Topic: Following a stellar post IPO share price performance, MWB released H1 results below expectations and revised its FY'24e guidance downwards, highlighting the normalization of prices in MWB's niche market. Thus, MWB's shares currently seem fairly valued. In detail:

Weak top-line: Following a further normalization of prices coupled with a much weaker than expected demand for secondhand watches, MWB could not escape the trend. Consequently, H1 sales came in at only € 3.5m, stemming from low volumes (148 watches sold in H1 vs. c. 410 in FY'23) with a lower average selling price of € 23.6k (-6% compared to FY'23), the latter in line with the market trend.

FY'24e guidance revised: Given the weak H1, MWB downward revised its FY'24e sales guidance to € 10-12m (old: € 14-16m). This implies a substantial upswing in sales of € 6.5-8.5m in H2, which should partly stem from a seasonally stronger H2, but nevertheless seems very ambitious given the secondhand market dynamics, which faces lower demand in the short-term due to falling prices. Based on our revised estimates, we now expect sales to come in below the guidance at € 8.9m.

Increase in profitability despite weak top-line: On a positive note, the gross profit margin increased sequentially by 0.7pp to 4.2% (FY'23: 3.5%), which is the direct effect of an increased brokerage commission. This has led to a positive EBIT of € 0.05m (vs. € -0.08m in FY'23) as well as a positive net income of € 0.04m. Furthermore, the decline in prices does not negatively affect WC, as MWB acts as a broker, buying a watch after a customer pre-paid it, thus not maintaining any inventory.

Market price decline continued, but stable demand: According to the WatchChart watch market index (representative indicator of secondary watch market prices, incepted in 2021), the price index has continued to fall and currently stands close to its inception level from Jan '21 (see p. 2 for details). On the other side, the demand on the firsthand market continues to exceed the supply, especially for rare models, which bodes well for the mid-term demand outlook for the secondhand market, however at now normalized prices.

While we expected declining prices, the low volumes have suprised us negatively. Before prices have stabilized, which should revive short-term demand again, it is too early to buy. Consequently, we reiterare our HOLD recommendation with a new PT of € 50.00, based on DCF.