MASTER IN FINANCE FIELMANN AG COMPANY REPORT EUROPEAN EYEWEAR RETAIL 4 JANUARY 2021 STUDENT: JAN-PHILIP JANSEN [email protected] Fashionable Glasses for Everyone Recommendation: BUY Fielmann Strengthens its Position in the Industry Price Target FY21: 79.01 € Price (as of 3-Jan-21) 66.45 € Our recommendation is to BUY Fielmann AG considering a Bloomberg: FIE target price of €79.01 as of 31.12.2021 reflected in an upside potential of 20.69% (thereof €1.19 expected dividend) to the current 52-week range (€) 41.90-76.25 Market Cap (€m) 5,581 share price of €66.45. Outstanding Shares (m) 84,000 Source: Thomson Reuters EIKON Market trends like an ever aging population, digitalization and industry consolidation set a solid foundation for further sustainable growth. We think Fielmann will be able to re-accelerate top-line growth back to 5%, achieved by a consistent realization of Fielmann’s corporate strategy “Vision 2025”. High Liquidity and strong Free Cash Flows provide sufficient funding for the renovation and internationalization Source: Yahoo Finance strategy. (Values in € millions) 2019 2020E 2021F The COVID-19 pandemic is currently the biggest threat for Revenues 1,524 1,385 1,556 the eyewear industry but at the same time a huge opportunity for EBITDA 410 328 382 EBIT 281 178 244 Fielmann due to its strong financial position. In contrast to other Capex 185 155 215 analysts, we expect Fielmann to be one of the post-crisis winners. FCF 126 118 68 Source: Annual Report 2019, Analyst Estimation We believe that the broad market might underestimate future profitabilty arising from further market consolidation. Company Description Fielmann AG is a manufacturer, distributor and retailer of visual aids and other optical products, as well as hearing aids and accessories. The family business was founded in 1972 and is headquartered in Hamburg, Germany. As of September 2020, Fielmann operated 783 stores in 14 European countries and employed about 21,000 workers. THIS REPORT WAS PREPARED EXCLUSIVELY FOR ACADEMIC PURPOSES BY JAN-PHILIP JANSEN, A MASTER IN FINANCE STUDENT OF THE NOVA SCHOOL OF BUSINESS AND ECONOMICS. THE REPORT WAS SUPERVISED BY A NOVA SBE FACULTY MEMBER, ACTING IN A MERE ACADEMIC CAPACITY, WHO REVIEWED THE VALUATION METHODOLOGY AND THE FINANCIAL MODEL. (PLEASE REFER TO THE DISCLOSURES AND DISCLAIMERS AT END OF THE DOCUMENT) Page 1/41 FIELMANN AG COMPANY REPORT Table of Contents COMPANY OVERVIEW ...................................................................................................................................... 3 COMPANY DESCRIPTION .................................................................................................................................................. 3 FIELMANN SHARES .......................................................................................................................................................... 4 INDUSTRY OVERVIEW ...................................................................................................................................... 5 MACROECONOMIC ANALYSIS .......................................................................................................................................... 5 MARKET ANALYSIS ........................................................................................................................................................... 6 Germany ........................................................................................................................................................... 7 Austria ............................................................................................................................................................... 8 Switzerland ....................................................................................................................................................... 9 COMPETETIVE LANDSCAPE............................................................................................................................................ 10 MARKET TRENDS ........................................................................................................................................................... 12 Digitalisation (e-commerce & digital health) ............................................................................................. 12 Increasing demand ....................................................................................................................................... 13 Consolidation ................................................................................................................................................. 14 FIELMANN IN FISCAL YEAR 2020 .................................................................................................................. 15 KEY RISKS ........................................................................................................................................................ 16 VALUE DRIVERS AND FORECASTS .............................................................................................................. 17 STORE GROWTH ............................................................................................................................................................ 18 Germany ......................................................................................................................................................... 19 Austria ............................................................................................................................................................. 19 Switzerland ..................................................................................................................................................... 19 Rest of Europe (Growth and Expansion markets) ................................................................................... 20 UNITS SOLD PER STORE................................................................................................................................................. 20 PRICE ............................................................................................................................................................................. 21 OPERATING PERFORMANCE AND MARGIN DEVELOPMENT .......................................................................................... 21 CAPITAL EXPENDITURES................................................................................................................................................ 23 WORKING CAPITAL MANAGEMENT ................................................................................................................................ 24 CAPITAL STRUCTURE AND DIVIDEND STRATEGY .......................................................................................................... 25 VALUATION ...................................................................................................................................................... 26 THE WEIGHTED AVERAGE COST OF CAPITAL (“WACC”)............................................................................................... 27 The cost of equity .......................................................................................................................................... 27 The cost of debt ............................................................................................................................................. 28 SENSITIVITY ANALYSIS................................................................................................................................................... 28 RELATIVE VALUATION – TRADING COMPARABLES ....................................................................................................... 29 SCENARIO ANALYSIS INDUSTRY CONSOLIDATION ........................................................................................................ 31 RECOMMENDATION ........................................................................................................................................ 32 PAGE 2/41 FIELMANN AG COMPANY REPORT Company Overview Company Description Fielmann AG is a manufacturer, distributor and retailer of visual aids and other optical products, as well as hearing aids and accessories with more than 25 million people wearing Fielmann glasses. The listed family business was founded in 1972 and is headquartered in Hamburg, Germany. As of September 2020, Fielmann operated 783 stores in 14 European countries and employed about 21,000 workers. As a designer, manufacturer, and wholesaler, Fielmann covers the entire value chain of the eyewear industry. While the family business solely started with the sale of glasses, additional revenue is generated nowadays by the sale of contact lenses and hearing-aids. However, glasses constitute the largest revenue stream in 2019 (83% of consolidated net sales) while contact lenses (8%), sunglasses (3%) and hearing-aids (5%) supplement the product offering. One major reason for Fielmann’s success are the affordable prices in line with Figure 1: Fielmann Revenue Split fashionable design being offered to its customers. This can be ensured due to 2019 highly productive stores, the purchasing of large quantities, the inhouse production, and an international supply chain. In their production and logistic facility in Rathenow, millions of lenses as well as glasses and frames are produced every year. The manufactured products can