as a specialty retailer exposed to luxury cyclicality. That framing misses the structural reality. WOSG has built three genuinely differentiated competitive positions:

**1. The US Luxury Watch Monopoly**

In just eight years since entering the US market in 2017, WOSG has grown American revenues from zero to $1.24 billion — now representing over 50% of group sales. This is not organic growth alone; it reflects a systematic acquisition of brand relationships, Rolex agency rights, and prime retail locations that cannot be replicated. Demand consistently and structurally exceeds supply. Registration of Interest lists are growing. The category is, in CEO Brian Duffy's own words, "underdeveloped" relative to per capita luxury spend in Europe. With 25 Rolex-anchored US showrooms post the Deutsch & Deutsch acquisition in Texas — completed in January 2026 — WOSG has built a distribution network that took decades to assemble and would take decades more to compete with.

**2. The Roberto Coin Jewellery Platform**

In May 2024, WOSG acquired Roberto Coin Inc. — the exclusive perpetual distributor of Roberto Coin jewellery across the US, Canada and Central America — for $130 million, representing approximately 4.3x pre-tax profit. This was an exceptional acquisition at an exceptional price. The business generated $30 million of pre-tax profit on $146 million of revenue at the time of acquisition: a 20%+ EBIT margin structurally superior to the group's watch retail margins. In FY26, Roberto Coin wholesale revenues grew 22% in constant currency to £126 million. Three mono-brand boutiques have opened in New York, Las Vegas and Miami, with Tampa forthcoming. Sales within the Mayors network more than doubled following shop-in-shop rollout. This is a business in the early stages of transformational growth, owned at an entry price that looks extraordinarily cheap in hindsight.

**3. The Strategic Geography Nobody Is Talking About**

In its 2021 Long Range Plan, WOSG explicitly targeted 5-8% of group revenues from Continental Europe by FY26. The actual result: 0%. The company exited its remaining European showrooms in H1 FY26, describing the disposals as sales to "brand partners." This came precisely two years after Rolex's acquisition of Bucherer — Europe's largest luxury watch retailer — in August 2023. The coincidence is striking. Bucherer has made zero aggressive US expansion moves in the three years since being acquired by Rolex. WOSG has simultaneously accelerated its American footprint at record pace, with full cooperation from Rolex on agency rights, Certified Pre-Owned rollout, and showroom investment. The most coherent explanation is a strategic geographical understanding between the parties: WOSG owns the US, Bucherer owns Continental Europe, and Rolex maintains control of its most important distribution channels in both markets without direct retail exposure. If this hypothesis is correct — and the circumstantial evidence is substantial — the single largest perceived risk to the WOSG investment thesis (Rolex vertical integration) is structurally mitigated. The market continues to price in that risk as if it were fully alive.

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### The Macro Context: Luxury Sentiment Overhang

WOSG's re-rating has been delayed and distorted partly by a broad derating of luxury goods stocks. LVMH, Richemont and Kering all experienced significant multiple compression since 2023 as the post-COVID luxury boom faded and concerns over Chinese demand and Western consumer resilience weighed on the sector. WOSG, despite being structurally different — almost entirely domestic US and UK consumer, zero China exposure, zero tourist dependency following the removal of UK VAT-free shopping — was dragged down indiscriminately with the sector.

This dynamic created a compounded negative feedback loop. When luxury sector sentiment deteriorated broadly, WOSG sold off in sympathy. When company-specific headwinds then materialised — import tariff uncertainty on Swiss goods, and a one-off Roberto Coin department store debtor provision of approximately £3-4 million related to a Chapter 11 bankruptcy filing by a wholesale customer — the market's reaction was amplified far beyond what the fundamentals justified. Investors were selling a tariff-exposed, Rolex-dependent, margin-pressured luxury retailer. They were actually selling the dominant distributor of scarce goods in the world's largest luxury watch market, with a one-off accounting provision that has since been fully resolved.

The Chapter 11 proceedings are now closed, as confirmed by CFO Anders Romberg on the FY26 results call on 14 May 2026. The provision will not recur in FY27, contributing directly to the guided 40-80 basis point EBIT margin expansion. The macro luxury overhang, while not fully resolved, is materially less severe than at its peak. And the stock, even after the 16.5% single-day move on FY26 results, remains well below intrinsic value.

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### FY26 Results: Every Metric Moving in the Right Direction

| Metric | FY25 | FY26 | Change |

|---|---|---|---|

| Group Revenue | £1,652M | £1,828M | +11% (+13% cc) |

| US Revenue | £786M | £927M | +18% (+24% cc) |

| UK Revenue | £861M | £901M | +5% |

| Adjusted EBIT | ~£128M | £152-155M | +19-21% |

| EBIT Margin | ~7.7% | ~8.4% | +70bps |

| Net Debt | £96M | £57M | -41% |

| Pre-owned Growth | — | +22% | — |

| Ecommerce Growth | — | +21% cc | — |

| ROCE Trend (H1) | 16.5% | 17.3% | +80bps |

H2 FY26 was notably stronger than H1 across all geographies, with US retail growing at +28% in constant currency in the second half. This acceleration against tougher comparatives is not the profile of a business with structural headwinds.

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### FY27 Guidance: Conservative and Credible

Management guided FY27 revenue growth of 5-10% in constant currency. Brian Duffy clarified on the analyst call that on a like-for-like 52-week basis — FY26 was a 53-week year — this equates to **7-12%**, materially higher than the headline figure. EBIT margins are guided to expand 40-80 basis points from FY26's ~8.4%, implying approximately 8.8-9.2%. Free cash flow conversion is guided at approximately 70%.

Duffy's credibility on long-range guidance is unusually high. In the June 2021 Long Range Plan, he projected a US revenue CAGR of 25-30% for FY21 to FY26. The actual delivered CAGR was **25.3%** — precisely within the guided range, over five years, through a pandemic, supply chain disruptions, import tariff changes and significant market volatility. When this management team sets a target, they tend to hit it.

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### Valuation: Three Methods, One Conclusion

**Method 1 — Discounted Cash Flow (WACC 9%, terminal growth 2.5%)**

FCF base FY26: ~£72M (NOPAT £112M + D&A £35M - Capex £65M - WC £10M)

| Scenario | Growth Yr 1-5 | Growth Yr 6-10 | Price Target |

|---|---|---|---|

| Bear | 8% | 6% | 663p |

| Base | 12% | 8% | 845p |

| Bull | 15% | 10% | 1,027p |

| **Blended (25/50/25)** | — | — | **845p** |

**Method 2 — Forward P/E**

Estimated FY27 EPS: ~72p (based on £175M EBIT, 27% tax rate, 233M shares)

| Multiple | Price | Upside vs 716p |

|---|---|---|

| 12x (discount retailer) | 864p | +21% |

| 15x (quality business) | 1,080p | +51% |

| 18x (compounder, ROCE >18%) | 1,296p | +81% |

**Method 3 — EV/EBIT**

Estimated FY27 EBIT: ~£175M, Net Debt: £57M, Shares: 233M

| Multiple | Price | Upside vs 716p |

|---|---|---|

| 10x | 727p | +2% |

| 12x | 877p | +22% |

| 15x | 1,102p | +54% |

All three methodologies converge on a 12-month fair value range of **700-900p**, with a base case of **845p**. At 716.5p the stock trades close to the lower end of fair value on conservative assumptions, but with meaningful upside to base and bull cases as the re-rating continues.

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### The Path to Further Re-rating

The multiple expansion from current ~10x to 12-15x EBIT requires the market to acknowledge three things that are becoming increasingly difficult to ignore:

**ROCE recovery toward 18-22%.** The ROCE of 17.3% in H1 FY26 (+80bps year-on-year) is the first visible evidence of recovery from the investment cycle trough. Historically, WOSG's natural ROCE — when not in active acquisition mode — has been 18-22%. FY15 ROCE was 6.7%. By FY21 it had reached 19.7%. That trajectory is beginning to repeat as Roberto Coin, Hodinkee and Deutsch & Deutsch mature on the capital base.

**Roberto Coin margin mix effect.** As Roberto Coin grows from £126M toward £250M+ of revenues at 18-20% EBIT margins, the blended group margin structurally improves. This is not operational leverage — it is a fundamental change in business mix that mechanically lifts group margins as the higher-margin segment grows faster than the base business. A group averaging 8.4% EBIT margins today, with a segment growing at +22% at 20% margins, will look materially different in three years.

**Rolex relationship stability.** Each quarter that passes without Bucherer expanding aggressively in the US, and with WOSG's Rolex agency network growing and Certified Pre-Owned rolling out fully across both UK and US agencies, the market's residual fear of Rolex disintermediation diminishes. The FY26 evidence — full US Rolex CPO rollout, continued boutique openings, Deutsch & Deutsch acquisition approved and supported — points consistently in one direction.

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### Risks

**Primary risk — Rolex vertical integration.** Despite the geographical hypothesis outlined above, this remains the key binary risk. If Rolex were to materially reduce WOSG's product allocations or expand Bucherer aggressively into the US, the thesis would require fundamental reassessment. Monitor through: Rolex CPO rollout progress, agency count stability, and any Bucherer US announcements.

**Secondary risk — US consumer recession.** Duffy acknowledged on the FY26 call that the affluent US consumer has benefited significantly from financial asset appreciation. A sharp equity market correction could reduce discretionary luxury spend. WOSG's Registration of Interest model provides partial insulation — a portion of sales are effectively pre-committed against constrained supply — but is not fully immune.

**Roberto Coin wholesale channel risk.** The department store wholesale channel faces structural pressure from ecommerce. A further Chapter 11 by a major retail partner would generate another one-off provision. WOSG is actively mitigating this by building DTC through mono-brand boutiques and ecommerce, but the channel transition takes time.

**Management retention.** CFO Anders Romberg has a 6-month notice period and departed the company once previously (January 2022 to May 2023). With the FY25-FY27 LTIP now tracking toward vesting at current earnings trajectory, retention incentives are strong — but this remains a risk to monitor.

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### Management Alignment

CEO Brian Duffy owns 8.51 million shares — approximately £61 million at current prices — and has taken no salary increase since the IPO in June 2019, despite growing the business from £738M to £1.83B in revenues. This is exceptional alignment, unusual even by FTSE 250 standards. The FY25-FY27 LTIP vests only if cumulative adjusted EPS reaches 178p over three years — a target now tracking toward achievement given FY26's earnings trajectory. The FY22 and FY23 LTIPs both vested at zero due to performance conditions not being met, demonstrating that WOSG's incentive structure is genuine rather than ceremonial. Duffy and Romberg's financial interests are precisely aligned with long-term shareholders.

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### Conclusion

WOSG is a business that the market persistently mislabels as a cyclical luxury retailer. It is, in reality, the dominant distributor of scarce luxury goods in the world's largest watch market, with a high-margin jewellery distribution platform acquired at an exceptional price, managed by an operator with a seven-year track record of delivering precisely what he promises, now trading at a significant discount to intrinsic value despite a material re-rating already underway.

The 16.5% single-day move on FY26 results on 14 May 2026 is the beginning of a re-rating, not the end of it. The base case of 845p implies further upside of +18% from today's price of 716.5p. The bull case of 1,027p, which requires only that Roberto Coin continues its current trajectory and WOSG is awarded a multiple consistent with its quality, implies +43%.

**12-month price target: 845p. Bull case: 1,027p. Current price (4 June 2026): 716.5p.**

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*This article represents the author's personal analysis and investment opinion based on publicly available information including WOSG FY26 Trading Update (14 May 2026), H1 FY26 Results (4 December 2026), Annual Reports FY19-FY25, Roberto Coin Inc. Acquisition Announcement (9 May 2024), Long Range Plan FY22-FY26 (June 2021), and Directors' Remuneration Report FY25. It does not constitute financial advice. The author holds a long position in WOSG. Always conduct your own due diligence before making investment decisions.*