Marazzi - Borsa Italiana

Transcription

23 January 2008
ITALY
Smaller Companies Review
BUILDING MATERIALS
ITALIAN SMALLER COMPANIES REVIEW 2008
Rating
2/Outperform
Target price (6 months)
Marazzi
Price (21/01/2008)
Discounting for overly pessimistic scenario
Stock data
Q
EUR5.98
Reuters: MRZ.MI Bloomberg: MRZ IM
Recent developments – Positive results in 9M-07
Marazzi reported good results in 9M-07, with a marked acceleration in
Q3-07 (sales up 4.4%)) reaching EUR728m sales in 9M-07: Italy, up
+5.5%, was sustained by further market share gains and higher
exports, Russia was up by nearly 30%, boosted by the roll-out of new
products, while Spain (+8.4%) benefited from aggressive commercial
tactics. France and the US were the only countries to report negative
results (-5% and -11.2% respectively), due to a prolonged strike in
France in June, the weak USD and slightly weaker volumes in the US. In
this scenario, EBITDA remained stable at EUR135m (18.6% margin),
despite start-up costs for the new Italian plant in Casiglie, confirming
Marazzi's resiliance even in an economic downturn.
Q
+42.1% EUR8.5 (11.5)
Outlook – Weaker market scenario led us to cut estimates
Market conditions worsened during the second half of 2007 and this
trend could continue in 2008: 1) in Italy, November tile market was weak
and December was affected by the national truck strike, which halted
deliveris for one week. For 2008, Marazzi anticipates limited growth,
sustained by exports (although higher freight and energy costs could
erode export margins). 2) US market weakness should continue in
2008, but Marazzi has already signed framework agreements with major
distributors (for example Home Depot), which have allowed the
company to lift its market share and squeeze out importers and smaller
players. Clearly, this move will affect margins, even if it increase the
visibility on 2008 revenues for the fresh capacity provided by the new
plant in Texas (2m sqm capacity, 5m when the plant would be full on
stream), which will be operational in Q2-08. 3) Russia should remain the
main growth driver, with sales expected to rise by 15-20% and ~35%
margins. 2009 should be even better, thanks to new capacity coming
on stream. 4) In Spain, the decline in new housing starts should reduce
sales of tiles (we expect -3% vs. +8% in 2007), so margins could shrink
slightly vs. last year. 5) On the contrary, France should improve in 2008
thanks to restructuring, which sharply improved the mix. The goal is to
reach a 7% margin, which we believe is easily achievable. All in all, we
sharply revised our forecasts, anticipating 3% top line growth this year
(vs. +6.1% before), with a flat EBITDA margin to 18.2% (vs. 19.8%
expected before). Consequently, we slashed our EPS by 19% this year
and by 18% in 2009. We believe our estimates are now very
conservative, anticipating a significant slowdown of the tile market both
in Europe and in the US, and they are are substantially lower than
Marazzi's targets for the next five years (sales at EUR2bn vs. our
EUR1.14, EBITDA margin at 21% vs. our 20.2%). The current market
price seems to anticipate an EBITDA of ~EUR140m this year (based on
a 6x multiple), implying a >20% revenue decline, which is not reliable in
our view, given the buoyant Russian market trend, the recovery in
France and the resilient Italian market. For these reasons, we believe
Marazzi represents a true buying opportunity.
Marco CRISTOFORI
Investment Analyst
(39) 02 80 62 83 30
mcristofori@cheuvreux.com
153
www.cheuvreux.com
Market capitalisation
Free Float
Enterprise value
No. of shares, adjusted
Daily volume
EUR616m
EUR242m
EUR877m
102.982 m
EUR1.05m
Performances
1 month 3 months 12 months
-7.6%
-32.2% -35.9%
8.8%
-9.6%
-8.6%
Absolute perf.
Relative perf.
12.3
12.3
11.3
11.3
10.3
10.3
9.3
9.3
8.3
8.3
7.3
7.3
6.3
6.3
5.3
5.3
02/06
05/06
08/06
11/06
02/07
Price/MIDEX
05/07
07/07
10/07
Price
Sector focus
Sector Top Picks
Ferrovial, Hellenic
Technodomiki, Lafarge, Nexity
Least favoured
Shareholders
Marazzi Family 60.6%, Free Float 39.4%
P/E (x)
2006
2007E
2008E
2009E
7.6
16.0
11.2
9.2
EV/EBITDA (x)
6.9
5.2
4.7
3.9
Attrib. FCF yield (%)
4.2
3.2
4.0
15.3
Net debt/EBITDA (x)
1.1
1.2
1.2
0.7
Yield (%)
2.4
3.8
4.6
5.0
ROCE (%)
15.7
14.8
14.6
17.6
1.6
1.1
1.0
1.0
EV/Capital empl. (x)
23 January 2008
Q
ITALY
Investment case
Q
Resilient despite weaker scenario
We believe Marazzi can sustain its sound EBITDA margin (>18%),
thanks to: 1) buoyant sales in Russia (17% 2007-10 sales CAGR),
which also boasts outstanding profitability (35-40%); 2) declining
imports in the US; 3) recovery of France after restructuring.
Q
Q Aggressive long term strategy should yield results
Marazzi plans to invest EUR150m until end-2010 to raise its
production capacity in Russia, the US and Italy (where it is also
investing in the sanitary ware business) by 15m sqm or ~15%.
Additional capacity would lift margins, reduce transport costs to the
US, allow it to exploit booming volumes in Russia and improve the
mix in Italy. Its heavy R&D investments and the complete
changeover of the production line every 6 years should also help
Marazzi to steadily improve the mix.
Q Potential expansion in new markets
We feel that Marazzi could boost its fundamentals by entering other
emerging markets: it anticipated EUR0.5bn sales from the new
market in 2010. Middle East and China should be the most
appealing markets in which to embark on an external growth
strategy, like the successful plan implemented in Russia.
Q Market overreaction, worst case scenario now factored in
The current share price, which has fallen by 40% over the last 3
months, would only be justified by a >20% revenue slowdown and
EBITDA of ~EUR140m in 2008 (-23% vs. 2007), which is unlikely in
our view, even if the US were to enter a recession. As a result, we
believe the current market price discounts for an overly pessimistic
scenario.
Q
SWOT Analysis
Strengths
Weaknesses
Leading position in all its
markets

Retail
Exposure
European market at a mature
stage

exposure to the Russian
market
to energy costs
France
Diversified
is performing well
below expectations
geographic revenue
base
Strong
R&D
Opportunities
Threats
Expansion via acquisitions in
emerging countries

Worsening market conditions
in the US and in some European
countries

New capacity in Russia and
US should help meet demand
Integration of distribution
capabilities in the US
Rescue plan in France

Execution
risk tied to the
Spanish and French turnaround
High
entrance barriers in new
markets
Exchange
154
ratio impact
www.cheuvreux.com
Valuation
Target price cut to EUR8.50 (from 11.50)
On the back of our new estimates, which factor
in lower growth in the US, Spain and Italy and
some margin erosion in 2008, we cut our DCFbased target price to EUR8.50. Our main
assumptions are: a 4.5% risk-free rate, 4.5%
weighted market risk premium (6.6% for Russia,
4% others), a beta of 1.30 (up from 1.20), 8.9%
WACC and a 3% perpetuity growth rate. This
valuation implies a terminal EV/EBITDA of 4.6x
vs. 4.7x multiple for 2008.
The stock currently trades at 9.2x 2008E P/E vs.
11.0x for peers, and at 4.7x 2008E EV/EBITDA
vs. 6.7x or 30% lower than the sector average,
which is not justified in our view, given Marazzi’s
better geographical exposure and evident
resilience.
Q
Company profile
Marazzi is the world's largest ceramic tile
manufacturer, with 105m sqm of production
capacity, a leading position in Italy (~13%
market share), France and Russia. In the US, it is
the second biggest player, with 6.4% market
share. In 2006, net sales reached EUR964m and
net profit totalled EUR58m.
Marazzi operates five business units in Italy
(52% of sales), the US (19%), Russia (11%),
where it owns a 128-store nationwide retail
network, Spain (9%) and France (9%). Marazzi
aims to double revenues to EUR2bn (with
EUR500m stemming from organic growth and
EUR500m from acquisitions, mainly in the US,
Brazil, India and China), while keeping net debt
below 2.5x EBITDA. The EBITDA margin is
expected to reach 21% from 18.6% in 2006.
The company is controlled by the Marazzi family
with a combined 60.6% stake. The company
was listed on the Milan Stock Exchange on 15
February 2006 at an IPO price of EUR10.25 per
share.
23 January 2008
ITALY
Marazzi
FY to 31/12 (Eur m)
Profit & Loss Account
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
Goodwill amortisation before OP
Goodwill amortisation [impairment test]
Non recurring operational items
EBIT
Net financial items
Non recurring financial items
Other exceptional items
Tax
Associates [contribution]
Discontinuing activities
Goodwill amortisation
Net profit [loss] before minorities
Dividend to preferred shares
Minorities
Net attributable profit [loss]
Restatement [impairment test]
Adj. for exceptional items
Net attrib. profit [loss], restated
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Financial investments
Net buyback of treasury shares
Disposals
Dividend paid
Capital increase
Other cash flow
Dec. [inc.] in net debt
Balance Sheet
Shareholders' equity [group share]
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
Working capital requirement
WCR as a % of sales
Capital employed
155
2002
2003
2004
2005
2006
2007E
2008E
2009E
749.5
749.3
0.0%
(122.0)
(533.1)
94.2
1.8%
(45.4)
36.4
-16.0%
0.0
0.0
0.0
48.8
(10.4)
0.0
(2.3)
(5.2)
0.0
0.0
0.0
18.6
0.0
(0.2)
18.4
0.0
1.8
20.2
74.1%
753.8
0.6%
(126.1)
(521.5)
106.2
12.7%
(53.8)
51.3
40.8%
0.0
0.0
(2.9)
49.4
(16.2)
0.0
0.0
(16.8)
0.0
0.0
0.0
15.4
0.0
(0.5)
14.9
0.0
1.4
16.3
-19.4%
903.2
19.8%
(137.0)
(606.6)
159.7
50.4%
(55.7)
104.8
104.2%
0.0
0.0
(1.2)
102.8
(19.9)
0.0
0.0
(37.5)
0.0
0.0
0.0
53.4
0.0
(0.6)
52.8
0.0
0.7
53.5
NS
964.1
6.7%
(143.4)
(641.1)
179.6
12.5%
(55.1)
124.8
19.1%
0.0
0.0
(6.8)
117.7
(19.2)
0.0
0.0
(38.2)
0.0
0.0
0.0
59.2
0.0
(1.1)
58.0
0.0
4.1
62.1
16.2%
995.8
3.3%
(150.2)
(664.5)
181.1
0.8%
(57.8)
123.5
-1.0%
0.0
0.0
(2.5)
120.8
(24.0)
0.0
0.0
(37.9)
0.0
0.0
0.0
59.1
0.0
(0.6)
58.5
0.0
1.5
60.1
-3.3%
1 026.1
3.0%
(157.3)
(682.1)
186.8
3.1%
(60.7)
126.3
2.2%
0.0
0.0
0.0
126.1
(19.0)
0.0
0.0
(40.2)
0.0
0.0
0.0
67.0
0.0
(0.7)
66.4
0.0
0.0
66.4
10.5%
1 082.3
5.5%
(167.9)
(704.4)
210.1
12.5%
(63.7)
146.5
16.1%
0.0
0.0
0.0
146.3
(16.0)
0.0
0.0
(48.4)
0.0
0.0
0.0
82.1
0.0
(0.8)
81.3
0.0
0.0
81.3
22.5%
(2.9)
(38.4)
0.0
32.9
0.0
0.0
0.0
0.0
0.0
(0.0)
32.8
64.0
-13.8%
(7.2)
(45.0)
0.0
11.8
(1.4)
0.0
0.0
(0.6)
0.0
0.0
9.8
69.2
8.2%
(0.3)
(50.1)
0.0
18.8
(4.9)
0.0
0.0
(30.0)
0.0
44.4
28.3
109.1
57.7%
35.5
(48.8)
0.0
95.9
(78.4)
0.0
0.0
(43.2)
0.0
7.8
(17.9)
114.2
4.7%
(30.8)
(41.3)
(25.0)
42.1
(3.5)
0.0
0.0
(20.4)
73.6
(13.8)
78.0
116.9
2.4%
4.8
(100.0)
(79.5)
21.8
0.0
0.0
0.0
(23.5)
0.0
(15.0)
(16.7)
127.7
9.2%
1.3
(104.0)
(84.0)
25.0
0.0
0.0
0.0
(25.6)
0.0
0.0
(0.5)
145.8
14.2%
(4.9)
(45.0)
(20.0)
95.9
0.0
0.0
0.0
(28.3)
0.0
0.0
67.6
290.4
0.4
28.3
24.5
249.5
85.8
593.2
0.0
7.9
286.8
28.2
0.0
270.3
36.1
593.2
313.4
0.5
29.1
36.8
248.1
79.0
627.8
0.0
5.8
289.4
55.2
0.0
277.5
37.0
627.9
392.7
2.8
31.5
112.7
263.0
66.5
802.7
0.0
4.5
477.5
56.4
0.0
264.3
35.1
802.7
410.9
4.1
32.8
84.3
281.2
67.8
813.3
2.2
10.2
540.1
32.1
0.0
228.8
25.3
813.3
504.5
5.7
32.8
75.8
203.2
39.8
822.0
7.3
9.3
520.1
25.7
0.0
259.6
26.9
822.0
540.3
4.4
33.8
61.4
220.0
40.4
859.9
7.3
9.8
562.3
25.7
0.0
254.7
25.6
859.9
573.1
4.6
34.8
59.4
220.5
38.2
892.4
7.3
10.3
595.6
25.7
0.0
253.5
24.7
892.4
610.8
4.9
35.8
54.6
152.9
24.8
859.1
7.3
10.8
556.9
25.7
0.0
258.4
23.9
859.1
(117.7)
(539.3)
92.5
(49.1)
43.4
0.0
0.0
0.0
43.4
(10.9)
0.0
(5.4)
(13.0)
0.0
0.0
0.0
9.5
0.0
(0.2)
9.3
0.0
2.3
11.6
74.2
www.cheuvreux.com
23 January 2008
ITALY
Marazzi
FY to 31/12 (Eur)
2002
2003
2004
2005
2006
2007E
2008E
2009E
0.11
0.20
75.2%
0.18
97.8%
0.16
-20.2%
0.15
-19.4%
0.52
NS
0.52
NS
0.61
16.1%
0.57
9.9%
0.59
-3.0%
0.57
1.2%
0.65
10.0%
0.65
12.9%
0.79
21.5%
0.79
21.5%
2.8
0.00
0.00
0.63
-13.8%
3.1
0.00
0.06
0.67
7.5%
3.8
0.00
0.20
1.06
58.1%
3.8
0.00
0.23
1.11
4.7%
4.7
0.00
0.25
1.14
2.7%
5.0
0.00
0.28
1.25
8.8%
5.3
0.00
0.30
1.41
13.3%
5.6
Av. number of shares, adjusted
Treasury stock, adjusted
Share Price [Adjusted]
Latest price
High
Low
Average price
102.232
102.232
0.000
102.232
102.232
0.000
102.850
102.850
0.000
102.232
102.541
0.000
102.232
102.541
0.000
102.232
102.232
0.000
102.982
102.607
0.000
103.732
103.357
0.000
-
-
-
10.25
-
9.67
10.18
7.70
9.16
6.59
12.00
6.30
9.85
5.98
6.92
5.58
6.19
5.98
-
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
Attrib. FCF yield [%]
P/BV
Enterprise value / Op CE
Yield [%]
1 047.9
1 347.4
1 047.9
1 336.1
1 047.9
1 376.9
1 047.9
1 374.6
988.6
1 244.0
674.1
934.7
615.9
877.5
620.4
815.5
NS
NS
NS
3.1
NS
NS
0.0
NS
NS
NS
1.1
NS
NS
0.0
NS
NS
NS
1.7
NS
NS
0.0
19.7
19.7
9.6
9.0
2.7
1.8
2.0
16.0
16.0
8.7
4.2
2.1
1.6
2.4
11.2
11.2
5.8
3.2
1.3
1.1
3.8
9.2
9.2
4.8
4.0
1.1
1.0
4.6
7.6
7.6
4.2
15.3
1.1
1.0
5.0
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
8.6
13.1
1.52
11.3
6.9
10.0
1.3
9.7
5.2
7.6
0.9
7.1
4.7
6.9
0.9
6.2
3.9
5.6
0.8
5.2
8.5
3.4
12.3
5.8
1.3
1.3
85.8
0.0
9.1
3.9
10.9
4.9
2.5
1.3
79.0
0.0
6.6
3.8
13.9
6.8
2.0
1.0
66.5
41.5
8.0
2.6
17.8
11.6
5.9
1.2
67.8
38.9
9.3
1.8
18.7
12.9
6.1
1.2
39.8
40.6
7.5
1.9
18.2
12.4
5.9
1.2
40.4
43.7
9.8
1.7
18.2
12.3
6.5
1.2
38.2
42.5
13.1
1.0
19.4
13.5
7.6
1.3
24.8
38.1
7.7
3.3
3.3
4.1
6.4
5.0
6.0
6.7
6.9
3.3
3.9
4.2
13.4
7.9
13.7
13.9
15.7
9.4
12.2
13.1
14.8
9.0
11.5
11.8
14.6
9.1
12.3
12.3
17.6
11.1
14.3
14.3
Per Share Data (at 21/1/2008)
EPS before goodwill
% Change
EPS, reported
% Change
0.09
Goodwill per share
Dividend per share
Cash flow per share
% Change
Book value per share
0.00
0.00
0.73
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
EV/Debt-adjusted cash flow
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Capital turn [Sales/ Op. CE]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
Return on equity, restated
156
www.cheuvreux.com
23 January 2008
ITALY
TEXTILE & APPAREL
Rating
3/Underperform
Mariella Burani
Price (21/01/2008)
Cautious stance confirmed
Stock data
Q
Recent developments – Q3-07 results in line
Net revenues reached EUR175m in Q3-07 (13% organic growth), driven
by the leather division, which posted EUR97m of revenues (7% organic
growth), followed by the apparel unit, with EUR60m of turnover (23%
organic growth). Jewellery has begun to yield results, with EUR8.3m of
sales, but the bulk of the division's sales should be booked in Q4-07.
Direct distributors accounted for 55% of the total revenues; Italy for
35.8% and the rest of Europe and Russia for a total of 51.3%. This
result was down by 8.3% y-o-y, due to the disposal of the multi-brand
division. EBITDA rose to EUR25.8m (+31.7% yoy) thanks to: 1)
synergies stemming from higher purchasing volumes and economies of
scale in leather goods; 2) streamlining of the apparel division; and 3) a
better sales mix. Pre tax profit reached EUR12.7m, while net debt
totalled EUR167.5m (vs. EUR156.6m in June-07). Recently, the
company signed a joint venture agreement with Gitanjali Group, a
leading Indian jewellery and retailer, to set up a dedicated distribution
network, with 32 boutiques and 132 shops-in-shops for the Mariella
Burani, Baldinini, Rosato, Calgaro and Facco collections. In July 2007,
the leather division acquired Dadarosa, which owns the Gherardini
brand, for EUR8.9m (6.7x EV/EBITDA multiples). Last June, the multibrand retail division was sold to a private equity fund for EUR75m in
order to focus on its leather and jewellery units, which offer higher
margins.
Q
+2.6% EUR16 (20)
EUR15.6
Reuters: MBFG.MI Bloomberg: MBFG IM
Free Float
Enterprise value
Daily volume
EUR467m
EUR152m
EUR899m
29.908 m
EUR3.37m
Performances
-15.0% -32.2% -22.0%
-5.0%
-18.8%
-3.6%
Absolute perf.
Relative perf.
25.3
25.3
20.3
20.3
15.3
15.3
10.3
10.3
5.3
5.3
01/01
11/01
09/02
08/03
07/04
Price/BCI
05/05
04/06
02/07
01/08
Price
Outlook – Keeping a cautious stance on future growth
Mariella Burani will continue to pursue its strategy, which is based on
acquiring new leather and jewellery businesses and further brand
expansion in the eyewear business. Mariella Burani confirmed that 8085% of its S/S collections have already been secured, with 10-12%
growth in the apparel and 20-22% growth in the leather division. Its
strategic priorities are to: (1) further optimize the sales mix, focusing on
leather, jewellery (which should post 70% growth in the next 3 years)
and the emerging markets; (2) strengthen the apparel division by
leveraging on the Rene' Lazard brand; (3) increasing brand awareness
through advertising and retail network expansion; (4) aquiring more
licences and brand extension. We expect revenues to reach EUR704m
in 2007, of which EUR65m from jewellery, EUR302m from leather and
EUR249m from apparel (10-12% is the organic growth target for 2007
and 10-11% for 2008). EBITDA adjusted should reach EUR92m (+16%),
with a 13.1% margin. Recently, we took a more prudent stance on
margin growth, and our estimate is now at the low end of the company
guidance, as the turnaround of Coccinelle and Vivian Westwood has
been delayed at the leather business. At the bottom line level, we
factored in EUR17m for minorities, which brought our 2007 net profit
estimate to EUR32m (EUR17.8m adjusted) . For 2008, we expect 5.7%
top line growth to EUR744m, with EUR110m EBITDA (14.8% margin);
stable financial charges (EUR22m) and higher minorities (weight up
from 35% in 2007 to 42%) bringing our net profit forecast to EUR27m.
Marco BACCAGLIO
Investment Analyst
(39) 02 80 62 83 20
mbaccaglio@cheuvreux.com
157
www.cheuvreux.com
Sector focus
Sector Top Picks
Least favoured
Essilor
Shareholders
Burani Family 59.2%, Free Float 32.7%, Tamburi
Investment Partners 3.2%, Lehman Brothers Holdings
2.9%, Powe Capital Management 2.1%
2006
2007E
2008E
2009E
P/E (x)
17.0
31.6
17.4
12.0
EV/EBITDA (x)
10.1
8.0
8.2
6.4
NS
NS
4.5
3.9
Net debt/EBITDA (x)
2.3
1.4
1.2
0.8
Yield (%)
2.6
2.6
2.4
3.6
ROCE (%)
14.0
18.4
18.9
22.9
1.8
2.3
2.5
2.2
23 January 2008
Q
ITALY
Investment case
Q
Prudent stance on profitability of the leather division
The Coccinelle turnaround seems to have taken longer than
expected and the Dadorosa acquisition is creating margin dilution
(~10% reported in 9M-07). We expect a flat 2007 EBITDA margin
(~16%) from the leather business and a slight improvement in 2008
(16.6%). While new acquisitions would be favourable in theory, the
benefits from unit integration are still not evident.

Limited brand awareness
Mariella Burani's brand portfolio is positioned in the "accessibleluxury" niche of the market, meaning that there is more limited brand
awareness and visibility. Therefore, in our view, they are more
vulnerable to changes in consumer taste and competition compared
to pure luxury brands.
Complex group structure, with high minorities
The group's complex structure led to inefficient cash management
(EUR167m net debt and EUR370m gross debt). Moreover, we
believe that the IPO performed by Mariella Burani's parent company
(BDH) shifted the focus from Mariella Burani to BDH, thus reducing
the appeal of the stock. The weight of minorities, stemming from the
Antichi Pellettieri IPO are steadily rising and could represent 35% of
2007E net profit and 42% in 2008E.

Expensive valuation, 3/Underperform confirmed
Based on PE multiples, Mariella Burani aligned to luxury peers at
17.4x 2008E vs. 17.1x for our sample, but cheaper based on
EV/EBITDA at 8.2x vs. 10.3x 2008E. We would stress that Mariella
Burani's EBITDA margin is lower than pure luxury peers, and the
discount on multiples is more than justified. It appears expensive
compared to the average multiples of Italian small cap companies
at 11.4x 2008 median PE and 6.5x 2008 median EV/EBITDA.
Q
SWOT Analysis
Strengths
Weaknesses
Well-diversified
Exposure
portfolio
Limited
to high growth
Low
economy
Large
Production
is 90% outsourced
brand visibility
margin vs. luxury peers
minorities on equity
Fragmented
Opportunities
Threats
Synergies
Slowdown
from integration of
subsidiaries
Licensing
group structure
in emerging market
cycle
agreements
Potential
acquisition with
dilutive impact on EPS
Partnership
and JV in
distribution with major operators
for strategic markets
Slower
than expected results
from jewellery division
Valuation
We confirm our stance on Mariella Burani, with a
3/Underperform rating and given the challenging
market conditions for small cap companies, we
applied a discount to our valuation and reduced
our target price from EUR20 to EUR16.
Q DCF. Our DCF is based on an average
WACC of 8.5%, stemming from 9.8% average
cost of equity, which we calculated using an
average leveraged beta of 1.3 (1.1 unlevered).
The cost of debt amounts to 4.3% and we
assigned a market risk premium of 4%. The
terminal growth rate is fixed at 1.5% beyond
2012. We estimate that Mariella Burani's EV
should break down as 43% debt and 57%
equity. EUR1.1 bn is the terminal value which
corresponds to 8.5x terminal EV/EBITDA, in line
with the current value.
Q Multiples. Based on PE multiples, Mariella
Burani appears alligned to luxury peers at 17.4x
2008E vs. 17.1x for our sample, but cheaper
based on EV/EBITDA at 8.2x vs. 10.3x 2008E.
We would stress that Mariella Burani's EBITDA
margin is lower than pure luxury peers, and the
discount on multiples is more than justified. It
appears more expensive compared to the
average multiples of Italian small cap companies
at 11.4x 2008 median PE and 6.5x 2008 median
EV/EBITDA.
Q
Company profile
Mariella Burani is one of the top Italian players in
the "accessible luxury" market. In 2006, it
reported EUR581m of revenues and EUR21m of
adjusted net profit (EUR55m declared).
Its three business lines are: apparel (50% sales
in 2006), leather goods (43%) and jewellery.
Following acquisitions made over the past year,
jewellery is set to reach ~25-30% organic sales
growth, with an 18-20% margin until 2010.
International markets account for 66% of 2006
sales and the emerging Eastern European and
Far Eastern markets are particularly appealing.
The company operates ~230 mono-brand stores
(~35% DOS and ~65% franchises). Direct
distribution accounts for 66% of sales (21%
DOS, 8.5% franchising and 37% direct clients).
After completing the Antichi Pellettieri IPO (its
leather goods subsidiary), Mariella Burani is
focusing on expansion in the jewellery segment.
It now aims to reach ~70% of sales in the
jewellery and leather business by 2009.
Mariella Burani is controlled by its founders, the
Burani family, which controls 59% through
Burani Designer Holding, which was listed on
the London Stock Exchange in June 2007.
158
www.cheuvreux.com
23 January 2008
ITALY
Mariella Burani
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
159
2002
2003
2004
2004
2005
2006
2007E
2008E
2009E
273.9
23.5%
(40.4)
(201.1)
32.4
42.3%
(10.3)
22.2
51.5%
(2.2)
0.0
0.0
19.9
(6.3)
0.0
2.7
(5.0)
0.0
0.0
0.0
11.3
0.0
(2.3)
9.0
0.0
0.0
11.2
56.0%
358.8
31.0%
(56.4)
(258.8)
43.6
34.2%
(17.6)
26.0
17.1%
0.0
0.0
0.0
26.0
(8.6)
0.0
12.3
(7.9)
0.0
0.0
0.0
21.8
0.0
(6.6)
15.2
0.0
0.0
15.2
34.8%
428.9
19.6%
(70.4)
(305.2)
53.3
22.4%
(20.7)
32.6
25.6%
0.0
0.0
0.0
32.6
(11.8)
0.0
(3.1)
(5.6)
0.0
0.0
0.0
12.1
0.0
(2.9)
9.2
0.0
0.0
9.2
-39.2%
429.6
0.2%
(71.0)
(313.4)
45.2
483.1
12.5%
(82.8)
(338.9)
61.4
35.9%
(18.7)
42.7
47.0%
0.0
0.0
0.0
42.7
(14.8)
0.0
0.0
(5.6)
0.0
0.0
0.0
22.3
0.0
(3.2)
19.1
0.0
0.0
19.1
198.6%
672.7
39.2%
(94.5)
(499.0)
79.2
29.0%
(17.6)
61.6
44.4%
0.0
0.0
0.0
61.6
(23.9)
0.0
45.6
(5.5)
0.0
45.6
0.0
77.8
0.0
(7.9)
69.9
0.0
(34.0)
35.9
87.5%
703.7
4.6%
(99.2)
(497.4)
107.1
35.2%
(23.0)
84.1
36.5%
0.0
0.0
0.0
84.1
(22.0)
0.0
0.0
(13.2)
0.0
0.0
0.0
48.9
0.0
(17.1)
31.8
0.0
(14.0)
17.8
-50.4%
743.7
5.7%
(103.2)
(530.4)
110.1
2.8%
(24.0)
86.1
2.4%
0.0
0.0
0.0
86.1
(22.0)
0.0
0.0
(17.9)
0.0
0.0
0.0
46.1
0.0
(19.4)
26.8
0.0
0.0
26.8
50.5%
864.7
16.3%
(107.3)
(623.1)
134.3
22.0%
(25.9)
108.3
25.9%
0.0
0.0
0.0
108.3
(18.0)
0.0
0.0
(25.3)
0.0
0.0
0.0
65.0
0.0
(26.0)
39.0
0.0
0.0
39.0
45.9%
23.8
39.8%
(24.2)
(26.8)
0.0
(27.2)
(9.5)
0.0
0.0
(1.5)
0.0
6.1
(32.2)
32.8
37.5%
(5.1)
(43.9)
(14.6)
(16.3)
0.0
0.0
0.0
0.0
0.0
0.0
(16.3)
29.9
-8.7%
(5.1)
(29.2)
(14.6)
(4.4)
0.0
0.0
0.0
0.0
0.0
0.0
(4.4)
9.0
(9.1)
(29.2)
(14.6)
(29.3)
0.0
0.0
0.0
0.0
0.0
0.0
(29.3)
41.1
NS
(8.0)
(6.1)
(3.1)
26.9
(45.2)
0.0
15.6
(10.1)
18.8
(33.2)
(27.2)
16.8
-59.1%
(40.8)
(15.4)
(7.7)
(39.4)
30.6
0.0
87.5
(3.9)
(6.0)
(79.2)
(10.4)
56.9
NS
(45.4)
(21.5)
(10.8)
(10.0)
(10.0)
0.0
60.0
(14.0)
0.0
0.0
26.0
70.1
23.3%
(11.6)
(22.3)
(11.2)
36.2
0.0
0.0
0.0
(13.9)
0.0
0.0
22.3
91.0
29.7%
(35.1)
(25.9)
(13.0)
29.9
0.0
0.0
0.0
(10.7)
0.0
0.0
19.2
101.2
9.3
0.0
14.5
93.8
84.9
218.8
42.5
24.7
22.1
16.6
0.0
113.0
41.2
218.8
106.7
26.5
13.1
7.2
113.8
85.4
267.3
66.9
24.1
30.7
11.6
0.0
134.0
37.4
267.3
121.6
33.1
13.7
8.4
142.0
91.8
318.8
94.8
28.3
40.3
16.3
0.0
139.1
32.4
318.8
137.4
70.4
13.7
8.4
142.0
68.3
371.9
94.8
28.3
93.4
16.3
0.0
139.1
32.4
371.9
173.0
70.3
15.3
14.0
169.2
69.5
441.8
67.6
230.9
56.3
62.5
0.0
24.5
5.1
441.8
168.9
127.8
17.7
19.0
179.6
60.5
513.0
77.7
236.3
62.3
72.1
0.0
64.6
9.6
513.0
186.7
134.2
18.2
19.8
153.6
47.9
512.5
77.7
238.7
50.0
55.0
0.0
91.1
12.9
512.5
199.6
140.9
18.8
20.6
131.3
38.6
511.1
77.7
241.1
50.5
55.0
0.0
86.8
11.7
511.1
227.9
147.9
19.3
21.4
112.1
29.8
528.6
77.7
243.5
51.0
55.0
0.0
101.4
11.7
528.6
www.cheuvreux.com
(16.2)
29.0
0.0
0.0
0.0
29.0
(13.0)
0.0
0.2
(8.4)
0.0
0.2
0.0
7.8
0.0
(1.4)
6.4
0.0
0.0
6.4
23 January 2008
ITALY
Mariella Burani
FY to 31/12 (Eur)
2002
2003
2004
2004
2005
2006
2007E
2008E
2009E
0.40
56.0%
0.32
119.0%
0.54
34.9%
0.54
68.0%
0.33
-39.2%
0.33
-39.2%
0.23
0.66
188.2%
0.66
188.2%
1.20
81.7%
2.34
NS
0.59
-50.5%
1.06
-54.5%
0.90
50.7%
0.90
-15.8%
1.31
45.8%
1.31
45.8%
Goodwill per share
Dividend per share
Cash flow per share
% Change
0.08
0.07
0.85
39.7%
3.5
0.00
0.00
1.17
37.5%
3.8
0.00
0.36
1.07
-8.7%
4.0
0.00
0.36
0.32
4.5
0.00
0.14
1.42
NS
5.6
0.00
0.52
0.56
-60.4%
5.1
0.00
0.50
1.90
NS
5.7
0.00
0.38
2.35
23.3%
6.3
0.00
0.56
3.04
29.7%
7.1
Latest price
High
Low
Average price
28.000
28.000
0.000
28.000
28.000
0.000
28.000
28.000
0.000
28.000
28.000
0.000
29.908
28.954
0.000
29.908
29.908
0.000
29.908
29.908
0.000
29.908
29.908
0.000
29.908
29.908
0.000
7.46
7.69
5.80
7.00
7.87
7.93
6.30
7.33
8.24
8.25
7.29
7.70
8.24
8.25
7.29
7.70
13.63
14.00
8.16
10.52
20.33
24.70
13.50
18.63
18.79
27.38
17.88
23.21
15.60
18.98
15.45
16.98
15.60
-
208.9
356.2
220.4
431.8
230.7
442.8
230.7
420.3
381.6
567.5
608.0
802.4
562.0
981.4
466.6
899.5
466.6
854.0
23.2
18.6
8.8
NS
2.1
1.8
0.9
14.5
14.5
6.7
NS
2.1
1.7
0.0
25.1
25.1
7.7
NS
2.1
1.5
4.4
36.0
36.0
25.7
NS
1.8
1.2
4.4
20.6
20.6
9.6
6.0
2.4
1.5
1.0
17.0
17.0
36.2
NS
4.0
1.8
2.6
31.6
31.6
9.9
NS
3.3
2.3
2.6
17.4
17.4
6.7
4.5
2.5
2.5
2.4
12.0
12.0
5.1
3.9
2.2
2.2
3.6
11.0
16.1
1.30
10.8
9.9
16.6
1.20
8.6
8.3
13.6
1.03
9.7
9.3
14.5
0.98
24.3
9.2
13.3
1.18
9.5
10.1
13.0
1.2
18.7
8.0
11.7
1.4
9.1
8.2
10.5
1.2
6.5
6.4
7.9
1.0
5.2
5.2
3.9
11.8
8.1
4.1
1.4
84.9
21.8
5.1
3.5
12.1
7.2
6.1
1.4
85.4
0.0
4.5
4.7
12.4
7.6
2.8
1.4
91.8
109.8
3.5
15.8
10.5
6.8
1.8
1.2
68.3
157.9
4.2
4.1
12.7
8.8
4.6
1.3
69.5
21.1
3.3
10.7
11.8
9.2
11.6
1.5
60.5
22.3
4.9
2.7
17.3
11.9
6.9
1.5
47.9
46.7
5.0
1.9
14.8
11.6
6.2
1.6
38.6
42.7
7.5
1.2
15.5
12.5
7.5
1.8
29.8
42.8
11.0
7.6
9.3
9.3
10.1
7.4
15.3
15.3
10.8
7.4
7.9
7.9
8.2
3.9
4.8
4.8
11.2
9.0
11.7
11.7
14.0
13.0
52.1
23.7
18.4
14.5
18.6
10.0
18.9
13.6
14.4
14.4
22.9
16.5
18.7
18.7
EPS before goodwill
% Change
EPS, reported
% Change
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
160
www.cheuvreux.com
0.23
23 January 2008
ITALY
COMPOSITE INSURERS
Rating
2/Outperform
Milano Assicurazioni
Price (21/01/2008)
Stable top line, rising margin
Stock data
Q
Recent developments – Motor portfolio cleaning
In 9M-07, motor premiums fell sharply (down -6% y-o-y to
EUR1,411m), eroding the top line for the key non-life business
(EUR1,930m, -4%), due to the flattish market trend and the pruning of
unprofitable car fleet contracts (historically, an important segment for
Milano Assicurazioni). Conversely, the less profitable life premiums were
boosted by the consolidation of the JV with Banco Popolare di Milano.
In life, the top line rose by +55% to EUR638m. The combined ratio
remained high (93.7% vs. 93.9% in 9M-06), due partly to the higher
weight of costs on lower premiums (expense ratio was up at 17.9% vs.
17.1%). However, Milano Assicurazioni reserved 100% of the potential
gain on the settlement of motor losses under the new direct
reimbursement scheme. We estimate that the adjusted combined ratio
should be ~92%, even assuming that just 50% of the amount is
reserved (we estimate EUR54m) will be released. Thus, including this
effect, net profit should have been EUR230m, vs. the reported figure of
EUR213m, which was still +6% higher than 9M-06. The new direct
settlement process in Motor was by far the most crucial development of
2007, affecting 63% of Milano Assicurazioni's non-life business. While
the data provided is not sufficient for a detailed analysis, we anticipate a
significant (up to 10%) loss cost reduction for motor TPL losses.
Q
Atanasio PANTARROTAS, CFA
Investment Analyst
(39) 02 80628310
apantarrotas@cheuvreux.com
161
www.cheuvreux.com
EUR4.62
Reuters: ADMI.MI Bloomberg: MI IM
Free Float
Enterprise value
Daily volume
EUR2 240m
EUR900m
EUR2 240m
483.29 m
EUR5.31m
Performances
-12.4% -17.5% -25.0%
3.1%
10.0%
6.8%
Absolute perf.
Relative perf.
7.4
7.4
6.4
6.4
5.4
5.4
4.4
4.4
3.4
3.4
2.4
2.4
1.4
1.4
01/01
02/02
12/02
10/03
09/04
Price/MIDEX
Outlook – Combined ratio seen down to 91%-92%
We expect net profit to reach EUR277m in FY-07, rising by +12%,
which would be an excellent result, as we do not foresee any significant
unwinding of the gains provisioned in the motor business in Q4-07. In
the short term, we expect the main motor business to report a flattish
trend, leading to an annual 2% increase in the non-life business. Thanks
to the motor reform, we expect the combined ratio to decline to 91.6%
in FY-08 and 91.2% in FY-09 from 92.5% in FY-07E. In Motor TPL, the
pruning (mainly car fleet policies) performed over the last two years
could lead to further improvement. The only uncertainty should be the
termination of the deferred acquisition costs (DAC) in non-life, after the
Bersani decree which forced the company to stop selling multi-year
contracts in non-life. For this reason, we assumed that the old DAC will
be amortized in 8 years, leading to a negative pre-tax effect of EUR10m
per year. This is a non-cash item, which was cleaned up in our EPS
estimate. Assuming the investment yield reaches 3.8%, the non-life
business should drive consolidated pre-tax profit growth (8% per year
in the 2007-09 period). Milano Assicurazioni has already officially denied
any exposure to structured finance assets (like CDO, CLO), so we do
not fear any bad news on the investment front, as the recent equity
market downturn should have a negligible impact on the equity portfolio
(-EUR0.1bn over the last year). Overall, net profit should total EUR304m
in FY-08, and EUR319m in FY-09. Finally, we note that we left the tax
rate unchanged (36%), pending further details even if the new tax law
should lower it by ~4%, leading to a +6% increase in our EPS
estimates.
+66% EUR7.7 (8)
07/05
05/06
03/07
01/08
Price
Sector focus
AXA, CNP Assurances,
Fondiaria-Sai, Mapfre
Alleanza
Sector Top Picks
Least favoured
Shareholders
Fondiaria-Sai 59.4%, Free Float 40.2%
2006
2007E
2008E
2009E
P/E (x)
11.5
9.0
7.1
6.7
Payout ratio (%)
56.0
56.5
57.3
57.5
Net yield [%]
4.9
6.2
7.8
8.2
Emb. value/share
4.4
4.2
4.4
4.7
P/Emb. value (x)
1.4
1.3
1.0
1.0
New business value (m)
0.0
0.0
0.0
0.0
Non-life comb. ratio (%)
90.9
90.3
89.4
88.9
23 January 2008
Q
ITALY
Investment case
Q
Stable top line, rising margin
We reiterate our 2/Outperform rating for Milano Assicurazioni,
reducing our target price to EUR7.7 (from EUR8.0), more than +50%
upside. Despite the lack of top line growth at the non-life business,
we expect the combined ratio to fall into the low 90% range in the
next few years, thanks mainly to the motor reform, which started a
year ago.
Q
Q Motor reform to lower significantly combined ratio
Even if the potential gains from the new motor reform should have
been reserved on the FY-07 P&L, initial operating results look
positive, with a significant reduction of average loss costs (mainly
due to the reduction of lawsuits). Further cost savings should stem
from the use of partner garages and the direct acquisition of spare
parts to avoid distribution costs. Overall, we expect further benefits,
which should lead to a ~6% reduction of the combined ratio for the
motor TPL business (63% of the non-life portfolio).
Q Milano hit by financial crisis, but no major effects
Milano Assicurazioni was hurt by the financial crisis just like the other
Italian insurers, even if it has no exposure to CDO/CLOs or other
similar instruments. Conversely, we expect that the higher interest
rate level should sustain healthy financial income again in 2008-09;
the recent equity downturn should have a limited impact on its NAV
(EUR0.1bn since FY-06 or 4% market cap). The stock trades at 7x
FY-09 EPS, at a discount vs. Unipol (9.5x), Cattolica (11.5x) and in
line with parentco Fondiaria-SAI. We calculated EPS net of any
negative effect from DAC, as well some goodwill amortization.
Q
SWOT Analysis
Strengths
Weaknesses
Good combined ratio (~ 92%
since 2002)
Equity investments
concentrated in just a few stocks
Fondiaria-SAI's leading
position in Motor TPL
Limited presence in the life
business
Cost synergies and best
practice sharing with parentco
High concentration in Italian
Motor business
Broad exposure to the retail
business
Opportunities
Threats
Motor TPL reform should
further reduce the loss ratio
Political pressure to freeze/cut
tariffs
Pruning of car fleet policies
should improve results
Weak position vs. parentco
Fondiaria-SAI
New motor tariff to reduce the
loss ratio in motor
Further reserve strengthening
in General TPL
Cross-selling of non-motor
P&C and life products, leveraging
on motor clients
Bancassurance agreement
with BPM
Valuation
We set a target price for Milano Assicurazioni of
EUR7.7 per ordinary share, from EUR8.0
previously, as we factored into our model the
estimated mark to market of the equity portfolio
(-EUR0.1bn). Our valuation is based on a
sustainable COR of 93.5%, at the top end of the
range that the company has reported for the last
few years (90%-94%), a 3.8% return on
investments (4% on own capital), a 2007-10
CAGR of 2% for consolidated non-life GPW
(followed by a perpetual 2.5%).
At our target price, the stock should trade at
1.8x FY-07 EV. In our SOP, the fair value of
EUR7.7 per share breaks down as: NAV (45%,
or EUR3.3 per share), non-life business (43%,
EUR3.2 per share), while the value of the life
business (12%, EUR0.9) is not meaningful, even
after the acquisition of the bancassurance JV
(BPM Vita).
The stock trades at 6.7x 2009 EPS in line with its
parentco Fondiaria-SAI vs. 11.5x for Cattolica
and 9.5x for Unipol.
Q
Company profile
Milano Assicurazioni currently holds a 7.4%
share of the non-life market, but just a 1.9%
share of the life market (including BPM Vita).
Overall, Milano Assicurazioni has a 3.8% share
of the entire Italian market, with EUR4.1bn total
GPW (including the BPM Vita). Like its parent
company Fondiaria-SAI, Milano specializes in
the motor business: GPW totalled EUR2.0bn in
FY-06, with 9.2% market share. Growth is
limited (+1% in FY-06 in non-life business), as
motor tariffs have cooled in recent years and the
Italian-life business remains under-developed.
The insurer collects premiums through its
agency network (1,500 agencies). It also owns a
direct channel (Dialogo specialising in motor
insurance) and acquired 51% of BPM Vita (750
branches).
Like its parent company, Milano Assicurazioni
owns stakes in Generali, Capitalia, Mediobanca.
Moreover, it has stakes in Fondiaria-SAI (5.4%)
and Premafin (2.2%). The market value of these
holdings is EUR1.0bn, representing almost all of
the insurer's equity investments and it should
have lost ~EUR0.1bn of value since FY-06.
Milano Assicurazioni is owned by Fondiaria-SAI
(60%), which in turn is controlled by Premafin
(37%).
162
www.cheuvreux.com
23 January 2008
ITALY
FY to 31/12 (Eur m)
Profit and loss account
Gross sales
% Change
Net revenues
Change in unearned premiums
Net investment income
Total ordinary income
% Change
Underwriting costs
Other income [expenses]
Acquisition costs
Administrative expenses
Pre-tax operating profit
Exceptionals
Taxes
Profit from associates
Goodwill amortisation [Ins]
Net profit before minorities
% Change
Pre-tax net profit
Net attr. profit [loss], restated
of which Life [%]
of which Non-life [%]
of which Life Reinsurance [%]
of which Non-life Reins. [%]
of which AM [%]
of which Banking [%]
of which Holding [%]
Balance sheet
Goodwill
Intangible assets
Total financial assets
of which Participations
of which Equities
of which Bonds
of which Property
of which Unit Linked
Deferred acquisition costs [Ins]
Banking assets [B]
Other assets
Total assets
Total shareholders' equity
Subordinated liabilities
Net debt
Funds for future appropriation [Ins]
Total technical reserves
Banking liabilities [B]
Other liabilities
163
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
1 909.2
5.2%
1 859.2
(62.6)
94.6
1 891.2
-5.4%
(1 453.2)
(65.9)
(240.6)
(91.5)
40.0
116.8
(66.7)
0.7
90.8
91.2
-19.8%
157.8
91.2
125.0
(26.2)
1.3
2 848.4
49.2%
2 694.1
(62.3)
158.7
2 790.5
47.6%
(2 006.4)
(91.3)
(334.3)
(132.1)
226.4
(151.9)
(36.4)
0.8
38.8
39.1
-57.1%
75.5
39.1
(265.4)
458.6
(93.1)
3 029.0
6.3%
2 897.7
(70.1)
191.9
3 019.4
8.2%
(2 194.3)
(105.7)
(362.2)
(137.1)
220.1
189.1
(161.6)
1.5
249.1
249.3
410.8
249.3
36.5
89.6
(26.1)
3 204.6
5.8%
3 100.8
(21.5)
273.2
3 352.5
11.0%
(2 374.7)
(108.8)
(378.3)
(134.6)
356.2
54.5
(162.6)
1.1
249.1
249.1
-0.1%
411.7
249.1
18.5
97.5
(16.0)
3 325.8
3.8%
3 052.9
166.7
319.5
3 539.1
5.6%
(2 570.5)
(59.5)
(512.5)
396.6
6.4
(119.4)
283.7
283.5
13.8%
402.9
283.5
22.3
117.2
(39.5)
3 325.8
0.0%
3 106.9
242.1
372.6
3 721.6
5.2%
(2 659.9)
(117.0)
(554.3)
390.4
(142.4)
248.0
248.0
-12.5%
390.4
248.0
38.8
118.0
(56.8)
3 695.9
11.1%
3 429.3
198.8
410.1
4 038.1
8.5%
(2 964.5)
(86.9)
(551.8)
434.9
(156.6)
278.3
277.4
11.9%
434.0
281.9
35.1
121.6
(56.7)
3 772.5
2.1%
3 506.4
167.6
430.3
4 104.4
1.6%
(2 981.1)
(67.8)
(564.1)
491.4
(176.9)
314.5
303.8
9.5%
480.7
314.7
32.8
124.6
(57.4)
3 857.3
2.2%
3 591.7
165.4
454.3
4 211.4
2.6%
(3 046.7)
(68.2)
(578.6)
517.9
(186.5)
331.5
319.4
5.1%
505.8
330.3
33.4
124.6
(58.0)
132.3
20.4
6 531.5
61.1
1 222.4
4 243.3
652.3
164.7
41.5
1 020.1
7 745.8
828.4
836.2
538.0
5 763.8
607.8
190.9
11.9
7 403.9
92.5
1 033.5
5 002.2
724.8
239.5
45.4
1 294.0
8 946.2
1 003.4
1 010.7
232.5
7 044.6
658.4
175.8
5.7
7 776.7
125.0
817.0
5 733.8
505.7
302.4
43.4
1 313.0
9 314.6
1 235.8
1 242.9
11.0
7 320.5
740.1
155.1
3.6
8 334.9
111.4
934.6
6 231.1
468.0
352.4
46.5
1 439.8
9 979.9
1 392.6
1 399.6
0.3
7 647.7
932.2
175.3
0.8
9 044.7
4.8
1 644.8
6 453.6
370.1
358.4
66.2
1 701.5
10 988.5
1 526.5
1 721.2
4.2
8 110.3
1 152.9
195.9
46.0
11 291.4
13.5
2 488.6
6 802.5
375.3
1 462.9
79.1
1 362.8
12 975.3
1 678.8
1 989.2
162.5
4.2
8 736.5
2 083.1
195.9
140.0
11 773.7
13.9
2 010.9
7 555.5
386.4
1 654.0
88.5
1 403.7
13 601.9
1 890.3
2 094.9
162.5
4.2
9 108.2
2 232.0
197.3
137.2
12 525.9
14.6
2 122.6
7 975.2
407.9
1 844.1
81.4
1 445.8
14 387.6
2 034.5
2 217.8
162.5
4.2
9 574.5
2 428.6
197.3
134.5
13 481.3
15.7
2 273.1
8 540.8
436.8
2 041.9
73.9
1 489.2
15 376.2
2 179.8
2 345.0
162.5
4.2
10 237.1
2 627.4
www.cheuvreux.com
23 January 2008
ITALY
FY to 31/12 (Eur m)
Net asset value
Ordinary dividends
Valuation reserves on balance sheet
Valuation reserves off BS after tax
In force Life
In force Other lines
Goodwill
Other NAV items
Embedded value
Future business value
Appraisal value
Financial ratios
Life gen. costs / Avg. techn. prov. [%]
Life operating margin [%]
Non-life retention ratio
NL combined ratio [%] excl. equ. prov.
Non-life reins. retention ratio [%]
Non-life reins. combined ratio [%]
Life reins. operating margin [%]
AM rest. net profit / Avg. AUM [%]
Bank operating margin [%]
Return [%]
Return on avg. invest. [%]
Restated ROE after goodwill
Return on allocated equity [%]
Per share data (Euro)
EPS [restated after goodwill]
% Change
EV per share
% Change
EPS before goodwill
Net equity per share as published
Total AUM per share
Dividend per share
Share price (adjusted) (Euro)
Latest price
High
Low
Average price
Valuation
P/E
P/E before goodwill
P/Non restated EPS
P/BV (incl. rev. res)
P/Embedded value
P/AUMPS (year end) [%]
Net yield [%]
164
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
828.4
114.5
300.0
132.3
(36.3)
1 074.3
1 074.3
1 003.4
123.2
380.0
190.9
(38.4)
1 277.3
1 277.3
1 235.8
136.3
380.0
175.8
(37.2)
1 539.1
1 539.1
1 392.6
140.3
493.0
155.1
71.8
1 942.6
1 942.6
1 526.5
140.4
191.1
103.2
175.3
(87.0)
1 418.1
1 418.1
1 678.8
159.6
306.7
129.2
174.3
256.7
195.9
(140.1)
2 050.1
2 050.1
1 890.3
159.6
200.0
111.1
182.3
251.3
195.9
(238.5)
2 040.9
2 040.9
2 034.5
174.1
168.0
93.3
190.5
250.3
197.3
(223.6)
2 141.6
2 141.6
2 179.8
183.7
137.8
76.5
198.2
256.3
197.3
(208.4)
2 259.2
2 259.2
0.20
(22.5)
97.2
90.2
-
0.23
(8.3)
94.3
88.3
-
0.29
(2.0)
95.5
90.6
-
0.22
6.3
96.6
89.1
-
11.0
90.4
90.2
-
15.3
90.4
90.9
-
9.9
90.3
90.3
-
10.2
90.5
89.4
-
10.6
90.7
88.9
-
1.6
11.1
18.4
2.4
4.3
5.5
2.6
22.3
33.3
3.5
19.0
31.6
3.8
18.5
(7 897.8)
4.3
15.4
(6 793.4)
4.2
15.8
(6 141.0)
4.2
16.0
33.9
4.1
15.6
35.2
0.25
-59.9%
2.9
44.2%
0.25
2.24
0.4
0.21
0.10
-58.5%
3.2
11.5%
0.10
2.55
0.6
0.05
0.63
3.8
18.2%
0.63
3.07
0.8
0.20
0.56
-10.1%
4.2
10.6%
0.56
3.04
0.8
0.26
0.62
10.1%
3.1
-27.0%
0.62
3.44
0.8
0.28
0.54
-13.4%
4.4
41.9%
0.54
3.91
3.2
0.30
0.60
10.8%
4.2
-3.7%
0.60
4.00
3.5
0.33
0.65
9.7%
4.4
4.9%
0.65
4.20
3.8
0.36
0.69
4.9%
4.7
5.5%
0.69
4.42
4.2
0.38
3.60
4.08
2.28
3.49
369.8
1 220.7
1.96
3.76
1.63
2.68
382.1
664.6
3.03
3.10
1.48
2.19
398.2
1 051.1
4.15
4.21
2.93
3.28
442.7
1 905.0
5.78
5.90
4.11
5.03
458.8
2 647.0
6.18
6.63
5.13
5.94
463.0
2 883.5
5.35
7.44
4.56
6.03
475.3
2 583.5
4.62
5.36
4.58
4.94
483.3
2 240.1
4.62
483.3
2 092.1
14.6
14.6
14.6
1.8
1.2
8.082
5.8
19.1
19.1
19.2
0.8
0.6
3.127
2.6
4.8
4.8
4.8
1.1
0.8
3.990
6.6
7.4
7.4
7.4
1.5
1.0
5.209
6.3
9.3
9.3
9.3
1.6
1.9
7.368
4.8
11.5
11.5
11.5
1.5
1.4
1.948
4.9
9.0
9.0
9.1
1.3
1.3
1.532
6.2
7.1
7.1
7.3
1.1
1.0
1.208
7.8
6.7
6.7
7.0
1.0
1.0
1.091
8.2
www.cheuvreux.com
23 January 2008
ITALY
PUBLISHING
Rating
3/Underperform
Mondadori
Price (21/01/2008)
Poor outlook
Stock data
Q
Recent developments – Weak 9M-07 results
Outlook – Poor outlook, great exposure to add-on sales
The outlook for Mondadori remains quite poor, with books expected to
be broadly flat, net circulation volumes for Italian magazines expected
to decline further, zero visibility on the Italian advertising recovery and a
gloomy forecast for the French advertising market. In addition, the
company's operating margins are heavily exposed (we estimate ~15%)
to add-on sales, which remain a very volatile source of revenues, which
we expect will decline in the coming years (2007-09 CAGR of -5%).
Besides, the French market is proving more difficult than expected and
visibility on synergies from the integration with Mondadori France
remains low. On the cost side, efficiencies from printing costs should be
fully exploitable from 2008, as implementation is taking longer than
expected. On the revenue side, the launch of Grazia France is not
expected before H2-08 (not included in our estimates due to low
visibility) and launches of add-on products are at a very early stage,
therefore they should have a minimal impact on company margins in
the short term. As a result, we are fine-tuning our 2007-08-09 estimates
and cutting our EPS estimates by 3%, 5% and 7% respectively. We
expect: 1) revenues to grow by 14% to EUR1,999m in FY-07 and to
remain broadly flat over the next two years, with a 2007-09E CAGR of
<1%; 2) EBITDA to rise by 4% in 2007 to EUR249m, up by 3% in 2008
and broadly flat in 2009.
Free Float
Enterprise value
Daily volume
Giovanni MONTALTI, CFA
Investment Analyst
(39) 02 80 62 83 41
gmontalti@cheuvreux.com
www.cheuvreux.com
EUR1 260m
EUR533m
EUR1 831m
259 m
EUR5.50m
Performances
-12.0% -27.9% -42.4%
-0.9%
-15.2% -28.5%
Absolute perf.
Relative perf.
12.4
12.4
11.4
11.4
10.4
10.4
9.4
9.4
8.4
8.4
7.4
7.4
6.4
6.4
5.4
5.4
4.4
01/01
4.4
12/01
11/02
09/03
08/04
Price/S&P/MIB
06/05
04/06
03/07
01/08
Price
Sector focus
Prisa, Reed Elsevier NV,
Vivendi
Havas, Telecom Italia Media,
Telegraaf
Sector Top Picks
Least favoured
Shareholders
Fininvest 50.1%, Free Float 42.3%, Treasury Shares
7.5%
2006
2007
2008E
2009E
P/E (x)
17.5
13.8
11.3
11.1
EV/EBITDA (x)
10.2
8.2
7.2
7.1
NS
5.0
8.0
7.9
Net debt/EBITDA (x)
2.3
2.3
2.2
2.1
Yield (%)
4.4
6.2
7.2
7.4
ROCE (%)
19.1
18.7
19.1
19.0
2.3
1.8
1.6
1.6
165
EUR4.87
Reuters: MOED.MI Bloomberg: MN IM
Results were poor in 9M-07, due to declining circulation volumes and
advertising collection at Italian magazines and to weaker than expected
advertising collection at Mondadori France. Revenues totalled
EUR1,442m, up 16.8% y-o-y and EBITDA totalled EUR187m up 15.7%
yoy, sustained by Mondadori France, (consolidated as of September
2006). On a like-for-like basis (excluding the consolidation of Mondadori
France and the accounting changes), revenues were down 2% y-o-y
and EBITDA dropped 8.8% y-o-y, affected by declining circulation and
advertising revenues at the Italian magazines unit (-2% and -3%
respectively). Add-on sales remained broadly stable, with profitability in
line with last year (at ~20%), outperforming the Italian market which was
down by >15%. As for Mondadori France, while circulation revenues
were broadly in line with expectations, advertising collection was
particularly weak due partly to the impact of the TV reform, which
allowed retailers to advertise on TV. Net income totalled EUR70m
partially affecte by poor company trading results in Q3-07.
Q
+2.3% EUR5.0
23 January 2008
Q
ITALY
Investment case
Q
3/Underperform reiterated
We stand by our 3/Underperform rating for Mondadori and lower our
target price from EUR6.5 to EUR5 to factor in our estimates
reduction and diminishing visibility on the advertising market, which
is being aggravated by the tough macroeconomic scenario. The
stock is trading at in line with the median of its European
comparables on EV/EBITDA multiple.
Q
Q Limited organic growth ahead for the Italian unit
Given the current market conditions and gloomier macroeconomic
picture, we see no catalysts for organic growth for Mondadori for the
next three years. For the Italian operations, we expect books to
remain broadly flat, circulation volumes to continue declining and
visibility on the advertising market recovery remains limited
(especially in mature segments such as magazines). In addition,
competition may intensify in 2008, with the launch of additional
initiatives already announced by Cairo (strong third player in the
Italian magazine market).
Q Around 15% of company EBITDA from volatile add-on sales
We consider such a strong contribution from add-on sales to be a
potential risk. While the company was able to keep add-on sales
stable in 9M-07, outperforming the Italian market that was down by
>15%, we believe that in the coming years it will be harder to sustain
such results as the market is getting more heavily saturated. It is
also becoming harder to develop new initiatives of a sufficient scale
to achieve success in the market.
French market is tougher than expected?
As for France, the outlook for the advertising market is gloomy and
visibility on synergies from the integration remains low both on the
cost and revenue sides. Moreover, the continuous delay in the
launch of Grazia France and limited add-on initiatives, make it hard
to identify potential sources of growth even at the French unit.
Q
Q
SWOT Analysis
Strengths
Weaknesses
Leading
position in the Italian
magazine business

Leader

Best
Great exposure to add-on
sales (15% of EBITDA)
in the book business
Declining magazine circulation
volumes
in class profitability
Losing market share in the
magazine segment

Opportunities
Threats

Expansion in Europe and Far
East via JV agreements

Launch of Grazia in the French
market

Weakening of the advertising
market
Tightening of the competitive
scenario in the Italian magazine
market

Development of strong digital
business model

166
Digitalisation of media content
www.cheuvreux.com
Valuation
We are cutting our target price to EUR5 per
share from EUR6.5 to factor in our estimates
reduction and diminishing visibility on the
advertising market outlook, stemming from the
deterioration of the macroeconomic picture.
Our DCF valuation is based on an average
WACC of 7.37%, and a target gearing of 30%.
The terminal value was calculated as a
perpetuity of 2013 FCF, assuming a 0.5%
terminal growth rate. Our model yielded an EV of
EUR1,752m (of which 65% represented by the
terminal value) and an equity value of
EUR1,307m (including ~EUR123m of financial
assets), considering the net debt balance
expected at the end of 2007 (EUR571m).
The stock trades at 7.2x and 7.1x on 200809EV/EBITDA (vs. 7.5x and 7.1x for peers) and
at 11.3x and 11.1x on 2008-09P/E (vs. 12.9x and
11.9x for peers). We believe the current discount
is due to the poor earnings outlook.
Q
Company profile
Mondadori is Italy's leading magazine publisher,
with 38% market share and ~40 branded titles.
Mondadori is also the top domestic bookseller,
with 28% market share (RCS Media Group ranks
second with ~12%), selling ~55m books per
year. It is also active in the radio business with
Radio 101, which is one of the top 6 national
networks, with ~7.5m weekly listeners.
In 2006, total revenues amounted to EUR1,750m
with the Italian magazine division at EUR732m
(of which EUR202m of add-on sales), the book
division at EUR440m and the French unit at
EUR136m (just four months). EBITDA totalled
EUR240m and net profit was at EUR109m.
Mondadori acquired 100% of EMAP France for
EUR551m in September 2006, making
Mondadori the third largest magazine publisher
in France. The acquisition has also raised the
weight of international sales from 7% to 26% of
consolidated sales. Moreover, through balance
sheet re-leveraging, it moved from debt-free
status to a debt/EBITDA ratio of 2.3x (2006).
Mondadori is 50.2%-controlled by the Fininvest
Group, own shares account for ~7% and ~41%
is free float.
23 January 2008
ITALY
Mondadori
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
167
2002
2003
2004
2004
2005
2006
2007
2008E
2009E
1 458.8
-6.3%
(240.7)
(1 009.6)
208.5
-0.5%
(36.1)
165.0
-0.4%
(23.1)
0.0
0.0
149.3
(8.4)
0.0
(0.3)
(52.1)
0.0
0.0
0.0
81.1
0.0
0.0
81.1
0.0
0.2
104.4
10.0%
1 536.0
5.3%
(250.3)
(1 073.5)
212.2
1.8%
(38.3)
169.6
2.8%
(23.3)
0.0
0.0
150.6
2.1
0.0
1.8
(67.5)
0.0
0.0
0.0
82.7
0.0
(0.6)
82.1
0.0
(1.0)
104.4
0.0%
1 650.0
7.4%
258.0
(1 673.0)
235.0
10.7%
(34.0)
201.0
18.5%
(28.0)
0.0
0.0
173.0
(9.0)
0.0
5.0
(65.0)
0.0
0.0
0.0
105.0
0.0
(1.0)
104.0
0.0
(3.0)
129.0
23.6%
1 620.0
-1.8%
252.0
(1 632.0)
240.0
1 658.0
2.3%
269.0
(1 704.0)
223.0
-7.1%
(36.0)
187.0
-3.6%
0.0
0.0
0.0
187.0
(6.0)
0.0
0.0
(66.0)
0.0
0.0
0.0
116.0
0.0
(1.0)
115.0
0.0
0.0
115.0
2.7%
1 750.0
5.5%
302.0
(1 812.0)
240.0
7.6%
(39.0)
201.0
7.5%
0.0
0.0
0.0
201.0
(12.0)
0.0
0.0
(79.0)
0.0
0.0
0.0
110.0
0.0
(1.0)
109.0
0.0
0.0
109.0
-5.2%
1 999.0
14.2%
350.0
(2 100.0)
249.0
3.8%
(43.0)
206.0
2.5%
0.0
0.0
0.0
206.0
(36.0)
0.0
0.0
(70.0)
0.0
0.0
0.0
99.0
0.0
(1.0)
98.0
0.0
0.0
98.0
-10.1%
2 019.0
1.0%
370.0
(2 133.0)
256.0
2.8%
(43.0)
213.0
3.4%
0.0
0.0
0.0
213.0
(34.0)
0.0
0.0
(74.0)
0.0
0.0
0.0
104.0
0.0
(1.0)
103.0
0.0
0.0
103.0
5.1%
2 032.0
0.6%
380.0
(2 156.0)
256.0
0.0%
(43.0)
213.0
0.0%
0.0
0.0
0.0
213.0
(31.0)
0.0
0.0
(75.0)
0.0
0.0
0.0
106.0
0.0
(1.0)
105.0
0.0
0.0
105.0
1.9%
140.3
3.2%
(32.5)
(17.8)
0.0
90.0
0.0
0.0
0.0
(155.8)
(10.3)
(3.1)
(79.2)
143.7
2.4%
9.1
(96.0)
0.0
56.8
0.0
0.0
0.0
(62.4)
2.6
(33.1)
(36.1)
162.0
12.7%
(2.0)
(38.0)
0.0
122.0
(28.0)
(13.0)
1.0
(73.0)
0.0
16.0
25.0
161.0
(37.0)
(37.0)
0.0
87.0
(28.0)
(13.0)
12.0
(73.0)
0.0
31.0
16.0
152.0
-5.6%
20.0
(115.0)
0.0
57.0
(1.0)
(7.0)
24.0
(85.0)
0.0
(18.0)
(30.0)
149.0
-2.0%
(29.0)
(614.0)
0.0
(494.0)
7.0
10.0
0.0
(145.0)
0.0
34.0
(588.0)
143.0
-4.0%
(14.0)
(56.0)
0.0
73.0
0.0
(3.0)
0.0
(84.0)
0.0
0.0
(14.0)
148.0
3.5%
9.0
(55.0)
0.0
102.0
0.0
0.0
0.0
(84.0)
0.0
0.0
18.0
149.0
0.7%
5.0
(54.0)
0.0
100.0
0.0
0.0
0.0
(84.0)
0.0
0.0
16.0
531.9
0.4
101.8
52.0
(109.3)
NS
576.8
164.2
0.0
202.7
126.3
0.0
83.6
5.7
576.8
551.9
3.3
100.7
42.4
(72.9)
NS
625.4
158.4
0.0
199.9
192.6
0.0
74.5
4.9
625.4
584.0
3.0
103.0
50.0
(97.0)
NS
643.0
0.0
134.0
185.0
228.0
0.0
97.0
5.9
644.0
622.0
3.0
95.0
16.0
(89.0)
NS
647.0
14.0
131.0
210.0
238.0
0.0
56.0
3.5
649.0
506.0
4.0
99.0
16.0
(32.0)
NS
593.0
14.0
206.0
214.0
112.0
0.0
47.0
2.8
593.0
482.0
4.0
104.0
35.0
556.0
114.4
1 181.0
428.0
490.0
227.0
127.0
0.0
(90.0)
(5.1)
1 182.0
493.0
5.0
121.0
40.0
571.0
114.7
1 230.0
428.0
505.0
224.0
127.0
0.0
(54.0)
(2.7)
1 230.0
513.0
6.0
128.0
41.0
553.0
106.6
1 241.0
428.0
520.0
221.0
127.0
0.0
(55.0)
(2.7)
1 241.0
533.0
8.0
131.0
41.0
538.0
99.4
1 251.0
428.0
534.0
218.0
127.0
0.0
(57.0)
(2.8)
1 250.0
www.cheuvreux.com
(46.0)
194.0
0.0
0.0
0.0
194.0
(11.0)
(2.0)
0.0
(68.0)
0.0
0.0
0.0
113.0
0.0
(1.0)
112.0
0.0
0.0
112.0
23 January 2008
ITALY
Mondadori
FY to 31/12 (Eur)
2002
2003
2004
2004
2005
2006
2007
2008E
2009E
EPS before goodwill
% Change
EPS, reported
% Change
0.42
8.3%
0.31
7.9%
0.43
3.6%
0.32
1.0%
0.53
22.9%
0.40
27.2%
0.46
0.48
4.3%
0.44
2.8%
0.45
-6.0%
0.42
-5.2%
0.41
-9.7%
0.38
-10.2%
0.43
5.1%
0.40
5.3%
0.44
2.1%
0.41
1.8%
Goodwill per share
Dividend per share
Cash flow per share
% Change
0.09
0.25
0.56
1.6%
1.8
0.10
0.30
0.60
6.2%
1.8
0.12
0.35
0.67
12.1%
1.9
0.00
0.35
0.66
2.1
0.00
0.60
0.64
-4.1%
1.4
0.00
0.35
0.62
-2.8%
1.5
0.00
0.35
0.60
-3.6%
1.6
0.00
0.35
0.62
3.5%
1.6
0.00
0.36
0.62
0.6%
1.7
Latest price
High
Low
Average price
259.430
259.430
8.933
259.430
259.430
17.744
259.000
259.000
16.000
259.000
259.000
16.000
259.000
259.000
20.000
259.000
259.000
18.000
259.000
259.000
19.000
259.000
259.000
19.000
259.000
259.000
19.000
5.89
8.89
4.80
6.75
7.11
7.51
5.20
6.39
8.48
8.50
7.03
7.77
8.48
8.50
7.03
7.77
7.86
8.90
7.58
8.16
7.92
8.31
6.43
7.65
5.62
8.70
5.36
7.27
4.87
5.68
4.80
5.12
4.87
-
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
1 527.5
1 393.7
1 843.5
1 691.7
2 200.0
1 845.0
2 200.0
1 835.0
2 037.8
1 851.4
2 054.7
2 458.4
1 455.6
2 039.3
1 260.3
1 831.0
1 260.3
1 819.0
18.1
14.1
10.5
5.9
3.3
3.1
4.2
21.2
16.5
12.0
3.1
3.9
3.9
4.2
20.4
16.0
12.7
5.5
4.5
4.4
4.1
18.4
18.4
12.8
4.0
4.1
4.5
4.1
16.3
16.3
12.4
2.8
5.8
3.8
7.6
17.5
17.5
12.8
NS
5.2
2.3
4.4
13.8
13.8
9.4
5.0
3.6
1.8
6.2
11.3
11.3
7.9
8.0
3.0
1.6
7.2
11.1
11.1
7.8
7.9
2.9
1.6
7.4
6.9
8.4
0.96
9.6
8.1
10.0
1.10
11.8
7.9
9.2
1.12
11.0
7.6
9.5
1.13
10.9
8.3
9.9
1.12
11.7
10.2
12.2
1.4
15.6
8.2
9.9
1.0
12.4
7.2
8.6
0.9
10.8
7.1
8.5
0.9
10.8
NS
NS
13.8
11.3
5.6
3.2
NS
80.0
NS
NS
13.5
11.0
5.4
3.5
NS
94.8
NS
NS
14.2
12.2
6.4
4.0
NS
87.2
NS
NS
14.8
12.0
7.0
3.9
NS
80.9
NS
NS
13.5
11.3
7.0
3.4
NS
135.1
20.0
3.7
13.7
11.5
6.3
1.7
114.4
83.2
6.9
4.0
12.5
10.3
5.0
1.8
114.7
92.5
7.5
3.7
12.7
10.6
5.2
1.8
106.6
88.0
8.3
3.6
12.6
10.5
5.2
1.8
99.4
88.8
36.6
22.3
16.5
16.6
39.2
21.6
16.1
15.9
48.3
30.0
19.5
18.9
47.2
29.3
19.8
19.8
38.9
24.9
25.6
25.6
19.1
11.1
25.5
25.5
18.7
10.8
22.1
22.1
19.1
11.1
22.3
22.3
19.0
11.0
21.9
21.9
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
168
www.cheuvreux.com
0.43
23 January 2008
ITALY
ELECTRICAL EQUIPMENT
Rating
3/Underperform
Nice
Price (21/01/2008)
Growth outlook still the main issue
Stock data
Q
EUR3.19
Reuters: NICE.MI Bloomberg: NICE IM
Recent developments – Q3 results in line after warning
Q3-07 results were in line, after the recent profit warning which
significantly reduced Nice's top line guidance for FY-07 (to preserve
profitability). Overall, Nice reported 8% top line growth, with the gate
division reporting +14%, eroded by the negative contribution by the
screen business unit (-6%). The gate segment was sustained by the
sound performance of the rest of Europe (+22%, led by the Polish and
Russian markets). EBITDA was down by 12% (580bp erosion; from
35% to 29.2%), mainly due to one-off costs tied to the new branch
openings in Portugal, along with the heavier fixed costs (lower operating
leverage). Net profit also fell by 12%, a touch better than our revised
forecast, benefiting from the lower tax rate y-o-y (~36.2% vs 38.3%).
The net cash position declined to EUR38m (-10% q-o-q), partly due to
the buy-back program, which began after Q2-07 results.
Q
+6.6% EUR3.4 (3.8)
Outlook – Still low visibility on 2008-09 growth outlook
Nice recently finalised two deals for total of ~EUR10m: one in the
wireless alarm systems sector in Italy and one in the door automation
segment in Germany (both for industrial & residential purposes; already
held by Nice BV). Both companies reported 2007E EBITDA margins
below the group average (~20% and 8% vs. >30% for Nice). We
estimated 3% EPS accretion from the two deals, without factoring in
any synergies. For FY-07, the company guidance points to: 1) +10%
top line growth (implying +6% in Q4); 2) ~61.5% gross margin; 3) NWC
at ~28-30% of sales, roughly in line with our >27% estimate and
~EUR4-5m capex. Nice also confirmed two new branch openings in
2008-09, along with the construction of a new warehouse. Despite the
good sales trend for the rest of Europe and the encouraging initial
results for the new MAX family of products, visibility on growth and the
new distribution strategy is still very limited. According to management,
Nice is refocusing its business model in order to limit margin erosion
(while ensuring double-digit top line growth): 1) to focus on the gate
business, where it enjoys a "niche" leadership position, by distributing
through electric wholesalers and the small gate manufacturing channel;
2) to selectively develop the screen business mainly via the installers
channel and small/medium size manufacturers, with a particular focus
on products with a higher technological content. All in all, for 2007-10E,
we expect 13% EBITDA and ~14% EPS CAGR, backed by 15%
revenue growth (o/w 11% organic). The FCF yield should average >6%
in 2007-09E. It is worth noting that Nice's potential in the screen
business, is limited by Somfy's undisputed leadership (>65% market
share). The company might also increase its dividend policy (>2% yield;
30% pay-out), on top of the buy-back program (treasury stocks
currently account for 4.5% of the total capital).
Stefano SIMONELLI
Investment Analyst
(39) 02 80 62 83 15
ssimonelli@cheuvreux.com
169
www.cheuvreux.com
Free Float
Enterprise value
Daily volume
EUR370m
EUR64m
EUR302m
116 m
EUR0.40m
Performances
-8.3%
-40.4% -51.3%
2.5%
-28.7% -39.8%
Absolute perf.
Relative perf.
6.8
6.8
6.3
6.3
5.8
5.8
5.3
5.3
4.8
4.8
4.3
4.3
3.8
3.8
3.3
3.3
2.8
05/06
2.8
08/06
10/06
01/07
03/07
Price/BCI
06/07
08/07
11/07
Price
Sector focus
ABB, Alstom, Finmeccanica,
Thales
Areva, Rolls-Royce
Sector Top Picks
Least favoured
Shareholders
Lauro Buoro 65.7%, Free Float 17.5%, Parvus Asset
Management 10.1%, Treasury Shares 4.5%, Egerton
Capital Ltd 2.2%
2006
2007E
2008E
2009E
P/E (x)
24.9
13.9
10.4
9.2
EV/EBITDA (x)
14.8
7.4
5.2
4.3
2.4
4.1
7.9
9.7
Net debt/EBITDA (x)
(1.0)
(1.1)
(1.2)
(1.5)
Yield (%)
1.1
2.1
2.8
3.1
ROCE (%)
83.3
70.8
70.8
75.2
13.1
5.7
4.0
3.5
23 January 2008
Q
ITALY
Investment case
Q
Cheap valuation, but unsafe vs. Somfy: cautious stance
We reiterate our 3/Underperform rating and cautious stance on Nice
backed by: 1) still limited visibility on the new business model
implementation; 2) unpredictable sell-out rate to end-users; 3)
limited market potential in the screen division. Nice trades at 10.4x
2008E P/E, roughly in line with Somfy (undisputed leader in the
screen segment, with >65% market share).
Q
Risks are still outweighing opportunities
In our view, Nice faces the following risks: 1) product-technology
imitation; 2) heavy reliance on independent distributors/installers for
market penetration; 2) seasonality and unpredictable order backlog
(i.e. housing market and consumer spending trends); 3) price erosion
in the screen segment (i.e. aggressive price competition by Somfy).
Q
Q Low visibility on the 2008-09E growth outlook
After the October 23 profit warning, we sharply reduced our 2007-09E
estimates. Following the two acqusitions, for 2007-10E, we now
expect a 13% EBITDA and ~14% EPS CAGR, driven by by 15%
revenue growth (o/w 11% organic). The 2007-09E FCF yield should
exceed 6% thanks to Nice's lean asset base, coupled with improving
NWC management (from >27% in 2007E to 24% in 2009E; ~23% in
2006A).
Finally two acqusitions: – 3% EPS accretion
On 15 January, Nice finalised two acquisitions, which should have a
total impact of ~EUR18m on sales (representing <9% of 2008E
revenues). We foresee 3% accretion from the two deals. Despite the
limited impact, this is a good first move: the Italian acquisition
should offer a good technological fit, while the German company
should strengthen Nice's positioning in Germany and EE (widening
the product range also in the industrial garage door segment).
Q
Q
SWOT Analysis
Strengths
Weaknesses
Leading position in the home
automation market

Main competitor holds a
dominant position in the screen
segment

Lean, flexible manufacturing
base (100% outsourced)

Limited visibility on sell-out
rates to end-users

Healthy market outlook
Heavy reliance on expertise of
sales force

Innovative solutions and
appealing design

Partial correlation with new
housing trends: low replacement
rate

Opportunities
Threats

Room for expansion outside
Europe (<10% of sales)

Financial flexibility for further
acquisitions

Competition from local players
in the Far East

Risk of technology imitation
Obstacles to entering
distribution chains in competitive
markets (i.e. North America)

Cost synergies from unification
of sales forces

Diversification in
complementary businesses
Sector consolidation might
lead to higher competitive
pressure

170
www.cheuvreux.com
Valuation
Our DCF-based valuation delivers a target price
of EUR3.4 for Nice.
The key assumptions underlying our DCF model
are: 9.9% cost of equity, 1.35 beta, no gearing,
9.9% WACC and 1% perpetuity growth rate. We
factored in a 5.2x terminal EV/EBITDA.
Nice trades roughly in line on 2008E P/E (10.4x)
vs. its French peer Somfy, while it presents a
>10% discount on 2008E EV/EBITDA. Nice
offers a better growth outlook at both the EPS
level (13% vs. 6% 2007-09E CAGR) and EBITDA
levels (13% vs. 6%). However, it is worth noting
that Nice still faces uncertainties tied to its future
growth prospects and the new business model
implementation.
We estimate that Nice can look forward to >6%
2007-09E FCF yield, thanks mainly to its lean
manufacturing system (completely outsourced).
Q
Company profile
Nice is the third largest global player in the home
automation market, with ~6% market share for
the gate market and ~5% for screen market. In
9M-07, the company reported EUR120m of net
sales (+12% y-o-y) and ~EUR22m (+6%) of net
profit. Its EUR38m net cash position could be
devoted to 1) new branch openings (~2 p.a. in
2007-09E); 2) further M&A opportunities; 3) buyback program (and higher dividend yields).
Nice is the only player with a common platform
for both its gate and screen products:
engineering and design are performed internally,
while manufacturing is completely outsourced.
Gate products accounted for 68% of sales in
9M-07, while screen devices represented 32%
of all turnover. Its main markets are France (29%
of 9M-07 sales), Italy (18%), the fifteen EU
countries (23% excluding Italy and France) and
the rest of Europe (22%, Poland and Russia are
the key markets in this area). Nice is refocusing
its distribution platform, favouring electric
wholesalers/small gate manufacturing channel
(for the gate division) and installers/small
manufacturers (screen division).
Nice was listed in May 2006 at an IPO price of
EUR5.7. Nice is controlled by its founder,
through Nice BV. Treasury stocks account for
roughly 4.5% of the total capital.
23 January 2008
ITALY
Nice
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
171
2003
2004
2004
2005
2006
2007E
2008E
2009E
79.4
101.2
27.4%
(7.5)
(58.4)
35.3
38.4%
(3.2)
32.1
41.5%
0.0
0.0
0.0
32.1
(0.3)
0.0
0.0
(10.8)
0.0
0.0
0.0
20.7
0.0
0.0
20.7
0.0
0.2
20.9
38.3%
101.1
0.0%
(7.7)
(58.4)
35.1
121.6
20.2%
(14.6)
(68.0)
39.0
11.2%
(2.8)
36.2
10.6%
0.0
0.0
0.0
36.2
(0.1)
0.0
0.0
(14.5)
0.0
0.0
0.0
21.6
0.0
0.0
21.7
0.0
0.0
21.7
10.2%
150.0
23.4%
(18.6)
(83.2)
48.2
23.5%
(3.0)
45.2
24.9%
0.0
0.0
0.0
45.2
0.1
0.0
0.0
(17.1)
0.0
0.0
0.0
28.3
0.0
(0.1)
28.2
0.0
0.0
28.2
30.1%
165.6
10.4%
(22.0)
(93.2)
50.3
4.4%
(3.7)
46.7
3.1%
0.0
0.0
0.0
46.7
1.4
0.0
0.0
(18.5)
0.0
0.0
0.0
29.5
0.0
(0.1)
29.4
0.0
0.0
29.4
4.3%
202.0
22.0%
(26.9)
(116.8)
58.3
15.9%
(4.9)
53.5
14.6%
0.0
0.0
0.0
53.5
1.3
0.0
0.0
(20.7)
0.0
0.0
0.0
34.1
0.0
(0.1)
34.0
0.0
0.0
34.0
15.4%
223.8
10.8%
(29.8)
(129.2)
64.8
11.1%
(5.4)
59.4
11.1%
0.0
0.0
0.0
59.4
2.2
0.0
0.0
(23.1)
0.0
0.0
0.0
38.5
0.0
(0.2)
38.3
0.0
0.0
38.3
12.9%
24.5
0.0
(4.1)
0.0
9.0
0.0
0.0
0.0
0.0
0.0
0.0
9.0
25.0
90.9%
(4.6)
(3.4)
0.0
17.0
0.0
0.0
0.0
0.0
0.0
(3.5)
13.5
(4.2)
(3.5)
0.0
16.9
0.0
0.0
0.0
0.0
0.0
(2.7)
14.2
24.5
-0.4%
(12.9)
(14.3)
0.0
(2.8)
(0.4)
0.0
0.0
0.0
0.0
1.1
(2.1)
31.2
27.4%
(7.0)
(5.9)
0.0
18.3
0.0
0.0
0.0
0.0
29.2
(19.4)
28.1
33.1
6.2%
(10.5)
(5.0)
0.0
17.5
0.0
0.0
0.0
(8.5)
0.0
0.0
9.1
38.8
17.3%
(4.1)
(5.4)
0.0
29.3
(6.5)
0.0
0.0
(8.8)
0.0
0.0
14.0
43.7
12.7%
(1.3)
(6.3)
0.0
36.1
(1.5)
0.0
0.0
(10.2)
0.0
0.0
24.4
48.6
0.4
0.7
6.5
(6.9)
NS
49.4
0.0
7.6
17.1
12.4
0.0
12.3
15.5
49.4
69.6
0.4
0.9
5.0
(20.4)
NS
55.4
0.0
6.4
20.0
12.1
0.0
16.9
16.7
55.4
75.3
0.4
0.6
5.3
(21.1)
NS
60.6
0.0
7.1
20.3
16.7
0.0
16.5
16.3
60.6
97.1
0.5
0.8
3.3
(19.0)
NS
82.7
0.0
7.9
33.9
13.4
0.0
27.5
22.6
82.7
108.6
0.5
0.8
1.9
(47.1)
NS
64.7
0.0
7.7
12.1
10.4
0.0
34.5
23.0
64.7
129.6
0.6
0.9
2.0
(56.2)
NS
76.8
0.0
8.1
12.7
11.0
0.0
45.0
27.2
76.8
154.7
0.7
1.1
2.1
(70.2)
NS
88.4
0.0
9.5
14.9
12.8
0.0
51.1
25.3
88.4
182.8
0.8
1.2
2.2
(94.6)
NS
92.4
0.0
9.9
15.6
13.4
0.0
53.5
23.9
92.4
(4.6)
(49.3)
25.5
(2.8)
22.7
0.0
0.0
0.0
22.7
(0.7)
0.0
0.0
(6.8)
0.0
0.0
0.0
15.2
0.0
(0.1)
15.1
0.0
0.0
15.1
13.1
www.cheuvreux.com
(2.3)
32.8
0.0
0.0
0.0
32.8
(0.2)
0.0
0.0
(12.9)
0.0
0.0
0.0
19.7
0.0
0.0
19.7
0.0
0.0
19.7
23 January 2008
ITALY
Nice
FY to 31/12 (Eur)
EPS before goodwill
% Change
EPS, reported
% Change
2003
2004
2004
2005
2006
2007E
2008E
2009E
0.14
0.19
38.7%
0.19
37.2%
0.18
0.20
10.1%
0.20
10.1%
0.26
33.0%
0.25
26.9%
0.27
1.5%
0.25
1.6%
0.31
15.0%
0.29
15.4%
0.35
13.1%
0.33
12.6%
0.00
0.00
0.22
0.4
0.00
0.00
0.23
90.8%
0.6
0.7
0.00
0.00
0.22
-0.4%
0.9
0.00
0.07
0.29
30.2%
0.9
0.00
0.08
0.30
3.5%
1.0
0.00
0.09
0.35
17.1%
1.2
0.00
0.10
0.40
12.9%
1.5
110.000
110.000
0.000
110.000
110.000
0.000
110.000
110.000
0.000
110.000
110.000
0.000
116.000
113.000
5.205
116.000
116.000
5.205
116.000
116.000
5.205
116.000
116.000
5.205
-
-
-
-
6.52
6.94
5.60
6.38
3.68
6.90
3.26
5.66
3.19
3.77
3.15
3.38
3.19
-
661.2
658.6
-
661.2
640.5
661.2
642.1
756.2
713.1
426.9
373.4
369.8
302.2
369.8
277.9
NS
NS
NS
1.3
NS
NS
0.0
NS
NS
NS
NS
NS
0.0
NS
NS
NS
2.5
NS
NS
0.0
NS
NS
NS
NS
NS
NS
0.0
24.9
24.9
22.6
2.4
7.6
13.1
1.1
13.9
13.9
12.3
4.1
3.5
5.7
2.1
10.4
10.4
9.1
7.9
2.6
4.0
2.8
9.2
9.2
8.1
9.7
2.2
3.5
3.1
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
14.8
15.8
4.8
22.8
7.4
8.0
2.3
11.5
5.2
5.7
1.5
7.9
4.3
4.7
1.2
6.5
NS
NS
32.1
28.6
19.1
2.1
NS
0.0
NS
NS
34.9
31.7
20.4
2.3
NS
0.0
NS
NS
34.7
32.4
19.4
2.3
NS
0.0
NS
NS
32.1
29.8
17.8
1.8
NS
0.0
NS
NS
32.1
30.2
18.9
2.8
NS
29.3
NS
NS
30.4
28.2
17.8
2.5
NS
30.0
NS
NS
28.9
26.5
16.9
2.7
NS
30.1
NS
NS
29.0
26.5
17.2
2.8
NS
30.0
61.4
42.4
36.8
36.8
74.2
48.7
34.9
35.4
74.6
45.1
30.0
30.0
52.3
31.3
25.1
25.1
83.3
52.0
29.8
29.8
70.8
43.6
25.6
25.6
70.8
44.1
24.7
24.7
75.2
47.0
23.4
23.4
0.14
Goodwill per share
Dividend per share
Cash flow per share
% Change
0.00
0.00
0.12
Latest price
High
Low
Average price
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
172
www.cheuvreux.com
0.18
23 January 2008
ITALY
AUTO COMPONENTS
Rating
3/Underperform
Piaggio
Price (21/01/2008)
Little room to outperform
Stock data
Q
EUR1.72
Reuters: PIA.MI Bloomberg: PIA IM
Recent developments – Positive 9M-07, but higher taxes
In 9M-07, Piaggio sold 440k vehicles (+2.5%) and 129k LTVs (+10.1%),
reporting a good volume trend for the Piaggio and Aprilia brands, while
Moto Guzzi (-9% in Q3) and Vespa suffered from weak US market
conditions. Sales grew even more (+6.3% to EUR1.37bn), thanks to
higher selling prices. The EBITDA margin rose to 14.7% (13.6% in Q307), sustained by a better product mix (MP3 sold 20k units) and a good
recovery at Aprilia. Still, the net result was down 14.4% to EUR66m due
to a higher tax rate (42% vs. 21% last year, due to EUR20m of deferred
tax asset reversal). Net debt in Q3-07 rose to EUR295m, with a 67%
gearing (59% at June-07). Piaggio also confirmed its 3-year plan, which
targets: 1) 7% revenue growth p.a., which should translate into
~EUR1.96bn of turnover in 2009; 2) a 14% EBITDA margin in 2009
(12.7% in 2006); 3) an EBITDA/net debt ratio close to 1x after EUR320m
of investments in 2007-09), which would imply ~EUR275m of net debt
at end-09.
Q
+7.6% EUR1.85 (3.4)
Outlook – Worsening outlook prompt an estimates cut
Since last summer, the Italian market scenario has changed. Two wheel
>50CC registrations have slowed down (falling by 2.1% to 435k units in
the full year), particularly for the domestic players, which were down
7.6%, despite steady acceleration in December 2007. Other European
countries and the US are also slowing down, due to the worsening
macro outlook and the impact of the credit crunch on consumer
spending (~20% of Piaggio's sales financed by dealers), prompting us
to reduce our forecasts. For 2008, we now assume a 5% decline in the
Italian market, a flat trend for the rest of Europe and a 15% decline in
the US. For India, we do not foresee any slowdown, so volumes should
reach 190k units, up 8.6% vs. 2007. As a result, we expect volumes to
remain broadly stable this year, with a +1.3% increase in sales tied to
slightly higher selling prices. In addition, we note that Q1-08 should be
weak as Q1-07 benefitted from favourable weather conditions in
Europe. In this weak scenario, Piaggio will find it hard to raise
profitability. As a result, we slashed our 2008 estimates by 28% at the
EPS level and by 19% on 2009, and believe that Piaggio will fail to
reach its official targets (sales at EUR1.96bn in 2009, with a 14%
EBITDA margin). Beyond 2008, we believe Piaggio has the right
strategy in place to increase its organic growth by leveraging on a
possible recovery in the US (exploiting the "cool" Vespa and Moto
Guzzi brands), the revamping of the Moto Guzzi plant (by 2010) and
penetration of promising new markets (i.e. Vietnam), while mix
improvements which should stem from innovative new products (for
example, a new hybrid engine in 2009) should help lift the contribution
margin per unit. Therefore, for 2010 we expect 3.7% top line growth
and an improvement in the operating margin to 8.1% (from 7.5% this
year).
Marco CRISTOFORI
Investment Analyst
(39) 02 80 62 83 30
173
www.cheuvreux.com
Free Float
Enterprise value
Daily volume
EUR682m
EUR260m
EUR1 105m
396.041 m
EUR6.23m
Performances
-24.9% -45.0% -44.6%
-11.6% -26.6% -21.0%
Absolute perf.
Relative perf.
4.1
4.1
3.6
3.6
3.1
3.1
2.6
2.6
2.1
2.1
1.6
07/06
1.6
09/06
11/06
02/07
04/07
06/07
Price/MIDEX
08/07
11/07
01/08
Price
Sector focus
Sector Top Picks
Least favoured
Continental, Daimler, Renault
Shareholders
Immsi 55.9%, Free Float 38.2%, Deutsche Bank
2.0%, Diego Della Valle 2.0%, Treasury Shares 1.9%
2006
2007E
2008E
2009E
15.3
14.7
10.7
9.1
EV/EBITDA (x)
7.5
5.7
4.9
4.4
8.3
7.0
5.9
10.2
P/E (x)
Net debt/EBITDA (x)
1.5
1.3
1.5
1.2
Yield (%)
1.0
2.1
2.9
2.9
ROCE (%)
14.3
15.2
14.5
15.4
1.8
1.5
1.2
1.2
23 January 2008
Q
ITALY
Investment case
Q
Little room to outperform
We believe Piaggio is now unlikely to outperform the market in the
next six months: 1) its 6.9% yearly organic growth target was based
on rapid penetration of the US market and double-digit LTV growth
in the Indian market. The worsening of the macro economic scenario
means this will be very hard to achieve, so the target could be
reduced, disappointing the market; 2) Q1-08 should be especially
difficult, given the unfavourable comparison base vs. last year.
Q
Q Low visibility of European and US markets
Market conditions are rapidly worsening in the US. We now expect a
15% decline this year, while a weaker macro economic scenario in
Europe (78% of sales) could affect the scooter market. Italy has
already started to decline, with sales down 2.1% in 2007.
Q Right strategy but result only in the long run
The margin improvement expected after restructuring at Moto Guzzi
and due to the improving mix (driven by innovative new products),
should only arrive in the long term, due to the delays in new product
launches (i.e. new hybrid engine launch was postponed from 2008 to
2009) and the revamp of the Moto Guzzi plant, now planned for
2010. In addition, the new Vespa plant in Vietnam will start
production at end-09, contributing to EBITDA only in 2010.
Estimates revised downward
On the back of worsening market conditions in the US and in Italy,
coupled with the lack of expected margin improvement until 2009,
we sharply reduce our estimates, with a negative impact on 2008
EPS of 28% and 19% in 2009.
Q
Q
SWOT Analysis
Strengths

Weaknesses
Strong brand awareness
~45% of revenues coming
from 50CC segment

Broad, well-balanced product
range

Geographical diversification
still limited

Strong distribution network
High exposure to the domestic
market (38% of sales)

Present in promising markets
(China, India)

Small compared to peers
Opportunities
Threats

Expansion in emerging
countries (Vietnam, India, China)

Product innovation (i.e. new 3wheel scooter, new twin cylinder
engine, new hybrid scooter)

Cooling Italian market

Currency risk

Rising raw material costs
Mounting competition from low
cost competitors

Margin recovery at Aprilia and
Moto Guzzi

174
www.cheuvreux.com
Valuation
On the back of our new estimates, the de-rating
of the sector and our more cautious
assumptions (beta increased to 1.4 from 1.2
before) to factor in further deterioration of the
macro-economic envirionment, we cut our target
price from EUR3.4 to EUR1.85 per share. We
used a DCF model which delivers a target price
of EUR2.06 (8.3% WACC, +1% avg. FCF
growth) to which we applied a 10% discount to
take into account the limited liquidity of the
share, arriving to a fair value of EUR1.9.
We also ran a SOP valuation, based on the
average multiples of pure motorbike makers to
value Aprilia and Moto Guzzi, and automotive
industry multiples for the other Piaggio brands.
This method delivers a fair value of EUR2.44 per
share, but we feel Piaggio merits a discount
given its tiny size compared to peers.
Q
Company profile
With 7 plants, ~700k vehicles sold and 7
different brands, Piaggio is the European leader
in the scooter market, with ~31% market share.
It also produces motorbikes and LTVs (light
transport vehicles). Its two core businesses are:
1) scooters and motorbikes (~78% of 2007E
turnover), which comprises 5 scooter brands
(Vespa, Gilera, Derbi, Scarabeo and Piaggio)
with ~460k units sold, and the motorbike unit
(mainly Aprilia and Moto Guzzi brands), which
was acquired in 2004 with >70k units; 2) LTVs
(accounting for ~22% of 2007E sales). Piaggio
produces >170k LTVs in Italy and India under
the brand names Ape, Porter and Quargo. The
company has full control of the value chain, from
engine production to distribution (11k dealers
worldwide, of which 3.8k directly controlled).
Italy accounts for 38.5% of sales, the rest of
Europe 40.3%, India 12.8%, the US 4.8% and
the rest of the world 3.5%.
Piaggio was acquired by Immsi (controlled by
Mr. Colaninno) and a group of Italian banks
(which converted their credit into shares) in
2003. After listing in July-06 (at EUR2.3 per
share), Immsi now controls 56% of the
company.
23 January 2008
ITALY
Piaggio
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
175
2003
2004
2005
2006
2007E
2008E
2009E
925.1
1 084.2
17.2%
(157.2)
(804.4)
122.7
69.7%
(60.3)
62.3
NS
0.0
0.0
0.0
62.3
(21.4)
0.0
0.0
(15.4)
0.0
0.8
0.0
26.4
0.0
(0.3)
26.0
0.0
0.0
26.0
128.4%
1 451.8
33.9%
(225.5)
(1 060.1)
166.2
35.4%
(90.5)
75.7
21.3%
0.0
0.0
18.6
94.3
(30.3)
0.0
0.0
(25.9)
0.0
0.0
0.0
38.1
0.0
(0.2)
37.9
0.0
(11.1)
26.8
3.0%
1 607.4
10.7%
(236.2)
(1 157.0)
214.2
28.9%
(89.8)
124.4
64.5%
0.0
0.0
(10.2)
114.2
(26.0)
0.0
0.0
(17.9)
0.0
0.0
0.0
70.3
0.0
(0.4)
70.0
0.0
8.1
78.1
191.3%
1 694.6
5.4%
(240.7)
(1 227.8)
226.0
5.5%
(94.0)
132.0
6.1%
0.0
0.0
0.0
132.0
(26.3)
0.0
0.0
(44.4)
0.0
0.0
0.0
61.4
0.0
(0.4)
61.0
0.0
0.0
61.0
-21.9%
1 716.2
1.3%
(241.8)
(1 250.1)
224.3
-0.7%
(95.0)
129.3
-2.0%
0.0
0.0
0.0
129.3
(28.0)
0.0
0.0
(38.6)
0.0
0.0
0.0
62.8
0.0
(0.4)
62.3
0.0
0.0
62.3
2.3%
1 803.1
5.1%
(241.7)
(1 320.9)
240.5
7.2%
(101.9)
138.6
7.2%
0.0
0.0
0.0
138.6
(26.8)
0.0
0.0
(38.1)
0.0
0.0
0.0
73.8
0.0
(0.4)
73.3
0.0
0.0
73.3
17.6%
85.3
(81.7)
0.0
(38.4)
(1.2)
0.0
41.7
0.0
235.0
(42.9)
194.2
86.7
NS
(179.5)
(170.2)
(99.5)
(263.0)
0.0
0.0
6.9
0.0
50.0
(33.3)
(239.4)
128.6
48.3%
13.2
(99.9)
0.0
41.9
0.0
0.0
5.4
0.0
0.0
63.2
110.5
160.1
24.5%
30.1
(90.1)
0.0
100.2
0.0
0.0
0.0
0.0
16.8
(23.4)
93.6
155.4
-3.0%
14.0
(105.0)
(10.0)
64.4
0.0
(26.8)
0.0
(11.6)
6.0
0.0
31.9
157.8
1.5%
7.7
(125.0)
(25.0)
40.5
(64.0)
(10.0)
0.0
(19.8)
0.0
0.0
(53.3)
175.7
11.4%
2.5
(108.2)
(20.0)
70.0
0.0
0.0
0.0
(19.8)
0.0
0.0
50.2
179.0
1.0
10.9
0.0
281.8
156.6
472.6
367.1
54.3
182.2
19.5
0.0
(150.5)
(16.3)
472.6
250.9
0.3
77.4
0.0
522.0
207.8
850.6
367.5
213.2
239.3
1.7
0.0
28.9
2.7
850.6
348.2
0.3
77.1
64.2
411.5
118.1
901.2
429.4
195.4
259.6
1.2
0.0
15.7
1.1
901.2
438.1
0.6
78.1
38.8
318.0
72.5
873.6
429.4
200.9
257.0
0.8
0.0
(14.4)
(0.9)
873.6
493.4
0.0
78.9
39.0
286.0
58.0
897.4
429.4
211.0
258.0
27.6
0.0
(28.5)
(1.7)
897.4
536.0
0.0
79.7
39.2
339.4
63.3
994.3
429.4
221.5
278.0
101.6
0.0
(36.2)
(2.1)
994.3
589.5
0.0
80.5
39.9
289.1
49.0
999.1
429.4
232.6
274.2
101.6
0.0
(38.7)
(2.1)
999.1
(134.6)
(718.2)
72.3
(96.1)
(37.3)
0.0
0.0
0.0
(23.9)
(45.4)
0.0
(42.2)
(13.2)
0.0
0.0
0.0
(138.1)
0.0
(0.3)
(138.4)
0.0
46.7
(91.8)
(42.0)
www.cheuvreux.com
23 January 2008
ITALY
Piaggio
FY to 31/12 (Eur)
2003
2004
2005
2006
2007E
2008E
2009E
(0.25)
0.07
128.6%
0.07
118.9%
0.07
2.9%
0.10
44.3%
0.21
184.7%
0.18
82.2%
0.16
-22.4%
0.16
-15.2%
0.16
1.9%
0.16
0.6%
0.19
17.3%
0.19
17.8%
0.5
0.00
0.00
0.23
NS
0.7
0.00
0.00
0.34
48.5%
0.9
0.00
0.03
0.42
22.4%
1.1
0.00
0.05
0.40
-3.8%
1.2
0.00
0.05
0.41
1.2%
1.3
0.00
0.05
0.46
11.2%
1.4
374.668
374.668
0.000
374.668
374.668
0.000
374.668
374.668
0.000
387.817
381.243
0.000
396.041
391.929
7.340
396.041
396.041
10.000
396.041
396.041
10.000
-
-
-
3.14
3.29
2.45
2.93
2.33
3.96
2.17
3.26
1.72
2.40
1.72
1.95
1.72
-
-
-
-
1 195.6
1 598.0
912.4
1 283.2
682.4
1 106.0
682.4
1 056.0
NS
NS
NS
NS
NS
0.0
NS
NS
NS
NS
NS
0.0
NS
NS
NS
NS
NS
0.0
15.3
15.3
7.5
8.3
2.9
1.8
1.0
14.7
14.7
5.8
7.0
1.9
1.5
2.1
10.7
10.7
4.2
5.9
1.3
1.2
2.9
9.1
9.1
3.8
10.2
1.2
1.2
2.9
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
7.5
12.8
1.0
8.8
5.7
9.7
0.8
7.5
4.9
8.6
0.6
6.3
4.4
7.6
0.6
5.4
1.6
NS
6.4
NS
NS
2.0
156.6
0.0
5.7
6.0
11.3
5.8
2.4
1.3
207.8
0.0
5.5
3.2
11.4
5.2
2.6
1.6
118.1
0.0
8.2
2.0
13.3
7.7
4.4
1.8
72.5
16.3
8.6
1.8
13.3
7.8
3.6
1.9
58.0
32.1
8.0
2.2
13.1
7.5
3.7
1.9
63.3
31.8
9.0
1.6
13.3
7.7
4.1
2.0
49.0
27.0
NS
NS
NS
NS
7.3
4.6
10.9
10.9
8.4
5.0
11.5
8.0
14.3
11.4
17.4
19.6
15.2
8.8
13.2
13.2
14.5
9.0
12.4
12.4
15.4
10.2
13.3
13.3
EPS before goodwill
% Change
EPS, reported
% Change
(0.37)
Goodwill per share
Dividend per share
Cash flow per share
% Change
0.00
0.00
(0.11)
Latest price
High
Low
Average price
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
176
www.cheuvreux.com
23 January 2008
ITALY
REAL ESTATE
Rating
3/Underperform
Pirelli Real Estate
Price (21/01/2008)
More cautious stance
Stock data
Q
Recent developments – Q3-07 results in line
Q3-07 results were in line with expectations. EBIT including equity
participations rose to EUR38.7m (IEP), thanks to the rising weight of
Pirelli Real Estate's (PRE) equity participations, which are now worth
EUR32m (~83%). The service division reported EUR140m of sales, with
EUR3.5m of operating profit, while the asset management unit (sharply
affected by DGAG) reported EUR1.3bn of sales and a EUR8.7m
operating margin. Net debt reached EUR337m (down sharply vs.
EUR1.1bn in June 2007). Currently, PRE is bidding to buy new real
estate portfolio: the most important acquisition could be the German
properties held by Arcandor (85 Kardstadt department stores in prime
downtown locations), with an average yield of 6.1% and an entry
vacancy rate of 8%. In this regard, PRE confirmed rumours that it will
be involved in exclusive negotiations for a~EUR4.7bn portfolio until
February. In December 2007, PRE launched a seeded real estate fund
worth EUR131m, promoted by the city of Turin. It is a small but
important fund, as PRE will manage the entire portfolio. In September,
PRE was awarded a contract by Banca Antonveneta to manage a small
NPL portfolio, with EUR2.6bn of GBV and a EUR530m acquisition price,
via its JV (33%-67%) with Calyon. This means that PRE should invest
EUR30m. With this new deal, PRE's NPL portfolio rises to EUR12bn
GBV vs. EUR2.5bn of NBV. PRE recently announced a EUR550m cashin from NPL management during 2007. This means that EBITDA from
this business should total ~EUR25m, in line with our assumptions.
Free Float
Enterprise value
Daily volume
-5.9%
-31.6% -54.5%
5.1%
-18.2% -43.8%
Absolute perf.
Relative perf.
65.0
65.0
55.0
55.0
45.0
45.0
35.0
35.0
25.0
25.0
15.0
06/02
15.0
02/03
11/03
Sector Top Picks
Francesca FERRAGINA
177
www.cheuvreux.com
07/04
04/05
12/05
Price/BCI
If successful, the new German acquisition will be big step forward in
PRE's German expansion strategy. These new German assets would
raise the value of PRE's German portfolio to EUR3.5bn and would
complement the DGAG and Baubecon portfolios. PRE's guidance for
FY-07 EBIT IEP has been reduced to 10%-15% growth y-o-y (from
15% in the 3-year business plan). As a result, we confirmed our 2007
forecast to EUR61.4m EBIT and EBIT IEP to EUR241m. After deducting
EUR72m of financial charges, EUR30m of taxes and EUR8m of
minorities (following the disposal of a 49% stake of the facility division)
we reach a net profit valuation of EUR154m. Management is expected
to issue a detailed 2008-09 guidance in Q1-08. We believe that the new
business plan will likely focus on further expansion in Eastern Europe,
expansion of the NPL portfolio and the efficient generation/allocation of
cash flow from the German properties, but the profitability targets could
be reduced due to the worsening outlook for the European real estate
market. In the meantime, we confirm our estimates: EUR175m EBIT in
2008 and EUR184m in 2009, a marginal contribution from SPV of
EUR130m in 2008 and EUR140m in 2009. The bottom line should be
depressed by EUR25m of financial charges in 2008 and EUR20m in
2009. Net profit should reach EUR157 in 2009 (flat vs. 2007).
Investment Analyst
(39) 02 80 62 83 43
fferragina@cheuvreux.com
EUR1 003m
EUR381m
EUR1418m
42.5 m
EUR4.46m
Performances
Sector focus
Investment Analyst
(39) 02 80 62 83 30
EUR23.58
Reuters: PCRE.MI Bloomberg: PRS IM
Outlook – More cautious outlook ahead
Marco CRISTOFORI
+5.9% EUR25 (37.5)
08/06
05/07
01/08
Price
Corio, Klepierre, Unibail Rodamco
Eurocommercial Properties,
Wereldhave
Least favoured
Shareholders
Pirelli & C Spa 52.3%, Free Float 38.0%, Alony Hetz
Properties 3.7%, Puri Negri 2.1%, Henderson Global
Inv. 2.0%, Deutsche Bank 1.9%
2006
2007E
2008E
2009E
EBITDA yield (%)
79.4
46.5
38.0
37.4
P/CF (x)
12.8
6.2
6.2
5.6
Cash flow yield (%)
7.8
16.1
15.2
16.8
10.6
Dividend yield (%)
4.0
9.2
10.6
(136.9)
(7.3)
3.2
8.0
Discount to NNNAV (%) (182.5)
(26.1)
(13.1)
(8.3)
Loan-to-value ratio (%)
111.8
167.1
174.2
Discount to RNAV (%)
61.8
23 January 2008
Q
ITALY
Investment case
Q
Rating downgraded pending more visibility
We are downgrading PRE, pending greater visibility. We are
reducing our rating to 3/Underperfom, as we feel that: 1) the rising
weight of SPVs reduces visibility on profit; 2) the dividend yield might
be reduced; 3) the company might issue a new and more cautious
business plan.

Too many SPVs, too little visibility
In 9M-07, the weight of special purpose vehicles (SPVs) on PRE's
total operating profit rose to 84% vs. 54% last year. On the other
hand, EBIT fell to EUR26m in 9M-07 (from EUR52m in 9M-06). As
there is no visibility on the assets contained within the SPVs, we
have no guarantee that they will be able to produce the same results
again in the future. Funds ans SPVs are all unlisted companies, with
unpredictable income.

Dividend yield reduction ahead?
Dividend payout currently stands at ~55% implying a 9.2% dividend
yield for 2007E and 10.6% for 2008E, which we suspect could be
reduced. This would be perceived as a negative signal about PRE's
future cash flows and the share price could suffer again.
Waiting for more details
Management has not issued any 2008-09 guidelines, so we factored
limited growth into our estimates for all divisions, pending more
details that should arrive with the new business plan in Q1-08.
New markets
~25% of PRE's portfolio is based in Germany, Poland, Romania and
Bulgaria. The German market is both attractive and stable, but new
markets such as Romania or Bulgaria are less appealing, due to their
immaturity. It would be relatively easy for a major player to enter
these markets, but it could take longer for new projects to take off.
NPL business too young
We like PRE's smart NPL strategy, given the momentum in the real
estate market. But PRE has a limited track record for this business,
which still has a modest effect on its performance. The NPL cycle
lasts for ~5 years (minimum), so it has a limited impact on our SOP.
Q
SWOT Analysis
Strengths
Innovative
Weaknesses
Low
visibility on Eastern
European market trends
business model
Leadership
in almost all Italian
Rising returns from SPVs
segments

Well-established
partnerships
with major foreign players
Poor
Opportunities
Threats
NPL business to be further
exploited
Lower
Tax benefits from opportunistic
real estate fund
Sharp
Potential
Interest
results at the agency
network

IRR from development
projects

take over from Pirelli
178
decline of real estate
transaction in Europe
rate fluctuations
www.cheuvreux.com
Valuation
We cut our target price for PRE from EUR37.5 to
EUR25. While our fair value remains well above
EUR30 (EUR35.4 vs. previous EUR37.5), we are
now applying a 25% discount to factor in lower
visibility on the 2008-09 outlook and the risk of a
new, more cautious, business plan.
Q SOP
We used a sum-of-the-parts model, valuing the
asset management fees and service businesses
based on a DCF model (7.9% WACC), real
estate funds at 3% of their AUM, the NPL
portfolio at a multiple of 8x 2007E net profit, real
estate
properties
and
unconsolidated
subsidiaries at their NAV. We also took into
account EUR189m of capitalized holding costs.
Multiples
PRE trades at 7x 2008 PE vs. the Italian peer
average of 9.5x. On P/CF, it also seems cheap,
trading at 6.2x 2008 P/CF vs. our sample at
8.8x.
Q
Q
Company profile
PRE is a management company, which coinvests with a qualified minority stake in real
estate companies, funds and NPL portfolios.
PRE's strategy allows it to finance real estate
investments, with very limited equity, thanks to
SPVs with big international partners, which
usually finance ~75%, while PRE contributes the
remaining ~25% (~80% debt and 20% equity).
Therefore, its IRR (~20%) is much higher than
that of a traditional real estate companies.
It has two business units: the asset and fund
management division, with EUR15.5bn in AuM,
and the service and franchising network division.
Recently, PRE strengthened its presence in
Germany by making two large acquisitions
(DGAG and Baubecon portfolios) and it is now
bidding on a third. PRE started a growth
strategy in new real estate markets such as
Poland, where it will continue to invest in
development, as well as in Bulgaria and
Romania.
PRE is the biggest Italian player in the funds
market, managing 16 funds (EUR7.6bn AuM),
and listing one of them on the AIM (Spazio
Investment).
23 January 2008
ITALY
Pirelli Real Estate
FY to 31/12 (Eur m)
Residential property
Offices
Shops & shopping centres
Warehouses & industrial & Others
Rental income
Services
Total income from rents & services
Operating expenses
Company administration
EBITDA: property
Depreciation
Net provisions
Operating profit: property
% Change
Other income
Other costs
Other operating profit
Total operating profit: property
% Change
Net financial items
Pre-tax profit bef. excep.
% Change
Capital gains
Profit sharing
Tax
Minorities
% Change
Dividend
Retained profit
Cash Flow Statement
Cash flow
% Change
Free cash flow
% Change
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Capital invested
Goodwill
Property investment
Property finance leasing
Other property assets
Associates
Capital employed [property]
Surplus value over book
Market value properties
RNAV
NNNAV
179
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
66.0
93.0
0.0
49.8
208.8
117.4
326.2
(223.7)
(37.2)
65.3
0.0
(8.2)
0.0
57.1
23.9%
2.8
(12.9)
(10.1)
47.0
37.0%
(15.6)
31.4
(14.8)
178.6
12.4
(46.3)
0.0
0.0
161.4
0.4
161.8
6.3%
138.9
22.9
67.6
135.0
0.0
56.3
258.9
232.6
491.5
(353.3)
(68.5)
69.7
0.0
(14.5)
0.0
55.2
-3.3%
60.1
(13.0)
47.1
102.3
117.7%
(15.3)
86.9
176.8%
(3.8)
53.6
13.1
(24.3)
0.0
0.0
125.5
0.0
125.5
-22.4%
50.8
74.8
80.8
223.2
0.0
42.8
346.8
259.4
606.2
(462.1)
(95.2)
48.9
0.0
(20.8)
0.0
28.1
-49.1%
67.0
(9.7)
57.3
85.4
-16.5%
(9.1)
76.2
-12.3%
(6.1)
0.0
9.9
(21.2)
0.0
0.0
58.8
0.5
59.3
-52.7%
57.2
2.1
60.1
180.3
0.0
11.5
251.9
334.3
586.2
(335.9)
(127.5)
122.8
0.0
(10.9)
0.0
111.9
94.0
(72.9)
21.1
133.0
55.7%
0.8
133.8
75.6%
0.0
0.0
14.2
(30.5)
0.0
0.0
117.5
(0.4)
117.1
97.5%
69.7
47.4
46.3
246.4
0.0
39.2
331.9
368.3
700.2
(400.8)
(121.8)
177.6
0.0
(9.0)
0.0
168.6
50.7%
102.3
(84.7)
17.6
186.2
40.0%
(11.1)
175.1
30.9%
0.0
0.0
12.3
(40.5)
0.0
0.0
146.9
(1.5)
145.4
24.2%
79.8
65.6
201.3
87.1
0.0
19.0
307.4
394.6
702.0
(449.7)
(128.4)
123.9
0.0
(9.4)
0.0
114.5
-32.1%
107.0
(10.7)
96.3
210.8
13.2%
(15.3)
195.5
11.7%
0.0
0.0
17.3
(49.3)
0.0
0.0
163.4
(2.5)
160.9
10.7%
87.6
73.4
1681.2
400.0
0.0
20.9
2102.1
(18.0)
2084.1
(1792.5)
(191.4)
100.2
0.0
(10.8)
0.0
89.4
-21.9%
180.0
(28.0)
152.0
241.4
14.5%
(72.0)
169.4
-13.4%
0.0
0.0
23.0
(30.7)
0.0
0.0
161.7
(8.0)
153.7
-4.5%
97.8
56.0
163.1
110.0
0.0
23.0
296.1
569.9
866.0
(548.2)
(225.7)
92.1
0.0
(11.9)
0.0
80.2
-10.3%
129.6
(35.0)
94.6
174.8
-27.6%
(25.0)
149.8
-11.6%
0.0
0.0
23.6
(22.6)
0.0
0.0
150.8
(8.8)
142.0
-7.6%
106.3
35.8
146.8
130.0
0.0
25.3
302.1
625.7
927.8
(596.5)
(230.3)
101.0
0.0
(13.0)
0.0
88.0
9.7%
140.0
(43.8)
96.2
184.2
5.4%
(20.0)
164.1
9.5%
0.0
0.0
24.2
(22.1)
0.0
0.0
166.2
(9.7)
156.5
10.2%
106.3
50.3
169.5
5.3%
111.9
168.6%
140.0
-17.4%
179.5
60.4%
79.6
-43.1%
57.7
-67.9%
128.4
61.3%
32.4
-43.8%
155.9
21.4%
102.0
-
172.8
10.8%
(97.8)
-
172.5
-0.2%
525.1
-
162.6
-5.7%
(68.6)
-
179.3
10.3%
26.5
138.6%
131.0
1.1
0.0
48.2
141.6
321.9
0.0
(96.0)
0.0
0.0
58.5
76.6
39.1
764.9
668.9
895.9
717.6
367.9
0.9
0.0
51.5
(12.3)
408.0
22.9
389.8
0.0
27.9
162.0
(194.6)
408.0
719.7
1109.5
1087.6
924.9
421.6
3.2
0.0
41.7
9.2
475.7
32.0
343.5
0.0
59.2
203.8
(162.7)
475.8
474.4
817.9
896.0
550.8
485.5
6.3
0.0
48.2
40.2
580.2
26.0
216.5
0.0
49.9
275.5
12.5
580.4
474.4
690.9
959.9
668.3
535.4
16.7
0.0
44.0
30.5
626.6
52.8
155.1
0.0
64.4
292.8
61.4
626.5
316.7
471.8
852.1
692.8
700.3
8.5
0.0
58.6
96.4
863.8
93.9
156.0
0.0
25.4
333.0
255.4
863.7
316.7
472.7
1017.0
866.4
772.4
8.5
0.0
75.3
240.8
1097.0
93.9
215.3
0.0
25.4
1006.0
(243.4)
1097.2
316.7
532.0
1089.1
941.3
820.3
8.5
0.0
49.7
405.0
1283.5
93.9
242.4
0.0
27.9
1042.2
(122.9)
1283.5
316.7
559.1
1137.0
988.2
874.7
8.5
0.0
49.9
470.6
1403.7
93.9
270.2
0.0
30.7
1095.2
(86.3)
1403.7
316.7
586.9
1191.4
1027.9
www.cheuvreux.com
23 January 2008
ITALY
Pirelli Real Estate
FY to 31/12 (Eur)
Per Share Data
RNAV/share
% Change
NNNAV/share
% Change
EPS, reported
% Change
EPS before goodwill
% Change
Cash flow per share
% Change
Free cash flow per share
% Change
Dividend per share
Prices
Latest price
High
Low
Average price
Financial Ratios
Discount to RNAV [%]
Discount to NNNAV [%]
P/BV
P/E, reported
P/E before goodwill
P/CF
P/FCF
Yield [%]
Free cash flow/Net dividend [%]
EPS/dividend [%]
Gearing [%]
Gearing on NAV after tax
Equity ratio [%]
Equity ratio, adjusted [%]
Leverage [x]
ROE [%]
Pre-tax RoCE
Return on EV [%]
EV/EBITDA restated Property
EV/Market value property [%]
Surplus ratio [%]
Depreciation/Property investment [%]
Interest cover
Apparent tax rate [property] [%]
Vacancy rate/ Rental income [%]
180
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
23.33
15.8%
18.69
27.6%
(0.19)
3.99
6.3%
0.91
67.5%
4.41
5.3%
2.91
168.6%
3.42
40.600
40.600
2.200
28.32
21.4%
24.09
28.9%
7.81
3.09
-22.4%
2.32
155.0%
3.65
-17.4%
4.67
60.4%
1.25
40.600
40.600
2.200
23.33
-17.6%
14.34
-40.4%
8.97
1.46
-52.7%
1.44
-37.9%
2.07
-43.1%
1.50
-67.8%
1.41
40.600
40.600
2.200
24.74
6.0%
17.22
20.1%
10.14
2.86
95.5%
3.02
109.1%
3.31
59.6%
0.84
-44.4%
1.70
41.000
41.000
2.200
21.41
-13.5%
17.41
1.1%
10.85
3.46
21.2%
3.65
21.0%
3.92
18.4%
2.56
1.90
42.000
42.000
2.200
23.93
11.8%
20.39
17.1%
14.42
3.79
9.4%
3.79
3.6%
4.07
3.8%
(2.30)
2.06
42.500
42.500
0.000
25.63
7.1%
22.15
8.6%
15.87
3.62
-4.5%
3.62
-4.5%
4.06
-0.2%
12.36
2.30
42.500
42.500
0.000
26.75
4.4%
23.25
5.0%
16.80
3.34
-7.6%
3.34
-7.6%
3.83
-5.7%
(1.61)
2.50
42.500
42.500
0.000
28.03
4.8%
24.19
4.0%
18.08
3.68
10.2%
3.68
10.2%
4.22
10.3%
0.62
138.7%
2.50
42.500
42.500
0.000
0.00
17.98
24.60
15.66
21.08
730.08
25.11
25.38
17.87
21.45
1019.59
38.53
39.20
25.00
30.85
1581.08
46.09
52.00
38.35
45.38
1937.72
51.99
64.90
40.95
50.21
2212.12
25.13
61.00
24.50
44.34
1069.26
23.58
26.10
21.84
23.79
1003.31
23.58
1003.31
100.0
100.0
NS
NS
NS
NS
NS
NS
85.2
26.7
107.2
19.6
41.0
82.5
0.7
0.0
NS
46.1
1.7
21.2
31.3
8.5
4.2
23.3
NS
29.7
16.7
2.30
5.8
7.7
4.9
3.8
7.0
374.0
185.8
(3.3)
(1.3)
90.4
96.5
1.0
41.1
46.9
9.7
5.0
64.6
26.9
(3.7)
4.6
22.6
NS
(21.1)
(105.2)
2.80
17.2
17.4
12.1
16.7
5.6
106.6
102.3
2.2
1.7
89.3
94.6
0.9
15.1
35.0
4.7
8.3
124.8
14.1
(6.1)
5.4
72.8
NS
(76.7)
(162.3)
3.80
13.5
12.8
11.6
46.1
4.4
49.1
177.5
8.2
5.9
84.8
91.6
0.7
27.4
48.3
7.5
5.7
231.7
48.8
(5.0)
(153.5)
61.5
NS
(149.6)
(214.2)
4.25
13.3
12.6
11.8
18.0
4.1
134.9
192.3
5.5
4.3
88.1
92.1
0.5
31.4
59.5
8.8
5.6
404.9
53.5
(5.8)
16.0
50.3
NS
(136.9)
(182.5)
3.61
13.7
13.7
12.8
NS
4.0
NS
183.8
13.6
11.0
82.1
86.9
0.5
26.0
43.0
5.3
9.7
482.8
40.3
(6.0)
8.1
47.5
NS
(7.3)
(26.1)
1.58
6.9
6.9
6.2
2.0
9.2
537.2
157.2
30.8
25.3
71.2
77.6
0.5
22.1
NS
7.6
4.3
244.0
4.8
(5.0)
1.4
46.7
NS
3.2
(13.1)
1.40
7.1
7.1
6.2
NS
10.6
NS
133.6
48.9
40.6
64.6
71.6
0.5
19.0
82.2
6.5
5.5
250.1
31.1
(4.9)
3.7
248.2
NS
8.0
(8.3)
1.30
6.4
6.4
5.6
37.8
10.6
24.9
147.3
53.3
45.3
62.9
69.7
0.5
19.7
67.5
6.8
5.2
249.4
33.4
(4.8)
5.1
51.6
NS
www.cheuvreux.com
23 January 2008
ITALY
LUXURY GOODS
Rating
2/Outperform
Poltrona Frau
Price (21/01/2008)
Pursuing new markets
Stock data
Recent developments – Q3-07 results broadly in line
In Q3-07, sales reached EUR61.6m (+6% y-o-y), The mix remained
stable, with residential furnishings accounting for 77% and the contract
business for 23%, but the weight of Poltrona Frau was higher at 42%
(vs. 34% in Q3-06). The Italian market performed well (+12.6%),
although this was partially offset by weakness in Japan (-8.3%), due to
the ongoing repositioning of Cassina brand and discontinued sales of
the Poltrona Frau brand. EBITDA totalled EUR6.4m (+14% y-o-y), with a
10.4% margin (+70bp). Pre-tax profit was lower than expected, due to
EUR1.8m of financial charges for higher debt (currently EUR98.6m),
which was used to finance the ongoing buy-back program. In
December 2007, the new logistics base in China became operative: it
manufactures "non-aesthetic" components for all of the group's brands
and collective seating (cinema and auditorium) mainly under the Gufram
brand. This will allow the group to satisfy local market requirements and
to reduce producing costs from 2008. After signing a JV with Mubadala
in April 2007 for the Emirates, Poltrona Frau also set up a JV with the
Tata Group in September 2007 to develop its presence in India, thanks
to two flagship stores in Mumbai and New Delhi, to be opened in H208. Moreover, Poltrona Frau will share its expertise with Tata Group to
improve the leather working process at its Indian tanneries, which
should guarantee new local sources of leather at a cheaper price for
Poltrona Frau and it could supply Tata, with royalties paid to Poltrona
Frau.
Outlook – More cautious stance on 2008-09
Poltrona Frau's strategy is based on: 1) expansion in rapidly growing
markets like Asia and Russia, further penetration of the European
market and increasing its strategic presence in the United Arab
Emirates, thanks to the Mubadala Group JV; 2) further exploitation of
the Cassina and Cappellini brands, while strengthening the contract
division, especially in the Asian market; 3) higher efficiency, thanks to
production rationalization, a leaner logistics platform and consolidating
procurement for all of the group's brands. These should also be key
drivers of the new business plan due in March. We reduced our 2007
estimates slightly: we forecast EUR299m of sales (+9% y-o-y), with
EUR38m of EBITDA (12.7% margin) and EUR12m of net profit. We take
a more prudent stance on 2008-09E, factoring in slower top line growth,
with turnover up 13% in 2008 (vs. our previous forecast of 15%) to
EUR338m and up 12% in 2009 (12.5% previously) to EUR379m, driven
by Poltrona Frau (with 18% CAGR) and the penetration of rapidly
growing markets like Asia, the United Arab Emirates, the US and
Russia, leveraging on its two strategic alliances. We also cautiously
forecast a 14% EBITDA margin for 2008 and 14.3% for 2009 (vs. 14.8%
and 15.1% before), supported by restructuring. We reduced our 2008
forecast for a 45% tax rate to 42%, as the group's tax burden should
ease under the new Italian tax law. We are reducing our EPS by 9% in
2008 and by 11.5% in 2009.
Francesca FERRAGINA
Investment Analyst
(39) 02 80 62 83 43
fferragina@cheuvreux.com
181
www.cheuvreux.com
+28.9% EUR2 (2.9)
EUR1.55
Reuters: PFGI.MI Bloomberg: PFG IM
Free Float
Enterprise value
Daily volume
EUR217m
EUR78m
EUR337m
140 m
EUR0.54m
Performances
-29.0% -41.1% -48.1%
-20.7% -29.5% -35.9%
Absolute perf.
Relative perf.
3.4
3.4
2.9
2.9
2.4
2.4
1.9
1.9
1.4
1.4
11/06
01/07
02/07
04/07
06/07
Price/BCI
08/07
09/07
11/07
01/08
Price
Sector focus
Sector Top Picks
Least favoured
Beiersdorf, LVMH, Swatch
Bulgari, Clarins
Shareholders
Charme Management 52.1%, Free Float 36.4%, Mr.
Moschini 7.4%, Az Fund Management 2.1%, Eurizon
Investmenti 2.0%
2006
2007E
2008E
2009E
P/E (x)
67.9
24.9
11.9
9.6
EV/EBITDA (x)
20.5
11.7
7.2
6.1
1.7
3.1
6.4
8.8
Net debt/EBITDA (x)
2.8
2.0
1.5
1.2
Yield (%)
0.7
1.4
3.2
3.9
ROCE (%)
11.9
16.1
19.8
22.0
3.1
2.2
1.6
1.5
23 January 2008
Q
ITALY
Investment case
Q
2/Outperform maintained
Although we are cautiously reducing our target price, we confirm our
positive stance on the stock, based on: 1) synergies from the
integration of production units; 2) further brand exploitation in new
markets; and 3) the appealing stock valuation.

Efficiency improvement
Over the last few years, Poltrona Frau has expanded via
acquisitions. Now, it is working to exploit synergies, while preserving
the different brand identities. The current restructuring plan is based
on: 1) the reduction of plants from 9 to 4; 2) a leaner logistics
platform; 3) procurement consolidation for all of the group brands;
and 4) streamlining of its legal entities. We forecast a 14% EBITDA
margin in 2008 and 14.4% in 2009.
Poltrona Frau and Cassina potential to be exploited
The group is starting to expand into new markets and we see great
development potential for its two main brands Poltrona Frau and
Cassina. We forecast: 2007-09E sales CAGR of 18% for Poltrona
Frau and 8% for Cappellini, with EBITDA margins of 13% in 2009
and 17.5% respectively.
Appealing valuation
The stock appears cheap, trading at 11.9x P/E 2008 vs. 17.1x for
luxury peers and at 8x EV/EBIT vs. 10.3x respectively. Our DCF
model yields a valuation of EUR2 per share, with 29% upside.
We reduced our target price for Poltrona Frau to
EUR2 from EUR2.9, to factor in our new DCF
assumptions and more prudent stance on
EBITDA growth. 2/Outperform confirmed.
Q DCF. Our DCF is based on a rolling WACC of
7.3-7.4% stemming from an 8.6% average cost
of equity, which we calculated using an average
leveraged beta of 1.02 (0.87 unlevered). The
cost of debt amounts to 3.4% and we assigned
a market premium of 4%. The terminal growth
rate is fixed at 2% beyond 2012. We estimate
that Poltrona Frau's EV should break down as:
39% debt and 71% equity; EUR553m is the
terminal value, which corresponds to 7.7x
terminal EV/EBITDA vs. the current 7.2x.
Multiples. Poltrona Frau is inexpensive
trading at 11.9x P/E 2008 vs. 17.1x for luxury
peers and at 8x EV/EBIT vs. 10.3x respectively.
The valuation appears to be more closely
aligned with Italian small cap companies, which
are trading at 11.4x median PE/ in 2008 and
6.5x median EV/EBITDA.
Q
Q
Q
SWOT Analysis
Strengths
Weaknesses
Well-diversified brand portfolio
Strong international presence
Products made in Italy
JV with big international
players

Opportunities
Threats
Efficiency

Limited track record
Mounting competition from
fashion players
Risk of imitation by
competitors

Further placement by the
private equity fund
Potential slowdown in
luxury segment
Higher raw material price
improvement
Penetration of new market
Contract segment to be
further exploited
Light segment
Room to improve margins
Valuation
Company profile
Poltrona Frau is one of the top high-end furniture
manufacturers in Italy, with 13% sales CAGR
expected for 2007-09E. The group's current
consolidation perimeter is the result of a series
of M&A deals. Its 4 main brands are: (1) Poltrona
Frau (accounting for 42% of sales); (2) Cassina
(38% of sales); (3) Alias (9% of sales) and (4)
Cappellini (7% of sales). The group has 2 main
divisions:
the
contract
division,
which
specializes in custom-designed furniture for
public venues (i.e. hotels, luxury stores and
theatres), which accounted for 23% of sales in
9M-07 and the residential division, which
manufactures and sells luxury furnishings for
homes and offices (77% of sales). The brands
are well-positioned at the medium to high end of
the
furniture
market
and
are
highly
complementary. The company has a strong
international presence: Italy accounts for 39% of
the market, EMEA 41%, USA 13% and Asia 7%.
Poltrona Frau is 52%-owned by a private equity
fund, Charme Investments (controlled by several
leading Italian entrepreneurs) and by the former
owner, Mr. Moschini with a 7.4% stake. Free
float stands at ~36%.
182
www.cheuvreux.com
23 January 2008
ITALY
Poltrona Frau
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
183
2005
2006
2007E
2008E
2009E
245.8
274.2
11.5%
(43.1)
(202.4)
28.7
61.8%
(5.9)
22.8
97.7%
0.0
0.0
0.0
22.8
(7.5)
0.0
0.0
(8.0)
0.0
0.0
0.0
7.3
0.0
(1.3)
6.1
0.0
0.0
6.1
NS
299.1
9.1%
(46.6)
(214.9)
37.7
31.2%
(5.3)
32.4
41.9%
0.0
0.0
0.0
32.4
(5.4)
0.0
0.0
(13.0)
0.0
0.0
0.0
14.0
0.0
(2.1)
11.9
0.0
0.0
11.9
95.9%
338.0
13.0%
(49.4)
(241.6)
47.1
24.8%
(4.8)
42.3
30.5%
0.0
0.0
0.0
42.3
(5.7)
0.0
0.0
(15.4)
0.0
0.0
0.0
21.2
0.0
(3.2)
18.0
0.0
0.0
18.0
51.1%
378.6
12.0%
(52.4)
(272.2)
54.0
14.7%
(4.3)
49.7
17.5%
0.0
0.0
0.0
49.7
(5.4)
0.0
0.0
(18.2)
0.0
0.0
0.0
26.1
0.0
(3.9)
22.2
0.0
0.0
22.2
23.2%
(44.2)
(104.6)
0.0
(139.4)
0.0
0.0
0.0
0.0
30.1
21.0
(88.3)
12.3
30.1%
4.0
(26.2)
0.0
(10.0)
0.0
0.0
0.0
0.0
18.7
7.0
15.7
17.5
43.0%
(1.3)
(9.0)
0.0
7.3
0.0
0.0
0.0
(2.1)
3.0
(5.0)
3.2
23.1
31.8%
(3.9)
(7.5)
0.0
11.7
0.0
0.0
0.0
(4.8)
0.0
(3.0)
4.0
26.9
16.1%
(4.1)
(7.6)
0.0
15.2
0.0
0.0
0.0
(7.2)
1.0
(3.0)
6.0
57.8
10.6
10.2
41.0
95.4
139.4
215.0
0.0
105.6
32.0
14.7
0.0
62.7
25.5
215.0
74.9
11.8
9.9
32.1
79.7
91.9
208.4
0.0
107.1
26.5
16.1
0.0
58.7
21.4
208.4
84.7
12.9
10.2
33.1
76.5
78.4
217.4
0.0
107.1
34.2
16.1
0.0
60.0
20.0
217.4
97.9
14.4
10.5
34.1
72.5
64.6
229.5
0.0
105.1
44.4
16.1
0.0
63.8
18.9
229.5
113.0
16.1
10.8
35.1
66.5
51.5
241.5
0.0
103.1
54.4
16.1
0.0
67.9
17.9
241.5
(41.7)
(186.4)
17.8
(6.2)
11.5
0.0
0.0
0.0
11.5
(5.0)
0.0
0.0
(5.1)
0.0
0.0
0.0
1.5
0.0
(0.3)
1.2
0.0
0.0
1.2
9.4
www.cheuvreux.com
23 January 2008
ITALY
Poltrona Frau
FY to 31/12 (Eur)
EPS before goodwill
% Change
EPS, reported
% Change
2005
2006
2007E
2008E
2009E
0.04
0.04
18.9%
0.04
18.9%
0.09
95.5%
0.09
93.2%
0.13
52.3%
0.13
51.8%
0.16
22.9%
0.16
23.3%
1.8
0.00
0.02
0.09
-69.4%
0.5
0.00
0.03
0.13
44.3%
0.6
0.00
0.05
0.17
32.3%
0.7
0.00
0.06
0.20
16.1%
0.7
32.770
32.770
0.000
140.000
140.000
0.000
140.000
140.000
1.980
140.000
140.000
1.980
140.000
140.000
1.980
-
2.96
3.35
2.68
2.98
2.15
3.19
2.11
2.82
1.55
2.18
1.55
1.83
1.55
-
-
419.0
587.3
301.0
441.8
217.1
337.7
217.1
330.7
NS
NS
NS
NS
NS
0.0
67.9
67.9
33.7
1.7
5.7
3.1
0.7
24.9
24.9
16.9
3.1
3.7
2.2
1.4
11.9
11.9
9.3
6.4
2.4
1.6
3.2
9.6
9.6
8.0
8.8
2.1
1.5
3.9
NS
NS
NS
NS
20.5
25.7
2.1
32.0
11.7
13.6
1.5
19.1
7.2
8.0
1.0
11.4
6.1
6.7
0.9
9.8
3.6
10.1
7.2
4.7
0.6
1.2
139.4
0.0
3.8
6.5
10.5
8.3
2.7
1.4
91.9
46.0
7.0
4.4
12.6
10.8
4.7
1.5
78.4
35.2
8.2
3.1
13.9
12.5
6.3
1.6
64.6
38.8
10.1
2.5
14.3
13.1
6.9
1.7
51.5
37.8
5.8
1.3
2.1
2.1
11.9
5.7
8.5
8.5
16.1
8.4
15.2
15.2
19.8
11.5
20.3
20.3
22.0
13.0
21.8
21.8
0.04
Goodwill per share
Dividend per share
Cash flow per share
% Change
0.00
0.00
0.29
Latest price
High
Low
Average price
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
184
www.cheuvreux.com
23 January 2008
ITALY
PUBLISHING
Rating
3/Underperform
Price (21/01/2008)
RCS Media
Stock data
Recent developments – Q3 results better than expected
In Q3-07, results were 4% and 15% above our expectations, at the
revenue and EBITDA levels respectively. Revenues totalled EUR660m
and EBITDA stood at EUR70m, rising by 16% and 84% y-o-y
respectively, sustained by the Recoletos consolidation. On a like-forlike basis, revenues were up 3% y-o-y, with circulation down 4%
(mainly due to declining add-on sales) and advertising up 8%. EBITDA
(excluding Recoletos) was up 40% y-o-y, thanks to the rising
contribution of the books division, Dada and Unedisa, which more than
offset the decline at the Italian newspaper division, triggered by lower
add-on sales. Net income was 42% below last year's level, due to
higher interest and D&A expenses stemming from the Recoletos
acquisition and due to the absence of the EUR35m capital gain posted
in Q3-06. Net debt stood at EUR1,077m, up from –EUR6m at the end of
2006, after the EUR1.1bn cash-out to buy 100% of Recoletos.
Q
EUR2.5
Reuters: RCSM.MI Bloomberg: RCS IM
Weaker outlook
Q
-2.0% EUR2.45
Outlook – Potential external growth – Estimates cut
In July 2007, RCS presented its new 2007-10 business plan. The
company expects 5.2% and 6.9% average growth at the revenue and
EBITDA levels respectively until 2010. Its strategy focuses on: 1)
integrating the different units and platforms; 2) developing online and
digital services; 3) making sizeable international acquisitions. Potential
acquisitions should be debt-financed, bringing RCS Media's leverage
up to a 3.5x Net Debt/EBITDA ratio (vs. 2.8x expected in 2007), with a
EUR850m rights issue (already authorised by the EGM) to provide
additional financial flexibility. In 2008, RCS Media may seek acquisitions
in France, to strengthen its positioning in the book segment
(Flammarion, with ~5% market share). In Spain, RCS Media is focusing
on the effective integration of Recoletos operations in order to deliver
the planned synergies (~EUR20m at EBITDA level by end 2010), while in
the Italian market, the company will expand its full color capacity at the
sports newspaper from Q2-08, where bookings for advertising space
have risen sharply. We are revising our estimates: raising 2007 EPS by
20%, to reflect better EBITDA improvement (EUR354m vs. previous
EUR346m) and lower taxes, while reducing the 2008-10 outlook, to take
a more cautious stance on expected advertising collection growth and
add-on sales (-15% now expected in 2008). Given the weaker
macroeconomic outlook in Spain and Italy (the Bank of Italy recently cut
GDP growth to 1% from 1.7% previously) for the 2008-10 period, we
now expect advertising revenues to grow by 5.8%, 4% and 3.7% at the
Italian unit (vs. the company target of 4.5% CAGR in 2007-10), and
4.5%, 4.5% and 4.1% at the Spanish unit (vs. the target of 5% CAGR in
2007-10). All in all, in the 2008-10 period, we are cutting revenues by
2% (to EUR2,884m in 2008 and EUR3,027m in 2010), EBITDA by ~5%,
(to EUR387m in 2008 and EUR418m in 2010), and EPS by >20%. Our
new projections remain significantly lower than company targets: we
expect EBITDA to reach EUR418m in 2010 vs. the company target of
EUR454m.
Investment Analyst
(39) 02 80 62 83 41
185
www.cheuvreux.com
Free Float
Enterprise value
Daily volume
EUR1 884m
EUR312m
EUR2 937m
762.02 m
EUR2.50m
Performances
-16.0% -32.5% -33.7%
-5.4%
-20.6% -17.6%
Absolute perf.
Relative perf.
8.6
8.6
7.6
7.6
6.6
6.6
5.6
5.6
4.6
4.6
3.6
3.6
2.6
2.6
1.6
1.6
01/01
11/01
09/02
08/03
07/04
Price/S&P/MIB
05/05
04/06
02/07
01/08
Price
Sector focus
Vivendi
Telegraaf
Sector Top Picks
Least favoured
Shareholders
Syndicate Pact 65.3%, Other Core Shareholders
18.1%, Free Float 16.6%
2006
2007E
2008E
2009E
P/E (x)
12.9
10.8
14.6
14.2
EV/EBITDA (x)
10.0
9.2
7.6
7.1
2.4
4.3
6.1
7.9
Net debt/EBITDA (x)
(0.0)
2.8
2.4
2.1
Yield (%)
0.8
3.7
4.4
4.4
ROCE (%)
19.1
21.3
22.6
24.2
2.5
2.7
2.4
2.3
23 January 2008
Q
ITALY
Investment case
Q
Rating reduced to 3/Underperform
We are downgrading RCS Media to 3/Underperform (from
2/Outperform) based on our >20% EPS estimates reduction for
2008-10 and concerns about additional downside stemming from a
potential slowdown in both the Italian and Spanish economies. In
addition, RCS still trades at significant premium on P/E multiples vs.
the median of European comparables.
Q
Q >20% EPS cut
We cut our EPS estimates by >20% for 2008-10, as we take a more
cautious stance on the future outlook than RCS, especially on
advertising collection. The weaker macroeconomic outlook both for
Spain and Italy, led us to reduce our advertising collection forecast.
Q Organic growth at risk
With a negative trend expected for circulation revenues (net
circulation and add-on sales) and limited scope for cost efficiencies,
RCS Media's organic growth targets seem to be based mainly on
advertising collection improvement. Our organic growth forecasts
are already below the plan (EBITDA 4.7% CAGR in 2006-10 vs. the
company target of 6.9%), however a sharp economic downturn
could add further downside, triggering profitability erosion.
Q Valuation call still not compelling
RCS still trades at a >15% premium on 2008-09 P/E at 14.6x and
14.2x P/E respectively, but in line on EV/EBITDA. The unattractive
relative valuation and uncertain macroeconomic scenario, make the
stock unappealing as a valuation call.
Q
SWOT Analysis
Strengths
Weaknesses

Strong brands and high quality
contents

Leading position in Italian and
Spanish publishing industry

Complex shareholding
structure
Ongoing conflict with journalist
unions

Multi-media approach

Strong financial structure
Low profitability of book and
magazine divisions

Opportunities
Threats
Full colour printing of the
sports newspaper in Q2-08
External growth (Spanish
speaking countries, France)
Development of on-line
advertising collection

Growing on-line access to
media content

Acceleration in the decline of
circulation volumes

Economic slow-down in Italy
and Spain

Valuation
We are cutting our target price to EUR2.45 per
share from EUR4.7, on the back of the >20%
EPS cut we are factoring in over the 2008-10
period.
We base our valuation on a SOP model, which
includes all of RCS Media's assets: 1) the core
business (DCF model; 87% of EV); 2) company
associates; 3) company stakes in listed stocks
(market price); 4) other financial assets (book
value).
The DCF model backing our core business
valuation is based on 8% WACC and a 0.5%
perpetual growth rate. The terminal value was
calculated as a perpetuity of 2013 FCF
corresponding to 2013 EV/EBITDA of 4.1x.
The stock trades at a >15% premium to the
European media peer average on P/E multiples
and in line on EV/EBITDA multiples.
Q
Company profile
RCS Media is the top Italian publisher of both
national (Il Corriere della Sera) and sports
newspapers (La Gazzetta dello Sport), with 21%
market share.
In February 2007, it acquired 100% of Recoletos
for EUR1.1bn, bringing its Spanish market share
to 17%. In Spain, it publishes the 2nd national
newspaper, El Mundo, and the leading financial
and sports newspaper (after the acquisition).
In Italy, RCS Media ranks second in both the
magazine business (17% market share) and the
book business (13.5% market share).
RCS Media also owns ~47% of Dada (a multimedia company), 34.6% of Gruppo Finelco
(radio broadcasting, 3 national radios and 6m
listeners), 51% of Digicast (TV content
production), 55.4% of VEO (DTT TV) and 7.6%
of Poligrafici Editoriale (newspaper publisher).
We expect revenues to reach EUR2,716m in
2007, with EBITDA at EUR354m and net income
at EUR210m. Net debt is expected at EUR975m
after the EUR1.1bn cash-out for Recoletos.
63.5% of the company is controlled by a
syndicated pact, which expires in March 2009.
Another group of shareholders (considered
stable investors and close to the shareholding
pact) controls an additional ~19.5%. Free-float
represents ~15% of the ordinary capital.
186
www.cheuvreux.com
23 January 2008
ITALY
RCS Media
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
187
2002
2003
2004
2004
2005
2006
2007E
2008E
2009E
2 956.0
-12.2%
(410.7)
(2 386.8)
158.5
36.4%
(56.5)
(57.0)
NS
(41.2)
0.0
0.0
60.8
(0.7)
0.0
14.0
(56.7)
0.0
0.0
0.0
(141.3)
0.0
(10.7)
(152.0)
0.0
(8.4)
(119.2)
-23.9%
2 236.9
-24.3%
(402.9)
(1 676.4)
157.6
-0.6%
(71.2)
86.4
NS
0.0
0.0
0.0
86.4
(8.5)
0.0
(53.0)
(22.3)
52.1
0.0
0.0
54.7
0.0
(8.3)
46.4
0.0
37.7
84.1
170.5%
2 150.5
-3.9%
385.8
(2 325.2)
211.1
33.9%
(75.8)
135.3
56.6%
0.0
0.0
0.0
135.3
(4.9)
9.3
(34.7)
(21.9)
0.0
0.0
0.0
83.1
0.0
(5.7)
77.4
0.0
27.5
104.9
24.8%
2 150.8
0.0%
423.4
(2 430.7)
143.5
2 191.0
1.9%
399.4
(2 327.4)
263.0
83.3%
(45.7)
217.3
108.9%
0.0
0.0
0.0
217.3
2.2
73.0
0.0
(62.4)
0.0
0.0
0.0
230.1
0.0
(10.7)
219.4
0.0
0.0
219.4
115.9%
2 379.7
8.6%
420.4
(2 521.7)
278.4
5.9%
(65.4)
213.0
-2.0%
0.0
0.0
0.0
213.0
1.7
73.7
0.0
(53.8)
0.0
0.0
0.0
234.6
0.0
(15.1)
219.5
0.0
0.0
219.5
0.0%
2 716.1
14.1%
493.0
(2 855.3)
353.8
27.1%
(98.5)
255.3
19.9%
0.0
0.0
0.0
255.3
(40.1)
65.0
0.0
(54.7)
0.0
0.0
0.0
225.6
0.0
(15.8)
209.8
0.0
0.0
209.8
-4.4%
2 884.3
6.2%
519.2
(3 016.3)
387.3
9.5%
(110.1)
277.2
8.6%
0.0
0.0
0.0
277.2
(51.1)
0.0
0.0
(79.1)
0.0
0.0
0.0
147.0
0.0
(16.9)
130.1
0.0
0.0
130.1
-38.0%
2 962.0
2.7%
543.5
(3 102.1)
403.5
4.2%
(108.3)
295.2
6.5%
0.0
0.0
0.0
295.2
(47.9)
0.0
0.0
(96.4)
0.0
0.0
0.0
150.9
0.0
(17.4)
133.5
0.0
0.0
133.5
2.6%
(37.2)
NS
161.1
102.9
0.0
226.8
(17.8)
0.0
0.0
0.0
0.0
302.3
511.3
46.2
NS
0.0
(82.3)
0.0
(36.1)
(164.0)
0.0
92.1
0.0
3.9
(4.6)
(108.7)
184.3
NS
38.9
(120.1)
0.0
103.1
0.0
0.0
0.0
(55.0)
0.0
4.9
53.0
122.5
38.9
(120.1)
0.0
41.3
0.0
0.0
0.0
(55.0)
0.0
63.1
49.4
202.8
65.6%
22.4
(143.4)
0.0
81.8
0.0
0.0
69.9
(30.0)
0.0
13.8
135.5
226.3
11.6%
(56.8)
(94.4)
0.0
75.1
0.0
0.0
52.4
(82.3)
0.0
8.2
53.4
259.1
14.5%
(15.9)
(139.9)
0.0
103.3
0.0
0.0
(1 072.3)
(22.9)
0.0
11.2
(980.6)
257.0
-0.8%
(20.7)
(106.7)
0.0
129.6
0.0
0.0
0.0
(83.9)
0.0
0.0
45.7
259.2
0.8%
(10.4)
(81.5)
0.0
167.3
0.0
0.0
0.0
(83.9)
0.0
0.0
83.4
971.9
52.8
111.4
265.0
83.1
8.1
1 484.2
225.1
127.9
154.6
545.5
0.0
431.1
14.6
1 484.2
1 006.9
49.5
0.0
304.2
220.8
20.9
1 581.4
0.0
341.4
185.0
578.6
0.0
447.2
20.0
1 552.2
1 029.3
42.2
102.8
140.2
167.8
15.7
1 482.3
14.4
401.7
245.8
472.1
0.0
348.3
16.2
1 482.3
941.1
39.3
111.7
159.8
183.2
18.7
1 435.1
14.4
334.8
279.8
547.5
0.0
258.6
12.0
1 435.1
1 062.1
64.8
109.0
155.5
47.7
4.2
1 439.1
371.0
77.2
360.2
438.8
0.0
191.9
8.8
1 439.1
1 166.9
73.2
104.1
93.4
(5.7)
NS
1 431.9
376.0
106.8
370.0
319.3
0.0
259.8
10.9
1 431.9
1 353.8
89.0
122.1
103.4
974.9
67.6
2 643.2
376.0
148.9
369.3
1 445.4
0.0
303.7
11.2
2 643.2
1 400.0
105.9
128.6
108.4
929.2
61.7
2 672.1
376.0
155.7
359.1
1 445.4
0.0
335.9
11.6
2 672.1
1 449.5
123.2
134.6
110.8
845.8
53.8
2 664.0
376.0
145.1
342.9
1 445.4
0.0
354.6
12.0
2 663.9
www.cheuvreux.com
(39.5)
104.0
0.0
0.0
0.0
104.0
(3.9)
23.2
0.0
(17.1)
0.0
0.0
1.0
106.2
0.0
(3.6)
102.6
0.0
0.0
101.6
23 January 2008
ITALY
RCS Media
FY to 31/12 (Eur)
2002
2003
2004
2004
2005
2006
2007E
2008E
2009E
(0.16)
-23.8%
(0.20)
34.5%
0.11
170.8%
0.06
130.3%
0.14
25.4%
0.10
67.2%
0.14
0.30
113.8%
0.29
113.3%
0.30
0.3%
0.29
0.0%
0.28
-6.4%
0.28
-4.5%
0.17
-37.9%
0.17
-37.8%
0.18
2.3%
0.18
2.3%
0.06
0.00
(0.05)
NS
1.3
0.00
0.07
0.06
NS
1.3
0.00
0.04
0.25
NS
1.3
(0.00)
0.04
0.17
1.2
0.00
0.11
0.27
63.5%
1.3
0.00
0.03
0.31
11.7%
1.5
0.00
0.11
0.34
12.1%
1.7
0.00
0.11
0.34
-0.9%
1.7
0.00
0.11
0.34
0.9%
1.8
Latest price
High
Low
Average price
760.560
758.000
16.900
762.020
762.020
26.780
762.020
762.020
26.780
762.020
762.020
26.780
762.020
762.020
19.430
762.020
762.020
19.430
762.020
762.020
4.580
762.020
762.020
4.580
762.020
762.020
4.580
2.01
3.86
1.73
2.70
2.80
3.24
1.66
2.32
4.30
4.30
2.58
3.36
4.30
4.30
2.58
3.36
4.02
6.81
3.65
4.96
3.80
4.72
3.45
3.96
2.98
4.40
2.94
3.89
2.50
2.99
2.49
2.70
2.50
-
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
1 566.3
1 958.2
2 190.1
2 474.7
3 275.2
3 225.1
3 275.2
3 047.7
3 064.1
2 835.1
2 880.4
2 780.8
2 250.1
3 266.5
1 884.5
2 937.1
1 884.5
2 859.8
NS
NS
NS
12.9
1.6
2.1
0.0
24.5
24.5
44.6
NS
2.2
2.5
2.5
30.1
30.1
17.1
2.9
3.3
3.2
0.9
30.8
31.1
25.8
1.2
3.6
3.4
0.9
13.6
13.6
14.7
2.5
3.1
2.8
2.7
12.9
12.9
12.5
2.4
2.5
2.5
0.8
10.8
10.8
8.7
4.3
1.8
2.7
3.7
14.6
14.6
7.4
6.1
1.4
2.4
4.4
14.2
14.2
7.3
7.9
1.4
2.3
4.4
NS
NS
0.66
(47.6)
15.7
28.6
1.11
39.9
15.3
23.8
1.50
15.9
21.2
29.3
1.42
23.3
10.8
13.0
1.29
13.4
10.0
13.1
1.2
11.5
9.2
12.8
1.2
10.6
7.6
10.6
1.0
9.3
7.1
9.7
1.0
9.1
NS
NS
NS
NS
NS
3.1
8.1
0.0
18.5
4.8
7.0
3.9
2.4
2.3
20.9
115.0
NS
0.9
9.8
6.3
3.9
2.1
15.7
39.4
NS
1.5
6.7
4.8
4.9
2.4
18.7
29.7
NS
0.2
12.0
9.9
10.5
2.2
4.2
38.2
NS
NS
11.7
9.0
9.9
2.1
NS
10.4
8.8
3.8
13.0
9.4
8.3
2.3
67.6
40.0
7.6
3.6
13.4
9.6
5.1
2.4
61.7
64.4
8.4
3.3
13.6
10.0
5.1
2.4
53.8
62.8
NS
NS
NS
NS
8.9
6.3
4.7
8.7
13.4
10.6
7.8
10.7
11.7
10.1
11.5
11.5
21.7
17.1
23.0
23.0
19.1
15.6
20.8
20.8
21.3
17.2
16.8
16.8
22.6
14.7
9.7
9.7
24.2
14.8
9.7
9.7
EPS before goodwill
% Change
EPS, reported
% Change
Goodwill per share
Dividend per share
Cash flow per share
% Change
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
188
www.cheuvreux.com
0.14
23 January 2008
ITALY
EYEWEAR & PROTECTION
Rating
2 to 3/Underperform
SAFILO
Price (21/01/2008)
Waiting for a re-launch
Stock data
Q
EUR1.74
Reuters: SFLG.MI Bloomberg: SFL IM
Recent developments – Disappointing performance
Safilo reported poor Q2 and Q3 results, due to non-recurring items and
declining growth in the sunglass segment. The stock went through an
extensive de-rating, driven by its poor financial performance and
negative USD impact. This disappointing performance was attributable
to: (1) the presence of further, unexpected one-off costs to exit the Polo
Ralph Lauren licence in Q2-07, after the provisions made in 2006; (2)
the significant slowdown in sales growth (partly due to the negative
currency impact), which moved from a double digit trend between Q306 and Q1-07 to -1% in Q3-07. While part of this performance was
explained by the extremely strong Q3 results reported last year (+11%),
the positive top line trend of the past quarters showed some signs of
deterioration: sunglasses moved from 6 quarters of double-digit growth
to +5% in Q2 and +1% in Q3, not offset by prescription glasses, which
after a couple of good quarters, were back in the red in Q3 (-5%).
Margins are also declining: the EBITDA margin moved from 14% to
12.6% in Q3, aggravating the decline seen in Q2 (from 13.7% to 12.9%,
but partially due to one-off items). As a result, the guidance has moved
to EUR180m EBITDA for 2007 vs. the previous target of ~EUR190m.
Although this gap is attributable to one-off items (~EUR9m) and USD
devaluation (for another EUR4-5m negative impact), investors took a
skeptical stance on the credibility of the financial targets, triggering a
very negative stock price reaction.
Q
+9% EUR1.9 (3.9)
Free Float
Enterprise value
Daily volume
EUR492m
EUR306m
EUR1 054m
283.372 m
EUR3.73m
Performances
-23.4% -45.1% -61.0%
-9.8%
-26.9% -44.5%
Absolute perf.
Relative perf.
5.1
5.1
4.6
4.6
4.1
4.1
3.6
3.6
3.1
3.1
2.6
2.6
2.1
2.1
1.6
12/05
1.6
03/06
06/06
09/06
12/06
Price/MIDEX
04/07
07/07
10/07
Price
Outlook – Tough US outlook, 16-18% EPS cut
Safilo's outlook has been sustained by the strong growth of the market
segment in which it operates (high-end fashion eyewear). However, the
outlook has worsened significantly due to: (1) concerns about the
company's performance in the US market, which represents 35% of its
total sales; (2) a slowdown in the growth of sunglass sales, which has
been a powerful driver for the company over the past few years. Safilo's
strategy is to invest all its excess cash in the expansion of its retail
network through new openings (mainly in Spain and the US) and
through the acquisition of small, high-end sunglass stores in developed
countries. In terms of manufacturing, Safilo is set to invest EUR30-35m
in a new Chinese plant (of which >EUR20m probably in 2008), which
should generate cost savings from 2009 (we estimate a potential benefit
on the gross margin of 150-200bps at full speed). Pending the release
of a new guidance, we moved to a more cautious stance on growth: (1)
we are reducing our forecast for top line growth for 2008-09 from 5% to
3.5% annually, factoring in less positive US and Italian performances;
(2) we are reducing our EBITDA margin forecasts by 70-80bps, moving
from 15.5% to 14.8% in 2008 and 16.4% to 15.6% in 2009. All in all,
we reduced our 2008-09 EPS by 16% in 2008 and 19% in 2009. We
now forecast 3.5% top line growth in 2008 to EUR1.23bn, with 4%
EBITDA growth to EUR183m and 10% EPS growth, stemming mainly
from slightly lower financial charges and tax.
Marco BACCAGLIO
Investment Analyst
(39) 02 80 62 83 20
189
www.cheuvreux.com
Sector focus
Sector Top Picks
Least favoured
Essilor
Shareholders
Free Float 62.2%, Vittorio Tabacchi 37.8%
2006
2007E
2008E
2009E
P/E (x)
34.0
13.0
9.0
7.3
EV/EBITDA (x)
12.0
7.1
5.8
5.1
NS
2.7
5.6
8.5
Net debt/EBITDA (x)
3.3
3.0
2.7
2.3
Yield (%)
0.4
2.2
3.5
4.0
ROCE (%)
9.3
10.0
10.2
11.1
1.4
0.9
0.8
0.7
23 January 2008
Q
ITALY
Investment case
Q
We adopt a cautious stance on the stock
We are reducing our rating from 2/Outperfrom to 3/Underperform
with a new target price of EUR1.9. After reporting a weak
performance over the last few months, we do not see any significant
catalysts ahead for Safilo, although it might release a new 2008
guidance by end-February. Its exposure to the US cycle and its
extensive debt exposure (3x debt/EBITDA) are clearly weak points in
this market environment.
Q
Q De-rating of small caps, coupled with loss of credibility
Recently, Safilo's performance has been hurt by the general derating of small caps. Moreover, its very weak Q3 results and failure
to reach 2007 targets (announced in late July) have also had a
negative impact on the stock. This has been further aggravated by
concerns about the US macroeconomic environment (35% of sales).
Q More cautious estimates
Our 15-20% EPS cut for 2008-2009 puts us 5-10% below the
market consensus. Ongoing USD weakness and the challenging
comparison base for Q1 results (Q1-07 was up in the double digit
range with some one-off contributions) could however further reduce
EPS expectations for the stock, thus providing no fundamental
support for a share price recovery.
More details on 2008 outlook on 22 February
Safilo will report Q4 results on 22 February, probably updating
investors with its plans for the gradual relocation of production to
China, which should produce results in 2009. We feel that more
newsflow on retail store acquisitions is ahead (Safilo's stategy is to
invest its excess cash in new markets), limiting the potential for debt
reduction, which we believe might be welcomed more warmly by
investors in the short term.
Q
Q
SWOT Analysis
Strengths
Weaknesses

Sharing high-end eyewear
market with Luxottica

Strong track record for
managing licences

Worldwide distribution

Size gap vs. Luxottica to
become significant
Limited appeal of proprietary
brands

Very limited exposure to retail
Opportunities
Threats
Expansion in high-end
sunglass retail chains

Retail expansion of Luxottica

Significant exposure to USD

Strengthening of own brands

Scope to reduce cost of debt
Quite inefficient cost base
(made in Italy)
Valuation
Based on the general de-rating of consumer
goods stocks and of companies operating in the
US (thus affected by USD weakness), we are
slashing our fair value from EUR3.9 to EUR1.9.
Q DCF. We set a DCF-based target price of
EUR1.9 for Safilo, based on the following
assumptions: (1) an average cost of equity of
10.7%, corresponding to a levered beta of 1.56
(1x unlevered beta); (2) a WACC of 7.8%; (3) a
terminal value of EUR1.2bn, corresponding to a
7x terminal EV/EBIT multiple, which is in line
with the current multiple (7.4x) for the stock.
Q Multiples. Safilo can be compared with
Luxottica or the broader small caps consumer
goods segment. The discount to Luxottica
(which is however much healthier and has an
effective growth strategy) exceeds 30%: Safilo
trades at 9x P/E and 7.4x EV/EBIT vs. 13x and
10x.
Q
Company profile
Safilo is a leading eyewear manufacturer: we
estimate that it should report EUR1.2bn sales
and EUR52m net profit in 2007. It shares
worldwide leadership in the premium frame
manufacturing segment with Luxottica (EUR2bn
in 2007).
The company generates 55% of sales in the
sunglass segment and ~80% through licences
(with Armani, Emporio Armani, Gucci, Dior,
Diesel, Valentino and Hugo Boss etc.). In terms
of the geographical breakdown, the US
accounts for 35% of sales, Europe 33% (ex
Italy), Italy 14% and the Far East 13% in 2006.
Safilo is committed to diversifying its business in
the retail segment, using the same approach as
it took to the wholesale business (targeting the
high end of the market). The appointment of a
new CEO (Mr. Gottardi) in Q3-06, helped to
accelerate this process, with the acquisition of a
small chain in Spain.

At the end of September 2007, net debt rose to
EUR523m, implying a 62% gearing and 3.2x
debt/EBITDA.
Mr. Tabacchi (37.6%) is the main shareholder.
190
www.cheuvreux.com
23 January 2008
ITALY
Safilo
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
191
2003
2004
2005
2006
2007E
2008E
2009E
900.1
940.7
(274.6)
(502.6)
122.9
(279.3)
(519.4)
142.0
(31.8)
91.1
(35.0)
107.0
(42.6)
0.0
0.0
48.5
(68.1)
0.0
0.0
(8.5)
0.0
0.0
0.0
(28.1)
0.0
(3.6)
(31.7)
0.0
0.0
10.9
0.0
0.0
0.0
107.0
(69.8)
0.0
0.0
(18.4)
0.0
0.0
0.0
18.8
0.0
(3.2)
15.6
0.0
0.0
15.6
1 025.0
9.0%
(173.1)
(699.1)
152.8
7.6%
(35.2)
117.6
9.9%
0.0
0.0
0.0
117.6
(106.3)
0.0
0.0
(4.8)
0.0
0.0
0.0
6.5
0.0
(3.2)
3.3
0.0
0.0
3.3
-79.0%
1 122.0
9.5%
(191.3)
(768.3)
162.4
6.3%
(36.8)
125.6
6.8%
0.0
0.0
0.0
125.6
(54.5)
0.0
0.0
(30.3)
0.0
0.0
0.0
40.8
0.0
(3.3)
37.4
0.0
0.0
37.4
NS
1 190.0
6.1%
(200.5)
(813.8)
175.7
8.2%
(38.8)
136.9
9.0%
0.0
0.0
0.0
136.9
(44.2)
0.0
0.0
(38.9)
0.0
0.0
0.0
53.7
0.0
(3.8)
49.9
0.0
0.0
49.9
33.4%
1 231.6
3.5%
(212.4)
(836.5)
182.8
4.0%
(40.8)
142.0
3.7%
0.0
0.0
0.0
142.0
(43.7)
0.0
0.0
(39.8)
0.0
0.0
0.0
58.5
0.0
(3.8)
54.7
0.0
0.0
54.7
9.5%
1 274.7
3.5%
(218.3)
(856.0)
200.4
9.6%
(42.8)
157.5
11.0%
0.0
0.0
0.0
157.5
(40.2)
0.0
0.0
(45.8)
0.0
0.0
0.0
71.6
0.0
(3.8)
67.8
0.0
0.0
67.8
24.0%
0.0
53.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(9.1)
(29.2)
0.0
15.5
0.0
0.0
0.5
(3.1)
0.0
(7.1)
5.8
35.5
-34.0%
(2.2)
(37.3)
0.0
(4.0)
0.0
0.0
0.0
(3.0)
313.6
(32.0)
274.6
74.3
109.2%
(67.9)
(38.1)
0.0
(31.7)
(2.3)
0.0
3.6
(3.1)
0.0
(19.0)
(52.6)
88.8
19.5%
(10.2)
(60.0)
0.0
18.6
0.0
0.0
3.9
(11.2)
0.0
0.0
11.3
95.6
7.6%
(6.2)
(60.0)
0.0
29.3
0.0
0.0
4.3
(15.0)
0.0
0.0
18.6
110.7
15.8%
(6.5)
(60.0)
0.0
44.2
0.0
0.0
4.7
(16.4)
1.0
1.0
34.5
0.0
0.0
0.0
0.0
0.0
NS
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
440.3
5.1
34.6
26.8
754.0
169.3
1 260.8
795.8
21.2
195.8
10.2
0.0
237.8
25.3
1 260.8
821.7
5.5
39.4
(54.8)
479.0
57.9
1 290.8
797.7
25.6
193.3
19.5
0.0
254.8
24.9
1 290.8
838.7
5.4
41.0
(57.4)
532.0
63.0
1 359.6
804.9
22.3
201.9
16.0
0.0
314.6
28.0
1 359.6
877.4
5.8
42.6
(57.0)
520.7
59.0
1 389.5
804.9
23.2
213.7
16.6
0.0
331.1
27.8
1 389.5
917.1
6.2
44.3
(56.6)
502.1
54.4
1 413.2
804.9
24.1
223.9
17.3
0.0
343.0
27.8
1 413.2
969.6
6.6
46.1
(56.1)
467.6
47.9
1 433.7
804.9
25.1
228.3
18.0
0.0
357.5
28.0
1 433.7
www.cheuvreux.com
23 January 2008
ITALY
Safilo
FY to 31/12 (Eur)
2003
2004
2005
2006
2007E
2008E
2009E
0.05
0.07
(0.15)
0.07
0.02
-78.9%
0.02
-78.9%
0.13
NS
0.13
NS
0.18
33.3%
0.18
33.3%
0.19
9.7%
0.19
9.7%
0.24
23.3%
0.24
23.3%
0.19
0.00
0.00
0.00
0.00
0.25
0.0
2.0
0.00
0.00
0.16
-35.0%
2.9
0.00
0.02
0.26
63.8%
2.9
0.00
0.05
0.31
19.5%
3.0
0.00
0.06
0.34
7.7%
3.2
0.00
0.07
0.39
15.4%
3.3
219.072
219.072
0.000
219.072
219.072
0.000
283.372
222.287
0.000
283.372
283.372
0.000
283.372
283.372
0.000
283.372
283.372
0.000
284.372
284.372
0.000
-
-
4.70
-
4.50
4.90
3.14
4.11
2.29
4.96
2.21
3.94
1.74
2.39
1.70
1.99
1.74
-
-
-
1 331.0
3 138.7
1 274.3
1 945.0
648.9
1 244.7
491.7
1 054.6
493.4
1 016.5
NS
NS
NS
NS
NS
0.0
NS
NS
NS
NS
NS
0.0
NS
NS
29.4
NS
1.6
2.5
0.0
34.0
34.0
17.2
NS
1.5
1.4
0.4
13.0
13.0
7.3
2.7
0.8
0.9
2.2
9.0
9.0
5.1
5.6
0.5
0.8
3.5
7.3
7.3
4.5
8.5
0.5
0.7
4.0
NS
NS
NS
NS
NS
NS
NS
NS
20.5
26.7
3.06
18.9
12.0
15.5
1.7
17.3
7.1
9.1
1.0
10.4
5.8
7.4
0.9
8.4
5.1
6.5
0.8
7.3
1.8
NS
13.7
10.1
NS
NS
NS
0.0
2.0
14.0
15.1
11.4
2.0
0.8
169.3
0.0
1.4
13.5
14.9
11.5
0.6
0.8
57.9
0.0
3.0
7.2
14.5
11.2
3.6
0.8
63.0
15.1
4.0
5.9
14.8
11.5
4.5
0.9
59.0
28.4
4.2
5.3
14.8
11.5
4.7
0.9
54.4
31.1
5.0
4.2
15.7
12.4
5.6
0.9
47.9
29.4
NS
NS
NS
NS
8.6
4.3
3.6
3.6
9.3
5.3
0.4
0.4
9.3
5.4
4.6
4.6
10.0
5.8
5.9
5.9
10.2
6.1
6.1
6.1
11.1
6.8
7.2
7.2
EPS before goodwill
% Change
EPS, reported
% Change
Goodwill per share
Dividend per share
Cash flow per share
% Change
Latest price
High
Low
Average price
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
192
www.cheuvreux.com
23 January 2008
ITALY
TRANSPORTATION INFRASTRUCTURE
Rating
2/Outperform
SAVE
Price (21/01/2008)
Seeking new investment opportunities
Stock data
Q
EUR10
Reuters: SAVE.MI Bloomberg: SAVE IM
Recent developments – Strong traffic growth and good Q3
Save reported healthy Q3 results, with 9% organic growth and EUR3m
of net debt. At the core airport business, passenger traffic grew by
14.7% in Q3-07 (+12% in 9M-07), sustaining divisional revenues (+11%
in Q3 and +7% in 9M-07), despite the unfavourable impact of the 2005
tariff revision. SAVE maintained its position as the third largest airport
pole in Italy, after Rome and Milan and increased its international
exposure (71% of total passengers, of which 7% outside Europe). At
the F&B division, sales grew by 19% in Q3-07, corresponding to 12%
organic growth (15% in 9M-07), while at the railway business, revenues
were up 3% after a good performance in previous quarters (~7%).
EBITDA grew by 11% in Q3-07 to EUR23m: this was good news,
particularly after the poor performance of the previous quarters, mainly
due to the negative regulatory impact on airport margins. In Q3-07, the
airport EBITDA margin peaked at 48.5% (vs. 46.3% in Q3-06), F&B was
at 11.7% (vs. 14.9% of Q3-06) and railways were very close to 20%, up
from 18% in Q3-06. After EUR1m of financial charges and a 45% tax
rate, SAVE closed Q3-07 with EUR8.3m net profit vs. EUR8.1m in Q306. Its cash flow reached EUR13.7m in Q3 broadly in line with Q3-06,
while net debt declined from EUR14m of June to EUR3m in September
partly due to the favourable working capital trend. Starting from Q4-07,
SAVE will start to consolidate three points of sales in China.
Q
+35.0% EUR13.5
Free Float
Enterprise value
Daily volume
EUR553m
EUR163m
EUR572m
55.34 m
EUR0.17m
Performances
-8.7%
-21.6% -24.5%
2.0%
-6.2%
-6.7%
Absolute perf.
Relative perf.
16.0
16.0
15.0
15.0
14.0
14.0
13.0
13.0
12.0
12.0
11.0
11.0
10.0
10.0
9.0
9.0
8.0
8.0
7.0
7.0
05/05
09/05
01/06
05/06
09/06
Price/BCI
01/07
05/07
09/07
01/08
Price
Outlook – New tariffs might shape 2008 outlook
SAVE's outlook will be shaped by the new regulatory framework for
Italian airports, which we expect to be approved in 2008 and
implemented by end-2008 at the earliest. As visibility on this process is
low, we factored in very limited tariff growth (1% CAGR) for the coming
years. However, SAVE can deliver significant growth over the next 2-3
years on the back of: (1) strong passenger traffic growth, which has
steadily exceeded the average for the Italian airports and should be in
the region of 7-8% for the next few years; (2) the ongoing upgrade of
commercial space at the airports (1,500sqm on top of existing
3,300sqm); (3) a strict cost budget for in 2008, after the upgrades of the
past few years, aimed at a significant airport margin recovery; (4) the
restructuring of the F&B division, which should deliver results in 2008. In
addition, SAVE could further expand its business by (1) raising its stake
in Centostazioni (potential investment of ~EUR40-50m); (2) expanding in
the motorway service station business, where SAVE might bid for new
locations (EUR15-20m potential capex). We basically confirm our 200809 forecasts: we expect EUR341m of sales for 2008 (+7.5%), based on
8% growth at the airport business unit and a 20% EBITDA increase (to
EUR72m as reported by SAVE) thanks to the expected profitability
improvement at the airports (from 37% to 41%) and the turnaround of
the food & beverage unit. At the net profit level, we are simply fine
tuning our forecasts and factor in the benefits from the new tax
regulation.
Marco BACCAGLIO
Investment Analyst
(39) 02 80 62 83 20
193
www.cheuvreux.com
Sector focus
Sector Top Picks
Least favoured
Shareholders
Marco Polo Holding 39.0%, Free Float 29.6%, City Of
Venice 14.1%, Province Of Venice 12.2%, Other
Holders 7.7%
2006
2007E
2008E
2009E
P/E (x)
20.8
20.5
24.0
19.0
EV/EBITDA (x)
15.3
11.6
8.4
7.3
2.7
0.4
3.3
4.4
Net debt/EBITDA (x)
2.5
0.1
(0.1)
(0.2)
Yield (%)
1.7
2.3
3.0
3.5
ROCE (%)
9.3
8.5
11.7
13.9
2.3
1.7
1.6
1.5
23 January 2008
Q
ITALY
Investment case
Q
Superior organic growth in the airport segment
We confirm our positive stance on SAVE. In our view, the stock
offers a very appealing mix of good visibility (thanks to healthy
airport traffic growth and its predictable business model) and a safe
profile (robust financial structure).
Q
Q Strong financial structure might permit further investments
After making a large capital gain on the sale of Gemina shares, SAVE
is in a strong position to make new investments. Given the current
3x debt/EBITDA, we estimate that SAVE could invest >EUR200m.
We believe that even if it raises its stake in Centostazioni and opts
for more aggressive growth in F&B, there would still be room for
EUR70-80m of additional investments to boost earnings.
Q Cost control could sharply lift the bottom line
After several years of declining profitability at the airport business
and the shift in its business mix in favour of F&B, SAVE should focus
primarily on profitability improvement in 2008, partially leveraging on
the extension of commercial spaces in the airports. We expect net
profit to rise from EUR15m to EUR23m in 2009 and to exceed
EUR29m in 2009.
Q Poor visibility on tariffs, but issue might be resolved soon
Airport tariffs are the biggest risk for SAVE. However, we believe that
this issue might be resolved in 2008. Although the outcome of the
current negotiations is uncertain, it is unlikely to be negative in our
view, as Italian tariffs are well below the European average.
Q Multiples in line with peers, appealing growth outlook
Based on our DCF, we derive a fair value in excess of EUR13 per
share. The stock trades at 8.4x 2008 EV/EBITDA, which is consistent
with the value of the airport sector (9-11.5x), considering that SAVE
generates some of its profit outside the infrastructure business (20%
of the total).
Q
SWOT Analysis
Strengths

Weaknesses
No debt
Lack of critical size in the F&B
business

Long term concessions in
airports

Double digit traffic growth
Penalising tax system
Low margins at the F&B
business

Opportunities
Threats
Acquisition of minorities in
Centostazioni

Competition between airports
might harm margins

New tariff system

Acquisitions in the F&B sector
Delays in the restructuring of
Centostazioni

Acquisitions in the airport
segment likely to create dilution

194
www.cheuvreux.com
Valuation
We leave our EUR13.5 target price unchanged.
Q DCF. Our DCF is based on a WACC of 7.5%
and a terminal value multiple of 8.5x EV/EBITDA.
This implies an EV of EUR740m, of which 82%
is represented by the terminal value. We added
to this valuation EUR30m for real estate assets,
and factored in the mildly negative impact of
minorities and debt (EUR5m each).
Q Multiples. SAVE trades at 24x P/E and 8.4x
EV/EBITDA in 2007. After correcting this for the
amortisation of Treviso airport goodwill (EUR4m
per year), we derive a 20x P/E. These multiples
are comparable with the airport sector (9-11.5x).
Based on our sum-of-the-parts model, we value
SAVE at ~EUR13-13.5 per share, based on a
11x EV/EBITDA multiple for the airports' EBITDA
(EUR10 per share), EUR1.1 for Centostazioni
(10x EV/EBITDA) and EUR2.2 for the F&B
business (at 8x 2008 EV/EBITDA multiple).
Q
Company profile
SAVE specializes in airport management (no. 3
in Italy), railway station management and food &
beverage and retail activities. Management of
the Venice airport system is SAVE's core
business.
Airport management (46% of 2006 revenues) is
a concession-based business (expiry dates for
Venice and Treviso are 2041 and 2012 to be
extended to 2047) respectively. SAVE also
manages 103 medium-size railway stations
(12% of revenues), under a concession
agreement expiring in 2042. The F&B and retail
activities (45% of revenues, 115 points of sales
plus 3 in China) complement the other two
businesses. SAVE operates these businesses
both in directly-owned and other infrastructures.
After the acquisitions of two catering companies
in 2006 and the disposal of the Gemina stake
(EUR125m investment), SAVE should be able to
leverage on a very healthy financial structure to
support further external growth. We expect a
very small net debt position by year-end
(EUR8m).
SAVE's main shareholders are Marco Polo
Holding (39% stake, held by private investors
and the Veneto region) and Venice local
authorities (combined 29%).
23 January 2008
ITALY
SAVE
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
195
2002
2003
2004
2005
2006
2007E
2008E
2009E
84.8
125.7
48.3%
(31.1)
(55.0)
39.6
65.0%
(13.6)
26.0
76.1%
(3.6)
0.0
(4.5)
17.9
(4.5)
0.0
0.3
(4.8)
0.0
0.0
0.0
8.6
0.0
0.1
8.7
0.0
(0.2)
12.1
43.1%
147.6
17.4%
(35.4)
(64.3)
47.8
20.7%
(14.1)
33.7
29.7%
(4.1)
0.0
(10.3)
19.3
(4.2)
0.0
(0.8)
(8.8)
0.0
0.0
0.0
5.5
0.0
0.3
5.8
0.0
0.3
10.2
-15.8%
166.0
12.5%
(38.3)
(84.9)
42.8
-10.5%
(18.5)
24.3
-27.9%
0.0
0.0
0.0
24.3
(1.9)
0.0
0.0
(11.6)
0.0
0.0
0.0
10.8
0.0
0.2
11.0
0.0
0.0
11.0
7.2%
225.2
35.7%
(56.6)
(118.9)
49.7
16.1%
(19.2)
30.5
25.5%
0.0
0.0
0.0
30.5
(1.7)
0.0
0.0
(15.2)
0.0
0.0
0.0
13.5
0.0
3.0
16.6
0.0
0.0
16.6
51.1%
317.4
41.0%
(65.1)
(198.1)
54.2
9.1%
(23.8)
30.4
-0.3%
0.0
0.0
0.0
30.4
29.7
0.0
0.0
(16.0)
0.0
0.0
0.0
44.1
0.0
1.0
45.1
0.0
(30.6)
14.5
-12.5%
341.1
7.5%
(67.1)
(206.0)
68.0
25.4%
(25.3)
42.7
40.3%
0.0
0.0
0.0
42.7
(1.5)
0.0
0.0
(18.1)
0.0
0.0
0.0
23.0
0.0
0.0
23.0
0.0
0.0
23.0
59.2%
362.3
6.2%
(69.1)
(215.9)
77.4
13.8%
(26.3)
51.1
19.7%
0.0
0.0
0.0
51.1
1.0
0.0
0.0
(22.9)
0.0
0.0
0.0
29.2
0.0
0.0
29.2
0.0
0.0
29.2
26.5%
(3.9)
(76.2)
0.0
(77.0)
(78.3)
0.0
0.3
(7.0)
0.0
34.9
(127.0)
17.6
NS
(1.8)
(19.6)
0.0
(3.8)
0.8
0.0
4.5
(8.0)
0.0
7.2
0.7
25.3
44.0%
(6.1)
(18.5)
0.0
0.6
(0.9)
0.0
0.1
(5.2)
0.0
0.7
(4.6)
28.0
10.6%
14.4
(49.4)
0.0
(7.0)
(92.4)
0.0
0.0
(5.5)
153.3
0.0
48.5
32.5
16.2%
9.8
(22.0)
0.0
20.4
(87.5)
(3.0)
35.0
(10.0)
0.0
7.3
(37.9)
39.4
21.0%
(15.0)
(22.0)
0.0
2.4
(5.0)
0.0
120.0
(12.0)
0.0
15.0
120.4
46.4
17.7%
(2.0)
(25.0)
0.0
19.4
0.0
0.0
0.0
(6.9)
0.0
0.0
12.4
53.4
15.3%
(2.0)
(25.8)
0.0
25.7
0.0
0.0
0.0
(16.6)
0.0
0.0
9.1
68.6
24.6
5.7
6.9
129.8
139.2
235.6
0.0
82.8
140.9
6.3
0.0
5.6
6.7
235.6
69.1
24.8
7.1
7.9
129.1
137.4
238.1
0.0
83.6
140.5
5.6
0.0
8.3
6.6
238.1
68.5
24.5
7.8
12.4
133.7
143.8
246.9
0.0
85.5
138.5
6.5
0.0
16.5
11.2
246.9
219.4
24.5
7.1
13.5
87.4
35.8
351.8
0.0
202.7
49.7
93.5
0.0
5.9
3.5
351.8
288.8
28.1
12.8
18.3
125.3
39.5
473.2
0.0
257.2
75.4
144.6
0.0
(4.0)
(1.8)
473.2
321.9
17.6
11.0
18.9
4.9
1.4
374.2
0.0
272.8
75.4
15.0
0.0
11.0
3.5
374.2
338.0
17.6
11.0
19.4
(7.6)
NS
378.5
0.0
270.0
80.4
15.0
0.0
13.0
3.8
378.5
350.6
17.6
11.0
20.0
(16.7)
NS
382.5
0.0
271.0
81.4
15.0
0.0
15.0
4.2
382.5
(25.6)
(35.2)
24.0
(9.3)
14.7
(2.1)
0.0
(2.1)
10.6
(3.5)
0.0
2.9
(1.5)
0.0
0.0
0.0
8.9
0.0
(0.0)
8.9
0.0
(2.5)
8.5
3.2
www.cheuvreux.com
23 January 2008
ITALY
SAVE
FY to 31/12 (Eur)
EPS before goodwill
% Change
EPS, reported
% Change
2002
2003
2004
2005
2006
2007E
2008E
2009E
0.42
0.61
43.2%
0.44
-2.2%
0.51
-15.8%
0.29
-33.1%
0.40
-22.5%
0.40
36.1%
0.60
51.0%
0.60
51.0%
0.52
-12.5%
1.63
172.4%
0.42
-20.5%
0.42
-74.5%
0.53
26.7%
0.53
26.7%
3.1
0.18
0.40
0.88
NS
3.1
0.20
0.33
1.27
43.9%
3.1
0.00
0.16
1.01
-20.0%
7.8
0.00
0.22
1.18
16.2%
10.2
0.00
0.25
1.42
21.0%
11.4
0.00
0.30
0.84
-41.1%
5.8
0.00
0.35
0.97
15.3%
6.0
20.000
20.000
0.000
20.000
20.000
0.000
20.000
20.000
0.000
27.670
27.670
0.000
27.670
27.670
0.000
27.670
27.670
0.000
55.340
55.340
0.000
55.340
55.340
0.000
-
-
-
9.40
11.90
8.13
10.48
12.47
13.50
9.13
10.94
10.70
15.62
10.68
13.20
10.00
10.85
9.09
10.28
10.00
-
-
-
-
520.2
586.5
689.8
757.6
592.1
627.3
553.4
572.3
553.4
562.0
NS
NS
NS
NS
NS
0.0
NS
NS
NS
NS
NS
0.0
NS
NS
NS
NS
NS
0.0
23.7
23.7
9.3
NS
1.2
2.3
1.6
20.8
20.8
10.6
2.7
1.2
2.3
1.7
20.5
20.5
7.5
0.4
0.9
1.7
2.3
24.0
24.0
11.9
3.3
1.7
1.6
3.0
19.0
19.0
10.4
4.4
1.7
1.5
3.5
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
13.7
24.2
3.53
18.0
15.3
24.9
3.4
20.5
11.6
20.6
2.0
33.7
8.4
13.4
1.7
11.5
7.3
11.0
1.6
10.1
6.9
NS
30.8
17.4
10.5
0.4
139.2
78.8
8.9
7.3
35.1
20.6
6.8
0.5
137.4
92.0
11.5
5.3
39.4
22.8
3.7
0.6
143.8
111.7
NS
3.1
25.8
14.6
6.5
0.6
35.8
39.2
NS
3.8
22.1
13.5
6.0
0.7
39.5
35.9
NS
0.1
17.1
9.6
13.9
0.9
1.4
15.3
NS
NS
19.9
12.5
6.8
0.9
NS
72.0
NS
NS
21.3
14.1
8.0
1.0
NS
66.4
6.4
5.5
13.9
9.8
11.2
7.2
13.4
13.1
14.0
5.4
8.9
9.4
9.4
4.5
5.1
5.1
9.3
4.4
5.9
5.9
8.5
6.2
15.1
4.6
11.7
6.6
7.1
7.1
13.9
7.8
8.7
8.7
0.45
Goodwill per share
Dividend per share
Cash flow per share
% Change
0.10
0.35
0.16
Latest price
High
Low
Average price
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
196
www.cheuvreux.com
23 January 2008
ITALY
DIRECTORIES
Rating
3/Underperform
Seat Pagine Gialle
Guidance reduction ahead?
Q
Recent developments – Weak Q3 results & FY-07 guidance
Q3-07 results fell short of our expectations, due to the disappointing
performances at the Italian unit and at Europages. Revenues totalled
EUR414m (-5% yoy) and EBITDA stood at EUR219m (-6.4% y-o-y). At
the Italian unit, print revenues were down 1.5%, online was down 3.2%
and profitability declined by roughly 130bp vs. last year. At TDL, sales
declined by 8% affected by the sales force reorganization, Telegate
revenues were down 3.7% (broadly in line with expectations) and
Europages revenues halved, as the high churn rate affected the
migration to direct sales, following the expiry of the distribution
agreement with Pages Jaunes. The advertising backlog for Italian
WP&YP was weaker than expected and the company admitted that in
2007, print revenues are likely to fall short of the guidance (flat on 2006
level). In addition, SPG estimated that in 2007, EBITDA should come in
at the low end of the previous range (EUR673m). In August, SPG
announced the acquisition of 100% of WLW from Eniro, for a price (EV)
of EUR115m, corresponding to an EV/Sales multiple of 3x. WLW is the
leading domestic search engine for German SMEs. It booked revenues
of EUR34m in 2006 and is now gradually expanding in Eastern Europe.
Q
Outlook – Poor visibility on 2008. Guidance cut ahead?
In May, SPG presented its 2007-10 business plan, guiding for a 3-year
revenue CAGR of 4.5-5.5% and a 3-year EBITDA CAGR of 4-5%. The
print business was expected to grow CPI+, the online unit by 15-20%
p.a., while the voice services in the mid single digit range. Following a
disappointing Q3-07, the downward revision of the FY-07 EBITDA
target and weak advertising collection results, SPG provided a more
detailed guidance for 2008, which is lower than business plan targets.
SPG indicated that the growth of print revenues in 2008 should be >0
(below the previous CPI+) and stated that EBITDA growth might be
lower that the average 4-5% p.a. targeted in the 2008-10 plan. We
believe the 2008-10 business plan targets are not achievable and
expect the company to reduce its 3-year guidance in the coming
quarters. We are now cutting our estimates (that were already below the
company guidance) to factor in lower growth at the print and on-line
businesses and lower profitability. All in all, we are cutting our revenue
forecasts by ~2%, EBITDA by ~2% and EPS by 4% over the 2008-10
period. As for external growth, following the WLW acquisition, SPG may
target further growth in Germany, with an investment of up to EUR50m,
to strenghten its positioning in the online BtoB business.
Price (21/01/2008)
Investment Analyst
(39) 02 80 62 83 41
197
www.cheuvreux.com
EUR0.22
Reuters: PGIT.MI Bloomberg: PG IM
Stock data
Free Float
Enterprise value
Daily volume
EUR1 795m
EUR890m
EUR4 952m
8 329.29 m
EUR20.53m
Performances
-20.9% -45.3% -55.0%
-10.9% -35.7% -44.1%
Absolute perf.
Relative perf.
0.6
0.6
0.6
0.6
0.5
0.5
0.5
0.5
0.4
0.4
0.4
0.4
0.3
0.3
0.3
0.3
0.2
0.2
08/03
02/04
09/04
03/05
10/05
Price/S&P/MIB
05/06
11/06
06/07
01/08
Price
Sector focus
Vivendi
Telegraaf
Sector Top Picks
Least favoured
Shareholders
Syndicated Pact 50.4%, Free Float 49.6%
2006
2007E
2008E
2009E
P/E (x)
42.9
18.5
13.1
9.2
EV/EBITDA (x)
11.7
8.6
7.3
6.9
6.1
11.6
16.1
15.7
+1.9% EUR0.22
Net debt/EBITDA (x)
5.4
4.9
4.4
4.0
Yield (%)
1.3
2.2
3.2
3.2
ROCE (%)
9.3
10.5
11.1
13.4
1.6
1.3
1.2
1.1
23 January 2008
Q
ITALY
Investment case
Q
3/Underperform rating reiterated
We reiterate our 3/Underperform rating and set a new target price of
EUR0.22 per share. Q3-07 results were disappointing; the
advertising backlog for the Italian YP and WP was weaker than
expected and the 2008 guidance for print advertising collection and
EBITDA growth were both significantly below the 2007-10 business
plan. We expect the company to reduce the targets announced in
the 2008-10 business plan, as they are not achievable in our view.
Q
Q Disappointing Q3 results and weaker FY2007 outlook
Q3 results fell short of expectations, due to disappointing online and
print revenues, weaker profitability at the Italian unit and Europages'
disappointing results. SPG now expects FY-07 EBITDA to come in at
the low end of the previous range (EUR673m) and noted that it will
fail to reach the guidance for flat print revenues in 2007.
Q Weaker advertising backlog for Italian WP&YP
The advertising backlog was weaker than expected, with a further
slowdown vs. H1-07. Besides, SPG announced that 2008 print
revenues should be >0, significantly below the CPI+ growth
guidance provided just in May. These signs of weakness raise major
questions about the possibility of a long lasting turnaround of the
print unit.
We expect a downward revision of 2008-10 guidance
We believe 2007EBITDA will fall short of the EUR673m guidance.
Moreover, on the back of the weaker outlook provided for 2008, the
declining advertising collection data and EBITDA, we believe the 200810 guidance is not achievable. We expect SPG to cut its 3-year
guidance in the coming months.
Valuation
We are cutting our DCF-based target price of
EUR0.37 to EUR0.22 per share, to factor in our
4% EPS reduction for the 2007E-09E period,
lower visibility on the turnaround of the print unit
and higher average WACC (7.8% from 7.3%).
Our DCF model is based on a rolling WACC,
ranging from 7.7% in 2008 to 7.8% in 2013. The
terminal value (65% of total EV) was based on a
perpetual growth rate assumption of -0.5% and
implies an EV/EBITDA exit multiple of 7.0x below
the current 7.3x of European directory players.
We reached an EV of EUR5,121m and an Equity
Value of EUR1,798m, after deducting the Net
Debt (adjusted for Telegate minorities) of
EUR3,323m expected at the end of 2007.
SPG trades at 7.3x and 6.9x on 2008-09
EV/EBITDA multiples, implying not material
discount to its peers.
Q
Company profile
Q
Q
SWOT Analysis
Strengths
Weaknesses

Leader in the Italian directory
market

Leadership in the DA market in
Italy and Germany

High cash conversion rate:
15% of sales in 2007E

Heavy dependence on Italian
print products
Persistently negative
advertising collection trend for
print products

Stiff competition in the
directory assistance segment
Opportunities
Threats

Development of the on-line
business in Italy

Development of the B-to-B online platform of Europages
Competition
No need of short term
refinancing, limited exposure to
interest rate volatility

Declining cost of debt
following de-leverage

Cannibalisation of paper
directories by on-line search
services
from global online search companies
Weakening
of the economic
cycle
Entry into the Turkish market
198
www.cheuvreux.com
Seat Pagine Gialle (SPG) is the leading Italian
directory operator with 95% market share in the
print directory segment. In the wider SME
advertising market, it commands ~20% market
share. SPG uses a multi-platform approach
based on print on-line and voice products. Its
key strengths are its regularly updated customer
database and extensive sales network.
SPG is also present in the UK, with the 100%controlled Thomson (2nd biggest UK market
player). Through its subsidiary, Telegate (78%controlled), SPG also offers directory assistance
services in Germany, Italy, France and Spain.
In FY-06, SPG reported revenues of EUR1,460m
(74% from the Italian unit) with an EBITDA of
EUR611m (89% from the Italian unit). The
revenue breakdown by business line was the
following: 64% from print products, 11% from
on-line services, 16% from directory assistance
and 9% from other products. At the end of
September 2007, net debt totalled EUR3,233m,
while the Debt/EBITDA ratio at the end of 2007
is expected at 5x.
SPG is controlled by a consortium of private
equity funds (Alfieri, BC Partners, CVC, Permira)
that control 50.4% of voting rights and have
signed a shareholding agreement that will expire
in March 2010.
23 January 2008
ITALY
Seat Pagine Gialle
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
199
2002
2003
2004
2004
2005
2006
2007E
2008E
2009E
1 992.0
3.5%
(360.0)
(1 118.7)
513.3
46.1%
(102.0)
411.3
87.5%
(177.6)
0.0
0.0
233.7
(102.7)
0.0
(152.7)
(18.0)
0.0
0.0
0.0
(39.8)
0.0
55.1
15.3
0.0
(97.7)
95.2
-18.4%
1 450.2
-27.2%
(223.5)
(624.4)
602.3
17.3%
(34.7)
567.6
38.0%
(237.4)
0.0
0.0
330.2
(125.1)
0.0
(70.2)
(117.3)
0.0
0.0
0.0
17.6
0.0
(1.2)
16.4
0.0
(44.9)
208.9
119.4%
1 406.3
-3.0%
200.7
(995.5)
611.5
1.5%
(419.1)
192.4
-66.1%
0.0
0.0
0.0
192.4
(224.4)
(2.1)
(30.8)
(48.1)
0.0
0.0
0.0
(113.0)
0.0
(6.6)
(119.5)
0.0
0.0
(119.5)
NS
1 405.8
0.0%
209.2
(1 000.6)
614.4
1 424.6
1.3%
219.1
(1 017.2)
626.6
2.0%
(194.5)
432.1
4.0%
0.0
0.0
(11.9)
420.2
(260.6)
4.2
0.0
(25.4)
0.0
0.2
0.0
138.7
0.0
(6.8)
131.9
0.0
10.1
142.0
38.0%
1 459.9
2.5%
231.8
(1 080.4)
611.4
-2.4%
(195.4)
416.0
-3.7%
0.0
0.0
(14.0)
402.1
(246.2)
0.0
0.0
(74.1)
0.0
0.0
0.0
81.8
0.0
(1.7)
80.1
0.0
7.3
87.4
-38.4%
1 493.7
2.3%
239.5
(1 072.5)
660.7
8.1%
(200.8)
459.9
10.5%
0.0
0.0
(12.0)
447.9
(242.8)
(3.0)
0.0
(80.8)
0.0
0.0
0.0
121.3
0.0
(6.8)
114.5
0.0
7.2
121.7
39.2%
1 556.3
4.2%
251.5
(1 133.0)
674.8
2.1%
(203.6)
471.2
2.5%
0.0
0.0
(10.0)
461.2
(230.4)
0.0
0.0
(92.3)
0.0
0.0
0.0
138.5
0.0
(7.1)
131.4
0.0
6.0
137.4
12.9%
1 588.7
2.1%
261.5
(1 158.2)
692.0
2.5%
(133.7)
558.3
18.5%
0.0
0.0
(10.0)
548.3
(215.2)
0.0
0.0
(133.3)
0.0
0.0
0.0
199.9
0.0
(10.2)
189.7
0.0
6.0
195.7
42.4%
321.1
51.5%
(169.0)
(202.5)
0.0
(50.4)
0.0
0.0
37.0
0.0
0.0
258.0
244.6
361.0
12.4%
208.1
(3 322.5)
0.0
(2 753.4)
0.0
0.0
(3 289.3)
(0.6)
3 113.0
(111.7)
(3 042.0)
308.2
-14.6%
49.1
(29.8)
0.0
327.6
(1.7)
0.0
0.0
(3 578.4)
0.1
(213.4)
(3 465.8)
314.5
49.1
(29.9)
0.0
333.7
0.0
0.0
0.0
(3 578.4)
0.1
(36.0)
(3 280.5)
340.6
8.3%
21.7
(46.0)
0.0
316.3
0.0
0.0
0.0
(0.2)
5.6
(32.0)
289.7
291.1
-14.5%
(11.0)
(48.3)
0.0
231.8
(8.5)
0.0
1.0
(45.3)
20.4
29.5
229.0
357.0
22.7%
(22.4)
(56.8)
0.0
277.9
(115.0)
0.0
0.0
(49.2)
0.0
(12.0)
101.7
372.1
4.2%
3.1
(70.0)
0.0
305.2
0.0
0.0
0.0
(54.0)
0.0
(10.0)
241.2
363.5
-2.3%
(3.0)
(63.6)
0.0
296.9
0.0
0.0
0.0
(59.2)
0.0
(10.0)
227.8
1 564.5
10.6
55.1
159.0
680.0
43.2
2 469.2
1 648.0
0.0
116.5
38.8
0.0
665.9
33.4
2 469.2
4 369.2
5.4
32.4
95.6
459.9
10.5
4 962.5
4 557.5
0.0
42.6
13.7
0.0
348.7
24.0
4 962.5
665.0
9.9
31.4
75.3
3 925.7
NS
4 707.3
3 362.2
897.0
33.2
3.7
0.0
411.1
29.2
4 707.3
850.2
9.8
52.9
82.9
3 808.1
442.8
4 803.9
3 565.0
777.7
35.7
1.8
0.0
423.8
30.1
4 803.9
980.1
19.6
52.8
73.2
3 535.3
353.6
4 660.9
3 574.3
624.7
49.7
1.6
0.0
410.8
28.8
4 660.9
1 057.2
18.3
56.8
61.1
3 302.5
307.1
4 495.7
3 579.0
485.9
50.0
1.2
0.0
379.6
26.0
4 495.7
1 125.7
21.7
58.6
62.0
3 220.8
280.7
4 488.9
3 579.0
341.6
50.3
113.2
0.0
404.8
27.1
4 488.9
1 206.7
25.3
61.6
63.7
2 999.6
243.5
4 356.8
3 579.0
204.6
53.7
113.2
0.0
406.3
26.1
4 356.8
1 340.8
31.9
64.0
64.5
2 791.8
203.4
4 293.0
3 579.0
133.6
54.6
113.2
0.0
412.6
26.0
4 293.0
www.cheuvreux.com
(199.1)
415.3
0.0
0.0
(36.0)
379.4
(251.0)
6.6
0.0
(48.9)
0.0
0.0
0.0
86.1
0.0
(6.1)
79.9
0.0
22.9
102.8
23 January 2008
ITALY
Seat Pagine Gialle
FY to 31/12 (Eur)
EPS before goodwill
% Change
EPS, reported
% Change
Goodwill per share
Dividend per share
Cash flow per share
% Change
Latest price
High
Low
Average price
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
200
2002
2003
2004
2004
2005
2006
2007E
2008E
2009E
0.01
-10.0%
0.00
103.6%
0.03
177.8%
0.00
100.0%
(0.01)
NS
(0.01)
NS
0.01
0.02
41.7%
0.02
60.0%
0.01
-35.3%
0.01
-37.5%
0.02
36.4%
0.01
40.0%
0.02
6.7%
0.02
14.3%
0.02
43.8%
0.02
43.8%
0.02
0.00
0.03
52.6%
0.1
0.03
0.00
0.04
51.7%
0.5
0.00
0.00
0.04
-15.9%
0.1
0.00
0.00
0.04
0.1
0.00
0.01
0.04
7.9%
0.1
0.00
0.01
0.04
-14.6%
0.1
0.00
0.01
0.04
22.9%
0.1
0.00
0.01
0.05
4.7%
0.1
0.00
0.01
0.04
-2.2%
0.2
11372.800
11185.100
0.000
8251.300
8251.300
0.000
8251.290
8251.290
0.000
8251.290
8251.290
0.000
8267.070
8259.180
0.000
8329.290
8298.180
0.000
8329.290
8329.290
0.000
8329.290
8329.290
0.000
8329.290
8329.290
0.000
0.37
-
0.39
0.46
0.36
0.41
0.34
0.45
0.26
0.34
0.34
0.45
0.26
0.34
0.40
0.42
0.30
0.35
0.45
0.47
0.32
0.40
0.27
0.50
0.26
0.43
0.22
0.28
0.21
0.24
0.22
-
4 208.0
5 635.2
3 216.7
3 679.2
2 794.2
6 597.5
2 749.4
6 821.3
3 239.0
6 992.9
3 721.9
7 157.8
2 252.3
5 665.3
1 795.3
4 952.9
1 795.3
4 747.6
NS
43.7
13.0
NS
2.7
2.3
0.0
NS
15.4
8.9
NS
0.7
0.7
0.0
NS
NS
9.1
12.4
4.2
1.4
0.0
27.2
27.2
8.9
11.3
3.3
1.4
0.0
23.0
23.0
9.6
9.3
3.5
1.5
1.3
42.9
42.9
12.9
6.1
3.7
1.6
1.3
18.5
18.5
6.3
11.6
2.1
1.3
2.2
13.1
13.1
4.8
16.1
1.6
1.2
3.2
9.2
9.2
4.9
15.7
1.4
1.1
3.2
11.0
13.7
2.83
9.6
6.1
6.5
2.54
9.8
10.8
34.3
4.69
9.7
11.1
16.4
4.85
13.9
11.2
16.2
4.91
12.2
11.7
17.2
4.9
16.9
8.6
12.3
3.8
11.0
7.3
10.5
3.2
9.5
6.9
8.5
3.0
9.4
5.0
2.1
25.8
20.6
NS
0.8
43.2
0.0
4.8
1.3
41.5
39.1
1.2
0.3
10.5
0.0
2.7
12.7
43.5
13.7
NS
0.3
NS
0.0
2.4
12.1
43.7
29.5
6.1
0.3
442.8
0.0
2.4
10.4
44.0
30.3
9.7
0.3
353.6
31.3
2.5
11.3
41.9
28.5
5.6
0.3
307.1
62.2
2.7
9.0
44.2
30.8
8.1
0.3
280.7
43.7
2.9
8.1
43.4
30.3
8.9
0.4
243.5
44.4
3.2
7.7
43.6
35.1
12.6
0.4
203.4
30.7
16.9
30.9
1.0
NS
11.5
1.5
0.4
NS
4.1
7.1
NS
NS
8.6
5.5
9.9
12.9
9.3
7.8
14.4
15.6
9.3
4.9
7.9
8.6
10.5
6.3
10.7
11.4
11.1
6.7
11.5
12.1
13.4
8.0
15.2
15.7
www.cheuvreux.com
0.01
23 January 2008
ITALY
TRANSPORTATION INFRASTRUCTURE
Rating
2/Outperform
SIAS
Price (21/01/2008)
Greater scale and defensive profile
Stock data
Q
EUR9.07
Reuters: SIS.MI Bloomberg: SIS IM
Recent developments – Group reorganization complete
In July 2007, SIAS completed the reorganization plan announced at the
end of 2006, by acquiring all of Auto TO-MI's motorway concessions.
The operation was structured as follows: (1) SATAP, Auto TO-MI's main
concession, was transferred to SIAS via a reserved capital increase
(100m new SIAS shares at EUR10.2), valuing the assets at EUR1,020m.
(2) SIAS bought other smaller concessionaires (ATIVA, SITAF and SAV)
from Auto TO-MI, for a total equity value of EUR347m. (3) Auto TO-MI
acquired from SIAS the minorities of its construction and engineering
companies (SINA and Sineco) and EUR100m of SIAS's convertible
bond for a total of EUR120m. As a result, SIAS became the second
largest Italian motorway player after Atlantia, managing 1,180 km of
network. It also improved its leverage from 1.6x debt/EBITDA to 2.6x.
Auto TO-MI also raised its stake in SIAS from 36% to 63%, other
shareholders were diluted and the free float fell to 17%. In 9M-07, SIAS
reported results for the first time based on the new perimeter: 9M-07
pro-forma results were good, revealing 6% top line growth, driven
mainly by the strong traffic trend and higher revenues from the
technological sector, EBITDA was up 5.8% y-o-y, with margins broadly
stable at 61.5%. Q3-07 results were weaker: the top line rose by 4.6%,
but EBITDA was flat at EUR142m, due to rising mainteinance costs and
concessionaire fees, with the margin falling from 66% to 63%.
Q
+21.3% EUR11
Free Float
Enterprise value
Daily volume
EUR2 063m
EUR363m
EUR3 653m
227.5 m
EUR2.96m
Performances
-10.9% -16.1% -23.1%
-0.5%
0.4%
-4.9%
Absolute perf.
Relative perf.
13.2
13.2
11.2
11.2
9.2
9.2
7.2
7.2
5.2
5.2
3.2
02/02
3.2
11/02
08/03
05/04
01/05
Price/BCI
10/05
07/06
04/07
01/08
Price
Outlook – Authorisation still pending for some new projects
The Italian traffic trend was good in 9M-07 (+2.9%) driven by a very
strong Q1 (+4.4%), +2.6% in Q2 and +2.1% in Q3. For FY-07, we
forecast 2.7% growth, which implies +2% in Q4. In December, ANAS
approved tariff hikes for 2008: the increases awarded to SIAS were
modest (0.8% at SATAP, with minor hikes for other concessionaires)
compared to 3.6% for Atlantia. Based on the new perimeter, we expect
EUR820m of revenues, EUR504m of EBITDA (62% margin) and
EUR160m of net profit in 2008. SIAS plans to invest heavily in two major
projects that have received preliminary approval from ANAS, but must
still complete the authorisation process: (1) Asti-Cuneo (90km of new
networks requiring an EUR800m investment, which could be made in
2009-12); and (2) CISA2 (80km Parma-Brennero stretch, in addition to
the existing 100km), which will require EUR2.2bn of capex. Only part of
the investment plans of exisiting motorways have been renegotiated
with ANAS (EUR1bn at SATAP); some are still pending. Overall,
including both the new projects and development capex for existing
concessions, SIAS could invest up to EUR4-5bn in the core business
over the next 7 years. If achieved, the investment plan would help releverage the group, raising its debt/EBITDA ratio from 2.7x to 6x, when
capex peaks. As the free float is only 17%, SAIS's main shareholders,
Autostrada TO-MI (64%) and Aurelia (10%) are likely to place a sizeable
stake in the future, however we feel the recent stock underperformance
(due to the uncertain regulatory framework) means that they are unlikely
to sell at the current market price.
Francesca PEZZOLI
Investment Analyst
(39) 02 80 62 83 80
fpezzoli@cheuvreux.com
201
www.cheuvreux.com
Sector focus
Sector Top Picks
Least favoured
Shareholders
Autostrada Tomi 63.4%, Free Float 17.6%, Aurelia
(Gavio Family) 10.1%, Lazard Asset Management
5.6%, Generali 3.3%
2006
2007E
2008E
2009E
19.0
17.4
14.7
14.9
EV/EBITDA (x)
7.3
7.5
7.2
7.6
3.5
NS
NS
NS
Net debt/EBITDA (x)
1.6
2.7
2.9
3.4
P/E (x)
Yield (%)
2.7
3.3
3.8
3.9
ROCE (%)
17.0
11.5
10.8
9.8
2.0
1.3
1.2
1.2
23 January 2008
Q
ITALY
Investment case
Q
New SIAS: greater scale in motorway sector
In July 2007, SIAS sharply expanded its perimeter by acquiring all of
Auto TO-MI's motorway concessions. The operation took place in
two steps: (1) the biggest concession (SATAP valued at ~EUR1bn)
was transferred from Auto TO-MI to SIAS via a reserved capital
increase, which lifted Auto TO-MI's stake from 36% to 63%. It paid
cash for other minor concessions (valued at EUR347m).
Q
Q Heavy capex ahead even if the timing is still uncertain
SIAS has two major projects in the pipeline (~EUR3bn of capex for
~180 km of new stretches), but full authorisation is still pending. We
think that the strategy makes industrial sense, as SIAS aims to releverage the company, by investing in the core business, but
visibility on motorways is low and these projects have been in the
pipeline for a long time and have suffered from many delays.
Q Poor tariff hikes in 2008
New investments will be regulated using a new RAB formula which
should offer a return post-tax of ~6.5% (according to Atlantia), but
it is still being negotiated. Therefore, visibility on the timing of the
tariff hikes remains low and the company was penalized as ANAS
approved a modest 0.8% tariff hike in 2008.
Q Positive stance confirmed
We think that the valuation of EUR10.2/share calculated for the
reorganisation could be considered a floor. With a cautious DCF and
applying 10% discount for a overhang risk we reach valuation in the
region of EUR11/share which we adopt as new TP (from EUR13). We
stick to our positive stance.
Q
SWOT Analysis
Weaknesses
Good
Re-financing
portfolio of concessions

Stable cash flow generation

Solid financial structure
needs
Declining
EPS due to rising
depreciation and debt
Some concessions expire by
2020

Opportunities
Threats
Increased
Low
Scope

We stick to our 2/Outperform rating and reduce
our TP from EUR13 to EUR11 to factor in lower
than expected tariff hikes for 2008, still limited
visibility on the timing and return on new
investments and overhang risk (10% discount to
our fair value).
We ran a DCF model, projecting the cash flows
for the consolidated concessions (SALT, ADF,
CISA, SATAP, SAV and Ativa), until their expiry
date and discounting them at a rolling WACC
(6.5% average): we derive a value of EUR3.3bn
to which we add the NPV of the exit value of
some concessions of EUR1bn. After deducting
EUR1.3bn of debt expected at the end of 2007,
EUR390m of NPV of debt vs. ANAS and
EUR450m of minorities we derived an equity
value of EUR9.7/share, to which we added
EUR2.4/share for the unconsolidated motorway
concessions and other financial assets, deriving
a fair value of EUR12 per share. To include the
risk of overhang as the main shareholders could
place a significant stake, we applied a 10%
discount
to
our
fair
value,
reaching
EUR11/share.
SIAS currently trades at a discount to Atlantia on
all multiples: P/E of 14.7x on 2008 vs. 17.7x of
and 7.2x vs. 10.7x on EV/EBITDA.
Q
Strengths
size in motorways
visibility on timing of
capex and tariff hikes
for re-gearing
Modest
New stretches

202
tariff growth in 2008
Overhang risk
www.cheuvreux.com
Valuation
Company profile
SIAS was founded in February 2002, via the
spin-off of a motorway concession portfolio
owned by Auto TO-MI. Since July 2007, SIAS
has sharply expanded its perimeter by acquiring
all of Auto TO-MI's motorway concessions. The
deal was structured through a capital increase
reserved to Auto TO-MI and cash for other minor
concessions. SIAS is now the group's operating
company, specializing in motorways.
In 2006, based on pro-forma figures for the new
perimeter, SIAS reported EUR781m of revenues,
EUR469m of EBITDA (60% margin) and
EUR155m of net profit. SIAS manages 1,200 km
of motorway (main concessions are SATAP,
SALT, ATIVA, SAV, ADF, and CISA) and it also
holds significant equity interests in other Italian
motorways (Milano-Serravalle and SITAF) and in
Chile (45% of Costanera Norte jointly with
Atlantia). The regulatory framework for
motorways is currently under revision and
SIAS's capex plan must still be fully authorised.
SIAS is directly (10%) and indirectly (through
Auto TO-MI, with 64%) controlled by the Gavio
Group.
23 January 2008
ITALY
SIAS
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
203
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
339.7
15.4%
(57.8)
(147.2)
134.7
8.7%
(35.5)
99.2
31.6%
0.0
0.0
0.0
99.2
(14.7)
0.0
0.0
(33.3)
0.0
0.0
0.0
51.1
0.0
(25.0)
26.1
0.0
0.0
26.1
23.7%
383.9
13.0%
(64.1)
(146.4)
173.4
28.7%
(45.3)
128.1
29.1%
0.0
0.0
0.0
128.1
(16.9)
0.0
1.5
(42.8)
0.0
0.0
0.0
69.9
0.0
(22.7)
47.2
0.0
(1.0)
46.2
77.0%
455.6
18.7%
(75.6)
(176.4)
203.6
17.4%
(67.6)
136.0
6.2%
0.0
0.0
0.0
136.0
(6.0)
0.0
7.2
(55.0)
0.0
0.0
0.0
82.3
0.0
(23.8)
58.5
0.0
(4.3)
54.2
17.3%
413.3
-9.3%
(70.7)
(95.4)
247.2
21.4%
(69.9)
177.3
30.4%
0.0
0.0
0.0
177.3
(17.5)
85.6
0.0
(62.6)
0.0
0.0
0.0
97.2
0.0
(28.5)
68.7
0.0
0.0
68.7
26.8%
452.6
9.5%
(79.3)
(93.8)
279.5
13.1%
(101.9)
177.6
0.2%
0.0
0.0
0.0
177.6
53.3
29.8
0.0
(63.3)
0.0
0.0
0.0
167.6
0.0
(34.4)
133.2
0.0
(76.0)
57.2
-16.7%
447.5
-1.1%
(78.4)
(93.1)
276.0
-1.3%
(105.8)
170.2
-4.2%
0.0
0.0
0.0
170.2
(7.1)
22.0
0.0
(60.8)
0.0
0.0
0.0
102.3
0.0
(26.5)
75.8
0.0
0.0
75.8
32.5%
801.6
79.1%
(127.6)
(184.0)
490.0
77.5%
(160.0)
330.0
93.9%
0.0
0.0
0.0
330.0
(48.8)
22.0
0.0
(111.4)
14.5
0.0
0.0
184.4
0.0
(29.7)
154.7
0.0
0.0
154.7
104.1%
820.2
2.3%
(130.2)
(185.7)
504.4
2.9%
(174.4)
330.0
0.0%
0.0
0.0
0.0
330.0
(58.3)
22.0
0.0
(97.3)
14.5
0.0
0.0
188.9
0.0
(28.7)
160.2
0.0
0.0
160.2
3.5%
850.2
3.7%
(132.8)
(190.5)
527.0
4.5%
(190.0)
337.0
2.1%
0.0
0.0
0.0
337.0
(70.3)
20.0
0.0
(95.6)
14.5
0.0
0.0
185.6
0.0
(28.2)
157.4
0.0
0.0
157.4
-1.7%
86.6
-3.8%
6.4
(63.8)
0.0
29.2
0.0
0.0
0.0
(8.2)
0.0
(63.1)
(42.1)
115.2
33.0%
16.8
(232.1)
0.0
(100.1)
(4.9)
0.0
0.0
(11.1)
198.4
21.7
104.0
149.9
30.1%
28.7
(209.3)
0.0
(30.7)
(31.0)
0.0
0.0
(49.8)
0.0
9.9
(101.6)
167.1
11.5%
28.3
(115.3)
0.0
80.1
(29.0)
0.0
0.0
(33.2)
0.0
(74.7)
(56.8)
269.4
61.2%
(48.1)
(142.3)
0.0
79.0
(77.5)
0.0
0.0
(51.0)
0.0
0.0
(49.5)
208.1
-22.8%
(16.0)
(126.0)
0.0
66.1
0.0
0.0
0.0
(38.3)
0.0
0.0
27.8
300.2
44.2%
0.0
(400.0)
0.0
(99.8)
0.0
0.0
0.0
(61.9)
0.0
0.0
(161.7)
320.0
6.6%
0.0
(350.0)
0.0
(30.0)
0.0
0.0
0.0
(77.4)
0.0
0.0
(107.4)
332.9
4.0%
0.0
(600.0)
0.0
(267.1)
0.0
0.0
0.0
(77.3)
0.0
0.0
(344.5)
152.6
143.4
36.3
390.0
233.1
78.8
955.4
0.0
6.9
828.5
102.0
0.0
17.9
5.3
955.3
447.1
209.2
41.8
588.2
129.1
19.7
1 415.4
0.0
7.0
1 315.4
92.0
0.0
1.1
0.3
1 415.5
455.9
195.6
29.0
105.8
230.6
35.4
1 016.9
12.1
7.2
1 349.7
121.7
0.0
(473.9)
0.0
1 016.8
550.3
221.4
29.0
94.3
287.4
37.2
1 182.4
28.6
7.5
1 406.9
241.6
0.0
(502.2)
0.0
1 182.4
694.8
204.3
29.8
114.9
336.8
37.5
1 380.6
35.1
5.0
1 387.7
407.0
0.0
(454.1)
0.0
1 380.7
733.0
204.0
30.7
116.5
436.2
46.6
1 520.4
0.0
40.0
1 414.0
521.0
0.0
(454.0)
0.0
1 521.0
1 226.8
243.0
204.0
567.5
1 332.7
90.7
3 574.0
0.0
74.0
3 093.0
707.0
0.0
(300.0)
(37.4)
3 574.0
1 309.6
243.0
208.0
549.0
1 440.1
92.8
3 749.6
0.0
74.0
3 268.6
707.0
0.0
(300.0)
(36.6)
3 749.6
1 389.6
243.0
212.0
530.5
1 784.6
109.3
4 159.6
0.0
74.0
3 678.6
707.0
0.0
(300.0)
(35.3)
4 159.6
www.cheuvreux.com
23 January 2008
ITALY
SIAS
FY to 31/12 (Eur)
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
EPS before goodwill
% Change
EPS, reported
% Change
0.30
23.8%
0.30
23.2%
0.36
21.9%
0.37
24.6%
0.43
17.4%
0.46
24.1%
0.54
26.8%
0.54
17.4%
0.45
-16.7%
1.05
93.9%
0.60
32.5%
0.00
0.60
0.2%
0.00
0.62
3.5%
0.00
0.61
-1.6%
0.00
Goodwill per share
Dividend per share
Cash flow per share
% Change
0.00
0.13
0.98
-3.8%
1.6
0.00
0.22
0.90
-8.1%
3.3
0.00
0.26
1.18
30.1%
3.3
0.00
0.26
1.31
11.5%
4.1
0.00
0.40
2.11
61.2%
5.0
0.00
0.30
1.63
-22.8%
5.4
0.00
0.34
1.16
-29.1%
5.1
0.00
0.34
1.23
6.7%
5.4
0.00
0.35
1.28
4.0%
5.8
88.000
88.000
0.000
127.500
127.500
0.000
127.500
127.500
0.000
127.500
127.500
0.000
127.500
127.500
0.000
127.500
0.000
0.000
227.500
0.000
0.000
227.500
0.000
0.000
227.500
0.000
0.000
-
4.52
4.58
3.55
4.10
7.23
7.85
4.50
6.35
10.43
10.79
6.21
8.68
10.34
12.44
9.34
10.95
11.30
11.67
9.05
10.34
10.38
13.25
8.90
11.36
9.07
10.40
9.03
9.62
9.07
-
-
576.2
932.5
922.2
1 435.0
1 329.8
1 958.4
1 318.7
1 618.4
1 440.2
2 002.0
2 163.0
3 661.7
2 062.7
3 653.7
2 062.7
4 002.2
NS
NS
NS
NS
NS
-
12.5
12.5
5.0
NS
1.4
0.7
4.9
17.0
17.0
6.2
NS
2.2
1.6
3.6
19.4
19.4
8.0
4.3
2.6
2.1
2.5
23.1
23.1
4.9
4.8
2.0
1.7
3.9
19.0
19.0
6.9
3.5
2.1
2.0
2.7
17.4
17.4
9.0
NS
2.1
1.3
3.3
14.7
14.7
7.3
NS
1.7
1.2
3.8
14.9
14.9
7.1
NS
1.6
1.2
3.9
NS
NS
NS
NS
5.4
7.3
2.43
5.2
7.0
10.6
3.15
6.9
7.9
11.0
4.74
7.9
5.8
9.1
3.58
5.5
7.3
11.8
4.5
7.3
7.5
11.1
4.6
9.8
7.2
11.1
4.5
9.1
7.6
11.9
4.7
9.5
9.2
2.7
39.7
29.2
15.0
0.4
78.8
42.5
10.3
1.1
45.2
33.4
18.2
0.3
19.7
59.4
NS
1.5
44.7
29.9
18.1
0.5
35.4
56.7
14.1
1.7
59.8
42.9
23.5
0.4
37.2
48.3
NS
1.3
61.8
39.2
37.0
0.5
37.5
38.3
NS
2.1
61.7
38.0
22.9
0.4
46.6
0.0
10.0
4.4
61.1
41.2
23.0
0.3
90.7
0.0
8.7
4.5
61.5
40.2
23.0
0.3
92.8
0.0
7.5
5.4
62.0
39.6
21.8
0.2
109.3
0.0
11.6
7.0
18.7
18.7
9.7
6.0
11.1
10.9
15.2
9.1
13.7
12.6
18.8
11.5
13.3
13.3
18.2
13.2
21.2
8.6
17.0
10.6
10.9
10.9
11.5
7.2
13.5
13.5
10.8
7.2
13.0
13.0
9.8
6.4
12.0
12.0
Latest price
High
Low
Average price
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
204
www.cheuvreux.com
23 January 2008
ITALY
CONSTRUCTION
Rating
3/Underperform
Sirti
Price (21/01/2008)
We recommend tendering the shares
Stock data
Q
EUR2.63
Reuters: SIR.MI Bloomberg: SIR IM
Recent developments – 9M-07 in line; PTO until 8 February
9M-07 results were in line with our expectations, with stronger than
expected volumes from the domestic telecom market, which offset the
delays affecting Sirti's main international projects. Revenues were up
9% y-o-y to EUR567m and EBITDA was up 51% y-o-y (29% organic),
sustained by rising profitability and by a one-off accounting gain tied to
the TFR reform, which weighed for EUR9.66m. Net profit at EUR40m,
was up sharply vs. last year (EUR14m) thanks to higher operating
margins and the EUR13.4m gain on the disposal of the stake in Tesir.
In July, Euraleo (JV Banca Leonardo-Eurazeo) and Capitolo IV (21
Investimenti) announced the acquisition of 100% of STH (the vehicle
controlling 69.7% of Sirti). The former shareholders retained a minority
stake in the the new vehicle and ceded control of Sirti to Euraleo and
Capitolo IV. As a result, the new controlling vehicle launched a
mandatory PTO on 7 January.
In October, Sirti won its bid to provide IT services to the Italian railway
(FS), for a 6-year period for a minimum of EUR1bn, with an initial
investment of EUR107.5m to buy 100% of the IT company (TSF) owned
by the Italian railways. In mid-December, after claims of irregularities
about the bidding process, an administrative court ruled in favour of
cancelling the auction. Sirti announced that it will appeal to a higher
court, but we only expect a final ruling by Q1-08, after the mandatory
PTO closes.
Q
+0.6% EUR2.65
Outlook – Mandatory PTO at EUR2.65 per share
The mandatory PTO, priced at EUR2.65 per share, will last until 8
February. Sirti will be kept listed, therefore a minority squeeze-out is to
be excluded. The bidder has also announced that it might restructure
the control chain, by merging Sirti with its controlling vehicle (STH) after
a capital injection at STH to pay off its debt and avoid any dilution of the
controlling stake. After the merger, Sirti might distribute an
extraordinary dividend using existing reserves (EUR105m at the end of
2006) and those stemming from the merger. Banca IMI should provide
up to EUR295m to finance the dividend distribution.
We are now fine tuning our estimates, lifting 2008-10 EPS by >5%, to
reflect the delayed kick-off of the Libyan contract and improvement in
the domestic telecommunications segment. Given the low visibility, we
excluded both the contribution from the potential acquisition of TSF and
the cash-out for the potential dividend distribution from our estimates.
Overall, our estimates for Sirti remain more bullish than the company's
guidance, as they factor in several international contracts awarded over
the last 18 months, which were not included in the original business
plan approved in December 2005. We expect EBITDA to reach
EUR88m in 2007 (vs. target of EUR85m), EUR85m in 2008 (vs. target of
EUR77m), EUR83m in 2009 (vs. target of EUR79m) and EUR85m in
2010 (vs. target of EUR81m).
Investment Analyst
(39) 02 80 62 83 41
205
www.cheuvreux.com
Free Float
Enterprise value
Daily volume
EUR585m
EUR176m
EUR700m
221.98 m
EUR1.21m
Performances
0.5%
-2.4%
20.4%
12.3%
16.8%
48.7%
Absolute perf.
Relative perf.
2.9
2.9
2.4
2.4
1.9
1.9
1.4
1.4
0.9
0.9
0.4
0.4
01/01
11/01
10/02
08/03
07/04
Price/BCI
05/05
03/06
02/07
01/08
Price
Sector focus
Sector Top Picks
Ferrovial, Hellenic
Technodomiki, Lafarge, Nexity
Least favoured
Shareholders
Sistemi Tecnologici 69.8%, Free Float 30.2%
P/E (x)
EV/EBITDA (x)
2006
2007E
2008E
2009E
19.4
19.6
17.2
17.1
9.9
8.2
8.3
8.0
10.2
2.8
3.7
6.7
Net debt/EBITDA (x)
2.0
1.0
0.8
0.3
Yield (%)
0.0
0.0
0.0
0.0
ROCE (%)
15.5
20.3
19.1
19.1
1.8
1.9
1.8
1.7
23 January 2008
Q
ITALY
Investment case
Q
While we acknowledge the company's strong operating
performance, we fail to see compelling upside on fundamentals at
the current level, therefore we recommend tendering the shares.
Q
PTO price is attractive, we recommend to tender
The mandatory PTO at EUR2.65 per share, will last up to the 8
February. At 8.3x and 8.0x 2008-09EV/EBITDA and 17.2x and 17.1x
2008-09P/E implying a >50% premium vs. comparables, we believe
the valuation is attractive and we recommend tendering the shares.
Following the closing of the PTO, we expect the share price to
decline significantly, due to the absence of speculative appeal.
Q
Q Final ruling on TSF not expected before the PTO closes
While we believe the TSF contract should not trigger a significantly
higher valuation than the PTO price (our fair value would rise to
EUR2.65 per share, in line with PTO), we note that a positive ruling
by the administrative court might trigger a share rebound. In any
case, we believe it is highly unlikely that a final ruling on the TSF
auction will be reached before the PTO closes and visibility on the
final outcome remains very low.
Q TI network upgrade: strong opportunity, but visibility still low
In our view, the planned upgrade of Telecom Italia's network (NGN
project), will be Sirti's biggest growth opportunity in the near future.
However, given the regulatory uncertainties and the back-end
loaded roll-out planned by TI, visibility on the effective size and
timing of the investment remains very low. Even in our best case
scenario, upside still looks limited. In fact, in our most aggressive
scenario, we estimate that TI's NGN roll-out could generate up to
EUR0.37 per share for Sirti, implying a fair value of EUR2.57 per
share, which is still well below the PTO price.
Q
SWOT Analysis
Strengths
Weaknesses
Technological
Effective
know-how
Heavy exposure to telecom
investment cycle

cost management
Extensive
territorial presence in
Italy
Overly dependent on a single
client (Telecom Italia)

Heavily taxed
Opportunities
Threats
Upgrade
of Telecom Italia fixed

of Italian railway

network
Upgrade
Rising competition in the Italian
market
system
Disruptive technological
innovation in the telecom sector
Development

of operations in
the Middle-East and North Africa
Further price reduction by
Telecom Italia
Potential
reduction of tax rate
following recent tax reform
206
www.cheuvreux.com
Valuation
Since the shareholder reshuffle, which triggered
the launch of a mandatory PTO, we have moved
our valuation from a fundamental-based
valuation to a PTO-driven valuation. As a result,
our current target price of EUR2.65 per share is
aligned with the mandatory PTO price.
We estimate a fair value of EUR2.2 per share,
based on a DCF model, which factors in a
WACC of 7.4% and a perpetual growth rate of
2.3%. Our valuation yields an EV of EUR573m,
with equity of EUR490m, after taking into
account the net debt of EUR82m expected at
the end of 2007. The valuation includes the
value of the 5% stake still held in Retelit and the
tax liabilities at the end of 2006 (EUR65m).
The stock is currently trading at 8.3x and 8.0x on
2008-2009EV/EBITDA multiple, implying a >50%
premium vs. the median of its European
comparables.
Q
Company profile
Sirti is the leader in the engineering and
construction of telecommunication networks in
Italy. It was a listed subsidiary of Telecom Italia
(TI) until the end of 2000, when it sold its 48%
stake.
Fixed line network projects represent 55% of
Sirti's total revenues (EUR723m in 2006). Its
other main business lines are: mobile
telecommunication networks (9% of sales),
network management systems (9% of sales) and
railway systems (20% of sales). Sirti's main
client, TI accounts for ~45% of its total
revenues.
Over the last few years, Sirti has reduced its
international presence, in order to focus on the
Italian (>85% of sales) and Spanish markets.
Recently, Sirti re-launched its international
operations in order to focus on several major
projects in the Middle East and Africa.
Euraleo (50%-50% joint venture between Banca
Leonardo and Eurazeo) and Capitloquattro
(controlled by 21 Partners SGR) recently
acquired 100% of STH which controls 69.77%
of Sirti SpA. The previous controlling
shareholders (Clessidra, Investindustrial, Stella
Jones, Techint) kept a minority stake in the new
controlling vehicle (HIIT). The new shareholders
signed a shareholding pact, which cedes control
to Euraleo and Capitoloquattro.
23 January 2008
ITALY
Sirti
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
207
2002
2003
2004
2004
2005
2006
2007E
2008E
2009E
759.2
-16.5%
(233.3)
(445.4)
80.5
-12.2%
(33.6)
46.9
-14.6%
0.0
0.0
0.0
46.9
(14.5)
0.0
(2.1)
(21.2)
(2.0)
0.0
0.0
7.0
0.0
0.0
7.0
0.0
1.2
8.2
39.0%
658.3
-13.3%
(204.1)
(380.3)
73.9
-8.2%
(10.2)
63.7
35.7%
0.0
0.0
0.0
63.7
(5.2)
0.0
(10.4)
(25.8)
(2.4)
0.0
0.0
19.8
0.0
0.0
19.8
0.0
5.7
25.5
NS
606.0
-7.9%
192.4
(743.8)
54.7
-26.0%
(8.8)
45.9
-28.0%
0.0
0.0
1.9
47.7
(11.9)
0.0
(2.5)
(24.9)
0.0
0.0
0.0
8.5
0.0
0.0
8.5
0.0
0.6
9.1
-64.4%
607.9
0.3%
200.3
(762.0)
46.1
682.3
12.3%
206.8
(829.5)
59.6
29.5%
(9.2)
50.4
27.0%
0.0
0.0
1.7
52.1
(7.2)
0.1
0.0
(23.6)
0.0
0.9
0.0
20.6
0.0
(9.2)
11.4
0.0
0.0
11.4
-21.2%
723.5
6.0%
215.5
(871.3)
67.7
13.4%
(9.4)
58.3
15.6%
0.0
0.0
0.8
59.0
(8.0)
(0.4)
0.0
(27.4)
0.0
(1.1)
0.0
24.4
0.0
0.1
24.5
0.0
0.0
24.5
115.5%
782.4
8.1%
215.5
(910.0)
87.9
29.9%
(9.3)
78.6
34.8%
0.0
0.0
0.0
78.6
(9.8)
0.0
0.0
(34.4)
0.0
0.0
0.0
34.4
0.0
0.1
34.5
0.0
(4.8)
29.7
21.3%
817.7
4.5%
229.5
(962.6)
84.6
-3.7%
(9.4)
75.3
-4.2%
0.0
0.0
0.0
75.3
(7.4)
0.0
0.0
(33.9)
0.0
0.0
0.0
33.9
0.0
0.1
34.0
0.0
0.0
34.0
14.6%
779.4
-4.7%
235.2
(932.0)
82.6
-2.4%
(9.2)
73.4
-2.5%
0.0
0.0
0.0
73.4
(5.1)
0.0
0.0
(34.1)
0.0
0.0
0.0
34.1
0.0
0.1
34.2
0.0
0.0
34.2
0.6%
10.6
-64.2%
96.3
(18.7)
0.0
88.2
(61.5)
0.0
41.0
(110.0)
0.0
20.8
(21.6)
39.0
NS
(0.1)
(7.3)
0.0
31.6
(11.6)
0.0
25.1
(0.0)
0.0
0.0
45.1
21.2
-45.7%
(27.3)
(5.8)
0.0
(11.9)
20.1
0.0
0.0
(0.0)
2.1
11.3
21.5
21.2
(27.3)
(5.8)
0.0
(11.9)
20.1
0.0
0.0
(0.0)
2.1
11.3
21.5
37.5
77.3%
(20.9)
(8.1)
0.0
8.6
6.6
0.0
0.0
(44.4)
0.0
6.6
(22.7)
32.3
-13.9%
23.8
(8.0)
0.0
48.1
3.7
0.0
0.0
(223.2)
187.2
(19.2)
(3.4)
43.7
35.3%
(19.5)
(7.8)
0.0
16.4
31.8
0.0
0.0
0.0
0.0
0.0
48.2
43.3
-0.9%
(11.0)
(10.6)
0.0
21.7
0.0
0.0
0.0
0.0
0.0
0.0
21.7
43.4
0.1%
5.6
(10.1)
0.0
38.9
0.0
0.0
0.0
0.0
0.0
0.0
38.9
201.6
0.0
61.4
0.0
(10.4)
NS
252.6
0.0
64.5
16.9
0.0
0.0
171.2
22.6
252.6
221.6
0.0
62.0
0.0
(54.9)
NS
228.8
0.0
14.9
13.1
0.0
0.0
200.8
30.5
228.8
232.0
0.0
60.0
33.8
(77.0)
NS
248.7
0.0
2.6
6.8
35.8
0.0
203.5
33.6
248.7
244.4
0.0
54.0
29.3
(77.1)
NS
250.5
0.0
2.2
7.3
35.4
0.0
205.7
33.8
250.5
114.1
73.2
58.5
31.4
131.3
70.1
408.4
123.8
16.9
8.8
35.4
0.0
223.5
32.8
408.5
175.9
0.1
64.4
31.3
134.7
76.5
406.3
125.9
13.8
10.6
29.6
0.0
226.4
31.3
406.3
210.3
0.0
54.8
33.8
86.5
41.1
385.5
125.9
12.0
11.0
(2.2)
0.0
238.9
30.5
385.5
244.3
(0.0)
52.0
30.3
64.8
26.5
391.4
125.9
11.4
12.7
(2.2)
0.0
243.6
29.8
391.4
278.5
(0.1)
49.4
28.8
26.0
9.3
382.6
125.9
10.9
14.2
(2.2)
0.0
233.9
30.0
382.6
www.cheuvreux.com
(6.4)
39.7
0.0
0.0
6.7
46.4
0.5
(7.1)
0.0
(25.4)
0.0
0.0
0.0
14.4
0.0
0.0
14.4
0.0
0.0
14.4
23 January 2008
ITALY
Sirti
FY to 31/12 (Eur)
2002
2003
2004
2004
2005
2006
2007E
2008E
2009E
EPS before goodwill
% Change
EPS, reported
% Change
0.04
37.0%
0.03
-56.8%
0.12
NS
0.09
181.3%
0.04
-64.7%
0.04
-57.8%
0.07
0.05
-21.5%
0.05
-21.5%
0.11
115.7%
0.11
115.7%
0.13
21.8%
0.16
40.9%
0.15
14.2%
0.15
-1.3%
0.15
0.7%
0.15
0.7%
Goodwill per share
Dividend per share
Cash flow per share
% Change
0.00
0.00
0.05
-64.4%
0.9
0.00
0.00
0.18
NS
1.0
0.00
0.43
0.10
-46.3%
0.6
0.00
0.43
0.10
0.7
0.00
0.20
0.17
77.9%
0.3
0.00
0.00
0.15
-13.6%
0.8
0.00
0.00
0.20
34.9%
0.9
0.00
0.00
0.20
-1.0%
1.1
0.00
0.00
0.20
0.0%
1.3
220.000
220.000
0.000
220.000
220.000
0.000
221.980
221.980
0.000
221.980
221.980
0.000
221.980
221.980
0.000
221.980
221.980
0.000
221.980
221.980
0.000
221.980
221.980
0.000
221.980
221.980
0.000
0.61
1.26
0.43
0.66
1.07
1.25
0.51
0.71
1.21
1.33
1.02
1.17
1.21
1.33
1.02
1.17
1.58
1.66
1.16
1.36
2.14
2.38
1.37
1.71
2.62
2.84
2.11
2.54
2.63
2.64
2.63
2.63
2.63
-
211.1
263.1
368.5
345.3
420.7
403.7
420.7
397.6
506.2
1 108.2
474.1
672.2
582.5
722.6
584.7
700.4
584.7
658.9
16.4
16.4
12.6
41.6
0.7
1.0
0.0
9.2
9.2
6.0
8.6
1.1
1.5
0.0
29.6
29.6
12.7
NS
2.0
1.9
35.6
18.6
18.6
12.7
NS
1.8
1.8
35.6
30.9
30.9
9.4
0.9
5.0
3.0
12.6
19.4
19.4
14.7
10.2
2.7
1.8
0.0
19.6
19.6
13.3
2.8
2.8
1.9
0.0
17.2
17.2
13.5
3.7
2.4
1.8
0.0
17.1
17.1
13.5
6.7
2.1
1.7
0.0
3.3
5.6
0.35
10.4
4.7
5.4
0.52
7.8
7.4
8.8
0.67
16.7
8.6
10.0
0.65
18.9
18.6
22.0
1.62
17.0
9.9
11.5
0.9
18.7
8.2
9.2
0.9
14.9
8.3
9.3
0.9
14.9
8.0
9.0
0.8
14.4
5.6
NS
10.6
6.2
0.9
3.0
NS
0.0
14.2
NS
11.2
9.7
3.0
2.9
NS
0.0
4.6
NS
9.0
7.6
1.4
2.8
NS
1129.6
NS
NS
7.6
6.5
2.4
2.8
NS
662.9
8.3
3.5
8.7
7.4
3.0
1.8
70.1
391.2
8.5
4.2
9.4
8.1
3.4
1.9
76.5
0.0
9.0
2.0
11.2
10.0
4.4
2.0
41.1
0.0
11.4
1.5
10.4
9.2
4.1
2.1
26.5
0.0
16.1
0.6
10.6
9.4
4.4
2.0
9.3
0.0
18.6
18.6
3.5
4.2
27.8
27.8
9.4
12.2
21.5
5.5
3.7
4.0
18.5
6.7
6.1
6.1
13.5
6.4
10.5
10.5
15.5
7.1
14.9
14.9
20.3
10.1
17.8
15.2
19.1
9.6
14.9
14.9
19.1
9.5
13.1
13.1
Latest price
High
Low
Average price
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
208
www.cheuvreux.com
0.07
23 January 2008
ITALY
AUTO COMPONENTS
ITALIAN SMALLER COMPANIES REVIEW
Rating
2/Outperform
Sogefi
Price (21/01/2008)
Good visibility on H1-08
Stock data
Q
EUR4.14
Reuters: SGFI.MI Bloomberg: SGFI IM
Recent developments – Sharp sales acceleration in Q3-07
After a weak H1-07 (sales up 1.7%), Sogefi reported a sharp
acceleration in Q3-07, with revenues up 10%, benefiting in from healthy
European car market trends (+1.8% in the quarter) and the recovery of
the French carmakers (~25% of its turnover). These factors raised
suspension sales (+14.3% in Q3-07) well above our expectations, while
the filter division benefited from the heavy weight of Brazil, which was
up by 6.3%. Despite rising raw material prices, Sogefi was able to lift its
operating margins slightly, particularly at the suspension division,
sustained by higher selling prices. Cash flow was strong in Q3-07 with
net debt declining to EUR103m (vs. EUR122m at Jun-07). Despite the
failure of the tentative acquisition of Dayco Europe (a large car
component company, with >EUR800m sales), Sogefi continued to
pursue geographic expansion, with the launch of filters in the US (new
contract with Ford from 2009 and 2010 target at USD60m), a new JV in
India for filters (from 2008, while suspensions should follow in 2010),
and a new JV for suspensions in South Korea. It also announced it
would double its production capacity in Brazil for suspensions and
torsion bars from spring 2008.
Q
+64.1% EUR6.8 (7.7)
Outlook – Positive trend in H1-08
After a sales boom in Q3-07 (+9.9%, with sharp acceleration particularly
in suspensions), the healthy trend is expected to continue in Q4-07, but
at a slower pace (we estimate +4%). Sogefi is also expected to perform
well in the first half of 2008, mainly driven by Germany (which should
recover after reporting weak sales in 2007), France (which should
benefit from tax incentives) and Brazil (we estimate 15% growth)
offsetting the expected slowdown in Italy (partially mitigated by the
renewal of the tax incentives), Spain and the UK. Moreover, we should
see the initial impact of the new JV in South Korea (to be finalised at the
end of March), which could add EUR20m of revenues (~2% of
consolidated turnover). The US, which performed poorly in 2007, has
now reached the breakeven point and Paccar could represent an
attractive new opportunity for Sogefi, as it has asked the company to
open a new logistics center to coordinate the supply process. Overall,
Sogefi does not seem concerned about a potential recession in the US
or Europe, due to its sound order backlog and the fact that a weaker
scenario would also reduce raw material prices, thus lifting margins. As
a result, we simply fine tuned our estimates (-1% at the EPS level)
anticipating 4% revenue growth this year with a flat 10.7% margin. Over
the longer term, our estimates, excluding any external growth, point to a
revenue CAGR of 4.6% until 2010, with a >10% operating margin and
an EPS CAGR of ~5%.
Free Float
Enterprise value
Daily volume
Performances
-24.0% -36.2% -32.5%
-15.0% -23.7% -16.6%
Absolute perf.
Relative perf.
7.4
7.4
6.4
6.4
5.4
5.4
4.4
4.4
3.4
3.4
2.4
2.4
1.4
01/01
1.4
11/01
10/02
08/03
Investment Analyst
(39) 02 80 62 83 30
209
www.cheuvreux.com
07/04
Price/BCI
05/05
04/06
02/07
01/08
Price
Sector focus
Sector Top Picks
Least favoured
Continental, Daimler, Renault
Shareholders
Cir 58.3%, Free Float 28.3%, Bestinver Gestioni
5.0%, Germano Giovanni 2.7%, Caam Sgr 2.1%,
Toqueville Finance 2.0%, Treasury Shares 1.5%
P/E (x)
EV/EBITDA (x)
2006
2007E
2008E
2009E
12.2
11.1
7.8
7.3
6.7
5.6
4.1
3.8
10.0
6.9
8.8
9.7
Net debt/EBITDA (x)
1.0
0.7
0.5
0.4
Yield (%)
3.4
4.2
6.0
6.3
ROCE (%)
16.2
18.2
18.6
19.2
1.7
1.5
1.2
1.2
Marco CRISTOFORI
EUR479m
EUR135m
EUR620m
115.605 m
EUR0.80m
23 January 2008
Q
ITALY
Investment case
Q
Good visibility on H1-08 trend
In Q4-07, revenues exceeded Sogefi's expectations, while the recent
order intake should help ensure a positive H1-08. Therefore, visibility
looks good for 2008, when organic growth should reach 4%.
Q
Resilient profitability in adverse market conditions
Sogefi boasts a leading market position, along with an extensive
client base and geographical presence, which should shield it from a
sharp eventual market slowdown. The company therefore represents
a safe harbour in the stormy automotive market. In a worst case
scenario (5% car market downturn in Europe) we estimate ~EUR5m
of lower net profit vs. our current forecast, or -8%.
Q
Q No pressure on margins
Sogefi expects flat raw material costs this year which could drive up
the margin even in a tough market environment, thanks to
restructuring (3 plants to be closed) and procurement from low cost
countries.
Q Acquisition and/or extra dividend
A strong catalyst for the share would be the long-awaited new
acquisition. External growth would not only allow it to develop its
core businesses while completing the product range, but would also
releverage the company. Clearly, current market conditions offer
lower multiples and less competition, paving the way for an
aggressive acquisition campaign. We also do not rule out an extra
dividend this year, which could reach EUR90m (or EUR0.8 per
share).
Q Attractive multples on both peers and historical
After last month's sharp slowdown, Sogefi's multiples are at the
lowest level of the past 10 years: it is trading at >20% discount to
peers despite its resilience, high visibility and higher FCF yield (8.8%
vs. 5%).
Q
SWOT Analysis
Strengths
Weaknesses

Leading position (both filter
and suspension)

Broad
client base reduced the
price pressure from customers
The
Outstanding
Very
Continuous price pressure
from carmakers
US activities are
performing below expectations
track record in
integrating companies
Strong
low financial leverage
(gearing at ~30%
operating cash flow
Opportunities
Threats
Potential extraordinary
dividend

High raw material costs
(mostly laminated steel and
plastic)

New JVs to penetrate Asiatic
markets (China, India and South
Korea)
New acquisitions, even in
a third component segment
High market demand from
Mercosur countries

Weak
performances of some
major clients (Renault and Ford)
Potential
slowdown of the
European car market
Exchange
210
ratio impact
www.cheuvreux.com
Valuation
Net target price at EUR6.8 (from EUR7.7)
In our view, the recent share price decline (-24%
in one month), represents an attractive buying
opportunity from a valuation standpoint: 1)
Sogefi's multiples are still well below the
European automotive supplier average (i.e. 2008
P/E at 7.8x vs. 10.0x, EV/EBITDA at 4.1x vs.
4.9x); 2) the share is trading at a >20% discount
to its historical multiples; 3) our new target price
offers >50% upside.
We reduced our DCF-based target price to
EUR6.8 (from EUR7.7 previously), due mainly to
the higher beta (from 1.2 to 1.3) to reflect
uncertainties in the European car market, which
lifted WACC to 8.2% vs. 7.1% before. At this
price, Sogefi would trade broadly in line with
other car component players.
Our valuation does not factor in the potential
upside stemming from a significant acquisition,
which could create value by reducing the cost of
capital (~EUR300m investment would raise the
gearing to 120%, thus reducing WACC to 6.9%,
lifting our DCF valuation by ~EUR1.5 per share)
potential synergies with the current business
and a better balanced product portfolio.
Q
Company profile
Sogefi is a medium-size auto supplier (>EUR1bn
revenues expected in 2007), which is active in
two businesses: car filters (~52% of total sales,
fifth in the world) and suspension components
(~48%, third in the world). It supplies all of the
largest carmakers (PSA is the most important
client) with ~64% of revenues in OE. Core
markets are France (~26% of sales) and the rest
of Europe (~59%), while outside Europe, only
Brazil is significant (~12% of sales).
Sogefi's profitability levels are outstanding
(~10% operating margin in suspensions and
>10% in filters), thanks to its leading market
position and flexible production processes. After
having reduced net debt to ~EUR100m in Sept07, Sogefi is now focusing on both organic and
external growth. It may also enter a new
component segment.
Sogefi is 58.3%-owned by CIR, a listed holding
company which is mainly active in the media
sector.
23 January 2008
ITALY
Sogefi
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
211
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
678.7
0.7%
(172.6)
(406.8)
99.3
-9.5%
(36.8)
62.5
-6.6%
(4.8)
0.0
0.0
57.7
(16.2)
0.0
(9.3)
(14.7)
0.0
0.0
4.8
17.5
0.0
(1.4)
16.1
0.0
5.1
21.1
-19.6%
905.6
33.4%
(232.1)
(544.6)
128.9
29.7%
(46.5)
82.4
31.8%
(4.8)
0.0
0.0
77.6
(15.1)
0.0
(11.0)
(25.9)
0.0
0.0
5.1
25.5
0.0
(2.0)
23.6
0.0
5.5
28.7
35.9%
902.4
-0.4%
(224.7)
(548.5)
129.2
0.2%
(45.8)
83.4
1.2%
(4.8)
0.0
0.0
78.6
(10.8)
0.0
(13.4)
(23.7)
0.0
0.0
5.7
30.7
0.0
(2.3)
28.5
0.0
7.6
35.2
22.4%
966.1
7.1%
(215.1)
(636.1)
114.9
-11.0%
(45.1)
69.8
-16.2%
(4.8)
0.0
26.5
91.5
(12.3)
0.0
0.0
(21.9)
0.0
0.0
0.0
32.5
0.0
(2.5)
30.0
0.0
13.7
48.6
38.2%
1 023.4
5.9%
(214.2)
(682.3)
126.9
10.4%
(45.9)
81.0
15.9%
0.0
0.0
24.7
105.6
(11.5)
0.0
0.0
(21.2)
0.0
0.0
0.0
45.9
0.0
(1.2)
44.7
0.0
8.6
53.3
9.7%
1 018.6
-0.5%
(213.8)
(676.3)
128.5
1.3%
(45.0)
83.5
3.1%
0.0
0.0
23.1
106.6
(10.2)
0.0
0.0
(21.5)
0.0
0.0
0.0
53.4
0.0
(2.6)
50.8
0.0
3.7
54.5
2.3%
1 060.5
4.1%
(219.1)
(698.3)
143.1
11.3%
(47.8)
95.2
14.1%
0.0
0.0
18.0
113.2
(8.6)
0.0
0.0
(30.3)
0.0
0.0
0.0
56.3
0.0
(3.5)
52.8
0.0
3.9
56.7
4.1%
1 102.8
4.0%
(224.8)
(726.8)
151.2
5.7%
(51.2)
100.0
5.0%
0.0
0.0
18.2
118.3
(5.2)
0.0
0.0
(33.2)
0.0
0.0
0.0
61.6
0.0
(3.9)
57.8
0.0
3.9
61.7
8.7%
1 155.1
4.7%
(230.6)
(763.7)
160.7
6.3%
(54.2)
106.6
6.5%
0.0
0.0
18.0
124.5
(4.9)
0.0
0.0
(35.6)
0.0
0.0
0.0
66.1
0.0
(4.2)
61.8
0.0
3.9
65.7
6.6%
59.1
-12.9%
75.7
(48.9)
0.0
85.9
(33.7)
0.0
0.0
(13.4)
2.3
52.5
93.6
77.1
30.5%
25.4
(46.2)
0.0
56.4
1.2
0.0
0.0
(13.5)
0.0
(10.6)
33.5
82.2
6.6%
0.8
(56.0)
0.0
27.0
1.0
0.0
0.0
(14.1)
3.1
10.9
27.8
77.6
-5.5%
5.2
(57.4)
0.0
25.4
1.4
0.0
0.0
(15.8)
2.6
(27.1)
(13.5)
91.8
18.2%
3.9
(44.4)
0.0
51.4
0.0
0.0
0.0
(18.9)
2.4
2.4
37.2
98.4
7.2%
13.4
(41.2)
0.0
70.6
0.0
0.0
0.0
(20.5)
2.6
(12.4)
40.4
104.2
5.9%
1.9
(60.0)
0.0
46.1
0.0
0.0
0.0
(22.6)
0.0
5.0
28.5
112.8
8.3%
(3.4)
(65.0)
0.0
44.5
0.0
0.0
0.0
(26.4)
0.0
0.0
18.1
120.3
6.6%
(10.8)
(60.0)
0.0
49.4
0.0
0.0
0.0
(28.9)
0.0
0.0
20.5
209.3
10.3
0.0
90.9
274.9
125.2
585.4
110.0
18.6
275.8
19.4
0.0
161.7
23.8
585.4
187.9
12.5
0.0
77.9
241.5
120.5
519.7
96.4
19.3
252.5
15.4
0.0
136.2
15.0
519.7
198.2
14.4
0.0
80.4
213.7
100.5
506.6
86.3
26.7
245.0
13.2
0.0
135.4
15.0
506.6
210.3
14.2
0.0
97.4
204.2
90.9
526.1
85.0
42.4
258.3
10.2
0.0
130.2
13.5
526.1
246.9
14.4
36.4
69.5
167.0
63.9
534.2
90.7
53.5
259.9
3.8
0.0
126.3
12.3
534.2
279.6
16.1
32.0
60.9
126.6
42.8
515.2
90.7
58.9
251.9
0.9
0.0
113.0
11.1
515.2
306.1
17.6
33.0
68.3
98.1
30.3
523.1
90.7
58.9
261.4
1.1
0.0
111.0
10.5
523.1
335.0
19.3
33.9
72.0
80.0
22.6
540.2
90.7
58.9
275.2
1.1
0.0
114.4
10.4
540.2
366.5
21.1
35.0
74.9
59.4
15.3
556.9
90.7
58.9
281.0
1.1
0.0
125.2
10.8
556.9
www.cheuvreux.com
23 January 2008
ITALY
Sogefi
FY to 31/12 (Eur)
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
EPS before goodwill
% Change
EPS, reported
% Change
0.19
-20.5%
0.15
-26.7%
0.26
36.1%
0.22
46.6%
0.32
22.0%
0.26
20.3%
0.44
36.0%
0.27
3.8%
0.48
8.4%
0.40
46.9%
0.48
1.5%
0.45
12.8%
0.50
2.7%
0.46
2.7%
0.53
7.9%
0.50
8.5%
0.56
5.6%
0.53
6.0%
Goodwill per share
Dividend per share
Cash flow per share
% Change
0.00
0.12
0.54
-13.8%
1.8
(0.00)
0.13
0.71
30.6%
1.6
(0.01)
0.15
0.75
6.2%
1.7
0.04
0.16
0.70
-7.0%
1.7
0.00
0.18
0.82
16.9%
2.0
0.00
0.20
0.87
6.4%
2.3
0.00
0.23
0.91
4.5%
2.4
0.00
0.25
0.98
7.4%
2.6
0.00
0.26
1.03
5.6%
2.9
108.796
108.796
1.625
108.796
108.796
1.695
109.179
109.179
1.695
110.877
110.877
1.695
112.188
112.188
1.695
113.128
113.128
1.695
114.605
114.605
1.695
115.605
115.605
1.695
116.605
116.605
1.695
2.05
2.87
1.52
2.36
2.07
2.40
1.72
2.07
2.73
2.90
1.96
2.33
3.59
3.72
2.44
3.13
4.63
5.14
3.52
4.36
5.88
6.27
4.55
5.46
5.51
7.59
5.31
6.54
4.14
5.59
4.07
4.75
4.14
-
222.5
508.3
225.2
481.7
298.1
533.4
398.4
629.5
518.9
752.5
666.7
863.7
629.8
797.2
479.0
620.5
483.1
605.3
10.5
10.5
3.8
36.8
1.1
0.9
6.1
7.8
7.8
2.9
23.5
1.3
1.0
6.3
8.3
8.5
3.6
8.4
1.6
1.1
5.3
9.1
8.2
5.1
6.0
2.1
1.2
4.5
9.7
9.7
5.7
9.4
2.3
1.4
3.8
12.2
12.2
6.8
10.0
2.6
1.7
3.4
11.1
11.1
6.1
6.9
2.3
1.5
4.2
7.8
7.8
4.2
8.8
1.6
1.2
6.0
7.3
7.3
4.0
9.7
1.4
1.2
6.3
5.1
8.1
0.75
7.3
3.7
5.8
0.53
5.5
4.1
6.4
0.59
5.8
5.5
9.0
0.65
7.1
5.9
9.3
0.74
7.2
6.7
10.3
0.8
7.8
5.6
8.4
0.8
6.9
4.1
6.2
0.6
5.1
3.8
5.7
0.5
4.7
6.1
4.7
14.6
9.2
2.6
1.2
125.2
83.9
8.5
3.1
14.2
9.1
2.8
1.8
120.5
60.0
12.0
2.6
14.3
9.2
3.4
1.8
100.5
55.6
9.3
2.6
11.9
7.2
3.4
1.9
90.9
59.0
11.0
1.8
12.4
7.9
4.5
1.9
63.9
44.0
12.6
1.3
12.6
8.2
5.2
2.0
42.8
44.5
16.7
0.9
13.5
9.0
5.3
2.0
30.3
49.9
NS
0.7
13.7
9.1
5.6
2.0
22.6
50.0
NS
0.5
13.9
9.2
5.7
2.1
15.3
49.0
11.0
6.0
8.0
10.6
16.3
8.1
13.4
16.7
16.9
9.5
15.5
20.0
13.5
8.1
15.4
23.2
15.3
10.4
19.9
24.2
16.2
11.6
20.0
21.6
18.2
11.9
18.9
20.4
18.6
12.1
18.9
20.3
19.2
12.5
18.4
19.7
Latest price
High
Low
Average price
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
212
www.cheuvreux.com
23 January 2008
ITALY
BROADCASTING & CABLE TV
Rating
4/Sell
Telecom Italia Media
Break-even target to be postponed again?
Q
Recent developments – 9M-07 results in line
9M-07 results were broadly in line with expectations, sustained by the
strong growth of advertising collection at La7 (+18% y-o-y) and the
kick-off of new contracts for the resale of football rights (EUR24m in
9M-07 vs. EUR4.2m in 9M-06). Revenues reached EUR178m, up 30%
vs. last year, with the free-to-air unit up 14%, the Digital Terrestrial TV
(DTT) unit up to EUR36m from EUR15m in 9M-06 and the multimedia
unit up 34% y-o-y. EBITDA came in at –EUR38m, improving by 47% vs.
last year (-EUR71m), thanks to rising efficiencies at the DTT unit and a
higher contribution from advertising collection and the B-to-B resale
agreement for football rights. Net profit came in at -EUR66m and net
debt rose to EUR188m vs. EUR128m at the end of 2006. Q3-07 results
confirmed the trends cited above, with the advertising collection of La7
and the B-to-B agreement driving growth at the consolidated level.
-5.9% EUR0.16
Price (21/01/2008)
EUR0.17
Reuters: TCM.MI Bloomberg: TME IM
Stock data
Free Float
Enterprise value
Daily volume
EUR568m
EUR174m
EUR897m
3350.34 m
EUR0.77m
Performances
-27.7% -36.8% -52.5%
-19.2% -24.4% -41.3%
Absolute perf.
Relative perf.
0.8
0.8
0.7
0.7
Outlook – We expect EBITDA breakeven to be delayed again
0.6
0.6
Although these results were in line with expectations, TI Media's
outlook worsened during the year. During the conference call to
announce Q3-07 results, the CEO admitted that the target presented
last March for 2009 EBITDA>0 will not be reached, unless the TV reform
is approved. Our impression is that management is less confident that
the 2007-09 business plan targets (revenue 06-09CAGR at 25% and
2009EBITDA>0) can be reached, as they included just a small
contribution from the potential TV reform. Now, we are fine tuning our
2007 estimates (3% EPS reduction) and reducing our 2008-10
forecasts to factor in lower advertising collection growth (2007-10
CAGR of 8.6% vs. previous 10.6%) and our sharply lower revenue
estimates for the pay-per-view (PPV) cards (2007-10 CAGR of 5.5% vs.
previous >20%), partly offset by higher revenues from the B-to-B resale
agreement for football rights. At the EBITDA level, we are postponing
breakeven from 2009 to 2011, based on higher operating costs at the
Free-to-Air (FTA) unit and a slower path to profitability for the DTT unit.
All in all: 1) at the revenue level, we are leaving our 2008 estimates
unchanged, but we are cutting our 2009 forecast by 3% and 2010
forecast by 7%; 2) at the EBITDA level, we are slashing 2008 EBITDA
by 60% and postponing breakeven until 2011; 3) at the EPS level, we
are cutting our 2008 estimate by 20%, 2009 by 40% and halving our
2010 estimate.
0.5
0.5
0.4
0.4
0.3
0.3
Q
Investment Analyst
(39) 02 80 62 83 41
213
www.cheuvreux.com
0.2
01/01
0.2
11/01
10/02
08/03
07/04
Price/BCI
05/05
04/06
02/07
01/08
Price
Sector focus
Vivendi
Telegraaf
Sector Top Picks
Least favoured
Shareholders
Telecom Italia 69.2%, Free Float 30.8%
2006
2007E
2008E
2009E
P/E (x)
NS
NS
NS
NS
EV/EBITDA (x)
NS
NS
NS
NS
NS
NS
NS
NS
Net debt/EBITDA (x)
(1.5)
(3.8)
(5.8)
(11.9)
Yield (%)
0.0
0.0
0.0
0.0
ROCE (%)
NS
NS
NS
NS
2.6
2.0
1.7
1.9
23 January 2008
Q
ITALY
Investment case
Q
4/Sell reiterated
We reiterate our 4/Sell rating and set a new target price of EUR0.16
per share. We are cutting sharply our 2008-10 estimates and expect
the company to postpone its forecast for EBITDA breakeven at the
next investor meeting (expected in Q1-08). Based on the current
industrial trends and regulatory scenario, we feel a takeover bid
would be unlikely.
Q
Slashing 2008-10 EBITDA
We are slashing our 2008-10 EBITDA estimates to account for lower
advertising collection growth and declining efficiencies at the FTA
unit. In particular, we are postponing our forecast for EBITDA
breakeven from 2009 to 2010.
Q
Q We expect the guidance to be reduced
Based on management's statement that it will be hard to achieve
business plan targets, we expect the 2007-09 guidance to be
reduced at TI Media's traditional meeting with the financial
community expected in Q1-08.
Takeover scenario not credible in the short term
Given the current regulatory scenario and the weak advertising
outlook for FTA TV broadcasters, we feel a takeover bid is unlikely.
Although TI Media is probably the only way to enter the Italian
analogue TV market, we believe it would not be strategically
advantageous for a buyer to gain a foothold in the Italian market, on
a platform that will be phased out in 5 years (switchover to DTT in
2012) and that the new DTT platform would be a better way to enter
the TV market as the major players are legally required to reserve
40% of national DTT transmission capacity for newcomers.
Q
Q
SWOT Analysis
Strengths
Weaknesses
Good positioning in the youth
segment with MTV

Marginal position in a very
concentrated market

Well-defined audience target

Early mover in DTT
Heavy investment in content
required to increase audience

Poor track record
Opportunities
Threats

Development of PPV model for
new content

DTT take-up might boost PPV
and broadcasting revenues

Potential content synergies
with Telecom Italia

Audience fragmentation
triggered by DTT switch-over
Competition from L'Espresso
in the youth segment
Weakening of TV advertising
market

Stronger pricing power after
the TV reform

Valuation
We are trimming our target price to EUR0.16
(from EUR0.24) to factor in our reduced
estimates for the 2008-2010 period (with
EBITDA breakeven postponed until 2011) and
the more modest long term prospects for both
the FTA and PPV units (less growth from B-to-B
agreement).
Our valuation is supported by a valuation of
company core assets: frequencies and network
infrastructures. On the base of the recent
transaction multiples, we are valuing analogue
frequencies and network infrustructure at
EUR550m. On top of that, we are adding the
value of Elefante TV acquisition (EUR115.5m)
and the investments company has realized in the
last years to buy additional frequencies and
extend network coverage (~EUR105m). All in all
we obtained an EV of EUR768m. After taking
into account the EUR226m of Net Debt
expected at the end of 2007, we obtained a
value per share of EUR0.16.
The stock trades at a very high premium (>50%)
to the European peer median.
Q
Company profile
Telecom Italia Media is Telecom Italia's TV
broadcasting subsidiary (69.2%), founded via a
spin-off in August 2003. Over the last two years,
it has sold both its internet business (to
parentco, TI) and the office product division (to
private equity funds). It is now focused on the TV
broadcasting business (La 7, 51% of MTV Italia
and a DTT venture), in which it has reinvested
part of the cash-in from disposals to step up its
presence in the Digital Terrestrial TV market
(DTT). It also operates a small news business,
the 100%-owned press agency, APCom.
Telecom Italia Media operates two free-to-air
channels in simulcast (La 7, with ~3% audience
share, and MTV, focused on the youth segment),
one FTA channel on the DTT platform (QOOB)
and five channels on the Pay-per-View (PPV)
digital platform, which mainly offer football
content.
After the extraordinary EUR550m dividend
(EUR0.17 per share, paid in April 06) and the
EUR150m share buyback (in 2005), the
company has rebalanced its financial structure:
net debt reached EUR128m at the end of 2006
vs. EUR436m in net cash at the end of 2005. At
the end of 2007, we expect revenues to reach
EUR270m, with an EBITDA loss of –EUR60m
and a net loss of –EUR96m.
214
www.cheuvreux.com
23 January 2008
ITALY
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
215
2002
2003
2004
2004
2005
2006
2007E
2008E
2009E
577.4
594.6
3.0%
(118.0)
(465.0)
11.6
143.0%
(83.5)
(71.9)
35.9%
(31.1)
0.0
0.0
(103.0)
0.0
0.0
65.6
(57.1)
0.0
0.0
0.0
(94.5)
0.0
2.6
(91.9)
0.0
39.4
(21.4)
81.2%
294.5
-50.5%
78.9
(429.6)
(56.2)
NS
(33.0)
(89.2)
-24.1%
0.0
0.0
(0.6)
(89.8)
(282.3)
0.0
0.0
136.0
0.0
10.8
0.0
(226.3)
0.0
0.0
(226.3)
0.0
226.3
0.0
187.7
-36.3%
69.4
(321.4)
(64.3)
190.1
1.3%
75.4
(356.9)
(91.4)
-42.3%
(37.3)
(128.8)
-39.0%
0.0
0.0
(1.0)
(129.8)
3.6
0.0
0.0
37.1
0.0
892.5
0.0
803.3
0.0
(2.4)
800.9
0.0
0.0
800.9
NS
220.7
16.1%
75.7
(379.3)
(82.9)
9.3%
(55.2)
(138.1)
-7.3%
0.0
0.0
0.7
(137.4)
(1.3)
0.0
0.0
39.9
0.0
0.0
0.0
(98.8)
0.0
(2.2)
(101.0)
0.0
0.0
(101.0)
NS
282.9
28.2%
77.8
(421.0)
(60.3)
27.3%
(62.2)
(122.5)
11.3%
0.0
0.0
0.0
(122.5)
(7.6)
0.0
0.0
39.0
0.0
(2.0)
0.0
(93.1)
0.0
(2.5)
(95.6)
0.0
0.0
(95.6)
5.4%
320.5
13.3%
80.1
(456.9)
(56.3)
6.6%
(64.2)
(120.5)
1.6%
0.0
0.0
0.0
(120.5)
(17.8)
0.0
0.0
41.5
0.0
0.0
0.0
(96.8)
0.0
(2.7)
(99.5)
0.0
0.0
(99.5)
-4.1%
354.8
10.7%
82.7
(470.9)
(33.5)
40.5%
(59.9)
(93.3)
22.6%
0.0
0.0
0.0
(93.3)
(20.2)
0.0
0.0
34.0
0.0
0.0
0.0
(79.4)
0.0
(2.8)
(82.3)
0.0
0.0
(82.3)
17.3%
(209.5)
NS
(153.6)
(41.7)
(29.2)
(404.8)
(7.2)
0.0
29.1
0.0
121.4
33.5
(228.0)
(346.1)
(61.9)
(46.6)
0.0
(169.9)
(65.8)
0.0
63.2
(1.9)
0.0
211.6
37.2
20.1
132.7%
62.2
(84.7)
0.0
(2.4)
30.0
0.0
0.0
0.0
0.0
(6.2)
21.4
(124.0)
(39.5)
0.0
(509.6)
(8.9)
0.0
0.0
0.0
120.1
0.0
(398.4)
(87.9)
74.6%
45.9
(64.6)
0.0
(106.6)
821.5
(147.7)
0.0
0.0
0.0
1.8
569.0
(84.2)
4.2%
39.3
(84.8)
0.0
(129.7)
65.8
0.0
1.8
(552.7)
0.0
50.5
(564.3)
(67.9)
19.3%
10.1
(75.4)
0.0
(133.3)
0.0
0.0
0.0
0.0
0.0
35.1
(98.2)
(74.1)
-9.0%
(2.5)
(66.1)
0.0
(142.6)
0.0
0.0
0.0
0.0
0.0
39.9
(102.8)
(53.6)
27.6%
(2.4)
(50.7)
0.0
(106.6)
0.0
0.0
0.0
0.0
0.0
39.0
(67.6)
541.1
6.7
0.0
69.0
(37.2)
NS
579.6
0.0
383.1
62.5
24.3
0.0
109.6
19.0
579.5
459.6
14.6
0.0
55.2
(58.7)
NS
470.7
181.7
157.0
58.7
25.8
0.0
47.4
8.0
470.6
348.6
15.0
0.0
0.0
170.7
46.9
534.3
170.7
77.1
40.8
154.9
0.0
90.7
30.8
534.3
348.6
15.0
14.1
11.1
132.9
36.6
521.7
151.2
52.2
38.5
123.6
0.0
156.1
83.2
521.7
1 008.1
12.7
13.0
2.0
(436.1)
NS
599.7
185.5
192.4
52.9
79.8
0.0
89.1
46.8
599.7
358.3
12.9
14.7
0.8
128.2
34.5
514.9
185.5
211.1
63.5
4.7
0.0
50.1
22.7
514.9
262.8
15.4
15.1
1.0
226.4
81.4
520.7
185.5
198.0
89.7
4.7
0.0
42.7
15.1
520.7
163.3
18.0
15.6
1.1
329.2
181.5
527.2
185.5
181.3
108.3
4.7
0.0
47.4
14.8
527.2
81.1
20.9
16.1
1.3
396.8
389.3
516.0
185.5
160.4
120.0
4.7
0.0
45.4
12.8
516.0
(116.2)
(488.2)
(27.0)
(78.8)
(112.2)
(47.6)
0.0
0.0
(153.4)
0.3
0.0
(21.4)
(9.9)
0.0
0.0
0.0
(190.9)
0.0
42.0
(148.9)
0.0
(12.8)
(114.1)
(61.4)
www.cheuvreux.com
(28.4)
(92.7)
0.0
0.0
(0.6)
(93.3)
(281.8)
0.0
0.0
138.2
0.0
11.6
0.0
(225.3)
0.0
(1.0)
(226.3)
0.0
0.0
(226.3)
23 January 2008
ITALY
FY to 31/12 (Eur)
2002
2003
2004
2004
2005
2006
2007E
2008E
2009E
(0.04)
(0.01)
80.6%
(0.03)
39.6%
0.00
(0.06)
(0.06)
NS
(0.06)
0.23
NS
0.23
NS
(0.03)
NS
(0.03)
NS
(0.03)
3.3%
(0.03)
3.3%
(0.03)
-3.4%
(0.03)
-3.4%
(0.03)
16.7%
(0.03)
16.7%
0.00
0.00
(0.06)
NS
0.1
0.00
0.00
(0.09)
0.2
0.01
0.00
0.01
130.0%
0.1
0.1
0.00
0.16
(0.03)
73.1%
0.1
0.00
0.00
(0.03)
0.0%
0.1
0.00
0.00
(0.02)
20.0%
0.1
0.00
0.00
(0.02)
-10.0%
0.0
0.00
0.00
(0.02)
27.3%
0.0
3129.800
3129.800
0.000
3129.800
3129.800
0.000
3703.600
3703.600
369.000
3703.600
3703.600
0.000
3344.240
3523.920
0.000
3350.340
3347.290
0.000
3350.340
3350.340
0.000
3350.340
3350.340
0.000
3350.340
3350.340
0.000
0.28
0.41
0.23
0.32
0.39
0.70
0.25
0.51
0.33
0.42
0.25
0.33
0.33
0.42
0.25
0.33
0.45
0.59
0.32
0.43
0.36
0.55
0.32
0.39
0.24
0.37
0.23
0.30
0.17
0.24
0.17
0.20
0.17
-
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
861.9
823.0
1 230.6
1 171.9
1 212.6
1 292.1
1 229.0
1 370.5
1 488.3
1 069.7
1 199.0
1 315.4
793.4
1 014.5
567.6
897.2
567.6
960.8
NS
NS
NS
NS
1.6
1.5
0.0
NS
NS
61.4
NS
2.7
2.6
0.0
NS
NS
NS
NS
3.5
3.4
0.0
NS
NS
NS
NS
3.5
3.4
0.0
2.0
2.0
NS
NS
3.3
2.1
36.7
NS
NS
NS
NS
3.4
2.6
0.0
NS
NS
NS
NS
3.0
2.0
0.0
NS
NS
NS
NS
3.5
1.7
0.0
NS
NS
NS
NS
7.0
1.9
0.0
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
NS
NS
1.43
(13.4)
NS
NS
1.97
58.3
NS
NS
4.39
16.9
NS
NS
7.30
34.8
NS
NS
5.63
(11.5)
NS
NS
6.0
(16.3)
NS
NS
3.6
(17.8)
NS
NS
2.8
(17.9)
NS
NS
2.7
(35.8)
NS
0.6
NS
NS
NS
1.0
NS
0.0
NS
NS
2.0
NS
NS
1.3
NS
0.0
NS
NS
NS
NS
NS
0.8
46.9
0.0
NS
NS
NS
NS
NS
0.5
36.6
0.0
NS
5.0
NS
NS
NS
0.4
NS
72.2
NS
NS
NS
NS
NS
0.4
34.5
0.0
NS
NS
NS
NS
NS
0.5
81.4
0.0
NS
NS
NS
NS
NS
0.6
181.5
0.0
NS
NS
NS
NS
NS
0.7
389.3
0.0
NS
NS
NS
NS
NS
8.6
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
EPS before goodwill
% Change
EPS, reported
% Change
(0.05)
Goodwill per share
Dividend per share
Cash flow per share
% Change
0.02
0.00
(0.02)
Latest price
High
Low
Average price
216
www.cheuvreux.com
23 January 2008
ITALY
ISPS & ALTERNATIVE CARRIERS
Rating
3/Underperform
Tiscali
Price (21/01/2008)
Weak fundamentals, refinancing risk
Stock data
Q
EUR1.36
Reuters: TIS.MI Bloomberg: TIS IM
Recent developments – Q3-07 results in line, weak UK
At the group level, Q3-07 results were broadly in line with our
expectations, with weaker results in the UK and a stronger performance
in Italy. Broadband clients totalled 2,578k, of which 518k in Italy and
2,060k in UK, including Pipex. Net additions were poor during the
quarter at just 18k in Italy and 9k in UK. Revenues rose by 31% y-o-y,
with Italy up 37% and UK up 25% (8% excl. Pipex). The top line was
boosted by access (+9%) and voice revenues (+80%). EBITDA was up
57% y-o-y, with Italy improving sharply vs. last year (+82%) and the UK
up 46% y-o-y (+19% excluding Pipex), sustained by top line growth
and client migration to the proprietary network. Net income was at EUR31m vs. our –EUR27m forecast, due to greater D&A. In December
2007, Management & Capitali (a private equity fund), subscribed a
EUR60m convertible bond exchangeable for Tiscali shares, with a 5year maturity and a 6.75% interest rate (to be paid at maturity or before,
in the event of conversion). The conversion price was set at EUR2.75
(we estimate, EUR2.466 ex-right) and the bond cannot be converted in
the first year. If it is not converted, Management & Capitali will receive
up to 10% of Tiscali's capital at maturity, to reimburse principal and
interest.
Q
+7.0% EUR1.45
Outlook – Rights issue underway – New BP not convincing
The EUR150m rights issue announced in July 2007, is currently
underway. Tiscali is issuing 150m shares at EUR1 (6 new shares for 17
existing shares), for a total inflow of EUR150m. Pre-emption rights can
be exercised between 14 January and 1 February and will trade from 14
January to 25 January. Proceeds will be used to reimburse the
EUR150m outstanding bridge to equity loan. Banca IMI and JP Morgan
have underwritten up to 75% of the issue, as Mr. Soru subscribed prorata to his stake (25%). As a result, Standard & Poors assigned a B
rating to Tiscali, which is expected to become B+ upon full subscription
of the rights issue.
In November 2007, Tiscali updated its business plan. The new targets
exceeded our forecasts, but the quality was poor, due to the weakening
of the outlook for the UK unit (60% of group EBITDA), which was
recovered at the group level by very aggressive expectations for the
Italian unit, which we consider unfeasible. The weakening of the UK
outlook is also confirmed by the FY-07 EBITDA forecast, now at
EUR93m, implying a 18% shortfall vs. the initial target (EUR113m). Our
estimates remain below the plan, to factor in the weak UK outlook and
our much more conservative stance on the development of the Italian
operations. We expect revenues to grow by 19% in 2008-10 (vs. 22%
guidance) to EUR931m in 2008 and EUR1,560m in 2010. As for
margins, we expect EBITDA to grow by 36% in 2008-10 (vs. 42%
guidance) to EUR220m in 2008 and EUR342m in 2010, with profitability
rising from 14.5% in 2007 to 18.5% in 2010, thanks to the steady
migration of the client base to the company's proprietary network and
the sale of additional services to current single-play customers.
Investment Analyst
(39) 02 80 62 83 41
217
www.cheuvreux.com
Free Float
Enterprise value
Daily volume
EUR663m
EUR444m
EUR1 131m
574.21 m
EUR16.44m
Performances
-32.0% -41.7% -49.4%
-24.0% -30.2% -37.4%
Absolute perf.
Relative perf.
21.3
21.3
16.3
16.3
11.3
11.3
6.3
6.3
1.3
01/01
1.3
11/01
10/02
08/03
07/04
Price/BCI
05/05
04/06
02/07
01/08
Price
Sector focus
Deutsche Telekom, France
Telecom, Telenor
Fastweb, Telecom Italia
Sector Top Picks
Least favoured
Shareholders
Free Float 67.0%, Soru, Renato 25.0%, Sandoz
Foundation 8.0%
P/E (x)
EV/EBITDA (x)
2006
2007E
2008E
2009E
NS
NS
NS
11.1
19.1
10.5
5.1
3.9
NS
NS
NS
6.5
Net debt/EBITDA (x)
5.1
5.0
2.6
1.9
Yield (%)
0.0
0.0
0.0
0.0
ROCE (%)
NS
NS
4.7
14.0
2.1
1.7
1.3
1.1
23 January 2008
Q
ITALY
Investment case
Q
We reiterate our 3/Underperform rating as we expect further
downside pressure before the rights issue is finalised, plus weak
quarterly results ahead, coupled with the refinancing risk tied to the
EUR400m bridge loan to capital markets, currently outstanding.
Q
Q Rights issue undergoing, overhang risk ahead?
The rights issue has a heavily dilutive impact (26%) on minorities that
do not subscribe. In addition, the eventual unexercised rights (up to
20% of the capital, as Mr. Soru subscribed his 25% pro-quota),
might represent a significant overhang risk, as banks underwriting
the rights issue might decide to place the shares underwritten on the
market, following the settlement of the rights issue (no lock-up
period stipulated by banks).
Q Weak quarters ahead: UK slowdown, marketing push in Italy
We expect weak earnings momentum ahead. On the back of the FY
guidance, we foresee very weak momentum in the UK unit in Q4-07.
We believe revenues should be down by ~10% (excl. Pipex), with
EBITDA growth in the 0-5% range l-f-l, due partly to Tiscali's efforts
to integrate the Pipex operations. In addition, Tiscali's efforts, to
boost growth in the Italian market should lead to significant margin
erosion until H1-08.
Stretched financial structure – Higher cost of capital ahead
Despite the EUR150m rights issue, Tiscali's financial structure
remains quite stretched. While we do not foresee significant cash
generation before 2009, the current D/E ratio (at market values)
stands at >130% and we expect the Debt/EBITDA ratio to remain at
2.6x at the end of 2008. In this context and given the turmoil in
capital markets, we believe the company will probably fail to
refinance the outstanding EUR400m bridge loan, financed by IntesaSanpaolo and JP Morgan. As a result, the current spread paid on the
financing package will likely rise by 200bp, bringing the cost of debt
up to Euribor+500bp.
Q
Q
SWOT Analysis
Strengths
Weaknesses
Strong
presence in the UK
Lack
Strong
brand awareness
Lower

of critical mass in Italy
margins than
competitors
Limited financial flexibility
Good ULL coverage in UK
Lower
ULL coverage in Italy vs.
competitors
Opportunities

Synergies
Threats
from
Pipex
integration

Up-selling of ADSL service to
dial-up clients
Better
Tightening
of price competition
218
We recently reduced our target price to EUR1.45
per share (EUR1.6 CUM) vs. EUR2.4 previously,
to factor in the value dilution stemming from the
on-going rights issue (adj. factor at 0.8967), the
higher risk premium and increased cost of debt
expected in 2008.
Our valuation derives from a SOP model
covering the company's three main business
units (UK, Italy, TiNet), the cash-in from the
latest disposals and the NPV of tax assets. For
net debt, we took into account the balance
expected at the end of 2007 (EUR675m).
The EV of the three operating units was based
on a DCF model, based on an average WACC of
11.3% and a perpetual growth rate of 0.5%. The
terminal value was calculated as a perpetuity of
2013 FCF and implies EV/EBITDA exit multiples
of 4.7x and 4x for the UK and Italian units
respectively, vs. the median 2007 EV/EBITDA of
6.3x for European alternative carriers.
The stock is currently trading at a not significant
discount on 2008-2009 EV/EBITDA multiples vs.
the median for European peers.
Q
Company profile
Tiscali is an alternative telecom operator,
offering a wide range of services: internet
access (ADSL; dial-up), voice (CPS), VOIP,
wholesale line rental, etc. The company is
present in the UK and Italy with a market share
of ~14% (including Pipex) and ~5%,
respectively, in the broadband market.
Over the last 3 years Tiscali dramatically
reduced its international footprint, selling off
operations in more than 7 countries in order to
reimburse its outstanding bonds (~EUR400m)
and make the business model more sustainable.
In the past 12 months, Tiscali made two
acquisitions in the UK to strengthen its
competitive position: 100% of VNL (August 2006
in exchange for an 11.5% stake in Tiscali UK);
and the broadband and voice division of Pipex
(in July 2007, for EUR274m).
Pending lawsuit for World
Online IPO
Residual
competitive environment
Valuation
claims of former VNL
shareholders (up to 8.5% stake
in Tiscali UK)
www.cheuvreux.com
At the end of 2007, we expect revenues to reach
EUR931m, EBITDA net of provisions of
EUR135m and a net loss of EUR83m.
Tiscali is controlled by Mr. Soru (the founder),
with a 25.5% stake. The Sandoz Foundation has
an 8% stake and free float accounts for ~66.5%
of the capital.
23 January 2008
ITALY
Tiscali
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
219
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
633.3
NS
(152.6)
(653.5)
(172.8)
NS
(95.4)
(268.2)
-52.9%
(402.3)
0.0
0.0
(670.5)
13.8
0.0
(1 037.0)
(1.1)
1.0
0.0
0.0
(1 693.9)
0.0
27.1
(1 666.8)
0.0
1 037.7
(226.8)
-27.4%
748.4
18.2%
(140.0)
(607.6)
0.8
100.5%
(184.2)
(183.4)
31.6%
(216.7)
0.0
0.0
(400.1)
10.1
0.0
(119.1)
(2.9)
(81.1)
0.0
0.0
(593.1)
0.0
(0.4)
(593.5)
0.0
119.1
(257.7)
-13.6%
901.0
20.4%
(142.1)
(683.9)
75.0
NS
(231.9)
(156.9)
14.4%
(72.0)
0.0
0.0
(228.9)
(20.6)
0.0
(46.9)
49.6
0.8
0.0
0.0
(245.9)
0.0
3.5
(242.4)
0.0
14.6
(155.8)
39.5%
655.0
-27.3%
(106.0)
(490.0)
59.0
-21.3%
(129.2)
(70.2)
55.3%
0.0
0.0
(50.6)
(120.8)
(37.2)
0.0
0.0
110.6
0.0
(87.5)
2.0
(134.8)
0.0
0.0
(134.8)
0.0
0.0
(136.8)
12.2%
739.0
12.8%
(106.0)
(543.3)
89.7
52.0%
(135.6)
(45.9)
34.6%
0.0
0.0
(28.7)
(74.6)
(28.4)
0.0
0.0
(24.8)
0.0
114.8
0.0
(13.0)
0.0
0.0
(13.0)
0.0
0.0
(13.0)
90.5%
678.0
-8.3%
(78.0)
(516.8)
83.2
-7.2%
(130.1)
(46.9)
-2.1%
0.0
0.0
33.9
(13.0)
(51.7)
(0.9)
0.0
5.9
0.0
(77.0)
0.0
(136.7)
0.0
6.0
(130.7)
0.0
(77.2)
(207.9)
NS
931.0
37.3%
(93.0)
(702.7)
135.3
62.6%
(149.4)
(14.1)
69.9%
0.0
0.0
(79.3)
(93.4)
(67.5)
(25.0)
0.0
0.0
0.0
95.8
0.0
(90.0)
0.0
7.1
(82.9)
0.0
0.0
(82.9)
60.1%
1 270.0
36.4%
(98.0)
(952.1)
219.9
62.5%
(178.1)
41.8
NS
0.0
0.0
0.0
41.8
(55.6)
0.0
0.0
0.0
0.0
0.0
0.0
(13.8)
0.0
(6.3)
(20.1)
0.0
0.0
(20.1)
75.8%
1 420.0
11.8%
(101.0)
(1 036.5)
282.5
28.5%
(149.3)
133.2
NS
0.0
0.0
0.0
133.2
(47.4)
0.0
0.0
0.0
0.0
0.0
0.0
85.8
0.0
(15.7)
70.1
0.0
0.0
70.1
NS
(311.7)
NS
40.4
(285.0)
0.0
(556.3)
(1 028.4)
0.0
0.0
0.0
565.0
95.0
(924.7)
(88.9)
71.5%
(8.3)
(114.1)
0.0
(211.4)
(141.0)
0.0
0.0
0.0
55.4
20.0
(276.9)
55.4
162.3%
4.1
(127.8)
0.0
(68.3)
(99.5)
0.0
0.0
0.0
45.6
(21.0)
(143.2)
81.8
47.7%
(90.4)
(125.5)
0.0
(134.0)
0.0
0.0
349.0
0.0
12.2
5.6
232.8
7.8
-90.5%
(51.6)
(169.2)
0.0
(213.0)
(21.0)
0.0
7.4
0.0
1.8
345.6
120.7
2.2
-71.9%
18.8
(178.8)
0.0
(157.8)
0.0
0.0
0.0
0.0
62.5
22.3
(72.9)
(11.4)
NS
0.0
(203.2)
0.0
(214.6)
(13.1)
0.0
0.0
0.0
0.0
(25.0)
(252.7)
164.3
NS
25.0
(233.7)
0.0
(44.4)
0.0
0.0
0.0
0.0
149.8
0.0
105.4
235.1
43.0%
(8.3)
(183.4)
0.0
43.4
0.0
0.0
0.0
0.0
0.0
0.0
43.4
1 126.3
(18.3)
2.6
103.5
(142.2)
NS
1 071.8
685.1
185.6
386.2
45.6
0.0
(230.6)
(36.4)
1 071.8
616.0
16.3
7.0
53.2
134.9
21.3
827.4
541.0
208.2
287.2
13.2
0.0
(222.3)
(29.7)
827.4
419.2
6.4
15.7
16.5
322.1
75.7
779.8
503.9
203.8
254.8
21.4
0.0
(204.0)
(22.6)
779.8
313.2
4.0
5.9
38.7
454.1
143.2
815.8
0.0
439.8
177.3
212.4
0.0
(13.7)
(2.1)
815.8
308.8
2.6
6.1
73.4
290.1
93.2
680.9
0.0
477.4
166.0
34.9
0.0
2.7
0.4
680.9
242.8
26.7
6.2
169.5
422.3
156.7
867.5
316.7
218.4
181.2
109.5
0.0
41.8
6.2
867.5
159.9
19.6
7.4
183.7
675.0
375.9
1 045.6
316.7
249.2
204.1
218.4
0.0
57.2
6.1
1 045.6
289.6
25.9
7.8
213.4
569.4
180.4
1 106.1
316.7
293.0
215.9
218.4
0.0
62.3
4.9
1 106.3
371.5
41.6
8.1
224.5
526.0
127.3
1 171.6
316.7
304.3
238.8
218.4
0.0
93.6
6.6
1 171.8
www.cheuvreux.com
23 January 2008
ITALY
Tiscali
FY to 31/12 (Eur)
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
(0.63)
39.4%
(4.65)
NS
(0.71)
-12.3%
(1.64)
64.8%
(0.42)
41.2%
(0.65)
60.3%
(0.35)
16.7%
(0.34)
47.2%
(0.03)
90.5%
(0.03)
90.4%
(0.51)
NS
(0.32)
NS
(0.20)
61.5%
(0.20)
38.7%
(0.04)
79.5%
(0.04)
79.5%
0.12
NS
0.12
NS
1.12
0.00
(0.87)
-96.6%
3.1
0.60
0.00
(0.25)
71.8%
1.7
0.19
0.00
0.15
160.8%
1.1
(0.01)
0.00
0.21
39.6%
0.8
0.00
0.00
0.02
-90.4%
0.8
0.00
0.00
0.01
-75.0%
0.6
0.00
0.00
(0.03)
NS
0.4
0.00
0.00
0.33
NS
0.5
0.00
0.00
0.41
24.3%
0.6
Latest price
High
Low
Average price
358.490
358.490
0.000
362.680
362.680
0.000
372.860
372.860
0.000
393.240
393.240
0.000
396.740
394.990
0.000
424.410
410.580
0.000
424.410
424.410
0.000
574.210
499.310
0.000
574.210
574.210
0.000
10.18
23.10
4.47
11.81
4.27
10.94
3.63
6.89
5.54
7.47
3.41
4.91
2.73
6.09
2.12
3.77
2.67
3.06
2.20
2.62
2.53
2.96
2.15
2.48
2.00
2.88
1.96
2.39
1.36
2.08
1.35
1.66
1.36
-
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
3 649.1
3 509.5
1 547.6
1 689.4
2 066.8
2 404.5
1 075.1
1 507.1
1 060.8
1 327.1
1 072.5
1 593.5
848.8
1 421.8
663.4
1 131.1
663.4
1 088.0
NS
NS
NS
NS
3.2
3.4
0.0
NS
NS
NS
NS
2.5
2.1
0.0
NS
NS
37.3
NS
4.9
3.2
0.0
NS
NS
13.1
NS
3.4
2.5
0.0
NS
NS
NS
NS
3.4
2.1
0.0
NS
NS
NS
NS
4.4
2.1
0.0
NS
NS
NS
NS
5.3
1.7
0.0
NS
NS
4.1
NS
2.7
1.3
0.0
11.1
11.1
3.3
6.5
2.1
1.1
0.0
NS
NS
5.54
(10.8)
NS
NS
2.26
(17.1)
32.1
NS
2.67
31.6
25.5
NS
2.30
16.2
14.8
NS
1.80
45.2
19.1
NS
2.4
25.4
10.5
NS
1.5
25.4
5.1
27.1
0.9
5.1
3.9
8.2
0.8
3.9
12.5
0.5
NS
NS
NS
0.6
NS
0.0
NS
NS
0.1
NS
NS
0.9
21.3
0.0
3.6
5.8
8.3
NS
NS
1.2
75.7
0.0
1.6
5.5
9.0
NS
NS
1.1
143.2
0.0
3.2
NS
12.1
NS
NS
1.1
93.2
0.0
1.6
NS
12.3
NS
NS
0.9
156.7
0.0
2.0
NS
14.5
NS
NS
1.1
375.9
0.0
4.0
3.5
17.3
3.3
NS
1.4
180.4
0.0
6.0
2.2
19.9
9.4
6.0
1.5
127.3
0.0
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
4.7
4.7
NS
NS
14.0
14.0
20.8
20.8
EPS before goodwill
% Change
EPS, reported
% Change
Goodwill per share
Dividend per share
Cash flow per share
% Change
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
220
www.cheuvreux.com
23 January 2008
ITALY
LUXURY GOODS
Rating
2/Outperform
Tod's
Price (21/01/2008)
On track for a strong future
Stock data
EUR35.77
Reuters: TOD.MI Bloomberg: TOD IM
Recent developments – Good sales performances at end
October, but cost issues
Q
Organic growth is the priority, as the group is not planning any
acquisitions. Expansion outside of Europe, the opening of DOS and
diversification into more leather goods products are expected to result
in double-digit sales growth with leverage on margins. The product mix
composnent probably makes the strongest contribution to the expected
expansion of margins. It is also the greatest risk due to strong
competition. At end September sales were up 14.1%, driven by Italy,
shoes and the Hogan brand. At end-October, sales on a same store
basis rose 13.7% (13.5% at end-September) and order books for the
spring summer collection were up 15-20% compared with the previous
year. However, the EBITDA margin dropped 180bp to 22.7% over the
first nine months: this disappointed the market and it is largely due to
the above average growth in shoes, that are more costly to produce as
a sharp increase in sales leads to higher and more expensive
outsourcing. Conversely, growth in sales of high margin leather goods
were below the group's average, leading to a deterioration of the mix.
Q
+67.7% EUR60
Outlook – High investments to seize opportunities
Our estimates of 2007 sales of EUR647m (up 12.9%) and of an EBITDA
margins of 24% are lower than the company's guidance of 25% and in
line with consensus of 24.2%. Looding ahead, we expect sales to grow
10% p.a. and the EBITDA margin to expand by around 50bp p.a. to
25.5% by 2009, hence an increase in EPS of 15% p.a. between 2006
and 2009. Management is aiming for an EBITDA margin of between
25% and 27% by 2009-2010.
The group will invest more than EUR45m in 2007, mainly in its
distribution network, as it seized opportunities for real estate in Italy.
Looking ahead, the investment budget is expected to be close ton
EUR30m p.a., with the aim of opening 15 to 20 new stores and
expanding production capacity in leather goods production. The group
has the means to match its ambitions, as it is expected to enjoy a net
cahs position of EUR61 at the end of December 2007
We believe that the market correction has been excessively severe. The
share is now trading at a low absolute valuation and offers a significant
discount to peers, both on the P/E and EV/EBITA valuations. Our target
price of EUR53 is based on discounting free cash flow at a rate of 10%.
We have recently reduced our price target from EUR60 to EUR53 to
take account of a higher risk premium of the luxury sector as a whole
(as visibility has become lower and currencies weigh again strongly), as
well as on Tod's, which has disappointed with its results over the last
two quarters. At EUR53, Tod's would trade on a 2008E P/E of 19x, or
18% premium to peers and on an EV/EBITA of 10.6x (7% discount to
peers). Tod's shows one of the strongest earnings growth of the luxury
sector, and has a relatively smaller exposure than most peers to the
dollar or the yen.
Françoise LAUVIN
Pierre LAMELIN
Investment Analyst
(33) 1 41 89 73 09
flauvin@cheuvreux.com
Investment Analyst
(33) 1 41 89 73 27
plamelin@cheuvreux.com
221
www.cheuvreux.com
Free Float
Enterprise value
Daily volume
EUR1 088m
EUR331m
EUR1 052m
30.43 m
EUR7.14m
Performances
-25.8% -40.3% -46.3%
-12.6% -20.4% -23.5%
Absolute perf.
Relative perf.
71.0
71.0
61.0
61.0
51.0
51.0
41.0
41.0
31.0
31.0
21.0
21.0
01/01
11/01
10/02
08/03
07/04
Price/MIDEX
05/05
04/06
02/07
01/08
Price
Sector focus
Sector Top Picks
Least favoured
Beiersdorf, LVMH, Swatch
Bulgari, Clarins
Shareholders
Della Valle Family 66.0%, Free Float 30.5%, Lvmh
3.5%
2006
2007E
2008E
2009E
P/E (x)
29.4
19.7
12.8
11.3
EV/EBITDA (x)
13.0
9.2
6.0
5.3
0.9
0.6
5.8
7.3
Net debt/EBITDA (x)
(0.7)
(0.4)
(0.4)
(0.5)
Yield (%)
2.0
3.2
5.0
5.6
ROCE (%)
25.6
25.5
27.4
29.4
4.0
3.0
2.1
1.9
23 January 2008
Q
ITALY
Investment case
Q
A dynamic activity, but margins under pressure
At end-Sept., sales rose 14.1%, driven by Italy, shoes and the
Hogan brand. At end-Oct., sales on a same-store basis rose 13.7%
(13.5% over nine months) and order books for the spring collection
were up 15-20% compared with the previous year. The EBITDA
margin dropped 180bp to 22.7%, which disappointed the market.
Q
The consensus is more cautious than management's target
Management continues to maintain its target of a 25% EBITDA
margin for 2007, which would imply a margin of more than 30% in
Q4 alone, the highest level ever. We expect a stable margin at 24%
and the consensus projects 24.2%. The full-year results report could
therefore harbour good surprises, if the end-of-year sales trend
confirms the strong showing in October.
Q
Q Young brands with strong growth potential
The group has shown very strict financial discipline in its
investments in distribution channels, and the group's footholds in
Asia are soon likely to contribute to earnings. We expect average
EPS growth of 15% p.a. between 2006 and 2009E, despite a certain
degree of caution, with regard to the group's expansion in leather
goods.
Q Mar. Della Valle is purchasing shares that he will sell later
Since September, the Della Valle family –via its holding co.- has
been buying shares on the market, and its stake in Tod's has risen
from 64.3% at the start of '07 to 66% at present. Mr Della Valle has
clearly announced that he intends to sell shares on the market at an
as-yet undetermined date and at a higher price.
Q
SWOT Analysis
Strengths
Weaknesses
High quality products, that are
functional, while rather classic; a
low fashion content, which
reduces the volatility of sales

Lack of flexibility in production,
which has difficulty adjusting to
demand

Sharp earnings volatility from
one quarter to the next

A consistent expansion
strategy that respects the
exclusivity of the brands

The Roger Vivier brand
belongs to the Della Valle family
and is under licence to Tod's
until 2012

A very sound balance sheet,
with cash to finance growth

Strict financial discipline with
regard to store openings

Opportunities
Threats

Still low exposure to markets
outside of Europe

A young network : more than
half of the DOS are less than five
years old

The margin leverage depends
heavily on the success of the
leather goods activity

The strong euro results in
sharp price increases outside of
Europe
Strong operating leverage to
be harnessed

The Della Valle family, which
controls Tod's, is set to sell
shares on the market

222
www.cheuvreux.com
Valuation
The share endured a sharp correction following
the publication of H1 and Q3 results, which were
lower than expected. Since the end of 2006, it
has lost 38%. We expect EBITA up 14% p.a.
and EPS growth of 15% p.a. between 2006 and
2009E.
Tod's is trading at a P/E of 12.8x and an
EV/EBITA of 7x for 2008E. These multiples are at
the low end of the range since its IPO in
November 2000.
The share offers a 17% - 34% discount to peers,
on several criteria. This is not justified, as
earnings growth is above that of peers, and the
group is relatively less exposed than most peers
to the strength of the Euro.
Our DCF approach, based on a discount rate of
10% to reflect a strong risk premium both on the
sector and on Tod's, yields a value per share of
EUR53. At EUR53, Tod's would trade at a 2008E
P/E of 19x and at an EV/EBITA of 10.6x, vs.
sector averages of 16x and 11.3x respectively.
Q
Company profile
The group operates three brands – Tod's, Hogan
and Fay – and one brand under licence (Roger
Vivier), in shoes (62.4% of total sales), as well as
leather goods (23.2%) and ready-to-wear. In
2006, 50% of the group's total sales of
EUR573m were generated through a network of
110 DOS. The group is essentially active in
Europe (74.2% of total sales).
The group's clear and consistent strategy is
focused on organic growth and respects the
exclusive nature of the brands. The three
strategic vectors are extending the territory of
the brands, towards leather goods outside
Europe and expansion of the DOS network.
These strategic vectors also lead to margin
improvement. The EBITDA margin is likely to
widen from 24% in 2007E , according to our
estimates, to 25.5% in 2010. This scenario is in
line with management's mid-term targets. The
product mix component, which is the highest
contributor to margin expansion, also carries the
highest risk.
Results at end-Sept. disappointed at the group
did not manage to improve its margins, despite
very robust sales. We have thus lowered our
estimates and now expect FY 2007 sales of
EUR647m (up 12.9%), and EBITDA margin of
24%, which is lower than management's target
of 25% and EPS of EUR2.42 (up 16.7%).
23 January 2008
ITALY
Tod's
FY to 31/12 (Eur m)
Sales
% Change
Staff costs
Other costs
EBITDA
% Change
Depreciation
EBITA
% Change
EBIT
Net financial items
Tax
Minorities
% Change
Cash Flow Statement
Cash flow
% Change
Change in WCR
Capex
o/w Growth capex
Net cash flow
Disposals
Dividend paid
Capital increase
Other cash flow
Balance Sheet
Minority interests
Pension provisions
Other provisions
Net debt [cash]
Gearing [%]
Capital invested
Goodwill
Intangible assets
Tangible assets
Financial assets
Associates
WCR as a % of sales
Capital employed
223
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
318.5
26.6%
(44.9)
(193.0)
80.6
31.5%
(12.3)
68.3
30.6%
(12.2)
0.0
0.0
56.1
4.1
0.0
(0.7)
(22.2)
0.0
0.0
0.0
37.3
0.0
(0.5)
36.8
0.0
0.0
49.0
58.6%
358.2
12.5%
(51.2)
(215.2)
91.8
13.9%
(16.3)
75.5
10.5%
(12.2)
0.0
0.0
63.3
0.7
0.0
(0.7)
(26.9)
0.0
0.0
0.0
36.3
0.0
(0.4)
35.9
0.0
0.0
48.1
-1.8%
371.4
3.7%
(60.0)
(234.7)
76.7
-16.5%
(17.8)
58.9
-22.0%
(15.2)
0.0
0.0
43.7
3.1
0.0
(0.6)
(20.2)
0.0
0.0
0.0
26.1
0.0
(0.3)
25.8
0.0
0.3
41.3
-14.2%
420.8
13.3%
(67.6)
(264.1)
89.2
16.3%
(21.4)
67.8
15.0%
0.0
(0.3)
0.0
67.4
(0.5)
0.0
(0.0)
(28.2)
(0.0)
0.0
0.0
38.8
0.0
(0.3)
38.5
0.0
0.0
38.5
-6.8%
503.0
19.5%
(74.3)
(316.1)
112.7
26.4%
(22.6)
90.1
33.0%
0.0
0.0
0.0
90.1
1.8
0.0
0.0
(38.0)
0.0
0.0
0.0
53.9
0.0
(0.5)
53.4
0.0
0.0
53.4
38.8%
573.0
13.9%
(80.4)
(355.1)
137.5
22.0%
(23.7)
113.7
26.2%
0.0
0.0
0.0
113.7
(0.6)
0.0
0.0
(46.4)
0.0
0.0
0.0
66.8
0.0
(0.7)
66.1
0.0
0.0
66.1
23.8%
647.0
12.9%
(89.5)
(402.0)
155.5
13.1%
(24.5)
131.0
15.2%
0.0
0.0
0.0
131.0
0.0
0.0
0.0
(52.1)
0.0
0.0
0.0
78.9
0.0
(1.7)
77.2
0.0
0.0
77.2
16.7%
717.0
10.8%
(97.0)
(444.0)
176.0
13.2%
(26.5)
149.5
14.1%
0.0
0.0
0.0
149.5
0.7
0.0
0.0
(59.3)
0.0
0.0
0.0
90.9
0.0
(2.0)
88.9
0.0
0.0
88.9
15.2%
788.0
9.9%
(100.0)
(491.0)
197.0
11.9%
(28.0)
169.0
13.0%
0.0
0.0
0.0
169.0
1.7
0.0
0.0
(67.4)
0.0
0.0
0.0
103.3
0.0
(2.5)
100.8
0.0
0.0
100.8
13.4%
61.3
53.4%
(35.7)
(38.0)
0.0
(12.4)
0.0
0.0
0.0
(3.9)
0.0
9.8
(6.6)
64.4
5.2%
(13.9)
(41.5)
0.0
9.1
0.0
0.0
0.0
(10.6)
0.0
(3.2)
(4.7)
58.7
-8.9%
(15.0)
(46.0)
0.0
(2.3)
0.0
0.0
0.0
(10.6)
0.0
(2.2)
(15.0)
65.3
11.2%
(1.5)
(26.2)
0.0
37.7
(0.5)
0.0
0.5
(10.6)
0.0
(0.6)
26.5
83.7
28.2%
(7.0)
(19.9)
0.0
56.8
(1.5)
0.0
0.0
(12.7)
2.4
0.0
45.1
99.6
19.0%
(52.6)
(29.9)
0.0
17.0
0.0
0.0
1.6
(30.3)
5.1
0.1
(6.4)
103.7
4.1%
(47.8)
(47.0)
0.0
8.9
0.0
0.0
0.0
(38.0)
0.0
0.0
(29.1)
116.4
12.3%
(20.3)
(31.0)
0.0
65.1
0.0
0.0
0.0
(47.2)
0.0
(3.0)
14.9
129.8
11.5%
(20.6)
(28.0)
0.0
81.2
0.0
0.0
0.0
(54.8)
0.0
(3.0)
23.4
368.9
0.5
0.0
12.9
(51.4)
NS
330.9
0.0
218.6
22.7
8.3
0.0
81.3
25.5
330.9
390.6
0.8
0.0
19.0
(46.7)
NS
363.7
0.0
223.5
31.4
13.7
0.0
95.1
26.6
363.7
402.1
2.3
0.0
10.2
(31.7)
NS
382.9
0.0
219.5
49.0
22.6
0.0
91.8
24.7
382.9
432.2
3.2
9.6
0.3
(51.9)
NS
393.4
34.0
149.6
97.3
3.4
0.0
109.1
25.9
393.4
475.5
3.0
10.7
0.5
(97.0)
NS
392.7
30.6
150.6
98.6
0.0
0.0
112.9
22.4
392.7
519.9
3.1
11.8
0.4
(90.6)
NS
444.5
32.0
148.2
102.7
0.0
0.0
161.7
28.2
444.5
559.0
3.0
12.0
1.0
(61.5)
NS
513.6
32.0
182.1
111.9
0.0
0.0
187.6
29.0
513.6
600.7
4.0
14.0
1.0
(74.4)
NS
545.4
32.0
182.1
123.4
0.0
0.0
207.9
29.0
545.4
646.7
5.0
16.0
2.0
(95.8)
NS
574.0
32.0
182.1
131.4
0.0
0.0
228.5
29.0
574.0
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23 January 2008
ITALY
Tod's
FY to 31/12 (Eur)
2001
2002
2003
2004
2005
2006
2007E
2008E
2009E
EPS before goodwill
% Change
EPS, reported
% Change
1.62
58.7%
1.22
96.9%
1.59
-1.9%
1.19
-2.5%
1.36
-14.2%
0.85
-28.2%
1.21
-11.4%
1.27
49.3%
1.68
38.8%
1.77
38.8%
2.08
23.9%
2.18
23.5%
2.43
16.6%
2.54
16.3%
2.79
15.2%
2.92
15.1%
3.17
13.4%
3.31
13.4%
Goodwill per share
Dividend per share
Cash flow per share
% Change
0.40
0.35
2.03
53.4%
11.8
0.40
0.35
2.13
5.2%
12.6
0.50
0.35
1.94
-8.9%
12.9
0.00
0.42
2.05
5.8%
13.9
0.00
1.00
2.63
28.2%
14.7
0.00
1.25
3.13
19.0%
15.9
0.00
1.55
3.26
4.1%
16.8
0.00
1.80
3.66
12.2%
17.9
0.00
2.02
4.08
11.5%
19.2
Latest price
High
Low
Average price
30.250
30.250
0.000
30.250
30.250
0.000
30.250
30.250
0.000
30.250
30.250
0.000
30.250
30.250
0.000
30.320
30.320
0.000
30.430
30.430
0.000
30.430
30.430
0.000
30.430
30.430
0.000
46.00
55.90
35.30
45.49
30.51
58.00
24.62
43.04
34.50
37.48
22.75
29.95
34.96
35.50
25.51
30.36
56.94
59.88
32.35
43.05
61.10
68.62
52.50
61.30
47.83
74.80
45.13
62.35
35.77
48.45
35.22
42.09
35.77
-
Enterprise value
Valuation
P/E
P/E before goodwill
P/CF
P/BV
Yield [%]
1 391.5
1 359.9
924.7
888.3
1 043.6
1 025.1
1 056.6
1 018.6
1 724.6
1 654.1
1 848.3
1 789.1
1 455.5
1 438.1
1 088.5
1 052.6
1 088.5
1 035.7
37.8
28.4
22.7
NS
3.9
4.2
0.8
25.7
19.2
14.3
1.0
2.4
2.5
1.1
40.0
25.3
17.8
NS
2.7
2.8
1.0
28.9
28.9
17.0
3.5
2.5
2.6
1.2
33.9
33.9
21.7
3.3
3.9
4.2
1.8
29.4
29.4
19.5
0.9
3.8
4.0
2.0
19.7
19.7
14.7
0.6
2.8
3.0
3.2
12.8
12.8
9.8
5.8
2.0
2.1
5.0
11.3
11.3
8.8
7.3
1.9
1.9
5.6
16.9
19.9
4.27
23.4
9.7
11.8
2.48
13.8
13.4
17.4
2.76
17.8
11.4
15.0
2.42
15.4
14.7
18.4
3.29
19.8
13.0
15.7
3.1
17.7
9.2
11.0
2.2
13.6
6.0
7.0
1.5
8.9
5.3
6.1
1.3
7.8
NS
NS
25.3
21.4
11.7
1.0
NS
28.8
NS
NS
25.6
21.1
10.1
1.0
NS
29.5
NS
NS
20.6
15.9
7.0
1.0
NS
41.1
NS
NS
21.2
16.1
9.2
1.1
NS
33.0
NS
NS
22.4
17.9
10.7
1.3
NS
56.7
NS
NS
24.0
19.9
11.7
1.3
NS
57.3
NS
NS
24.0
20.2
12.2
1.3
NS
61.1
NS
NS
24.5
20.9
12.7
1.3
NS
61.6
NS
NS
25.0
21.4
13.1
1.4
NS
61.0
21.2
21.2
10.5
10.5
21.6
21.6
9.6
9.6
16.4
9.2
6.6
6.7
17.4
10.1
9.3
9.3
22.9
13.4
11.9
11.9
25.6
15.1
13.6
13.6
25.5
15.4
14.8
14.8
27.4
16.6
16.0
16.0
29.4
17.8
16.9
16.9
EV/EBITDA, restated
EV/EBITA, restated
EV/Sales
Financial Ratios
Interest cover
Net debt/Cash flow
EBITDA margin [%]
EBITA margin [%]
Net margin [%]
Gearing [%]
Payout ratio [%]
Return [%]
Pre-tax RoCE
RoCE after tax
ROE [%]
224
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23 January 2008
ITALY
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225
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ITALY
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ITALY
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