"Back on track" is the motto on the capital market at the moment for On Holding. The domestic running shoe specialist, in which tennis star Roger Federer also holds a stake, issued its shares last September at USD 24. After that, the stock market newcomer set off a veritable price firework. On the very first day of trading, the share price rose by almost 46%, and a few weeks later, the lucky subscribers were even able to enjoy more than a double. However, the euphoria has now given way to frustration on the trading floor, with the On share currently trading just below the issue price.
It is mainly the concern about supply chain and production problems, as well as returning corona lockdowns in Asia, which have recently spooked investors. But from an operational point of view, there are hardly any weaknesses that would explain such a share price disaster. On the contrary, a look at the company's books shows that On is delivering on the growth promises it made at the IPO in New York. The sporting goods supplier closed the year 2021 with surprisingly good results. Sales jumped by more than 70% to CHF 724.6 million. The group felt an increase in demand in all regions, but the largest increase was achieved in North America with 96.8% to CHF 409.5 million. While overseas is the largest sales region, footwear is by far the company's most important product category, accounting for 94% of total revenues.
On the earnings side, On was also able to score. Earnings before interest, taxes, depreciation and amortization (Ebitda), adjusted for special effects, soared by more than 90% to CHF 96.4 million. The company thus improved its margin by 1.6 percentage points to 13.3%. As expected, the bottom line showed a higher loss due to IPO costs and share-based compensation.
The group continued to demonstrate its sprinting qualities at the start of 2022. From January to March, sales increased by around two-thirds to CHF 236 million. As a result, On's confidence increased and the Board of Directors raised the revenue target for the current fiscal year. For the first time in the history of the company, which was founded in 2010, the CHF 1 billion mark is to be broken.
On the other hand, the weakening profit growth leaves a slightly bitter taste in the mouth. The adjusted Ebitda margin fell from 14.3% to 6.7% between January and March. This was due in particular to higher transport expenses; On had to switch from ship to air freight without further ado. "Without these additional costs, we would have ended up within the range of our margin target and above the previous year," explains CFO Martin Hoffmann. The CFO assumes that it will be possible to deliver by sea again from the third quarter. Furthermore, Hoffmann does not see any slowdown in consumer spending due to rising inflation. This in turn makes On optimistic about achieving a margin of 13.2% for the year as a whole.
On a net basis, the Zurich-based company has already achieved the turnaround in the first quarter. After a loss of CHF 10.5 million in the same period last year, the company now reported a positive result of CHF 14.3 million. The analyst consensus also expects the company to be in the black for the year as a whole. Earnings per share of CHF 0.129 are expected. In the subsequent years 2023 and 2024, the market forecasts are then for triple-digit percentage growth in each case.
So while operationally things continue to look up, the sneaker specialist's share price, as mentioned at the outset, is out of step. Currently, the share price is stumbling around the USD 20 mark. For the new Softcallable Barrier Reverse Convertibles, this trend is no problem. The product structure even tolerates setbacks in the On share price without jeopardizing the promised double-digit percentage return. The two BRCs, which are offered in CHF and USD, each have a risk buffer of a solid 51%. If the barrier remains intact during the maximum term of one year, the maximum prospective profit will be achieved. The coupons amount to an above-average 22% p.a. for the CHF variant and even 24% p.a. for the USD product. After half a year at the earliest, the issuer has the right to call the Barrier Reverse Convertibles prematurely.
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