On Holding: Swiss DOTS offers leveraged products with winning qualities
In the second full financial year since its stock market debut, the sports shoe manufacturer is reaping the benefits of a booming trainer market, the unwavering charisma of retired tennis legend Roger Federer, and fewer supply problems. On shares have also recovered to put 2022’s downward trend behind them. Swiss DOTS, Switzerland’s leading OTC marketplace for leveraged securities, offers plenty of opportunities for investors to position themselves competitively in this in-form stock.
The outdoor athletics season could hardly have got off to a better start for the On Athletics Club (OAC). In mid-April, team-mate Hellen Obiri pulled off a sensational coup at the Boston Marathon, with the Kenyan clinching victory in only her second race over this distance. Despite the cold, wet conditions, she completed 42.195 kilometres in an impressive time of 2:21:38. Obiri wore the On CloudTri 1 — a shoe actually developed for triathletes — as she broke away from a group of four other runners in the final few kilometres. Hellen Obiri eventually crossed the finish line 12 seconds ahead of Ethiopia’s Amane Beriso, with Israeli Lonah Salpeter finishing a further seven seconds back. The second and third-placed finishers were kitted out by Adidas and Nike.
Getting over a painful “muscle strain”
Boston is not the only place where On Holding has been able to celebrate a prestigious victory over its two much larger rivals, as the Swiss sports shoe specialist also has its nose in front of the competition on the stock market. The value of the stock listed on the New York Stock Exchange (NYSE) has soared by more than 90% since the start of the year. While industry leader Nike gained just over 7% over the same period, the market capitalisation of the sector’s second-biggest global player, Adidas, grew by more than a quarter. Thanks to its sprinter-like qualities, On Holding has managed to all but recover from its strong slump in the previous year. In 2022, shareholders including celebrity investor Roger Federer suffered a proverbial “muscle strain” as the stock slipped to USD 15.44 last October. At this point, On Holding was worth just over a quarter of the peak of USD 55.87 it reached around 11 months previously. Weakening demand — particularly from coronavirus-plagued China — and supply chain bottlenecks caused the entire sporting goods sector to stray offside when it came to stock market performance, while On Holding also had to pay the price for its generous valuation.
Rapid recovery with robust growth
The Zurich-based company kicked off its latest countermovement with its encouraging 2022 results and outlook. Revenues rose more emphatically than expected in the fourth quarter, soaring by more than 90% to almost CHF 377 million. Due to bottlenecks in international container shipping, On Holding temporarily switched to transporting its goods via air freight to keep its warehouses stocked. With its shoes now once again coming by sea from its factories in China, Indonesia and Vietnam, the company’s operating margin has recovered accordingly. At EBITDA level, this margin stood at 16.8% in the final quarter of 2022, almost 11 percentage points higher than in the prior-year period (see chart). “The supply chain craziness is behind us and our entire team can now focus on what matters to the customer,” said co-CEO Martin Hoffmann during the firm’s results announcement.
Management also caught the market’s attention with a forecast that exceeded the previous analyst consensus.
After revenues passed the one-billion mark for the first time in 2022 to exceed CHF 1.2 billion, they are expected to grow to at least CHF 1.7 billion during the current year.
The On Holding management team is also aiming for an EBITDA margin of 15%, having recorded a figure of 13.5% for the 2022 full year. After suffering a heavy loss in 2021, the company generated profit of CHF 57.7 million a year later. Commenting on the company’s outlook at the end of March, Hoffmann said: “We are heading into 2023 in a position of strength and with plenty of momentum.” In an interview with the Reuters news agency, the co-CEO, who also serves as CFO, reported seeing steady demand from Chinese shopping malls after Beijing eased its COVID-19 restrictions. Hoffmann also said that the appetite for On shoes generally remains undiminished despite high levels of inflation, while warning that the current uncertain environment must be taken into account by viewing the outlook with a certain degree of caution.
“The Roger” and the Olympics
On Holding is scheduled to announce its results for the first three months of the year by no later than 25 May, the day on which it will host its Annual General Meeting for 2022. However, any shareholders hoping to meet Roger Federer in person that day will be disappointed, as the invitation states that “this year’s AGM will be held virtually”. While it remains to be seen whether the retired tennis legend will personally dial in, his name is likely to be omnipresent. On Holding is relying heavily on the star power of the 20-time Grand Slam winner with its “The Roger” collection. On has remained faithful to tennis as both a sponsor and equipment supplier since Federer’s retirement, bringing both Poland’s №1-ranked women’s player Iga Świątek and US shooting star Ben Shelton onto its books in March. Management generally consider the 2024 Olympic Games in Paris to be an “important medium-term target”. On Holding is keen to get as much as possible out of this major event by investing in teams of athletes and its footwear.
The ambitious equipment supplier still has fierce competition to contend with, both on the tennis court and running track as well as in the booming trainer market. Adidas, Nike and co. also exert influence over On Holding on the stock market, with Nike’s business and share price development often rubbing off on the Swiss firm. The industry giant is in a league of its own when it comes to market capitalisation, with Wall Street currently valuing Nike at just under USD 193 billion. Meanwhile, On Holding’s market value of USD 9.4 billion means it is roughly on a par with the third-largest player in the sporting goods market, Puma. A comparison with the long-standing Bavarian group shows that On shares are still not attractively priced. While the market value of the Zurich firm is currently around 36 times the EBITDA anticipated by management for 2023, this multiple is in the single digits for Puma. Although the company with the famous big cat logo is likely to grow much more slowly than On Holding, this is still a considerable discrepancy.
Why this investment is worthwhile:
When it comes to carrying out their analysis, traders look at chart momentum rather than valuations, and the Swiss firm has nothing to hide in this regard. On the contrary, On Holding has emphatically broken free of last year’s downward trend to make significant gains and leave its IPO price of USD 24 far behind. Instead, the stock is now approaching its initial market price, having opened at USD 35.80 on its NYSE debut on 15 September 2021. To return to this level, the growth stock must first overcome the horizontal resistance it is encountering around the USD 33 mark.
Swiss DOTS enables traders to find an instrument that will allow them to profit when the stock successfully clears this hurdle. Société Générale recently listed its long mini-future (Valor 126203836) on the OTC platform. This structured product participates in rising On Holding prices with a current lever of 5.8. At USD 29.89, the knockout threshold is more than 10 per cent below the share price of the volatile underlying. This distance extends to more than 28 per cent with another long mini-future (Valor 125769371). This means that the leverage is roughly half as high in this case.
Société Générale’s offering also allows you to bet on falling prices. Since March, the issuer has traded its short mini-future (Valor 125769379) on Swiss DOTS. With a knockout threshold of USD 34.05, this instrument has a leverage of 8.2. Yet there are even more defensive alternatives. For example, a short mini-future (Valor 125769382) gives On Holding room for manoeuvre up to USD 40. Although this means that the knockout exceeds the shoe manufacturer’s share price by more than a fifth, the same applies to this product as to the others presented here: if the underlying calculation does not come off, heavy losses await.
More about Swiss DOTS
Swiss DOTS is Switzerland’s leading OTC platform for leveraged products. The On Holding derivatives presented here are just some of more than 90'000 ideas you can trade affordably between 08:00 and 22:00 each day from CHF 9.00 flat/trade.
On Holding: Revenue and operating margin
(in USD m and %; margin based on adjusted EBITDA)
(in USD)
More about Swiss DOTS
Swiss DOTS is Switzerland’s leading OTC platform for leveraged products. The On Holding derivatives presented here are just some of more than 90'000 ideas you can trade affordably between 08:00 and 22:00 each day from CHF 9.00 flat/trade.
