Made in Switzerland + A compendium of Helvea’s stock universe
June 2012
IMPORTANT DISCLOSURES: PLEASE READ INFORMATION ON THE LAST PAGE OF THIS REPORT This report is published by Helvea SA, rue de Jargonnant 5, 1207 Geneva, Switzerland. Copyright © 2012 Helvea SA and/or its affi liates. All rights reserved Introduction
This is the nineteenth issue of Made in Switzerland, and we have taken the opportunity of this latest update to introduce several improvements to the product. These are partly reflected in the slight modification made to the title: our flagship overview product will henceforward be called Made in Switzerland +, a comprehensive compendium of Helvea’s stock universe.
Helvea remains highly committed to in-depth coverage of the Swiss local stock market. However, our expertise and competences range far beyond this. In many sectors, Swiss companies play dominant roles, and we believe our strong local corporate access, in combination with our in-depth industry knowledge, gives us credibility in covering non-Swiss names where there is a close link with Swiss market leaders. This broader approach is designed to add value for investors by providing a more generalised view of the major drivers in a specific sector or industry. The most notable examples of this are the cement, food & beverages, medical technology, biotechnology, TIC (testing, inspection and certification) and pharmaceutical industries. Although we have already been covering non-Swiss companies for some years, we now consider the timing is right to incorporate them into our compendium to supply a more rounded and comprehensive picture of our coverage universe to readers.
At the same time, we have also opened up this compendium to include large-cap Swiss stocks. We have also sharpened our sector comments by providing an overview of our most and least preferred stocks in each sector. You can find a summary of these choices in a table on page 5, which can be considered as the ‘Best Ideas' in our coverage universe.
Made in Switzerland + comprises 116 companies, of which 89 or 77% are Swiss companies, reflecting our strong Swiss roots. Thirty stocks (26%) in our universe are large caps and 86 (74%) mid-/small-cap shares, demonstrating that the latter category of shares remains our core focus. We continue to believe that Swiss mid and small caps are particularly interesting as, unlike major countries where mid- and small-cap stocks tend to have a more local character, Swiss second-tier companies have always been obliged to look for their business success outside Switzerland in world markets. So, although small, many of these companies have a distinctly international profile, often dominating their niches and often highly focused. Last, but not least, despite their international profile, many have retained the character of a ‘shareholder-entrepreneur’ company, characterised quite frequently by strong financial and operational commitment from a major shareholder who, more often than not, will have connections to the founding family.
In addition to providing interesting investment ideas, Made in Switzerland + is designed to be a useful and practical working instrument in the sense that we aim to provide not only as comprehensive company data as possible, but also stock- and sector-specific statistics, such as performance statistics and valuation overviews. Since we last published Made in Switzerland in January 2012, we have initiated coverage on DKSH, Intertek, Tecan and William Demant. The newly enlarged Made in Switzerland + compendium will be published twice a year.
STOP PRESS
At the time when Made in Switzerland was being finalised for printing, the following significant developments occurred:
■ Bioinvent – downgrade to NEUTRAL (5th June 2012). Following unsatisfactory Phase II trial outcomes for the company's long-acting coagulant TB-402, we reduced our price target to SEK13 (from SEK29) and downgraded our recommendation to NEUTRAL (previously at BUY).
■ Kaba – upgrade to ACCUMULATE (6th June 2012). After a meeting with Kaba's CFO Beat Malacarne, we have increased our sales estimates (mainly because of currency effects, our organic growth assumptions were slightly trimmed). There were (marginal) rises in our profit forecasts. In recent weeks, the share price had been dragged lower by the overall market weakness, coming back to levels that we consider attractive. We therefore upgraded the stock to ACCUMULATE with an unchanged price target of CHF390.
All prices, ratios, and recommendations are based on the closing prices of 31 May 2012
Contents
Page
KEY RECOMMENDATIONS 4
BEST & WORST PERFORMANCES 6
SECTORS BANKS 7
BIOTECHNOLOGY & CHEMICALS 8 CONSTRUCTION & BUILDING MATERIALS 9
CONSUMER DISCRETIONARY 10
FOOD & BEVERAGE 11
INFORMATION TECHNOLOGY 12
INSURANCE 13
MACHINERY & ENGINEERING 14
MEDICAL TECHNOLOGY 15 MISCELLANEOUS INDUSTRIALS 16
PHARMACEUTICALS 17 SERVICES & TRANSPORTATION 18
COMPANY KEY POINTS 19
VALUATION DATA 252
CHANGES OF RECOMMENDATIONS 255
CONSENSUS WATCH 256
PERFORMANCE STATISTICS 259
FORTHCOMING EVENTS 262
LIST OF PUBLICATIONS 264
CONTACTS 270
Key recommendations
KEY BUY & ACCUMULATE RECOMMENDATIONS
Company Rating Sector Analyst ShareRecommended Target Poten- Perf. since (Prices in local currencies) price on at 12M tial reco abs.
ABB BUY Machinery/Engineering SGA 15.2 03.04.2012 18.7 23.0 51% -18% Ablynx BUY Biotechnology/Chemicals OZI 2.7 09.09.2009 6.9 10.0 265% -60% Acino BUY Pharmaceuticals ORU 111 16.10.2011 80.0 142 28% 38% Actelion BUY Biotechnology/Chemicals OZI 36.7 08.10.2010 49.3 72.0 96% -26% Addex BUY Biotechnology/Chemicals OZI 8.5 12.10.2010 10.9 18.0 112% -22% Arbonia Forster BUY Construction/Building Mat. PAP 17.0 31.05.2011 33.0 25.0 47% -49% Aryzta ACC Food & Beverage AVA 43.8 27.04.2009 32.5 54.0 23% 35% Basilea BUY Biotechnology/Chemicals OZI 41.3 02.01.2010 64.4 105 155% -36% Bayer ACC Pharmaceuticals KHE 51.1 29.02.2012 55.5 60.0 17% -8% BioInvent BUY Biotechnology/Chemicals OZI 13.7 09.02.2012 17.6 29.0 112% -22% Bobst BUY Machinery/Engineering VGO 25.0 29.03.2012 27.0 35.0 40% -7% Bucher Industries ACC Machinery/Engineering SGA 161 07.02.2011 197 215 34% -18% Bâloise ACC Insurance DBI 59.9 09.05.2012 64.4 76.0 27% -7% Comet Holding AG BUY Miscellaneous Industrials RAM 203 02.04.2012 215 260 28% -5% Danone ACC Food & Beverage AVA 51.9 03.09.2009 37.7 60.0 16% 38% Dufry BUY Consumer Discretionary MHE 110 23.01.2012 101 140 27% 9% Emmi ACC Food & Beverage AVA 181 16.03.2010 136 230 27% 33% Fresenius Med. Care BUY Biotechnology/Chemicals OZI 53.7 24.02.2012 53.8 66.0 23% 0% Galenica BUY Biotechnology/Chemicals OZI 582 04.11.2011 510 720 24% 14% gategroup ACC Services/Transportation AVA 24.4 26.03.2012 33.2 40.0 64% -27% GlaxoSmithKline ACC Pharmaceuticals ORU 1,438 27.04.2011 1,287 1,620 13% 12% Gurit BUY Miscellaneous Industrials RAM 451 27.01.2012 475 620 37% -5% Helvetia ACC Insurance DBI 271 10.04.2012 322 380 40% -16% Holcim BUY Construction/Building Mat. PAP 51.6 03.03.2011 68.5 72.0 40% -25% Implenia BUY Construction/Building Mat. PAP 29.5 16.02.2010 26.7 42.0 42% 11% Kaba ACC Construction/Building Mat. PAP 332 06.06.2012 323 390 18% 3% Komax BUY Machinery/Engineering SGA 78.6 21.05.2012 77.1 110 40% 2% Kudelski ACC Information Technology RAM 7.5 25.05.2012 7.2 9.0 21% 4% Kuoni ACC Consumer Discretionary CBU 282 14.11.2007 528 400 42% -47% MorphoSys BUY Biotechnology/Chemicals OZI 17.0 09.09.2009 16.5 32.0 88% 4% Newron BUY Biotechnology/Chemicals OZI 4.8 07.05.2010 7.9 21.0 336% -39% Novartis BUY Pharmaceuticals KHE 50.5 30.09.2008 58.5 68.0 35% -14% OC Oerlikon ACC Machinery/Engineering RAM 8.1 10.01.2011 5.4 10.6 31% 52% Partners Group ACC Banks TDA 161 07.07.2011 152 200 24% 6% PubliGroupe BUY Consumer Discretionary CBU 143 11.04.2011 140 180 26% 2% Rieter BUY Machinery/Engineering VGO 138 28.10.2011 185 230 67% -25% Sanofi ACC Pharmaceuticals KHE 55.0 02.05.2011 53.9 64.0 16% 2% SCOR ACC Insurance DBI 17.5 13.04.2011 19.3 23.0 31% -9% SGS ACC Services/Transportation CBU 1,751 16.03.2012 1,718 1,880 7% 2% Stada Arzneimittel ACC Pharmaceuticals ORU 23.0 30.03.2012 24.6 29.0 26% -7% Swiss Life Holding BUY Insurance DBI 77.8 02.03.2011 147 130 67% -47% Tecan BUY Medical Technology SGO 63.2 24.02.2012 72.7 86.5 37% -13% Temenos BUY Information Technology SGA 15.6 24.01.2012 15.9 22.0 41% -2% The Swatch Group ACC Consumer Discretionary MHE 374 04.04.2012 416 405 8% -10% Unilever ACC Food & Beverage AVA 25.4 08.12.2010 23.2 29.0 14% 9% Vetropack BUY Miscellaneous Industrials RAM 1,700 23.11.2010 1,815 2,100 24% -6% VZ Holding ACC Banks TDA 93.3 07.02.2011 118 121 30% -21% Zehnder BUY Construction/Building Mat. PAP 62.8 27.08.2009 27.9 80.0 27% 125% Zurich Insurance ACC Insurance DBI 199 12.08.2011 172 236 19% 16%
Sources: Helvea, FactSet
4 Helvea | Made in Switzerland +
Key recommendations
RELATIVE TO SMI
7,500 Sw itzerland SMI Fixed 7,000 STOXX Small 200 (Rebased) STOXX Mid 200 (Rebased) 6,500 STOXX 50 (Rebased)
6,000
5,500
5,000
4,500
4,000 05.11 06.11 07.11 08.11 09.11 10.11 11.11 12.11 01.12 02.12 03.12 04.12 05.12
Sources: FactSet Connect
MOST AND LEAST PREFERRED STOCKS BY SECTOR
Sector Most preferred Rating P/E 2013E Least preferred Rating P/E 2013 E
Banks Partners Group ACC. 12.7 Julius Baer Group NEUT. 14.5
Biotechnology/Chemicals Actelion BUY 18.3 Elan RED. 53.3
Constr. & Building Mat. Implenia BUY 7.7 Sika NEUT. 13.7
Consumer Discretionary Dufry BUY 12.6 Valora NEUT. 8.2
Food & Beverage Aryzta ACC. 17.6 Lindt & Sprüngli NEUT. 20.1
Information Technology Temenos BUY 14.6 Logitech NEUT. 20.0
Insurance SCOR ACC. 6.4 Hannover Re NEUT. 7.5
Machinery & Engineering ABB BUY 9.0 Kone NEUT. 17.0
Medical Technology Tecan BUY 12.2 Nobel Biocare NEUT. 16.0
Miscellaneous Industrials Comet Holding AG BUY 11.6 Schmolz+Bickenbach NEUT. 5.3
Pharmaceuticals Novartis BUY 10.6 Merck KGaA NEUT. 14.8
Services & Transportation SGS ACC. 18.6 DKSH NEUT. 16.7
Source: Helvea Prices as of 31.05.2012
Made in Switzerland + | Helvea 5
Best & worst performances
3 MONTHS – 10 BEST PERF. 3 MONTHS – 10 WORST PERF.
Newron Schmolz+Bickenbach
austriamicrosystems Valora
Logitech Lonza Group
Addex Rieter
Elan Swiss Life Holding
OC Oerlikon Arbonia Forster
Comet Holding AG Credit Suisse
Intertek Georg Fischer
Bureau Veritas gategroup
DKSH Huber+Suhner
0% 20% 40% 60% 80% 100% -40% -35% -30% -25% -20% -15% -10% -5% 0%
6 MONTHS – 10 BEST PERF. 6 MONTHS – 10 WORST PERF.
Newron Lonza Group
austriamicrosystems Kudelski
OC Oerlikon Rieter
Forbo Swiss Life Holding
Addex Credit Suisse
Genmab BioInvent
Comet Holding AG Vontobel
Bobst Schmolz+Bickenbach
Elan Meyer Burger
Intertek Autoneum
0% 20% 40% 60% 80% 100% 120% 140% 160% -45% -40% -35% -30% -25% -20% -15% -10% -5% 0%
12 MONTHS – 10 BEST PERF. 12 MONTHS – 10 WORST PERF.
Elan Ablynx
austriamicrosystems Meyer Burger
Acino Schmolz+Bickenbach
Intertek Autoneum
Novo Nordisk Lonza Group
Bureau Veritas Credit Suisse
Hannover Re Arbonia Forster
OC Oerlikon Temenos
Unilever Kudelski
Swiss Re Swiss Life Holding
0% 10% 20% 30% 40% 50% 60% 70% 80% -80% -70% -60% -50% -40% -30% -20% -10% 0%
Source: FactSet – as of 31.05.2012
6 Helvea | Made in Switzerland +
Banks
MOST PREFERRED STOCKS IN THE SECTOR
■ In our opinion, the most compelling investment case in the sector is Partners Group (ACCUMULATE, PT CHF200). ■ We expect institutions, especially in Europe and Asia, to continue to increase their exposure to private markets with the superior returns and lower volatility relative to public markets as the main drivers of this trend. ■ Partners Group should continue to gain market share and therefore enjoy strong trend growth in assets under management and fee income. ■ Although the valuation is higher than that of other stocks in the sector, we believe that this is fully justified by the unique growth profile.
LEAST PREFERRED STOCKS IN THE SECTOR
■ Private banks remain squeezed by a number of factors: pressure from regulatory and tax authorities; low client activity; pressure on fees; rising costs. ■ The recent trading statement (4M 2012) of Julius Baer (NEUTRAL, PT CHF31.5) showed that revenue margins were below expectations and that the cost/income ratio was higher than we had been forecasting. ■ All private banks are very market-sensitive shares. However, we note that shares of Julius Baer enjoy a much higher valuation than its peers, for which we do not see any justification.
Tim Dawson – Tel. +41 (0)22 354 9169
VALUATION – BANKS
(In local currencies) ShareP/E Net profit growth P/BV Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
Credit Suisse 18.4 7.9X 5.5X 17.4% 45.3% 0.6X 0.6X NEUTRAL 22.5 22.2% EFG International 6.9 11.6X 8.2X n.m. 42.5% 0.9X 0.8X NEUTRAL 8.5 24.1% GAM Holding 10.2 11.1X 9.5X n.m. 11.5% 0.9X 0.8X NEUTRAL 12.7 24.5% Julius Baer Group 30.5 18.2X 14.5X 27.8% 25.7% 1.3X 1.2X NEUTRAL 31.5 3.4% Partners Group 161 14.9X 12.7X 35.8% 17.4% 5.9X 4.8X ACCUMULATE 200 24.2% Sarasin 26.0 14.3X 11.5X 22.7% 26.1% 1.3X 1.2X NEUTRAL 29.5 13.8% UBS 11.0 8.0X 6.9X 21.7% 15.8% 0.7X 0.7X NEUTRAL 13.5 23.3% Vontobel 19.9 9.4X 8.2X 18.3% 15.2% 0.8X 0.8X NEUTRAL 23.5 18.1% VZ Holding 93.3 13.9X 11.3X 3.7% 23.1% 3.1X 2.7X ACCUMULATE 121 29.7% SECTOR AVERAGE 12.2X 9.8X 20.7% 25.3% 1.7X 1.5X
Made in Switzerland + | Helvea 7
Biotechnology & Chemicals
MOST PREFERRED STOCKS IN THE SECTOR
■ We see Actelion shares (BUY, PT CHF72) as undervalued even though with macitentan the company finally managed to secure its franchise in pulmonary arterial hypertension (PAH) beyond Tracleer’s loss of market exclusivity in 2016/2017, assuming acceptance of the paediatric development plan. ■ The Phase III data on macitentan disclosed so far are stunning as regards efficacy, safety and tolerability, clearly marking the drug as superior to Tracleer and competitor Letairis ■ Macitentan’s market exclusivity is to last into the mid-2020s with peak sales potential of CHF2bn and an EBIT margin 10% higher than Tracleer’s as no royalties owed to Roche ■ Basilea (BUY, PT CHF105) is a story gradually unfolding: antibiotic ceftobiprole to be filed in H2 2012 for pneumonia in the EU/later in the USA, where we expect filing of Toctino too
LEAST PREFERRED STOCKS IN THE SECTOR
■ Elan (REDUCE, PT EUR6.8) is the stock to be the most affected if the antibody bapineuzumab fails in Alzheimer’s disease as the Ph.III with the first two trials due to report from mid-2012 were not appropriately set up in our view; we see downside of about 40% ■ Based on the progress achieved in the understanding of Alzheimer’s disease (AD), the current understanding is that these patients need to be put on therapy while they show mild cognitive impairment but not yet clinically manifest AD even if it is only mild to moderate – at best, we expect bapineuzumab to show not more than a trend for efficacy ■ Elan holds a 25% stake in the value in bapineuzumab through its joint venture with J&J ■ As for the custom manufacturers of biologics, Lonza (NEUTRAL, PT CHF40) has a high burden of debt and is at risk of a capital increase if its operating profits do not exceed our forecasts or should a business unit put up for sale not achieve a good price; whereas the valuation of the family owned Bachem (NEUTRAL, PT CHF37) remains expensive
Olav Zilian, MD, PhD – Tel. +41 (0)22 354 9167
VALUATION – BIOTECHNOLOGY & CHEMICALS
(In local currencies) Share EV/EBITDA EBITDA growth P/E Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
Ablynx 2.7 n.m. 5.7X n.m. n.m. n.m. 11.4X BUY 10.0 265% Actelion 36.7 8.9X 8.9X 220% 0.0% 19.0X 18.3X BUY 72.0 96.3% Addex 8.5 n.m. 0.9X n.m. n.m. n.m. 2.7X BUY 18.0 112% Bachem 36.0 12.1X 10.3X 39.8% 17.9% 23.5X 18.2X NEUTRAL 37.0 2.8% Basilea 41.3 n.m. n.m. n.m. n.m. n.m. n.m. BUY 105 155% BioInvent 13.7 3.4X n.m. n.m. n.m. 3.7X n.m. BUY 29.0 112% Elan 11.6 n.m. 42.9X n.m. n.m. n.m. n.m. REDUCE 6.8 -41.3% Fresenius Med. Care 53.7 9.1X 8.3X 12.3% 9.7% 15.9X 15.9X BUY 66.0 22.9% Galenica 582 10.5X 8.2X 4.8% 28.0% 16.0X 11.1X BUY 720 23.8% Genmab 42.0 n.m. 7.0X n.m. n.m. n.m. 19.3X NEUTRAL 44.0 4.8% Lonza Group 34.5 7.2X 6.5X 14.4% 10.0% 13.1X 9.6X NEUTRAL 40.0 15.9% MorphoSys 17.0 4.2X 17.2X 224% -75.5% 10.4X n.m. BUY 32.0 87.7% Newron 4.8 n.m. 9.4X n.m. n.m. n.m. n.m. BUY 21.0 336% SECTOR AVERAGE 7.4X 8.3X n.m. n.m. n.m. n.m.
8 Helvea | Made in Switzerland +
Construction & Building Materials
MOST PREFERRED STOCKS IN THE SECTOR
■ Holcim (BUY, PT CHF72) has the best regional and segmental mix (greater exposure to cement) in the sector. Furthermore, the recently announced cost-cutting programme should lead to a significant improvement in earnings even though the outlook remains depressed in Europe. ■ Shares of Implenia (BUY, PT CHF42) remain extremely cheap despite the various restructuring and optimisation measures undertaken and the fact that the effects of the recent acquisitions have not fully contributed to the results yet. ■ Within this sector, we believe Zehnder (BUY, PT CHF80) has the highest growth potential in the coming 5 to 10 years, supported by stricter regulations in Europe to make buildings more efficient.
LEAST PREFERRED STOCKS IN THE SECTOR
■ Near term, we do not expect much growth and further margin potential at Forbo (NEUTRAL, PT CHF640), neither for Flooring Systems nor for Movement Systems. Forbo was able to divest its industrial adhesive operations (sold in March 2012) at a really good price, but the company now has to put the cash to good use. Apart from share buy-backs, we would like to see meaningful acquisitions in order to turn more positive on the shares. ■ Expectations for organic growth and margins (recovery) at Sika (NEUTRAL, PT CHF1,900) look relatively high, which makes the shares vulnerable at current rich valuation levels. Sika’s high exposure to the public/infrastructure segment is also a threat, although the company is less directly exposed to high debt countries (apart from USA) and emerging markets are gaining weight.
Patrick Appenzeller – Tel.+41 (0)43 388 9267
VALUATION – CONSTRUCTION & BUILDING MATERIALS
(In local currencies) Share EV/EBITDA EBITDA growth P/E Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
Arbonia Forster 17.0 3.7X 3.2X 22.3% 12.5% 12.0X 7.2X BUY 28.0 65.2% Belimo 1,740 11.1X 9.9X 10.3% 12.1% 17.5X 15.6X NEUTRAL 1,700 -2.3% Forbo 628 5.8X 5.7X -3.7% 2.0% 13.0X 12.5X NEUTRAL 640 2.0% Geberit 188 12.8X 12.0X 5.9% 7.1% 17.4X 16.2X NEUTRAL 200 6.4% HeidelbergCement 35.1 7.0X 6.4X 6.7% 9.6% 10.9X 8.3X NEUTRAL 42.0 19.7% Holcim 51.6 7.5X 6.5X 9.3% 14.5% 13.4X 10.2X BUY 72.0 39.5% Implenia 29.5 3.3X 3.2X -5.1% 5.1% 8.5X 7.7X BUY 42.0 42.1% Kaba 332 7.7X 7.3X 3.7% 4.9% 14.7X 13.7X NEUTRAL 390 17.6% Lafarge 29.7 6.8X 6.4X 4.6% 6.6% 11.5X 9.6X NEUTRAL 30.0 0.9% Sika 1,755 8.1X 7.3X 21.2% 11.2% 15.8X 13.7X NEUTRAL 1,900 8.3% Zehnder 62.8 7.4X 6.2X 16.1% 18.8% 13.5X 11.1X BUY 80.0 27.3% SECTOR AVERAGE 7.4X 6.7X 6.1% 9.9% 13.5X 11.4X
Made in Switzerland + | Helvea 9
Consumer Discretionary
MOST PREFERRED STOCKS IN THE SECTOR
■ Luxury goods: after two excellent years for the Swiss watch industry with watch exports having grown 46% in value between 2009 and 2011, we believe that 2012 will see a moderation in industry growth rates. However, watch exports remained strong in Q1 2012, up 17% y-o-y, and we expect watch exports to rise between 7%-8% in 2012. ■ In an environment of scarce capacities and excess demand, we see Swatch Group (ACCUMULATE, PT CHF480) as the winner thanks to its strong production footprint. Furthermore, there are indications that demand for high-end watches in China could slow in 2012, which would favour Swatch Group as it is active in all watch segments. ■ Travel Retail: Dufry (BUY, PT CHF140) is among the market leaders in the attractive and fragmented travel retail industry. As a large player, Dufry has significant competitive advantages over smaller local duty free shop operators as it can offer airport authorities significantly higher non-aviation revenues through its innovative shop concepts, its access to world brands and its superior database of travellers’ preferences which allows the company to optimise its product range. ■ Against this background, we believe that Dufry will continue to deliver strong top-line growth, which is to be spiced up by acquisitions in a consolidating industry. Its track record is certainly strong, with a 23% CAGR between 2003 and 2011 on constant exchange rates.
LEAST PREFERRED STOCKS IN THE SECTOR
■ On the negative side, we would highlight Valora (NEUTRAL, PT CHF235). While the valuation appears cheap and downside might be limited, we believe the stock lacks a positive catalyst in the medium term. The company is fighting against structurally declining markets, it has disappointed the markets by lowering its long-term guidance and, last but not least, it has recently lost its CEO who was the driving force behind the aggressive acquisition-driven growth strategy. Investors should wait until a new CEO is found and has communicated the company’s new strategy.
Michael Heider – Tel. +41 (0)43 388 9255 – Chris Burger, CFA – +41 (0)43 388 9259
VALUATION – CONSUMER DISCRETIONARY
(In local currencies) Share EV/EBITDA EBITDA growth P/E Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
Calida Group 27.0 5.6X 5.3X -1.0% 6.5% 10.8X 10.2X NEUTRAL 32.0 18.7% Dufry 110 8.6X 7.5X 35.1% 14.4% 17.0X 12.6X BUY 140 27.3% Goldbach Group 21.0 7.0X 6.4X 0.3% 8.8% 10.8X 9.3X NEUTRAL 25.0 19.3% Kuoni 282 4.6X 4.2X 14.5% 9.3% 12.1X 10.1X ACCUMULATE 400 41.8% PubliGroupe 143 1.3X 3.1X 82.9% -57.9% 5.5X 13.8X BUY 180 26.3% Richemont 55.3 8.3X 7.9X 9.6% 5.0% 13.9X 13.6X NEUTRAL 66.0 19.2% tamedia 102 5.8X 5.4X 1.0% 7.1% 6.8X 7.0X NEUTRAL 130 28.1% The Swatch Group 374 8.5X 8.0X 8.4% 5.6% 14.7X 14.0X ACCUMULATE 480 28.5% Valora 169 5.0X 4.7X 3.6% 7.9% 8.8X 8.2X NEUTRAL 235 39.2% SECTOR AVERAGE 6.1X 5.9X 20.3% 4.6% 11.3X 11.1X
10 Helvea | Made in Switzerland +
Food & Beverage
MOST PREFERRED STOCKS IN THE SECTOR
■ Danone (ACCUMULATE, PT EUR60) is trading below Nestlé on a relative EV/EBITDA valuation versus historically a 10%-20% premium based on its superior growth potential from its higher emerging market exposure (50% of sales) and healthier categories. With some acceleration in Fresh Dairy in the USA (Greek) and Russia (Unimilk) plus a continued strong Water (Aquadrinks) performance, we think momentum and investor perception could improve throughout 2012. A potential launch of Souvenaid in early 2013 could create additional buzz. With approx.40% of sales generated in Europe and as a French company, Danone tends to be under pressure on negative newsflow on the eurozone economy. ■ We like Aryzta (ACCUMULATE, PT CHF56) for 1) its compelling transformation story; 2) potential upside to 2012/13 adj. EPS estimates; 3) attractive relative valuation; and 4) some investors being too negative on management. With Aryzta reporting in EUR but having a Swiss listing plus its relatively high exposure to UK/Ireland, Aryzta tends to be under pressure on negative newsflow on the eurozone economy.
LEAST PREFERRED STOCKS IN THE SECTOR
■ Trading at a >30% premium on P/E or >20% on EV/EBITDA, we think Lindt & Sprüngli (NEUTRAL, PT CHF2,600) is too expensive for the potential it offers over the medium term. The valuation premium is at a level similar to when Lindt & Sprüngli was achieving double- digit growth; however, due to emerging markets (Nestlé 42% of sales, Lindt & Sprüngli >5%), the growth profiles of the FMCG players have changed. In 2012, Lindt & Sprüngli, temporary boosted by favourable input costs (lower cocoa prices), might reclaim the growth leadership, but this is already fully reflected in the relative valuation premium.
Andreas von Arx – Tel. +41 (0)43 388 9257
VALUATION – FOOD & BEVERAGE
(In local currencies) Share EV/EBITDA EBITDA growth P/E Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
Aryzta 43.8 9.7X 8.7X -1.9% 11.4% 18.4X 15.2X ACCUMULATE 56.0 27.9% Barry Callebaut 860 11.8X 11.1X 0.3% 6.2% 20.7X 16.2X NEUTRAL 900 4.7% Danone 51.9 9.8X 9.2X 9.4% 6.6% 16.3X 14.9X ACCUMULATE 60.0 15.6% Emmi 181 5.6X 5.5X 7.8% 3.2% 10.6X 11.3X ACCUMULATE 230 27.1% Givaudan 901 10.9X 10.3X 14.4% 5.3% 20.0X 18.7X NEUTRAL 900 -0.1% Lindt & Sprüngli 2,821 12.5X 11.6X 9.1% 8.3% 22.1X 20.1X NEUTRAL 2,600 -7.8% Nestlé 55.0 10.7X 9.8X 10.6% 8.9% 17.1X 15.7X NEUTRAL 56.0 1.7% Orior 48.0 6.2X 6.0X 5.7% 3.5% 9.3X 8.8X NEUTRAL 51.0 6.3% Symrise AG 22.7 10.0X 9.4X 6.7% 5.8% 16.4X 15.1X NEUTRAL 23.0 1.3% Unilever 25.4 10.1X 9.5X 18.4% 6.0% 15.8X 14.4X ACCUMULATE 29.0 14.0% SECTOR AVERAGE 9.7X 9.1X 11.2% 7.4% 16.7X 15.0X
Made in Switzerland + | Helvea 11
Information Technology
MOST PREFERRED STOCKS IN THE SECTOR
■ Despite its full exposure to financials, the core-banking software vendor Temenos (BUY, PT CHF22) in our view offers an attractive longer-term growth story as banks remain under pressure to reduce cost-income ratios and additional drivers like ever more complex regulations will not allow banks to delay IT investments forever. ■ While investors will most likely need more patience with Temenos, we think that earnings have troughed and that things can only become better from the perspective of momentum. On current EV/maintenance valuation levels, Temenos itself is also a take-out candidate in our view.
LEAST PREFERRED STOCKS IN THE SECTOR
■ While the worst may be behind Logitech (NEUTRAL, PT CHF9), we still think it is too early to call it a successful turnaround and we currently lack a fundamental basis sufficiently good to re-visit Logitech’s investment case (details of the cost reduction programme not yet available, not much information on the planned product initiatives available besides management claiming that Logitech has one of the best line-ups ever). As such, visibility remains low and we would also not rule out more kitchen-sinking related news given that the new CEO will only be taking up his position officially at the beginning of 2013.
Reto Amstalden – Tel. +41 (0)43 388 9261 – Stefan Gächter, CFA – +41 (0)43 388 9262
VALUATION – INFORMATION TECHNOLOGY
(In local currencies) Share EV/EBITDA EBITDA growth P/E Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
austriamicrosystems 68.0 7.7X 7.3X 50.8% 5.8% 11.7X 11.7X NEUTRAL 68.0 0.0% Kudelski 7.5 5.5X 5.2X 5.2% 5.4% n.m. 12.1X ACCUMULATE 9.0 20.8% Logitech 9.9 5.0X 4.5X 50.0% 11.3% 20.0X 12.4X NEUTRAL 9.0 -8.9% Temenos 15.6 9.9X 8.1X 174% 21.8% 19.9X 14.6X BUY 22.0 41.0% SECTOR AVERAGE 7.2X 6.3X 6.4% 24.5% n.m. 12.8X
12 Helvea | Made in Switzerland +
Insurance
MOST PREFERRED STOCKS IN THE SECTOR
■ SCOR (ACCUMULATE, PT EUR23) is our top pick in the reinsurance sector given its balanced business mix, its superior ability to manage the reinsurance cycle and an overall very attractive valuation. The group has an above-average growth profile and a conservative stance on the asset side. ■ The extremely low valuation of Swiss Life (BUY, PT CHF130) does not reflect the facts that the group has become less interest rate sensitive and that it will reduce the sensitivity even more going forward. Swiss Life has a relatively low exposure to GIIPS and it continues to improve its capital position organically.
LEAST PREFERRED STOCKS IN THE SECTOR
■ There are some positives for Hannover Re (NEUTRAL, PT EUR44), such as its reserve position and solid track record on growth in book value but, given the company’s valuation premium relative to its peers, we believe the upside is limited.
Daniel Bischof, CFA – Tel. +41 (0)43 388 9263
VALUATION – INSURANCE
(in local currencies) ShareP/E EPS growth P/Embv P/SOTP Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2012E
Bâloise 59.9 6.5X 6.2X n.m. 4.0% 0.6X 0.7X ACCUMULATE 76.0 26.9% Hannover Re 43.3 7.6X 7.5X 13.2% 1.1% 0.8X 0.9X NEUTRAL 44.0 1.7% Helvetia 271 7.3X 6.9X 14.1% 5.5% 0.6X 0.6X ACCUMULATE 380 40.4% Munich Re 100 7.1X 6.8X n.m. 3.5% 0.7X 0.8X NEUTRAL 110 9.7% Nationale Suisse 33.0 8.0X 7.6X -45.4% 5.3% 0.8X NEUTRAL 39.0 18.2% SCOR 17.5 7.5X 6.4X 30.3% 17.1% 0.8X 0.7X ACCUMULATE 23.0 31.1% Swiss Life Holding 77.8 4.5X 4.2X -8.1% 7.1% 0.3X 0.5X BUY 130 67.0% Swiss Re 56.0 12.5X 8.5X -34.0% 47.6% 0.7X 0.7X NEUTRAL 64.0 14.3% Zurich Insurance Group 199 7.6X 7.2X 14.3% 5.3% 0.9X 0.8X ACCUMULATE 236 18.8% SECTOR AVERAGE 7.6X 6.8X n.m. 10.7% 0.7X 0.7X
Made in Switzerland + | Helvea 13
Machinery & Engineering
MOST PREFERRED STOCKS IN THE SECTOR
■ We consider textile machinery to be an interesting sector within the capital goods world as we see the spinning machinery industry as being close to a new capex cycle given the fact that the yarn markets are passing through their final stage of recalibration. Rieter (BUY, PT CHF230). ■ Bobst (BUY, PT CHF35) is an interesting turnaround play in the machinery industry as the company’s re-engineering process is showing some first promising signs – Bobst has an outstanding industrial base. ■ Oerlikon’s management strong execution of the turnaround will continue; systematic and disciplined optimisation of the broad industrial portfolio is to lead to further margin expansion potential and to a new company with an attractive cash return profile (FCF yield of approx.10%): ACCUMULATE, PT CHF10.6. ■ Despite ongoing macro risks and continued pricing pressure in its emerging power activities (much of these risks are priced into the stock in our view), ABB (BUY, PT CHF23) offers an attractive longer-term investment case. ABB clearly stands to reap the benefits of structural trends, such as increased demand for electricity in developing markets, power grids that will need to become smarter and stronger or the general pressure to boost energy efficiency overall.
LEAST PREFERRED STOCKS IN THE SECTOR
■ Although we like the elevator and escalator industry, and within that both Schindler (NEUTRAL, PT CHF99) and Kone (NEUTRAL, PT EUR44), the sector is ‘priced to deliver’ and we see very little potential for positive surprises given the limited scope for margin improvements.
Volkan Göçmen – Tel. +41 (0)22 354 9157 – Stefan Gächter, CFA – +41 (0)43 388 9262 – Reto Amstalden – +41 (0)43 388 9261
VALUATION – MACHINERY & ENGINEERING
(In local currencies) Share EV/EBITDA EBITDA growth P/E Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
ABB 15.2 6.7X 5.7X 4.5% 18.5% 11.2X 9.0X BUY 23.0 51.2% Bobst 25.0 8.3X 6.1X 19.0% 35.4% 18.8X 9.2X BUY 35.0 39.7% Bucher Industries 161 5.4X 5.0X 16.1% 7.8% 11.7X 10.4X ACCUMULATE 215 33.5% Burckhardt Comp. 221 9.6X 8.9X -1.7% 8.1% 16.5X 14.7X NEUTRAL 225 1.8% Georg Fischer 340 4.7X 4.5X 3.8% 4.7% 8.8X 8.3X NEUTRAL 370 8.8% Komax 78.6 6.3X 4.5X -30.8% 40.8% 12.0X 7.8X BUY 110 39.9% Kone 45.1 12.3X 11.4X 11.6% 7.8% 19.0X 17.0X NEUTRAL 44.0 -2.5% Meyer Burger 15.3 10.5X 4.0X -82.1% 160% n.m. 29.7X NEUTRAL 15.0 -2.0% OC Oerlikon 8.1 5.4X 5.1X -0.5% 4.8% 7.6X 9.3X ACCUMULATE 10.6 30.7% Rieter 138 6.5X 3.2X -48.6% 105% 35.8X 9.2X BUY 230 66.5% Schindler 107 9.6X 8.5X 21.0% 12.9% 19.2X 16.6X NEUTRAL 99.0 -7.8% Sulzer 116 7.5X 6.9X 18.2% 9.2% 13.0X 11.9X NEUTRAL 113 -2.4% SECTOR AVERAGE 7.7X 6.0X 6.4% 18.1% 13.1X 12.6X
14 Helvea | Made in Switzerland +
Medical Technology
MOST PREFERRED STOCKS IN THE SECTOR
■ Project delays and management changes have hit the shares of Tecan (BUY, PT CHF86.5), the global leading supplier of advanced laboratory automation and detection solutions. ■ Growth prospects for Tecan remain however intact. Ageing demographics, new areas of research in diagnostics and drug discovery, and the need for increased lab efficiency due to tighter healthcare budgets continue to drive solid 5%-7% underlying growth in the lab automation market in the next five years. Having won significant OEM contracts, streamlined its organisation, expanded into higher margin consumables and built up its presence in China, Tecan is well positioned to benefit from promising trends in its markets. ■ We are impressed by the track record of David Martyr (ex-Danaher/Leica Microsystem executive), who will join as new CEO at the latest in October and we thus believe in timely project execution and a smooth transition from a medium-sized company to a larger one. ■ In the light of these promising outlook, an EV/EBITDA 2013 multiple below 8X looks undemanding in our view.
LEAST PREFERRED STOCKS IN THE SECTOR
■ With a new CEO at the helm, Nobel Biocare (NEUTRAL, PT CHF11.2) is trying to reposition itself as an evidence-based and more customer-focused premium dental implant and prosthetics manufacturer after overly aggressive marketing and quality issues tarnished its market reputation. However, the company is still losing market share and counter measures have not yet become apparent. ■ Despite gradually recovering US and somewhat stabilising European end markets, as well as still low penetration rates of dental implant treatments, structural trends in the dental restoration industry are less inspiring. New market entrants are mushrooming with comprehensive product portfolio and reasonable service levels. For premium dental implant and prosthetics manufacturers, it has become increasingly difficult to justify 30%-50% premium prices for dental implants. ■ We fail to see how the company can capitalise on its proprietary Procera CAD/CAM solutions and expect ongoing margin pressure as a result of declining sales prices and substantially higher operating costs in an effort to stop market share loss. ■ Trading above 20X earnings 2012, we regard the stock as fully valued.
Simon Goetschmann – Tel. +41 (0)43 388 9264
VALUATION – MEDICAL TECHNOLOGY
(In local currencies) Share EV/EBITDA EBITDA growth P/E Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
Nobel Biocare 10.2 10.3X 8.8X 0.3% 16.9% 21.0X 16.5X NEUTRAL 11.2 9.6% Sonova 91.0 13.9X 12.1X 18.1% 14.6% 20.3X 17.3X NEUTRAL 81.4 -10.5% Straumann 149 11.5X 10.0X 7.7% 15.3% 20.3X 15.8X NEUTRAL 160 7.4% Tecan 63.2 8.7X 7.5X 3.1% 17.2% 14.6X 12.2X BUY 86.5 36.8% William Demant 528 15.1X 14.0X 12.8% 7.8% 21.4X 19.4X NEUTRAL 474 -10.2% SECTOR AVERAGE 11.8X 10.4X 3.6% 13.9% 19.4X 16.1X
Made in Switzerland + | Helvea 15
Miscellaneous Industrials
MOST PREFERRED STOCKS IN THE SECTOR
■ Comet (BUY, PT CHF260) offers an interesting investment opportunity for investors looking for a small-cap stock with an attractive structural growth profile (doubling of addressed market in semiconductors, a new market with e-beam sterilisation technology) at an undemanding price. ■ Comet’s structural growth opportunities have gained additional visibility and a sharper profile with Tetra Pak’s recent announcement that its next-generation high-speed carton filling machine for liquid food will be enabled by Comet’s e-beam technology. ■ This application alone has the potential to boost the company’s sales and profit levels significantly over the next few years; Comet has signed additional development contracts for non-liquid food applications.
LEAST PREFERRED STOCKS IN THE SECTOR
■ We would avoid Schmolz+Bickenbach (NEUTRAL, PT CHF6.3), as the company is active in a volatile market but, as a steel producer, it runs a highly capital- and personnel- intensive business. This renders its financial flows vulnerable to shifts in demand, resulting in volatile profits. In addition, the company carries a high debt burden and its recent bond issue with a 10.5% yield did not convey a high degree of confidence on the part of investors either.
Reto Amstalden – Tel. +41 (0)43 388 9261 – Michael Heider – +41 (0)43 388 9255 – Stefan Gächter, CFA – +41 (0)43 388 9262
VALUATION – MISCELLANEOUS INDUSTRIALS
(In local currencies) Share EV/EBITDA EBITDA growth P/E Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
Ascom 8.3 4.7X 4.2X 6.2% 13.7% 7.4X 7.8X NEUTRAL 11.0 32.4% Autoneum 42.5 3.2X 2.9X 18.0% 11.4% 24.8X 11.0X NEUTRAL 55.0 29.4% Bossard 120 6.6X 6.3X -2.6% 5.0% 8.6X 8.6X NEUTRAL 135 12.5% Comet Holding AG 203 6.4X 5.8X 4.8% 10.6% 13.5X 11.6X BUY 260 28.1% Daetwyler 70.0 4.7X 4.7X 17.9% 1.2% 9.9X 9.9X NEUTRAL 85.0 21.4% Gurit 451 5.2X 5.5X 15.1% -4.7% 8.3X 8.9X BUY 620 37.5% Huber+Suhner 37.6 7.2X 5.7X -4.1% 26.5% 24.5X 16.7X NEUTRAL 40.0 6.4% Inficon 189 6.5X 6.1X -6.6% 6.5% 11.3X 10.7X NEUTRAL 220 16.3% Interroll 310 6.6X 5.8X 8.3% 12.4% 13.8X 11.9X NEUTRAL 380 22.5% LEM 470 13.2X 10.9X -34.9% 20.3% 21.0X 17.4X NEUTRAL 450 -4.3% Metall Zug 3,700 9.1X 8.6X 10.3% 5.0% 19.9X 18.8X NEUTRAL 4,100 10.8% Phoenix Mecano 447 5.6X 5.4X -3.8% 4.2% 9.9X 9.4X NEUTRAL 550 23.1% Schaffner 223 10.1X 6.4X -19.8% 56.2% 26.7X 11.8X NEUTRAL 250 12.0% Schmolz+Bickenbach 4.9 5.2X 4.7X 0.4% 11.3% 6.9X 5.3X NEUTRAL 6.3 27.5% Vetropack 1,700 4.9X 4.5X 2.8% 7.8% 10.7X 9.9X BUY 2,100 23.5% SECTOR AVERAGE 6.5X 5.7X 2.9% 9.0% 14.2X 11.0X
16 Helvea | Made in Switzerland +
Pharmaceuticals
MOST PREFERRED STOCKS IN THE SECTOR
■ Our favourite stock in the sector is Novartis (BUY, PT CHF68) thanks to its medium-term earnings upgrade potential (>25%) and its innovation capability with a stream of high margin speciality care drugs reaching the market, thereby offering earnings leverage that remains underestimated by the market. ■ We also recommend Bayer (ACCUMULATE, PT EUR60) on the back of a transformative new drug story that should drive medium-to high-single digit sales growth with significant earnings leverage at the pharmaceuticals division beyond 2012. ■ Within the generic space, we like both Acino (BUY, PT CHF142) and Stada (ACCUMULATE, PT EUR29), which are trading at significant discounts to peers, having both significantly lowered their exposure to the declining German market. Thanks to the acquisitions of the Mepha/Cephalon businesses in EGM, Acino is positioned to deliver more consistent growth and margin expansion, which might be enhanced through Acino’s high-margin products in 2013. Stada is enjoying strong growth in Russia, Belgium, Italy and Spain and will benefit from the recent acquisitions of Grünenthal and Spirig.
LEAST PREFERRED STOCKS IN THE SECTOR
■ Merck KGaA (NEUTRAL, PT EUR73): although the newly announced efficiency programme will improve margins, we remain concerned about the top-line growth of the company, which is being adversely affected by competition in both the pharmaceuticals and chemicals divisions; with a very high-risk pipeline, we see limited to no upside to the company’s medium-term sales and EBITDA guidance.
Karl-Heinz Koch – Tel. +41 (0)43 388 9258 – Odile Rundquist, PhD – +41 (0)22 354 9159
VALUATION – PHARMACEUTICALS
(In local currencies) Share EV/EBITDA EBITDA growth P/E Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
Acino 111 8.7X 7.2X 94.9% 21.8% 13.0X 10.8X BUY 142 28.3% AstraZeneca 2,618 5.2X 4.7X -32.1% 11.0% 8.3X 7.2X NEUTRAL 2,860 9.2% Bayer 51.1 8.2X 7.4X 14.2% 10.0% 9.6X 8.8X ACCUMULATE 60.0 17.3% GlaxoSmithKline 1,438 8.0X 7.3X 6.0% 9.1% 12.9X 11.1X ACCUMULATE 1,620 12.7% Merck KGaA 74.8 8.0X 7.1X -6.7% 13.3% 21.2X 14.8X NEUTRAL 73.0 -2.4% Novartis 50.5 9.6X 8.8X 11.3% 8.2% 11.9X 10.7X BUY 68.0 34.8% Novo Nordisk 800 16.3X 14.6X 15.3% 12.0% 22.3X 19.6X NEUTRAL 820 2.6% Roche 152 9.2X 8.6X 8.2% 7.3% 12.3X 10.9X NEUTRAL 140 -7.7% Sanofi 55.0 6.9X 6.5X -8.7% 6.4% 9.3X 8.9X ACCUMULATE 64.0 16.4% Stada Arzneimittel 23.0 6.8X 6.2X 58.5% 10.6% 10.9X 8.7X ACCUMULATE 29.0 26.1% SECTOR AVERAGE 8.8X 7.9X 0.5% 9.9% 13.3X 11.2X
Made in Switzerland + | Helvea 17
Services & Transportation
MOST PREFERRED STOCKS IN THE SECTOR
■ The TIC sector offers strong growth potential combined with a relatively defensive nature. ■ SGS (ACCUMLATE, PT CHF1,880) is currently enjoying the highest organic growth rate among the three players we cover thanks to its higher exposure to fast-growing business segments (i.e. Minerals). ■ SGS has become slightly more aggressive in terms of acquisitions with 23 transactions carried out in 2011. ■ The historical premium for SGS has diminished, which is not justified in our view given SGS’s strong market leading position and management team, as well as its higher growth and higher margins.
LEAST PREFERRED STOCKS IN THE SECTOR
■ The bright prospects of DKSH (NEUTRAL, PT CHF50) are already priced in. ■ DKSH’s lower free cash flow conversion ratio compared to logistics and TIC companies would justify slightly lower multiples in our view.
Chris Burger, CFA – Tel. +41 (0)43 388 9259 – Andreas von Arx – +41 (0)43 388 9257 – Michael Heider – +41 (0)43 388 9255
VALUATION – SERVICES & TRANSPORTATION
(In local currencies) Share EV/EBITDA EBITDA growth P/E Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
Adecco 37.7 7.5X 6.1X 0.8% 23.2% 12.8X 9.6X NEUTRAL 47.0 24.7% Bureau Veritas 69.6 12.6X 11.5X 17.1% 10.0% 20.5X 18.1X NEUTRAL 72.0 3.4% DKSH 48.5 10.7X 9.5X 10.0% 12.3% 19.0X 16.7X NEUTRAL 50.0 3.1% Flughafen Zürich AG 324 5.8X 5.6X 5.3% 3.0% 11.1X 10.2X NEUTRAL 400 23.4% gategroup 24.4 4.3X 3.9X 5.3% 9.0% 11.3X 9.3X ACCUMULATE 40.0 64.3% Intertek 2,645 12.4X 11.3X 16.4% 10.1% 24.0X 20.6X NEUTRAL 2,600 -1.7% Kuehne + Nagel 103 12.7X 10.8X -5.9% 17.2% 22.4X 18.0X NEUTRAL 113 9.5% Panalpina 92.3 12.2X 7.5X -35.3% 62.8% 38.5X 16.3X NEUTRAL 101 9.4% SGS 1,751 11.9X 10.4X 16.4% 14.6% 21.5X 18.6X ACCUMULATE 1,880 7.4% SECTOR AVERAGE 10.0X 8.5X 5.3% 15.4% 20.1X 15.3X
18 Helvea | Made in Switzerland +
Company key points
Page Page ABB Ltd. 20 Komax 136 Ablynx 22 Kone 138 Acino 24 Kudelski 140 Actelion 26 Kuehne + Nagel 142 Addex 28 Kuoni 144 Adecco 30 Lafarge 146 Arbonia Forster 32 LEM 148 Aryzta 34 Lindt & Sprüngli 150 Ascom 36 Logitech 152 AstraZeneca 38 Lonza Group 154 austriamicrosystems 40 Merck KGaA 156 Autoneum 42 Metall Zug 158 Bachem 44 Meyer Burger 160 Barry Callebaut 46 MorphoSys 162 Basilea 48 Munich Re 164 Bayer 50 Nationale Suisse 166 Belimo 52 Nestlé 168 BioInvent 54 Newron 170 Bobst 56 Nobel Biocare 172 Bossard 58 Novartis 174 Bucher Industries 60 Novo Nordisk 176 Burckhardt Compression 62 OC Oerlikon 178 Bureau Veritas 64 Orior 180 Bâloise 66 Panalpina 182 Calida Group 68 Partners Group 184 Comet Holding AG 70 Phoenix Mecano 186 Credit Suisse Group 72 PubliGroupe 188 Daetwyler 74 Richemont 190 Danone 76 Rieter 192 DKSH 78 Roche 194 Dufry 80 Sanofi 196 EFG International 82 Sarasin 198 Elan 84 Schaffner 200 Emmi 86 Schindler 202 Flughafen Zürich AG 88 Schmolz+Bickenbach 204 Forbo 90 SCOR 206 Fresenius Medical Care 92 SGS 208 Galenica 94 Sika 210 GAM Holding 96 Sonova 212 gategroup 98 Stada Arzneimittel 214 Geberit 100 Straumann 216 Genmab 102 Sulzer 218 Georg Fischer 104 Swiss Life Holding 220 Givaudan 106 Swiss Re 222 GlaxoSmithKline 108 Symrise AG 224 Goldbach Group 110 tamedia 226 Gurit 112 Tecan 228 Hannover Re 114 Temenos 230 HeidelbergCement 116 The Swatch Group 232 Helvetia 118 UBS 234 Holcim 120 Unilever 236 Huber+Suhner 122 Valora 238 Implenia 124 Vetropack 240 Inficon 126 Vontobel 242 Interroll 128 VZ Holding 244 Intertek 130 William Demant 246 Julius Baer Group 132 Zehnder 248 Kaba 134 Zurich Insurance Group 250
Made in Switzerland + | Helvea 19
ABB Ltd. Price: CHF15.2 BUY Target: CHF23.0 Large Caps
Stefan Gächter, CFA ([email protected]) – Tel. +41 (0)43 388 9262
ABB is a global leader in power and automation technologies that improve performance while lowering environmental impact. ABB operates with five divisions: Power Products; Power Systems (products and turnkey transmission & distribution systems to utility and industrial customers); Discrete Automation and Motion (products helping to boost productivity, save energy, improve quality; includes Robotics unit); Low Voltage (products protecting people and installations from electrical overload); and Process Automation (automation and optimisation of industrial process). CEO: Joseph M. Hogan; CFO: Michel Demaré; Website: www.abb.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF30 Major shareholders Investor AB 7.2% 27 24 21 Shares outstanding (m) 2,292 EV/EBITDA (X) 18 Market cap. (USD m) 35,875 2011 7.0 15 Free float 93% 2012E 6.7 12 EBITDA/CAGR 2011-2014E 10.4% 2013E 5.7 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols ABB 12-mth tgt Absolute -18% -12% -34% Bloomberg ABBN VX Buy Acc. Neut. Red. N.R. Rel. to local -16% -17% -27% Reuters ABBN.VX
News flow
■ April 2012: ‘clean’ Q1 2012 profits disappointed, with ABB also giving a vague short-term outlook referring to macroeconomic uncertainties and difficulties in timing of China’s recovery (especially in transportation area) ■ Forthcoming event: 26 July 2012 – Q2/H1 2012 results ■ Guidance & consensus EBIT forecasts: ABB sees ample opportunities for profitable growth in 2012 and reiterated its longer-term targets with Q1 results – in the short term, however, pricing pressure is expected to continue in parts of the power business, with much also depending on European and China economies; consensus EBIT forecasts stand at USD4.968bn for 2012 and at USD5.614bn for 2013
Investment case
Despite the still uncertain outlook for European markets, resulting in earnings risk over the next couple of quarters, and continued pricing pressure in its emerging power activities (much of these risks are priced into the stock in our view), ABB offers an attractive longer-term investment case. On the one hand, ABB is set to reap the benefits of structural trends, such as increased demand for electricity in developing markets, power grids that will need to become smarter and stronger or the general pressure to boost energy efficiency overall. On the other hand, ABB also offers a solid balance sheet and has a proven track record of being highly cash-flow-positive even in difficult times. Owing to ABB’s moderate valuation, we rate the stock as a BUY with a DCF-based price target of CHF23.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
35% Sales EBIT Sales EBIT 30 7.6% 9.1% 11% 25 24.3% 25.9% Europe 20 18.5% 16.9% 15 38% The Americas 10 27% 5 9.6% Asia 11.8%0 18.1% 15.9% -5 -10 Middle East and Africa 19.7% 22.7% 24% -15 Power Products Power Systems Power Products Power Systems Discrete Low Voltage Process Corporate and Discrete Automation & MotionAutomation & ProductsLow VoltageAutomation Products Other Process Automation Motion Corporate and Other
20 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Momentum of early-cycle automation activities slowing in 2012; ■ Free cash flow again negative in 2012 on the back of planned late-cyclical power systems business however still continuing to acquisition of Thomas & Betts for USD3.9bn in enterprise value benefit from large HVDC transmission grid projects ■ NOPLAT margin likely to remain more or less stable as cost- ■ First-time consolidation of Thomas & Betts from mid-2012 on cutting measures expected to compensate for price pressure in ■ Megatrends (energy efficiency; smart grids) long-term drivers emerging power products
MARGINS INVESTED CAPITAL AND RETURNS
■ Continued likely pricing pressure in emerging power products ■ Following the acquisitions of Baldor in 2011 and Thomas & Betts, ■ Business mix and execution of low-margin legacy backlog average invested capital is to increase again in 2012 weighing on H1 margins ■ ROIC to decline slightly in 2012 since average invested capital ■ Additional cost savings of USD1.0bn planned for 2012 used for ROIC calculation is higher as a result of ABB’s M&A ■ No material restructuring costs on the cards activities
SWOT analysis STRENGTHS OPPORTUNITIES
■ Business mix offering high (ca.50%) emerging-market exposure ■ Rising wealth, urbanisation and industrialisation of emerging ■ About half of business is of late-cyclical nature, smoothing cycles markets driving demand for equipment suppliers like ABB ■ Strong balance sheet and proven record of superior cash flows ■ Ageing infrastructure triggering upgrades and services ■ Undisputed leader in power transmission & distribution products ■ Need to integrate renewable power sources/smart grids ■ Synergies between power and automation activities supporting higher growth of transmission & distribution equipment
WEAKNESSES THREATS
■ ABB late in coming to developing mid-segment product range ■ Pricing pressure from emerging power-product suppliers for emerging-market applications ■ Potentially increasingly protective markets, especially increasing ■ Still relatively low share of recurring higher-margin services influence of ‘buy domestic’ policies business (target is to grow service business to 20%-25% by ■ Usual risks related to integration of larger M&A transactions 2015 from today’s mid-to-higher-mid teens) ■ Risks from aggressive stance in pursuing growth strategy
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In USD m) 2010 2011 2012E 2013E 2014E EV/EBITDA 8.8 7.0 6.7 5.7 5.2 Current assets 25,348 23,787 25,417 28,004 30,832 EV/EBIT 10.4 8.5 8.3 6.9 6.2 Net fixed assets 4,356 4,922 5,272 5,680 6,098 EV/Inv. Capital 2.0 1.5 1.2 1.2 1.1 Goodwill 4,085 7,269 9,219 9,219 9,219 P/E 14.0 11.3 11.2 9.0 8.1 Total assets 36,295 39,648 45,157 47,731 50,590 Cash P/E 13.2 10.6 10.0 8.1 7.4 Sharehold. equit. 14,885 15,777 17,537 19,727 22,270 P/CF 8.0 9.2 7.1 6.2 5.2 Working capital 9,468 11,221 12,105 13,337 14,129 P/BV 2.4 2.3 2.0 1.8 1.6 Net debt -6,428 -1,771 642 -961 -3,129
Income statement Growth rates & balance-sheet ratios (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 31,589 37,990 40,847 45,004 47,676 in sales -0.6 20.3 7.5 10.2 5.9 EBITDA 4,520 5,662 5,916 7,010 7,625 in EBITDA -5.5 25.3 4.5 18.5 8.8 EBIT 3,818 4,667 4,792 5,781 6,369 in EBIT -7.5 22.2 2.7 20.7 10.2 Net profits 2,561 3,168 3,200 3,982 4,422 in cash EPS -11.0 24.3 6.0 23.3 9.2 Cash EPS (USD) 1.18 1.47 1.56 1.92 2.10 Net debt/equity -43.2 -11.2 3.7 -4.9 -14.1 Reported EPS (USD) 1.12 1.38 1.40 1.74 1.93 FCF/net fin. results 14.9 n.m. n.m. 27.3 42.5 DPS (CHF) 0.63 0.71 0.63 0.78 0.82 Current ratio (X) 2.1 1.9 1.8 1.8 1.9
Cash flow statement Ratios, margins and returns (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 3,975 4,876 5,163 6,203 6,756 Gross margin 32.4 32.7 32.0 33.1 33.5 Taxes -1,018 -1,244 -1,239 -1,530 -1,695 EBITDA margin 14.3 14.9 14.5 15.6 16.0 NOPLAT 3,602 3,850 4,152 4,900 5,302 EBIT margin 12.1 12.3 11.7 12.8 13.4 Depreciation 545 786 753 807 869 ROIC 19.2 16.3 14.0 14.7 15.2 CAPEX -840 -1,021 -1,103 -1,215 -1,287 Inv. cap. (USD m) 20,004 27,151 32,352 34,113 35,449 in WC -24.3 -1,753 -885 -1,232 -792 Free cash flow 1,163 -3,297 -1,050 3,139 3,966
Made in Switzerland + | Helvea 21
Ablynx Price: EUR2.7 BUY Target: EUR10.0 M&S
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
Ablynx is a biopharmaceutical company discovering and developing therapeutic Nanobodies, a new class of small-format antibodies derived from llama VHH antibodies. Ablynx’s clinical pipeline is currently built on the company’s proprietary programme in thrombosis (two formulations of the same Nanobody: ALX-0081 combined with ALX-0681 in Ph.II in thrombocytopenic thrombotic purpura, TTP, and the anti-TNF ATN-103 in Ph.II ready for re-partnering. ALX-0141 (Ph.I) is a Nanobody against RANK-L (another TNF member) being developed for treatment of bone diseases. CEO: Edwin Moses; CFO: Wim Ottevaere; Website: www.ablynx.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Belgium EUR14 Major shareholders GIMV 18.3%, Sofinnova 14.0%, Abingworth 9.0%, Gilde 12 EU Food & Agribusiness 6.7%, C.H.Boehringer Sohn 10 AG 4.9%, Alta Partners 4.8% 8 6 Shares outstanding (m) 43.71 EV/EBITDA (X) 4 Market cap. 120 2011 n.m. (EUR m) 2 Free float 36% 2012E n.m. 0 EBITDA/CAGR 2011-2014E n.m. 2013E 5.7 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Ablynx 12-mth tgt Absolute -10% 10% -69% Bloomberg ABLX BB Buy Acc. Neut. Red. N.R. Rel. to local 0% 10% -63% Reuters ABLX.BR
News flow
■ December 2011: Ph.I testing initiated on inhalable ALX-0171 for RS virus infection ■ February 2012: milestone met as Boehringer Ingelheim selects Nanobody for pre-clinical development ■ March 2012: global strategic partnership extended with Boehringer Ingelheim ■ April 2012: TAS266/anti-DR5, the first Nanobody from the Novartis collaboration, moves into Ph.I testing; CTA filed by Boehringer Ingelheim for Nanobody against undisclosed target in Alzheimer’s disease ■ Forthcoming events: 22 August 2012 – H1 2012 results ■ Guidance & consensus: not meaningful
Investment case
The potential market opportunity for ALX-0081/ALX-0681 – bivalent Nanobodies with different formulations – in TTP lies in their new mode of action in targeting von Willebrand Factor (Ph.II data expected for H2 2013). The potential commercial advantages of the TNF-α Nanobody reside in potentially higher clinical efficacy in rheumatoid arthritis (RA), significantly lower production costs and strong commercialisation. Positive re-rating potential is rooted in: 1) potential Ph.II proof-of-concept data trial on ALX-0061 in rheumatoid arthritis, offering the opportunity for this drug to be partnered after clinical proof of concept, and 2) positive results from Ph.I study on anti-RSV ALX- 0171, both falling into H2 2012. For 2012, we expect expansion of existing collaborations as well as new ones.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
150% Sales EBIT Sales EBIT
100
50
0 n.a.
-50
-100 100.0% 100.0%
-150 All drugs All drugs
22 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ In 2012, we expect first upfront payment for licensing out ALX- ■ Cash and equivalents of EUR80.8m at end-2011 0081/ALX0681(anti-vWF) for the TTP indication, ALX0141 ■ We expect yearly net cash flow to be highly dependent on (anti-RANKL) in osteoporosis and the anti-TNF programme milestone payments and licensing-out of drugs up to 2015 ■ Continuous modest revenues from various R&D collaborations ■ We see its pivotal Phase IIb trial on ALX-0081/0681 in the orphan-drug indication TTP currently the most costly trial
MARGINS INVESTED CAPITAL AND RETURNS
■ Margin trend highly dependent on R&D spending ■ If successfully partnered, sustainable revenues from royalties on ■ Profitability hinging on success-based milestone payments on product sales of TNF-α Nanobody from 2017E several partnered programmes as well as future royalty ■ Sales or royalties of its still proprietary ALX-0081/ALX-0681 in revenues and own sales of ALX-0081/ALX-0681 in indication TTP from 2015E of thrombotic thrombocytopenic purpura (TTP) from 2015E
SWOT analysis STRENGTHS OPPORTUNITIES
■ The anti-TNF-α Nanobody showed proof-of-concept ■ Competitive advantage of a TNF-α Nanobody in autoimmunity ■ Diversified partnerships with five pharmaceutical companies ■ ALX-0081/ALX-0681 granted orphan-drug status for TTP, with ■ Platform compatible with development of Nanobodies at faster competition limited to autoimmune cases, but not genetic forms speed and production at reduced cost ■ Rich partnered pre-clinical pipeline ■ Management experienced in diversifying risk ■ TNF-α Nanobody format amenable to alternative delivery routes
WEAKNESSES THREATS
■ Additional development steps required to extend half-life of ■ Potential immunogenicity of Nanobodies higher than we expect, Nanobodies or to change function where needed i.e. in the range of chimaeric murine-human antibodies ■ Only two proprietary programmes in Phase II development ■ Even stiffer competition in market for rheumatoid arthritis lowering ■ GSK/Domantis’ competing platform (working with antibody pharma’s interest in partnering the TNF-α Nanobody programme, fragments of human origin) resulting in delayed development
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA n.m. n.m. n.m. 5.7 3.8 Current assets 121 86.6 109 65.9 117 EV/EBIT n.m. n.m. n.m. 6.7 4.2 Net fixed assets 4.7 5.0 5.3 5.7 6.1 EV/Inv. Capital 16.2 n.m. n.m. n.m. n.m. Goodwill 1.4 1.0 1.1 1.2 1.2 P/E n.m. n.m. n.m. 11.4 7.6 Total assets 131 98.5 119 75.8 128 Cash P/E n.m. n.m. n.m. 11.4 7.6 Sharehold. equit. 101 58.6 39.3 50.1 66.5 P/CF n.m. n.m. n.m. 9.5 6.4 Working capital -0.5 -5.8 -6.3 -6.8 -7.3 P/BV 1.2 2.0 3.0 2.4 1.8 Net debt -111 -78.3 -101 -57.2 -108
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 31.4 21.9 49.1 74.6 84.1 in sales 5.9 -30.4 n.m. 52.0 12.8 EBITDA -23.5 -43.1 -17.5 16.1 23.9 in EBITDA n.m. n.m. n.m. n.m. 48.5 EBIT -25.9 -45.5 -19.9 13.7 21.5 in EBIT n.m. n.m. n.m. n.m. 57.0 Net profits -24.5 -43.9 -19.3 10.8 16.4 in cash EPS n.m. n.m. n.m. n.m. 49.4 Cash EPS (EUR) -0.58 -1.01 -0.43 0.24 0.36 Net debt/equity -111 -133 -256 -114 -163 Reported EPS (EUR) -0.58 -1.01 -0.43 0.24 0.36 FCF/net fin. results 13.0 11.3 n.m. 58.4 n.m. DPS (EUR) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 4.1 2.3 2.4 4.0 2.2
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA -25.9 -45.5 -19.9 13.7 21.5 Gross margin n.m. n.m. n.m. n.m. n.m. Taxes -6.5 -11.4 -5.0 3.4 5.4 EBITDA margin -74.7 n.m. -35.6 21.6 28.4 NOPLAT -19.7 -34.6 -15.0 10.1 16.0 EBIT margin -82.3 n.m. -40.5 18.4 25.6 Depreciation 2.4 2.2 2.3 2.5 2.7 ROIC n.m. n.m. n.m. n.m. n.m. CAPEX -0.3 -0.4 -0.4 -0.4 -0.5 Inv. cap. (EUR m) 5.6 0.2 0.1 0.1 0.1 in WC -0.8 13.8 39.0 -54.3 3.9 Free cash flow -18.1 -18.5 26.0 -41.9 22.3
Made in Switzerland + | Helvea 23
Acino Price: CHF111.- BUY Target: CHF142.- M&S
Odile Rundquist, PhD ([email protected]) – Tel. +41 (0)22 354 9159
Acino is focused on developing, registering and manufacturing added-value generics and innovative pharmaceuticals using its advanced drug-delivery technologies for the generic and prescription pharmaceuticals industry. The company recently completed the acquisition of Cephalon/Mepha’s Middle East, Latin American, African and Asia businesses as well as Mepha’s production and R&D plant, which will add EUR105m in revenues to Acino’s own sales of EUR144m and increase the group’s business-to-consumer activity in emerging growth markets. CEO: Peter Burema; CFO: Walter Saladin; Website: www.acino-pharma.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Switzerland CHF146 Major shareholders Acino Pharma AG 8.3%, Pictet&Cie 5.1%, LB Swiss 130 Investment 3.1%, Schroder 3.1%, Others 80.4% 114 98 Shares outstanding (m) 3.46 EV/EBITDA (X) 82 Market cap. (EUR m) 319 2011 17.0 66 Free float 100% 2012E 8.7 50 EBITDA/CAGR 2011-2014E 40.1% 2013E 7.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Acino 12-mth tgt Absolute 4% 20% 30% Bloomberg ACIN SW Buy Acc. Neut. Red. N.R. Rel. to local 7% 13% 44% Reuters ACIN.S
News flow
■ On 17 February 2012, Acino completed the acquisition of Mepha’s international business for EUR94m financed through the issue of 268,000 shares, cash and a bank loan of EUR110m ■ Forthcoming event: 2 August 2012 – H1 2012 results ■ Guidance & consensus: for 2012, management guided for total revenues amounting to EUR240-260m. In the longer term, the target EBITDA margin, supported by new product launches and improving profitability, has been raised to 25% as a sustainable level. Consensus estimates for EBIT stand at EUR30.1m for 2012 and at EUR37.6m for 2013
Investment case
The acquisition of Cephalon/Mepha’s combined Middle East/African/Latin American/Asian businesses has been a game-changer for Acino. Given Mepha’s commitment to the same high-quality standards, the acquired products ideally complement Acino’s portfolio and will allow a more consistent performance until Acino’s key pipeline projects [goserelin and leuprorelin implants (prostate cancer); rivastigmine (Alzeihmer’s); contraceptive patch (with Bayer)] enter the market in 2013. Importantly this acquisition has significantly expanded Acino’s business-to- consumer (B2C) operations in emerging markets as well as it has reduced its reliance on a German market dominated by health insurance tenders (its exposure to Germany has dropped to 27% from 42%).
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT 6%
Germany UK 23% 39% 42% n.a. France Netherlands
71% 1% Switzerland Others 3% 5% 10%
Peroral (Cimex) Parenteral (Novosis) Other revenues
24 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Thanks to the acquisition of Mepha’s combined emerging ■ Gross margin stabilising owing to expected price pressure on the market businesses, sales are expected to climb by some 88% generics industry (especially in Germany), offset by increased in 2012 until new products (goserelin, leuprorelin, contraceptive penetration of Acino brand in emerging growth markets patch, rivastigmine) hit the market in 2013 ■ Free cash flow as of 2012 significantly increasing thanks to ■ Ex-acquisition, sales to grow at a high single-digit rate higher sales and operating results
MARGINS INVESTED CAPITAL AND RETURNS
■ Margin expansion thanks to the Mepha acquisition and high- ■ ROIC increasing thanks to a very earnings-enhancing acquisition margin products kicking in as of 2013 ■ Sales in emerging markets/new products to lift ROIC as of 2012 ■ EBITDA margin projected to gradually increase to 25% in the ■ EUR20m (from a total price of EUR94m for the announced longer term (from 14.1% in 2010) acquisition) has been paid from authorised capital
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading supplier of a broad range of products ■ Further growth potential in innovative transdermal delivery ■ Strong expertise in delivery-system technology, coupled with a systems (Zoladex generic, leuprorelin, contraceptive patch) well filled portfolio of difficult-to-make generics ■ Growth potential in emerging markets ■ Diversified business model thanks to B2B and B2C activities ■ Balance sheet remains strong despite recent acquisitions recently enhanced in emerging markets
WEAKNESSES THREATS
■ Reliance on third party for manufacturing (India) ■ Potential delays in registration process due to regulatory issues ■ The company has no interest in biogenerics and patent litigation ■ No exposure to the USA ■ Price reductions in other European countries to follow the example of Germany ■ Integration risk following the recently announced acquisitions
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 24.3 17.0 8.7 7.2 6.2 Current assets 88.8 58.2 97.9 107 112 EV/EBIT n.m. 65.5 14.4 11.4 8.5 Net fixed assets 89.9 102 116 126 136 EV/Inv. Capital 1.9 1.6 1.1 1.1 1.1 Goodwill 150 151 150 144 141 P/E 64.9 51.3 13.2 10.8 8.1 Total assets 345 330 492 506 518 Cash P/E 12.5 17.6 9.0 7.4 6.4 Sharehold. equit. 253 257 277 300 331 P/CF n.m. 14.2 7.7 6.4 5.6 Working capital 3.2 11.2 20.1 22.0 23.3 P/BV 1.2 1.1 1.2 1.1 1.0 Net debt -20.5 8.6 120 104 80.2
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 128 135 253 277 294 in sales -19.4 5.8 87.8 9.5 5.9 EBITDA 18.0 25.7 50.0 60.9 70.6 in EBITDA -72.3 42.9 94.9 21.8 15.9 EBIT -9.0 6.7 30.4 38.4 51.1 in EBIT n.m. n.m. n.m. 26.3 33.1 Net profits 4.5 5.7 23.2 29.4 39.4 in cash EPS -54.8 -29.3 96.4 21.5 16.5 Cash EPS (EUR) 7.38 5.22 10.3 12.5 14.5 Net debt/equity -8.1 3.4 43.4 34.8 24.2 Reported EPS (EUR) 1.42 1.80 6.99 8.49 11.4 FCF/net fin. results 10.0 1.6 18.2 24.6 32.6 DPS (CHF) 2.50 1.00 2.00 2.20 2.50 Current ratio (X) 1.4 1.0 1.1 1.3 1.3
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 9.9 17.6 41.3 52.2 62.0 Gross margin 60.3 68.1 68.5 68.7 68.5 Taxes 17.4 3.2 8.711.213.3 EBITDA margin 14.1 19.0 19.7 22.0 24.0 NOPLAT -7.5 14.5 32.6 40.9 48.7 EBIT margin -7.1 4.9 12.0 13.9 17.4 Depreciation 8.0 8.1 8.7 8.8 8.7 ROIC -3.3 5.8 9.8 10.2 11.9 CAPEX 25.1 31.7 32.0 27.0 26.0 Inv. cap. (EUR m) 232 266 397 404 412 in WC -7.3 8.0 8.9 1.9 1.3 Free cash flow -31.9 -1.1 18.2 24.6 32.6
Made in Switzerland + | Helvea 25
Actelion Price: CHF36.7 BUY Target: CHF72.0 M&S
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
Originally founded in 1997 by former Roche employees, Actelion made its debut on the Swiss New Market in April 2000. The company was focused on developing endothelin-receptor antagonists (ERAs) for treatment of certain cardiovascular diseases. Its first product, Tracleer, for treating pulmonary arterial hypertension (PAH), has been complemented with Ventavis and thermostable Veletri, both for PAH too. Actelion’s clinical pipeline continues to be diversified in terms of indications addressed, i.e. compounds for bacterial infections, insomnia, autoimmune diseases and allergic conditions. CEO: Jean-Paul Clozel; CFO: Andrew Oakley; Website: www.actelion.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Switzerland CHF74 Major shareholders Management & Directors 6.1%, CEO J.-P. Clozel 3.7%, 65 Orbis 5.1%, BB Biotech 4.9%, BlackRock 3.0%, Bank of 56 NY Mellon 2.4% 47 Shares outstanding (m) 131 EV/EBITDA (X) 38 Market cap. (CHF m) 4,793 2011 28.6 29 Free float 75% 2012E 8.9 20 EBITDA/CAGR 2011-2014E 50.2% 2013E 8.9 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Actelion 12-mth tgt Absolute 8% 15% -21% Bloomberg ATLN VX Buy Acc. Neut. Red. N.R. Rel. to local 10% 8% -13% Reuters ATLN.VX
News flow
■ November 2011: court award in Asahi case lowered by USD170m to USD407m; Actelion to appeal the verdict ■ February 2012: distribution agreement on Auxilium’s XIAFLEX for Canada, Australia, Brazil and Mexico ■ April 2012: CRTH2 programme on allergic conditions to be continued with a more potent Ph.I compound ■ April 2012: macitentan Ph.III outcome positively surprises with a 45% risk reduction for morbidity/mortality in PAH ■ Forthcoming event: 19 July 2012 – H1 2012 results ■ Guidance & consensus: management’s 2012 guidance is ‘slight negative growth of revenues in the low single- digit range and flat core earnings’ in l.c.; consensus EBIT estimate of CHF325m for 2012, CHF368m for 2013
Investment case
Macitentan now contributes the most (50%) to our valuation of the company followed by Tracleer (28%), as its Ph.III outcome data now position Tracleer’s follow-up as superior to what is currently available for treating PAH: 45% risk reduction for morbidity/mortality in PAH and, among others, also risk of death due to PAH proven to be lowered. Tracleer is currently losing market share in the USA to Letairis (carries no black-box warning for liver toxicity). We forecast macitentan to achieve peak sales of CHF2bn by 2019, following Tracleer’s loss of market exclusivity in 2016/17; selexipag is due to report Ph.III interim result in 2013 and is positioned to foster the PAH franchise. Actelion has potential to grow with ponesimod, ready for Ph.III, in indications like multiple sclerosis.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
5% 20%
Europe USA 37% 1% n.a.
Switzerland RoW
95% 42%
Product sales Contract revenue
26 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Underlying US sales to decline due to Letairis competition ■ Increase in FCF driven by scope for improved efficiency in ■ Tracleer’s sales to grow in emerging markets and profit in other working capital markets from use in early PAH (Class II) and digital ulcers ■ Cash of CHF1.3bn by end-Q1 2012: likely use – product rights ■ First tangible sales of thermostable epoprostenol (Veletri) ■ Upside to NOPLAT and free cash flow in 2012 from potential ■ Partnering activities in 2012 could lead to additional revenues upfront and milestone payments from partnering activities
MARGINS INVESTED CAPITAL AND RETURNS
■ EBIT margin to improve in 2012 as non-cash charges absent ■ ROIC to decline in 2011 and 2012, as NOPLAT to fall on forex ■ EBIT margin mostly dependent on number of Phase III trials grounds whilst value of fixed assets from R&D continues to grow ■ Potential on the SG&A front for further expansion in margins ■ Prospect that rights to new late-stage products will be acquired in from 2012 after active marketing of thermostable epoprostenol, 2012, possibly enabling extension into new therapeutic areas Veletri, for PAH in the USA on the back of Ph. IV data ■ Possibility that its MS and asthma pills will be partnered in 2012
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong track record in Tracleer: pre-/clinical R&D and marketing ■ Expand PAH market with 1st oral PGI2 agonist: selexipag in Ph.III ■ Good marketing presence ■ Increase awareness in various conditions underlying PAH ■ Strong partnerships with big pharma (GSK and Merck & Co.) ■ Product-related acquisitions very likely to be continued while some co-marketing rights still retained ■ Expertise in niche markets: rare lung and metabolic disorders ■ Management’s track record in building up PAH opportunity ■ Novel undisclosed cardiovascular compound in Phase I testing
WEAKNESSES THREATS
■ Disappointment over repeated failures in clinical studies on ■ US PAH patients switching from Tracleer to major direct tezosentan, Tracleer/bosentan, palosuran and clazosentan competitor ambrisentan (Letairis/Volibris), as it has no liver tests ■ Substitute for inhalable Ventavis needed to bypass patent loss ■ United Therapeutic’s inhalable Tyvaso superior to Ventavis (2011; but likely to be en route with oral selexipag in Phase III) ■ Saturation of PAH specialist centres delaying new trials ■ Prioritisation of R&D in speciality indications comes late ■ Leadership in orexin antagonists (almorexant) lost to Merck & Co.
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 7.1 28.6 8.9 8.9 8.4 Current assets 2,112 1,982 2,102 2,323 2,566 EV/EBIT 8.9 n.m. 12.5 12.5 11.6 Net fixed assets 399 425 417 438 460 EV/Inv. Capital 4.1 4.0 4.1 4.0 3.9 Goodwill 75.0 74.9 74.0 74.0 74.0 P/E 11.2 n.m. 19.0 18.3 16.7 Total assets 2,921 2,732 2,829 3,076 3,348 Cash P/E 10.3 18.7 16.4 16.1 14.9 Sharehold. equit. 1,795 1,510 1,729 1,962 2,218 P/CF 10.0 13.0 14.0 14.0 13.1 Working capital 518 532 502 503 514 P/BV 2.7 3.2 2.8 2.4 2.2 Net debt -1,022 -714 -907 -1,127 -1,359
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 1,929 1,796 1,688 1,681 1,707 in sales 8.8 -6.9 -6.0 -0.4 1.6 EBITDA 577 143 457 457 484 in EBITDA 31.3 -75.2 n.m. 0.0 5.8 EBIT 457 12.2 326 326 353 in EBIT 34.7 -97.3 n.m. 0.0 8.1 Net profits 391 -146 225 233 256 in cash EPS 26.5 -45.0 13.9 2.0 7.5 Cash EPS (CHF) 3.57 1.97 2.24 2.28 2.46 Net debt/equity -56.9 -47.3 -52.5 -57.4 -61.3 Reported EPS (CHF) 3.28 -1.23 1.93 2.00 2.20 FCF/net fin. results 2.4 1.3 25.2 34.5 42.8 DPS (CHF) 0.80 0.80 0.82 0.83 0.55 Current ratio (X) 2.1 3.8 4.7 5.1 5.4
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 500 392 362 359 382 Gross margin 89.6 89.2 88.9 89.1 91.2 Taxes -57.1 -67.8 -61.5 -61.0 -65.0 EBITDA margin 29.9 8.0 27.1 27.2 28.3 NOPLAT 443 324 300 298 317 EBIT margin 23.7 0.7 19.3 19.4 20.7 Depreciation 35.7 43.7 42.8 44.9 47.1 ROIC 48.9 32.0 29.7 29.7 30.8 CAPEX 128 89.4 -7.3 20.9 21.9 Inv. cap. (CHF m) 992 1,032 993 1,015 1,048 in WC 117 40.5 -27.9 0.5 10.4 Free cash flow 39.5 47.3 264 215 220
Made in Switzerland + | Helvea 27
Addex Price: CHF8.5 BUY Target: CHF18.0 M&S
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
Addex, a biopharmaceutical company located in Geneva, specialises in discovering and developing small-molecule drugs based on the principle of allosteric modulation of G-protein-coupled (GPCRs) and other receptors, likely to become first-in-class innovative therapeutics as they are designed to treat diseases from a new angle. These structures – positive or negative allosteric modulators (PAMs/NAMs) – are potentially safer as they carry a lower risk of off/on-target side- effects as they preserve the body’s physiological rhythms. Partnership with J&J is ongoing in Phase II. CEO: Bharatt Chowrira; CFO: Tim Dyer; Website: www.addextherapeutics.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Switzerland CHF18 Major shareholders BVF Partners 30.0%, Sofinnova 10.3%, TVM Life Sc. 16 Vent. 9.0%, Swiss Helvetia Fund 4.5%, SRone 3.2% 14 12 10 Shares outstanding (m) 7.79 EV/EBITDA (X) 8 Market cap. 66 2011 n.m. (CHF m) 6 Free float 43% 2012E n.m. 4 EBITDA/CAGR 2011-2014E n.m. 2013E 0.9 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Addex 12-mth tgt Absolute 25% 55% -19% Bloomberg ADXN SW Buy Acc. Neut. Red. N.R. Rel. to local 28% 45% -11% Reuters ADXN.S
News flow
■ June/July 2011: CEO steps down, followed by corporate reorganisation under Chairman ■ July 2011: Merck & Co. hands back the rights on the mGluR5 PAM programme ■ August/September 2011: Dr Bharatt Chowrira new CEO; mGluR4 PAM rights regained from Merck & Co. ■ March 2012: dipraglurant’s proof-of-concept, POC, with good safety and tolerability established in Ph.IIa ■ May 2012: cost-cutting measures with FTEs reduced to 52 (from 81), Addex herewith financed into Q4 2013 ■ Forthcoming event: H1 2012 results – date not yet announced ■ Guidance & consensus: not meaningful
Investment case
Addex focuses on drug discovery targeting GPCRs that have not been accessible by orthodox means, but which promise to deliver drugs based on allosteric modulation; cytokine receptors have now also been added as drug targets. The signal of liver toxicity seen in Ph.II trial on preventing migraine led Addex to halt ADX10059 (mGluR5 NAM) at end-2009. ADX48621 (dipraglurant), a second-generation mGluR5 NAM, demonstrated POC and good safety and tolerability in Ph.IIa for l-DOPA-induced dyskinesia in Parkinson’s disease. Partnering of its compounds is definitely being already considered at early stage for programmes not fulfilling Addex’s requirements for in-house development (i.e. clinical development at low cost combined with low complexity of POC studies).
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
n.a. n.a. n.a.
28 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We expect milestone payment of EUR2.5m from J&J for early ■ Cash position of CHF36.1m at end-2011 2012 on start of Phase II programme on ADX71149 in anxiety ■ We forecast 2012 cash burn rate to be CHF19m before revenues ■ Established Ph.IIa POC and safety of ADX48621 (dipraglurant) from active or pending partnering deals; cash until Q4 2013 in PD-LID will trigger partnering in H2 2012: extended-release ■ Addex unlikely to run costly Phase II trials for the time being formulation for dystonia then to be tested in Ph.I by licensee ■ Financing depends on upfront/milestone payments
MARGINS INVESTED CAPITAL AND RETURNS
■ Margin trend highly dependent on R&D spending ■ In line with its business concept, Addex’s profitability will continue ■ For the coming years, profitability will hinge on sequence of to depend on the licensing-out of its drug candidates developed upfront and milestone payments in-house, i.e. related upfront and milestone payments ■ Addex positioning itself to generate sustainable revenues from upfront and milestone payments and sales royalties from partners
SWOT analysis STRENGTHS OPPORTUNITIES
■ World leader in systematic generation of NAMs/PAMs of ■ Most GPCRs have remained resistant to traditional drug GPCRs; now also targeting other protein receptors development by big pharmaceutical companies ■ Managed to develop a first compound to Ph.II proof-of-concept ■ Addressing GPCRs’ allosteric modulation makes them ‘druggable’ data for two indications, GERD and migraine ■ Big pharmaceutical companies particularly eager to license in ■ Extending pipeline into metabolic and inflammatory disorders novel compounds with clear potential for differentiation
WEAKNESSES THREATS
■ Risk of failure for allostery has diminished somewhat, with two ■ Failure of allosteric modulators to reach clinically meaningful allosteric modulators, Cinacalcet and Selzentry, now approved effectiveness combined with acceptable safety and tolerance ■ Little transparency about what is the ‘state-of-the-art’ (potential ■ Being surpassed in R&D on allosteric modulators by competitors competitors and their stage of drug development) ■ Innovation cycles of technology platforms potentially questioning ■ Current financial means do not allow late-stage clinical R&D Addex’s strategic value in discovery research on allosterics
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA -0.8 -0.9 n.m. n.m. n.m. Current assets 66.5 38.1 31.6 59.0 38.0 EV/EBIT -0.7 -0.8 n.m. n.m. n.m. Net fixed assets 6.7 4.0 4.0 4.2 4.4 EV/Inv. Capital 3.9 5.6 n.m. n.m. n.m. Goodwill 0.0 0.0 0.0 0.0 0.0 P/E n.m. n.m. n.m. n.m. n.m. Total assets 74.3 43.6 37.2 64.8 44.0 Cash P/E n.m. n.m. n.m. n.m. n.m. Sharehold. equit. 64.4 33.8 27.0 54.1 32.8 P/CF n.m. n.m. n.m. n.m. n.m. Working capital -0.4 0.3 0.3 0.3 0.4 P/BV 0.9 2.0 n.m. n.m. n.m. Net debt -65.3 -37.3 -30.7 -58.0 -36.9
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 4.0 3.7 12.5 47.5 0.0 in sales -11.2 -6.4 n.m. n.m. n.m. EBITDA -30.7 -28.0 -8.1 26.0 -22.5 in EBITDA n.m. n.m. n.m. n.m. n.m. EBIT -33.6 -31.0 -11.1 23.1 -25.5 in EBIT n.m. n.m. n.m. n.m. n.m. Net profits -33.6 -31.1 -10.8 23.3 -25.0 in cash EPS n.m. n.m. n.m. n.m. n.m. Cash EPS (CHF) -5.69 -4.19 -1.45 3.14 -3.37 Net debt/equity -101 -110 -114 -107 -113 Reported EPS (CHF) -5.69 -4.19 -1.45 3.14 -3.37 FCF/net fin. results 344 388 23.6 n.m. 43.9 DPS (CHF) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 7.2 4.4 3.5 6.1 3.8
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA -33.6 -31.0 -11.1 23.1 -25.5 Gross margin n.m. n.m. n.m. n.m. n.m. Taxes 0.0 0.0 -0.9 1.8 -2.0 EBITDA margin n.m. n.m. n.m. n.m. n.m. NOPLAT -33.6 -31.0 -11.1 23.1 -25.5 EBIT margin n.m. n.m. n.m. n.m. n.m. Depreciation 2.9 2.9 3.1 3.2 3.4 ROIC n.m. n.m. n.m. n.m. n.m. CAPEX -0.4 -0.2 0.0 -0.2 -0.2 Inv. cap. (CHF m) 6.2 4.3 4.3 4.5 4.7 in WC -2.4 0.2 0.3 0.3 0.4 Free cash flow -33.4 -28.0 -6.8 24.7 -19.9
Made in Switzerland + | Helvea 29
Adecco Price: CHF37.7 NEUTRAL Target: CHF47.0 Large Caps
Chris Burger, CFA ([email protected]) – Tel. +41 (0)43 388 9259
Adecco was created in 1996 through the merger of Adia (Switzerland) and Ecco (France). It is the world’s leading provider of human-resources (HR) solutions. With close to 33,000 full-time-equivalent (FTE) employees and more than 5,500 offices in over 60 countries around the world, the Adecco group offers a wide variety of services, connecting more than 700,000 associates with over 100,000 clients every day. The services offered fall into the broad categories of temporary staffing, permanent placement, outsourcing, consulting and outplacement. CEO: Patrick de Maeseneire; CFO: Dominik de Daniel; Website: www.adecco.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF79 Major shareholders Jacobs Holding 18.3%Akila Finance 5.4% 70 61 52 Shares outstanding (m) 189 EV/EBITDA (X) 43 Market cap. (EUR m) 5,927 2011 7.5 34 Free float 76% 2012E 7.5 25 EBITDA/CAGR 2011-2014E 12.1% 2013E 6.1 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Adecco 12-mth tgt Absolute -17% -4% -35% Bloomberg ADEN VX Buy Acc. Neut. Red. N.R. Rel. to local -15% -10% -28% Reuters ADEN.VX
News flow
■ January 2012: bolt-on acquisition in Japanese professional staffing ■ March 2012: full-year 2011 results (revenues: EUR20.545bn; EBITA: EUR814m) in line, with strong gross margin and dividend; restructuring programme instigated to save costs ■ May 2012: Q1 2012 results – revenues of EUR5.035bn; EBITA of EUR182m; strong gross margin of 18.2% ■ Forthcoming event: 9 August 2012 – H1 2012 results ■ Guidance & consensus: no specific guidance disclosed by management; consensus EBIT estimates stand at EUR850m for 2012 and at EUR985m for 2013
Investment case
We remain convinced by Adecco’s long-term strategy of focusing on profitability and, more specifically, by management’s impressive cost-control management. We believe that Adecco is right to be optimistic about beating previous peak penetration rates and that, consequently, the medium-term EBITA margin target of over 5.5% is also achievable. However, this could take longer than initially planned, especially as the bulk of Adecco’s business is in Europe (with broad exposure to France) where markets are still slowing down.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBITA
France 25% 29% 30% 29% North America
n.a. UK & Ireland 5% Japan
8% 7% Germany & Austria 18% 18% 7% 8% Other 8% 8% France North America UK & Ireland Japan Germany & Austria Italy Other incl. corporate expenses
30 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Slowdown to slightly negative organic revenue growth in 2012 ■ Highly cash-generative business due to Europe ■ Lower change in NWC expected due to slower growth ■ Both acquisitions and currencies expected to have slightly ■ Generally, relatively low capital-intensity, with capital spending positive impact in 2012 projected to remain fairly stable ■ Long-term growth drivers: flexibility, deregulation, globalisation ■ Clear focus on management of days sales outstanding (DSO)
MARGINS INVESTED CAPITAL AND RETURNS
■ Gross margin projected to benefit from mix effects in 2012 ■ Stable invested capital and improving results should see ROIC ■ In addition, the acquisition of Drake Beam Morin will have a climb back to more normal levels as from 2013 positive impact in 2012 ■ Clear focus on EVA management should keep NWC fairly stable ■ Stringent cost control will keep SG&A costs under control ■ Relatively asset-light business with high ROIC in a normal ■ One-off restructuring costs for France and other regions environment
SWOT analysis STRENGTHS OPPORTUNITIES
■ Clear strategy of focusing on profitability ■ High leverage potential ■ Market leader in traditional staffing – well diversified ■ Demand for more flexibility in the labour market, deepening ■ Market leader in professional staffing following acquisition of penetration MPS Group ■ Deregulation, increasing outsourcing and globalisation ■ Good management track record ■ Shift to higher-margin businesses
WEAKNESSES THREATS
■ High exposure to its key markets (France and the USA), which ■ Economic risks are mature ■ Pricing pressure could intensify ■ High exposure to low-margin general staffing business ■ Acquisition risk ■ Highly cyclical ■ Bad-debt risk owing to high accounts receivable
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 8.4 7.5 7.5 6.1 5.3 Current assets 4,446 4,683 4,743 4,961 5,241 EV/EBIT 10.2 9.0 9.1 7.1 6.2 Net fixed assets 291 313 276 222 168 EV/Inv. Capital 1.6 1.5 1.4 1.5 1.5 Goodwill 3,851 4,048 4,135 4,135 4,135 P/E 14.4 11.5 12.8 9.6 8.1 Total assets 8,879 9,354 9,464 9,628 9,854 Cash P/E 14.3 11.5 12.7 9.6 8.1 Sharehold. equit. 3,565 3,808 4,047 4,430 4,898 P/CF 9.7 8.2 8.7 7.1 6.3 Working capital 420 604 606 615 628 P/BV 1.7 1.6 1.5 1.3 1.2 Net debt 751 892 701 273 -236
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 18,656 20,545 20,732 21,779 23,279 in sales 26.1 10.1 0.9 5.0 6.9 EBITDA 809 907 914 1,127 1,279 in EBITDA n.m. 12.1 0.8 23.2 13.5 EBIT 667 763 750 960 1,106 in EBIT n.m. 14.4 -1.6 27.9 15.2 Net profits 423 519 465 618 729 in cash EPS n.m. 23.6 -9.5 32.8 18.0 Cash EPS (EUR) 2.20 2.72 2.46 3.27 3.86 Net debt/equity 21.1 23.4 17.3 6.2 -4.8 Reported EPS (EUR) 2.17 2.72 2.46 3.27 3.86 FCF/net fin. results 2.8 4.8 7.1 11.2 16.7 DPS (CHF) 1.10 1.80 1.80 2.00 2.30 Current ratio (X) 1.2 1.2 1.2 1.2 1.2
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 722 814 802 1,014 1,166 Gross margin 17.8 17.4 18.1 18.2 18.2 Taxes -198 -185 -233 -297 -343 EBITDA margin 4.3 4.4 4.4 5.2 5.5 NOPLAT 524 629 570 716 823 EBIT margin 3.6 3.7 3.6 4.4 4.7 Depreciation 87.0 93.0 112 113 113 ROIC 13.9 14.0 12.1 15.1 17.6 CAPEX -105 -109 -110 -113 -119 Inv. cap. (EUR m) 4,318 4,703 4,751 4,706 4,665 in WC -245 -184 -1.6 -9.2 -13.1 Free cash flow 177 369 531 707 804
Made in Switzerland + | Helvea 31
Arbonia Forster Price: CHF17.0 BUY Target: CHF28.0 M&S
Patrick Appenzeller ([email protected]) – Tel. +41 (0)43 388 9267
Arbonia Forster Group (AFG) is one of the leading suppliers to the construction industry in Europe. It comprises five divisions: Heating Technology & Sanitary Equipment; Kitchens & Refrigeration; Windows & Doors; Steel Technology; Surface Technology. AFG enjoys a strong market position in its domestic markets of Switzerland and Germany, and intends to increase its market share in international markets, in particular in Eastern Europe, Russia and China. In 2011, the average headcount (full-time equivalent) was around 6,000. CEO: Daniel Frutig; CFO: Felix Bodmer; Website: www.afg.ch (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Construction/Switzerland CHF 46 Major shareholders Dr. Edgar Oehler 18.4%, Others 81.6% 40 34 28 Shares outstanding (m) 18.23 EV/EBITDA (X) 22 Market cap. (CHF m) 309 2011 4.5 16 Free float 82% 2012E 3.6 10 EBITDA/CAGR 2011-2014E 18.4% 2013E 3.1 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Arbonia Forster 12-mth tgt Absolute -25% -11% -49% Bloomberg AFGN SW Buy Acc. Neut. Red. N.R. Rel. to local -23% -17% -43% Reuters AFG.S
News flow
■ August 2011: H1 2011 results dented by high raw material costs and currencies ■ March 2012: full-year 2011 results weak as expected, 2012 to be a transition year, with the effects of the restructuring to kick in from 2013 onwards ■ May 2012: Divestment of Aqualux will lead to a negative group result in H1 2012 ■ Forthcoming events: 7 August 2012 – H1 2012 results ■ Guidance & consensus: for the current year, Arbonia Forster expects organic sales growth of 3%-5% and higher operating profits; consensus EBIT estimates stand at CHF57m for 2012 and at CHF65m for 2013
Investment case
An investment in Arbonia Forster requires patience and investors should not bet on results rising in the near future as H1 2012 will still be suffering from negative impacts from several factors. However, we continue to believe that Arbonia Forster will be successfully turned around, with necessary portfolio adjustments and significant margin potential up to 2014, which should become visible over the next one to two years. Given such a scenario, the shares offer huge upside potential. In H2 2012, Arbonia Forster not only stands to benefit from its regional exposure, with an ongoing positive outlook for the Swiss and German construction markets, but also from lower raw material prices (especially steel) and favourable y-o-y currency movements.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
150% Sales EBIT Sales EBIT 4.7%0.2% 100 11.2% 15.7% 50 35.6% Switzerland Germany 0 5.6% 37% 30.0% 40% -50 3.5%
-100 40.0% -150 Others 24.0% -200 10.4% 19.0% 23% -250 Heating Technology & Sanitary Kitchens and Refrigeration Heating Kitchens and Steel Windows and Surface Other / SteelTechnology Technology & Refrigeration Technology WindowsDoors andTechnology Doors Consolidation SurfaceSanitary Technology Other / Consolidation
32 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Still positive outlook for new residential construction in Europe ■ Free cash flow likely to recover strongly in 2012 on higher profits for 2012-13; forecasts for Switzerland & Germany promising and lower capital spending with further upside in 2013 and ■ Renovation work dependent on consumer confidence and beyond, helped by restructuring and portfolio adjustments unemployment, but stimulated by energy-saving trend ■ Modern production facilities after the high investment phase in ■ Ongoing internationalisation and innovations Forster, windows production and Surface Technology
MARGINS INVESTED CAPITAL AND RETURNS
■ Improved capacity utilisation, especially at Windows & Doors ■ Profitability likely to recover from still fairly low levels in 2012 ■ Reasonable margins at the two ‘core’ divisions, dented by other ■ ROIC unlikely to cover the cost of capital with the company’s divisions that are heavily influenced by cycles and currencies current portfolio (which we expect to change), but satisfactory ■ Group EBIT margin target of >8% seems unachievable with returns from the two biggest divisions are likely to continue current portfolio and looks dependent on likely M&A deals
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong positions in Switzerland (No.1 in Kitchens/Refrigeration, ■ Longer-lasting upturn in Swiss/German residential constr. sectors Windows & Doors) and Germany (mainly shower enclosures) ■ Potential in markets outside of Switzerland and Germany ■ High market-entry barriers for potential competitors, partly ■ Energy-saving trend to support renovation work medium term supported by strong relationship with intermediaries ■ Revised strategy/M&A transactions to optimise AFG’s portfolio ■ Low-cost production plants in Eastern Europe ■ Positive effects of the restructuring programmes
WEAKNESSES THREATS
■ High dependence on Germany and Switzerland (>70% of sales) ■ Double dip in European new residential markets ■ Uncertainties about Dr Oehler’s 18% stake ■ Renovation activities affected by high unemployment, low ■ Low margin potential in Kitchens & Refrigeration division consumer confidence and reluctance to finance large projects ■ High cyclicality, especially at the Surface Technology division ■ Reliance on steel; few own distribution networks for radiators ■ Adverse transaction impact of non-construction divisions ■ Franc strengthening further; increased competition in Switzerland
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 3.7 4.5 3.6 3.1 2.7 Current assets 605 581 586 602 628 EV/EBIT 9.4 n.m. 7.8 5.9 4.7 Net fixed assets 607 550 553 548 547 EV/Inv. Capital 0.5 0.6 0.6 0.6 0.6 Goodwill 59.4 57.5 57.5 57.5 57.5 P/E 21.6 n.m. 10.3 6.5 4.8 Total assets 1,388 1,271 1,279 1,291 1,316 Cash P/E 11.2 72.7 10.3 6.5 4.8 Sharehold. equit. 581 496 520 551 593 P/CF 2.8 2.8 2.8 2.4 2.2 Working capital 150 132 127 130 134 P/BV 0.5 0.6 0.6 0.6 0.5 Net debt 170 168 139 103 60.3
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 1,414 1,347 1,375 1,417 1,470 in sales 2.1 -4.7 2.0 3.1 3.8 EBITDA 121 100 124 145 166 in EBITDA 14.3 -17.3 24.2 16.8 14.4 EBIT 47.5 -34.3 57.4 76.1 94.9 in EBIT n.m. n.m. n.m. 32.6 24.7 Net profits 14.2 -70.2 27.8 43.7 59.7 in cash EPS 32.5 -84.6 n.m. 56.8 36.4 Cash EPS (CHF) 1.51 0.23 1.65 2.59 3.53 Net debt/equity 29.3 34.0 26.7 18.7 10.2 Reported EPS (CHF) 0.79 -3.84 1.65 2.59 3.53 FCF/net fin. results 2.7 0.6 2.2 3.3 4.5 DPS (CHF) 0.50 0.00 0.50 0.80 1.00 Current ratio (X) 2.9 2.7 2.6 2.6 2.6
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 47.5 -34.3 57.4 76.1 94.9 Gross margin 57.3 56.6 57.2 57.2 57.1 Taxes -11.9 8.6 -14.3 -19.0 -23.7 EBITDA margin 8.6 7.4 9.1 10.3 11.3 NOPLAT 35.6 -25.8 43.0 57.1 71.2 EBIT margin 3.4 -2.5 4.2 5.4 6.5 Depreciation 73.6 135 67.1 69.2 71.4 ROIC 4.2 -3.3 5.8 7.7 9.7 CAPEX -41.0 -70.0 -70.0 -65.0 -70.4 Inv. cap. (CHF m) 816 739 738 736 739 in WC -8.2 -25.8 4.5 -2.8 -3.5 Free cash flow 60.0 13.0 44.6 58.5 68.7
Made in Switzerland + | Helvea 33
Aryzta Price: CHF43.8 ACCUMULATE Target: CHF56.0 M&S
Andreas von Arx ([email protected]) – Tel. +41 (0)43 388 9257
Aryzta is the No.1 producer of par-baked bakery goods. The company was formed from a friendly merger between the Irish company IAWS and the Swiss group Hiestand. With its acquisitions of Fresh Start Bakeries, Great Kitchens and Maidstone in 2010, Aryzta was able to boost its exposure to North America and to the quick service restaurant (QSR) channel. Apart from its core bakery business, Aryzta owns a 71.4% stake in the listed Irish Origin Enterprises (mainly agrinutrition). CEO: Owen Killian; CFO: Patrick McEniff; Website: www.aryzta.com (FY to end-July)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Food and Beverage/Switzerland CHF60 Major shareholders Invesco 4.8%, BlackRock 3.2%, FMR 3.0%, Treasury 55 shares 4.3%, Others 89.0% 50 45 Shares outstanding (m) 94.36 EV/EBITDA (X) 40 Market cap. (EUR m) 3,440 10/11A 9.6 35 Free float 100% 11/12E 9.8 30 EBITDA/CAGR 10/11A-13E/14E 8.7% 12E/13E 8.6 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Aryzta 12-mth tgt Absolute -2% 0% -8% Bloomberg ARYN SW Buy Acc. Neut. Red. N.R. Rel. to local 0% -6% 2% Reuters ARYN.S
News flow
■ March 2012: food divisions roughly in line (4.4% organic growth, Helvea 3.4%, consensus 4.0% – EBIT EUR172.8m (2% below Helvea, 1% below consensus); group figures below forecasts as analysts and investors underestimated the seasonality impact at Origin Enterprises. Aryzta reiterated all targets ■ Forthcoming event: 5 June 2012 – Q3 2011/12 trading update ■ Guidance & consensus: for 2011/12, the company is guiding for adjusted EPS of EUR3.38 (Helvea: EUR3.45; consensus: EUR3.37); for 2012/13, Aryzta has a target for adjusted EPS of EUR4+ (but this might include additional bolt-ons) vs. Helvea’s EUR3.90 estimate and consensus of EUR3.77
Investment case
Four reasons why we like Aryzta: 1) compelling transformation story – Aryzta aims to increase its adjusted EBIT at its bakery division by EUR160m in the four year period leading to 2014/15; this is an increase of roughly 50% over 2010/11. Aryzta has everything to become the leading (speciality) bakery player in the next few years; 2) potential upside to adj. EPS 2012/13 – given accelerated restructuring spending, we see an opportunity for the company to at least achieve its adj. EUR4+ EPS target for 2012/13 (above expectations); 3) attractive relative valuation on a post-transformation basis; and 4) some investors being too negative on management.
Divisional breakdown (2010/11) Regional breakdown – Sales (2010/11)
90% Sales EBIT Sales EBIT 80 0.0% 2.5% 5% 17.6% 70 Europe 6033.5% 50 31% Americas 40 30 66.5% 64% 20 Asia-Pacific / Rest of 10 79.9% World 0 -10 Total Food Origin Corporate / unallocated Total Food Origin Corporate / unallocated
34 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Organic growth: 4.0% in 2011/12E, 4.4% in 2012/13E, 5.1% in ■ Aryzta is significantly increasing its capital spending on the ATI 2013/14E (6.7% in 2010/11 and –8.6% in 2009/10) transformation programme over the next two years ■ We expect underlying growth to slow in the coming quarters: ■ On an EV of EUR4.5bn and assuming successful integration and from 6.2% in Q1 2011/12 and 3.7% in Q2 2011/12 to 3.7% in ATI programme, FCF yield should progress from low single digits Q3 2011/12E and 2.7% in Q4 2011/12E on lower input costs in 2011/12 and 2012/13 to close to 10% in 2013/14
MARGINS INVESTED CAPITAL AND RETURNS
■ Adjusted margin increase going forward driven by ATI ■ Aryzta has set a target of 15% ROI for 2014/15, i.e. a programme and US integration efforts ‘sustainable’ EBIT improvement of EUR160m p.a. (adjusted EBIT ■ Non-adjusted EBIT margin (i.e. including EUR50m ATI of EUR393m in 2010/11) for its bakery businesses, which is a spending in the next two financial years) will be down by highly ambitious target and needs a supportive market 90bp in 2011/12, but up by 100bp in 2012/13 environment (i.e. further upside if Aryzta delivers, in our view)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Aryzta is becoming the player in the global bake(-off) business ■ Shift from artisan bakeries to industrial production, plus ■ Post the acquisitions, Aryzta is perfectly positioned for the consumers looking for more convenience/fresher products fast(er)-growing channels in North America (e.g. McDonalds) ■ Access to faster-growing channels like food service and QSRs ■ The highly experienced management team has a proven ability ■ Consolidation of the fragmented industry to discover and develop brands ■ Aryzta is increasingly adding emerging markets to its strategy
WEAKNESSES THREATS
■ Narrow focus of its business model ■ Consumers shifting downwards, i.e. less convenience and food- ■ Bakery is a low-growth market service demand in today’s difficult economic climate ■ Combining bakery with a (low-margin) agrinutrition business ■ Some investors and the Swiss press still – in our view without might lead to sustained depressed valuation multiples justification – question management (i.e. for high remuneration ■ Still highly dependent on mature markets policy)
Valuation ratios Balance sheet (X) 09/10 10/11 11/12E 12/13E 13/14E (In EUR m) 09/10 10/11 11/12E 12/13E 13/14E EV/EBITDA 13.5 9.6 9.8 8.6 7.5 Current assets 1,034 1,247 1,362 1,466 1,846 EV/EBIT 16.9 11.8 12.0 10.3 8.8 Net fixed assets 1,747 2,023 2,295 2,389 2,308 EV/Inv. Capital 1.6 1.4 1.3 1.3 1.3 Goodwill 1,500 1,600 1,600 1,600 1,600 P/E 19.1 14.2 18.2 17.6 11.1 Total assets 4,505 5,073 5,461 5,658 5,958 Cash P/E 14.3 9.9 11.5 9.6 8.2 Sharehold. equit. 1,614 2,124 2,335 2,479 2,723 P/CF 11.8 8.4 8.5 7.6 6.7 Working capital -73.1 -104 -125 -132 -138 P/BV 1.8 1.3 1.2 1.2 1.0 Net debt 1,228 1,048 1,087 1,031 700
Income statement Growth rates & balance-sheet ratios (In EUR m) 09/10 10/11 11/12E 12/13E 13/14E (In %) 09/10 10/11 11/12E 12/13E 13/14E Sales 3,010 3,877 4,166 4,384 4,606 in sales -6.3 28.8 7.5 5.2 5.1 EBITDA 335 472 464 529 605 in EBITDA 4.8 40.7 -1.6 14.1 14.4 EBIT 268 383 376 440 516 in EBIT 4.1 42.8 -1.8 16.8 17.3 Net profits 152 213 172 182 288 in cash EPS -14.9 43.7 -13.2 19.0 16.8 Cash EPS (EUR) 2.55 3.66 3.18 3.78 4.42 Net debt/equity 76.0 49.3 46.5 41.6 25.7 Reported EPS (EUR) 1.91 2.57 2.01 2.07 3.28 FCF/net fin. results n.m. n.m. n.m. 2.5 5.8 DPS (CHF) 0.48 0.57 0.62 0.70 0.75 Current ratio (X) 1.4 1.2 1.1 1.2 1.4
Cash flow statement Ratios, margins and returns (In EUR m) 09/10 10/11 11/12E 12/13E 13/14E (In %) 09/10 10/11 11/12E 12/13E 13/14E EBITA 268 383 376 440 516 Gross margin 27.9 28.4 28.4 28.4 28.4 Taxes -44.1 -60.2 -61.3 -79.1 -92.8 EBITDA margin 11.1 12.2 11.1 12.1 13.1 NOPLAT 224 323 315 360 423 EBIT margin 8.9 9.9 9.0 10.0 11.2 Depreciation 66.9 88.4 87.7 89.7 89.7 ROIC 9.1 10.5 9.4 10.2 12.0 CAPEX -60.0 -80.0 -385 -285 -110 Inv. cap. (EUR m) 2,901 3,244 3,494 3,582 3,495 in WC 57.2 30.8 21.1 6.5 6.7 Free cash flow -612 -47.7 -36.1 172 409
Made in Switzerland + | Helvea 35
Ascom Price: CHF8.3 NEUTRAL Target: CHF11.0 M&S
Stefan Gächter, CFA ([email protected]) – Tel. +41 (0)43 388 9262
Following Ascom’s divestment of Security Communication the group is active in two segments: Wireless Solutions (on- site communication solutions for hospitals, etc.) and Network Testing (mobile networks testing/optimisation equipment). Both businesses are exposed to positive structural trends: Wireless Solutions’ elderly care offerings are benefiting from population ageing; Network Testing is positioned to benefit from telecom operators eventually migrating to 4G networks.
CEO: Fritz Mumenthaler; CFO: Martin Zwyssig; Website: www.ascom.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Technology/Switzerland CHF20 Major shareholders Zürcher Kantonalbank 25.9%, Bank Julius Baer 3.7%, 18 Vontobel 3.0% 16 14 12 Shares outstanding (m) 35.84 EV/EBITDA (X) 10 Market cap. 298 2011 5.0 (CHF m) 8 Free float 70% 2012E 4.7 6 EBITDA/CAGR 2011-2014E 8.5% 2013E 4.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Ascom 12-mth tgt Absolute -12% -3% -36% Bloomberg ASCN SW Buy Acc. Neut. Red. N.R. Rel. to local -10% -9% -30% Reuters ASCN.S
News flow
■ March 2012: full-year 2011 results a mixed-bag divisionally with Network Testing a big disappointment ■ April 2012: Ascom announces a restructuring programme for its Network Testing business, but still no financial guidance provided for the group or its other activities for 2012 ■ Forthcoming event: 22 August 2012 – H1 2012 results ■ Guidance & consensus: Ascom has refrained from providing financial guidance for FY2012, but is targeting a group EBITDA margin of 14%-15% for 2013; consensus EBIT estimates stand at CHF40m for 2012 and at CHF50m for 2013
Investment case
Even though Ascom remains inexpensive and its Wireless Solutions business is performing well, we think Ascom’s risk/reward profile has deteriorated again on the back of Network Testing’s ‘new’ problems. While we welcome the announcement of further initiatives at Ascom to improve Network Testing’s performance, this is not enough for us to adopt a more upbeat stance on Ascom and turn more positive on the stock as we would need first to see tangible signs that things are really improving (so far Network Testing has not seen any 4G related push) from an operational point of view. Since, at this point, we cannot give Ascom the benefit of the doubt, we recently downgraded the shares to NEUTRAL from BUY and cut our price target to CHF11 from CHF16.5.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
100% Sales EBIT Sales EBIT 5.1%0.1% 5.1% 80 17% 11% Switzerland 19.8% 60 7% 31.7%40 Europe & Middle East
20 60.7% Asia 63.1% 14.5% 0 Americas -20 65% Wireless Solutions Network Testing -40 WirelessCorporate Solutions / Real Estate Network Testing CorporateConsolidation / Real Estate Consolidation
36 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ In 2012/13, upside risk exists if Network Testing, too, finally ■ Free cash flow to decrease y-o-y in 2012 as a result of the starts to feel the impact of the telcos migrating to 4G networks. divestment of Security Communication However, unlike other companies, Ascom has not seen any incremental demand ■ Wireless Solutions to show stable medium-digit growth
MARGINS INVESTED CAPITAL AND RETURNS
■ Profitability at Wireless Solutions expected to remain stable, ■ On the back of relatively stable invested capital from 2012 to while profitability at Network Testing is projected to suffer in 2014, we expect returns on invested capital (ROIC) to remain 2012 from the restructuring to be undertaken range-bound over the next few years ■ Invested capital to increase in 2012 due to the divestment of Security Communications (division had negative WC)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Ascom holds leading positions in Wireless Solutions and is ■ Wireless Solutions benefiting from structural trends related to exposed to positive demographic trends in that business demographic changes (with an ageing population leading to ■ Relatively high share of less cyclical business (e.g. Wireless higher capital spending at hospitals and elderly care homes) Solutions’ exposure to hospitals, care homes for the elderly ■ Network Testing positioned to benefit from the telecom industry’s and secure institutions) expected roll-out of 4G networks in the next 2 to 3 years
WEAKNESSES THREATS
■ Ascom lacks meaningful exposure to Asian markets ■ European austerity measures may be a risk as public authorities’ ■ Network Testing has been an underperformer both in terms of budgets are determining factors for Ascom’s Wireless Solutions its top and bottom line ever since its acquisition ■ Network Testing may face competition from Chinese rivals over the longer term; risk of 4G capex wave being delayed
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 4.3 5.0 4.7 4.2 3.9 Current assets 319 251 237 256 301 EV/EBIT 5.8 6.9 6.5 5.5 5.1 Net fixed assets 25.3 20.4 21.2 22.1 23.1 EV/Inv. Capital 0.8 0.9 0.7 0.6 0.6 Goodwill 152 156 156 156 156 P/E 8.8 12.5 7.4 7.8 7.2 Total assets 580 507 485 496 533 Cash P/E 6.7 7.2 7.6 6.0 5.6 Sharehold. equit. 189 204 244 272 303 P/CF 4.5 3.7 n.m. 4.8 4.5 Working capital 19.4 -4.2 105 110 115 P/BV 1.6 1.5 1.2 1.1 1.0 Net debt -53.9 -57.3 -27.2 -61.8 -98.9
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 571 438 457 478 499 in sales 6.3 -23.4 4.4 4.8 4.3 EBITDA 65.1 56.0 59.5 67.6 71.5 in EBITDA 30.7 -14.0 6.2 13.7 5.8 EBIT 48.4 40.6 43.4 51.3 55.0 in EBIT 47.6 -16.1 6.8 18.3 7.2 Net profits 32.5 23.1 40.1 37.7 40.9 in cash EPS 34.0 -7.2 -4.9 25.8 6.6 Cash EPS (CHF) 1.24 1.15 1.10 1.38 1.47 Net debt/equity -28.5 -28.1 -11.1 -22.7 -32.6 Reported EPS (CHF) 0.94 0.67 1.13 1.07 1.16 FCF/net fin. results 11.7 10.1 n.m. 42.7 112 DPS (CHF) 0.25 0.00 0.00 0.27 0.29 Current ratio (X) 1.2 1.1 1.7 1.8 2.0
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 58.9 50.0 54.4 62.3 66.0 Gross margin 48.2 51.4 50.0 51.1 51.3 Taxes -10.0 -3.4 -8.9 -12.6 -13.6 EBITDA margin 11.4 12.8 13.0 14.1 14.3 NOPLAT 41.1 27.7 48.0 52.0 54.8 EBIT margin 8.5 9.3 9.5 10.7 11.0 Depreciation 6.2 6.0 5.1 5.3 5.5 ROIC 11.1 8.3 12.9 12.0 12.5 CAPEX -6.1 -5.1 -5.9 -6.2 -6.5 Inv. cap. (CHF m) 355 316 428 436 444 in WC 1.6 23.6 -109 -5.0 -4.8 Free cash flow 69.1 66.9 -64.0 44.1 47.1
Made in Switzerland + | Helvea 37
AstraZeneca Price: GBPp2,618.- NEUTRAL Target: GBPp2,860.- Large Caps
Odile Rundquist, PhD ([email protected]) – Tel. +41 (0)22 354 9159
AstraZeneca is one of the few pure-play pharmaceutical groups although its heritage exposed it to high-volume price- sensitive primary-care segments in mature pharmaceutical markets, including gastrointestinal (GI), nervous system (CNS) and cardiovascular (CV). The company has the highest off-patent exposure in the European pharmaceutical sector, with generic erosion spanning from 2012 to 2014 (plus Crestor in the USA from 2016). Good performance in emerging markets thanks to its primary-care franchises is not enough to counterbalance its current ‘patent cliff’. CEO: Simon Lowth; CFO: Julie Brown; Website: www.astrazeneca.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/United Kingdom GBPp3,198 Major shareholders Blackrock 8.0%, Invesco 6.5%, AXA 4.5%, Investor 3,065 4.0%, L&G 4.5%, Others 72.5% 2,932 2,799 Shares outstanding (m) 1,281 EV/EBITDA (X) 2,666 Market cap. (USD m) 51,618 2011 3.6 2,533 Free float 100% 2012E 5.2 2,400 EBITDA/CAGR 2011-2014E -9.8% 2013E 4.7 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols AstraZeneca 12-mth tgt Absolute -7% -11% -18% Bloomberg AZN LN Buy Acc. Neut. Red. N.R. Rel. to local 3% -8% -7% Reuters AZN.L
News flow
■ April 2012: Q1 2012 sales (–11% y-o-y) missed forecasts by 8% as most important drugs came in some 5%- 15% below consensus expectations (i.e. Crestor, Nexium, Seroquel and Symbicort) ■ Forthcoming events: 26 July 2012 – Q2 2012 results; Q4 2012 – Phase III results for fostamatinib in RA ■ Guidance & consensus: for 2012, AstraZeneca guided for low-double-digit sales decline, ‘core’ EPS of USD5.85-6.15, including a share buy-back of USD4.5bn; a third cost-cutting programme was announced to deliver a further USD1.6bn in annual benefits by the end of 2014: consensus estimates for EBIT stand at USD9.542bn for 2012 and USD9.202bn for 2013
Investment case
AstraZeneca is confronted by one of the biggest ‘patent cliffs’ in the industry as several billions of revenues are at risk. Despite the approval of Brilinta (arterial thrombosis), multiple setbacks in the pipeline and the relatively slow uptake of recently launched drugs have exposed the company to declining revenues as the pipeline is insufficient to make up for those sales expected to be lost to generic competition. Management has thus toned down its mid- term guidance, with revenues pointing to a low range of USD28-34bn by 2014. However, intensified efforts to streamline costs (third cost-cutting programme initiated), coupled with share buy-backs, should ease some of the pressure being exerted on margins and profits.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
6% 2% 16% 17% 25% Western Europe 21% Established RoW n.a.
31% USA 13% 18% 40% Emerging RoW 11% Gastrointestinal Cardiovascular Oncology Respiratory
Neuroscience Infection, pain Other
38 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ 2012 set to be a trough year as revenues will be strongly ■ Free cash flow declining sharply in 2012, with margin being dented by generic competition to Nexium (in the EU and squeezed by generic erosion and therapeutic substitution Canada), Arimidex (worldwide), Seroquel IR (in the USA) and ■ Tax rate reduced to 22% in 2012 (from 24% expected previously) Crestor (in Brazil) as well as government price interventions
MARGINS INVESTED CAPITAL AND RETURNS
■ Charges related to third cost-cutting programme, together with ■ Increasing capital-intensity, possibly through further acquisition top-line pressure, having significant impact on (reported) needs in an effort to strengthen base business margins in 2012 ■ Profitability declining on the back of worsening product mix ■ Lower sales of large franchises (e.g. Nexium/Prilosec, ■ Share buy-backs reinitiated and adoption of progressive dividend Atacand) reducing total royalties paid to Merck policy (50% target for pay-out ratio)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Current therapeutic leadership positions (i.e. GI, CNS, ■ Brilinta offers substantial opportunity as it addresses an unmet oncology, CV, respiratory) medical need in critical heart patients (on reversibility) ■ Strong primary-care position in emerging mkts a growth driver ■ Onglyza (DPP-IV inhibitor) potential for combination use with ■ Increasingly large biological production capacity (Medimmune) Phase III SGLT2 inhibitor (both in collaboration with BMS) ■ High dividend yield and sizeable share buy-backs ■ Fostamatinib in rheumatoid arthritis
WEAKNESSES THREATS
■ Large concentration of revenues in a handful of products losing ■ Accelerated therapeutic substitution (e.g. Nexium, Seroquel) patent protection as from 2012 ■ Earlier than expected generic erosion of Symbicort in the EU ■ Numerous development setbacks raised question-marks over ■ Respiratory franchise competition mounting, e.g. Spiriva quality of pipeline (BI/Pfizer), new branded LABA/LAMA fixed-dose-combination ■ Lack of own and in-licensed Phase II and III projects inhalers, and unfavourable label change
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In USD m) 2010 2011 2012E 2013E 2014E EV/EBITDA 3.8 3.6 5.2 4.7 4.9 Current assets 25,131 23,506 18,389 18,485 18,473 EV/EBIT 4.6 4.2 6.5 5.7 5.9 Net fixed assets 6,957 6,425 7,234 7,988 8,703 EV/Inv. Capital 2.1 2.1 2.0 2.0 2.0 Goodwill 22,029 20,842 19,830 18,854 17,891 P/E 7.2 5.5 8.3 7.2 7.2 Total assets 56,127 52,830 47,510 47,384 47,123 Cash P/E 6.8 5.2 7.7 6.8 6.7 Sharehold. equit. 23,213 23,246 21,892 23,141 24,026 P/CF 4.8 4.2 6.3 5.8 6.0 Working capital -4,090 -2,100 -117 -113 -112 P/BV 2.5 2.4 2.3 2.1 1.9 Net debt -3,337 -2,516 618 -850 -1,981
Income statement Growth rates & balance-sheet ratios (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 33,269 33,591 28,905 27,900 27,509 in sales 1.4 1.0 -14.0 -3.5 -1.4 EBITDA 14,235 14,990 10,176 11,295 10,998 in EBITDA 4.4 5.3 -32.1 11.0 -2.6 EBIT 11,494 12,795 8,153 9,286 8,990 in EBIT -0.4 11.3 -36.3 13.9 -3.2 Net profits 8,053 9,983 6,000 6,710 6,490 in cash EPS 7.5 29.7 -32.1 13.7 0.7 CORE EPS (USD) 6.71 16.6 6.11 6.04 5.99 Net debt/equity -14.4 -10.8 2.8 -3.7 -8.2 Reported EPS (USD) 5.60 7.33 4.83 5.59 5.62 FCF/net fin. results 18.5 19.7 10.1 16.7 16.7 DPS (USD) 2.55 2.57 2.32 2.91 3.15 Current ratio (X) 1.5 1.5 1.4 1.5 1.5
Cash flow statement Ratios, margins and returns (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 13,159 13,904 9,164 10,263 9,953 Gross margin 80.8 82.1 80.3 80.5 80.5 Taxes -3,472 -2,643 -2,012 -2,463 -2,389 EBITDA margin 42.8 44.6 35.2 40.5 40.0 NOPLAT 9,687 11,260 7,152 7,800 7,564 EBIT margin 34.5 38.1 28.2 33.3 32.7 Depreciation 1,076 1,086 1,012 1,032 1,045 ROIC 38.0 45.0 27.4 29.1 28.4 CAPEX -1,888 -1,915 -1,821 -1,786 -1,761 Inv. cap. (USD m) 24,896 25,167 26,947 26,728 26,482 in WC 710 -1,990 -1,983 -4.1 -1.6 Free cash flow 9,585 8,442 4,360 7,042 6,847
Made in Switzerland + | Helvea 39
austriamicrosystems Price: CHF68.0 NEUTRAL Target: CHF68.0 M&S
Reto Amstalden ([email protected]) – Tel. +41 (0)43 388 9261
austriamicrosystems is an analogue and mixed signal semiconductor manufacturer headquartered near Graz (Austria). It designs power and lighting management solutions for consumer electronic devices (e.g. mobile phones) as well as sensors and sensor interfaces for industrial (e.g. metering), medical (e.g. digital imaging) and automotive applications. The acquisition of TAOS in July 2011 complements the company’s product portfolio with light sensor solutions and proximity sensors while giving direct access to the top two smartphone OEMs as well as tablet PC OEMs. CEO: John A. Heugle; CFO: M. Wachsler-Markowitsch; Website: www.austriamicrosystems.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Technology/Austria CHF79 Major shareholders Former TAOS 19.5%, Fidelity 3.8%, Kempen 5.7%, 70 Schroders 3.7%, Treasury shares 8.0% 61 52 Shares outstanding (m) 13.75 EV/EBITDA (X) 43 Market cap. (EUR m) 778 2011 11.6 34 Free float 100% 2012E 7.7 25 EBITDA/CAGR 2011-2014E 19.0% 2013E 7.3 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols austriamicrosystems 12-mth tgt Absolute 35% 84% 51% Bloomberg AMS SW Buy Acc. Neut. Red. N.R. Rel. to local 38% 73% 66% Reuters AMS.S
News flow
■ February 2012: better-than-expected operating profits for Q4 2011; management even more upbeat on 2012, having lifted its sales growth guidance to above 25% (>20% previously) ■ April 2012: better-than-expected Q1 2012 results; full-year sales growth guidance raised to above 30% (>25% previously) thanks to continued positive demand momentum for smartphones and tablet PCs ■ Forthcoming event: 23 July 2012 – Q2/H1 2012 results ■ Guidance & consensus: management guiding for full-year 2012 sales of >EUR358m; consensus EBIT forecasts stand at EUR73.3m for 2012 and at EUR83.8m for 2013
Investment case
Although growth in the semiconductor industry should slow down to a mid-to-low single digit rate in 2012, austriamicrosystems should see organic growth climb to 15% (up from 11% in 2011) driven by its penetration of several new smartphone OEMs (e.g. Samsung, ZTE) with the acquired light sensor products from TAOS and, to a lesser extent, by the broadened RFID and automotive applications. The acquisition of TAOS has brightened austriamicrosystems’ growth prospects and offers a higher-margin profile, but it will also heighten the group’s risk profile due to TAOS’ customer concentration (top customer accounting for >20% of group sales) and the group’s exposure to short-lived consumer electronics. Overall, we believe the reward/risk profile to be priced in the shares.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
18% 27% Europe 37% 11% 44% n.a. North America
11%
Asia 33% 19%
Communications Automotive Industry & Medical Foundry Service TAOS
40 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Strong sales growth of 33% in 2012 (organic: +15%, external: ■ Operating free cash flow to benefit from margin expansion and +14%, FX: +2%) continued limited capital spending needs ■ Growth to be driven by chips in smartphones and tablets of ■ Capital spending to remain at around depreciation levels while Apple and Samsung) as well as by new laser-based object additional sales volumes can be outsourced to third parties like detection in cars and RFID readers for coffee machines TSMC or UMC
MARGINS INVESTED CAPITAL AND RETURNS
■ Significant expansion in profit margin in 2012 mainly on the ■ ROIC to rise above its cost of capital in 2012 while the positive back of a smaller increase in operating expenses proportionally effects of the profit margin expansion in 2013 and 2014 may be ■ We forecast an increase in the sustainable EBIT margin to 21% broadly offset by a normalisation of the tax rate (tax assets may by 2014, up from 15.6% in 2011 be deferred for two years)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Expertise in highly integrated single-chip solution ■ Deepening penetration at major customers (e.g. LG, Samsung) (analogue+PM) with high accuracy and low power consumption ■ Fast expansion of RFID technology for authentication (e.g. coffee ■ Industry-leading lighting management design expertise, now tags) and deployment of NFC-based mobile payment combined with TAOS’ skills in light sensing technology ■ Autofocus and optical zoom option for mobile-phone cameras ■ Meeting highest qualification standards in auto/medical devices ■ Fast proliferation of new high-speed FlexRay bus system in cars
WEAKNESSES THREATS
■ Limited visibility in Communications segment (rising to >50% of ■ Inventory accumulation (consignment stocks) for blue-chip sales with TAOS) owing to dependence on the success of customers, rising cash needs customers’ end products and their short lifetimes of 1-2 years ■ Increased customer concentration (No.1 customer accounting for ■ 70% of group sales are USD-denominated whereas bulk of >20% of sales) operating expenses is euro-denominated ■ Risk of dual sourcing strategy at key customer accounts
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 16.3 11.6 7.7 7.3 6.9 Current assets 132 171 234 299 362 EV/EBIT 30.7 19.3 11.3 10.4 9.7 Net fixed assets 111 117 123 122 122 EV/Inv. Capital 2.6 1.5 1.4 1.4 1.4 Goodwill 4.4 224 214 203 192 P/E 25.2 22.1 11.711.711.5 Total assets 292 559 618 673 726 Cash P/E 24.0 19.0 10.110.110.0 Sharehold. equit. 191 332 383 435 487 P/CF 15.2 11.0 7.4 7.5 7.3 Working capital 48.1 57.4 61.1 66.1 71.3 P/BV 3.0 2.3 2.0 1.8 1.6 Net debt 3.5 52.6 1.6 -56.1 -112
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 209 276 368 391 416 in sales 52.7 31.7 33.4 6.3 6.4 EBITDA 51.1 71.7 108 114 121 in EBITDA n.m. 40.4 50.8 5.8 5.7 EBIT 27.1 43.1 73.8 79.7 85.6 in EBIT n.m. 59.3 71.1 7.9 7.5 Net profits 23.1 35.3 66.3 66.8 67.4 in cash EPS n.m. 26.1 88.1 0.6 0.8 Cash EPS (EUR) 2.36 2.97 5.59 5.63 5.68 Net debt/equity 1.9 15.8 0.4 -12.9 -22.9 Reported EPS (EUR) 2.25 2.57 4.82 4.86 4.90 FCF/net fin. results 8.1 n.m. 14.6 31.9 22.2 DPS (CHF) 0.62 0.77 1.12 1.24 1.36 Current ratio (X) 2.8 2.9 3.5 4.3 5.1
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 28.2 48.8 84.4 90.3 96.2 Gross margin 47.9 50.6 50.8 51.1 51.2 Taxes 0.1 -1.1 -3.0 -10.5 -14.9 EBITDA margin 24.4 26.0 29.4 29.3 29.1 NOPLAT 28.3 47.7 81.5 79.8 81.4 EBIT margin 12.9 15.6 20.1 20.4 20.6 Depreciation 22.9 23.0 23.7 24.2 24.7 ROIC 9.1 10.9 14.2 13.6 13.7 CAPEX -13.2 -17.7 -29.4 -23.5 -25.0 Inv. cap. (EUR m) 314 563 583 590 599 in WC -8.2 -16.0 -12.9 -7.3 -7.7 Free cash flow 29.8 -55.0 62.8 73.3 73.4
Made in Switzerland + | Helvea 41
Autoneum Price: CHF42.5 NEUTRAL Target: CHF55.0 M&S
Volkan Göçmen ([email protected]) – Tel. +41 (0)22 354 9157
Autoneum is a clear industry leader in acoustics & thermal components and systems for automotive industries. Its leadership is founded on not only technology, but also a truly global footprint (network of some 48 plants in all major markets) and a broad product range covering the entire car (from under-body and interior of the car to the engine and luggage compartment). Autoneum’s main sales markets are Europe (2011: 53%) and North America (33%), with an extremely diversified client-base including virtually all OEMs. Autoneum was spun off from the Rieter group in May 2011. CEO: Martin Hirzel; CFO: Urs Leinhäuser; Website: www.autoneum.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF120 Major shareholders Peter Spuhler 19.1%, Michael Pieper 11.5%, Others 105 69.3% 90 75 Shares outstanding (m) 4.67 EV/EBITDA (X) 60 Market cap. (CHF m) 199 2011 3.7 45 Free float 100% 2012E 3.2 30 EBITDA/CAGR 2011-2014E 13.7% 2013E 2.9 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Autoneum 12-mth tgt Absolute -19% -12% -58% Bloomberg AUTN SW Buy Acc. Neut. Red. N.R. Rel. to local -18% -18% -53% Reuters AUTN.S
News flow
■ July 2011: H1 2011 results came in below market expectations, with net sales of CHF860.5m (+0.4%; +15.4% in local currencies) and EBIT of CHF21.6m, delivering a poor 2.5% margin ■ March 2012: full-year 2011 results showed profits in line overall, but the top line was dented by currencies ■ Forthcoming event: 26 July 2012 – H1 2012 results ■ Guidance & consensus: no precise guidance given by management for full-year 2012, but it does expect top-line growth in local currencies accompanied by further progress on the margin front; consensus EBIT estimates stand at CHF52m for 2012 and CHF67m for 2013
Investment case
Although we have, so far, seen German premium car-manufacturing OEMs reporting a heartening start to 2012, the picture with other OEMs in both France and Italy looks quite gloomy. Overall, given Autoneum’s pipeline and strong footholds in non-European markets (e.g. North/Latin America, Asia), we would expect it to continue showing top- line local-currency growth. We expect progress on the margin front as well, but still do not see a concept that would enable Autoneum to generate an ROIC that could significantly exceed capital costs over an entire cycle. We are not, therefore, drawn by Autoneum shares although the company does have outstanding positions in its markets with regard to both innovations and its genuinely global footprint. We stick with our NEUTRAL recommendation.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
100% Sales EBIT Sales EBIT 0.5% 80 8.3% 7.1% 20.6% 8% 5.4% 5% 60 12.1% Europe
40 North America 9.8% 20 52.2% 53% 0 33.6% 34% Asia -20 SAMEA -40 50.4%
-60 EuropeEuropeNorth America North AmericaAsia AsiaSAMEA SAMEAOthers & consolidation Others & consolidation
42 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We are looking for mid-single-digit sales growth on the back of ■ Slight sales increase will, together with higher margin, lead to differing regional developments (Europe: flat to negative; increasing NOPLAT in 2012 outside Europe: up) ■ This will, however, be countered, to some extent, by higher ■ Noticeable impact from production ramp-up for high-volume working-capital needs, but, overall, we still expect operating free models at various OEMs cash flow of CHF35-40m
MARGINS INVESTED CAPITAL AND RETURNS
■ Margin gain expected in 2012, driven mainly by North America ■ Balanced depreciation/capital spending will keep invested capital and Asia thanks, in both instances, to non-recurrence of virtually unchanged in 2012 and 2013 Fukushima effect that had dented margins in 2011 ■ With the margin improvements, we would also expect the ROIC ■ Given the weakness outside the premium segment in Europe, to recover further and eventually cover capital costs by 2013- there is a question-mark over margin developments in 2012 2014, but not over an entire cycle
SWOT analysis STRENGTHS OPPORTUNITIES
■ Technological leadership and systems approach ■ Growth in Asia ■ Global footprint ■ Improve market positioning with German premium suppliers ■ Diversified client base ■ Potential to improve margins in Europe (e.g. France, Italy) ■ Highly focused
WEAKNESSES THREATS
■ Poor profitability ■ Combination of potential downturn and weak balance sheet ■ Balance sheet leaves little room for manoeuvre ■ Although hybrid cars tend to require even more content per ■ Still blank and/or weak spots in German premium segment vehicle, fully electric cars would pose a (very long-term) threat
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 3.6 3.7 3.2 2.9 2.6 Current assets 590 566 601 641 629 EV/EBIT 17.5 11.2 7.8 6.1 5.1 Net fixed assets 388 382 379 371 360 EV/Inv. Capital 0.7 0.8 0.8 0.8 0.8 Goodwill 0.0 0.4 0.0 0.0 0.0 P/E n.m. n.m. 24.8 11.0 7.6 Total assets 1,022 996 1,028 1,059 1,037 Cash P/E n.m. n.m. 24.8 11.0 7.6 Sharehold. equit. 193 231 251 279 317 P/CF 2.2 2.1 1.8 1.6 1.5 Working capital 151 127 133 137 143 P/BV 1.0 0.9 0.8 0.7 0.6 Net debt 151 156 139 107 140
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 1,678 1,682 1,759 1,819 1,892 in sales 21.0 0.3 4.6 3.4 4.0 EBITDA 107 104 123 137 153 in EBITDA n.m. -2.8 18.0 11.4 11.7 EBIT 22.3 34.9 50.0 64.0 77.0 in EBIT n.m. 56.5 43.3 28.0 20.3 Net profits -56.1 -10.0 8.0 18.0 26.0 in cash EPS n.m. n.m. n.m. n.m. 44.4 Cash EPS (CHF) -12.0 -2.14 1.71 3.85 5.56 Net debt/equity 78.2 67.6 55.3 38.2 44.1 Reported EPS (CHF) -12.0 -2.14 1.71 3.85 5.56 FCF/net fin. results 1.3 1.9 2.1 3.3 4.8 DPS (CHF) 0.00 0.00 0.43 0.96 1.39 Current ratio (X) 1.0 1.1 1.2 1.3 1.3
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 22.3 34.9 50.0 64.0 77.0 Gross margin 6.4 6.2 7.0 7.5 8.1 Taxes -17.7 -10.3 -10.0 -15.0 -20.0 EBITDA margin 6.4 6.2 7.0 7.5 8.1 NOPLAT 4.6 24.6 40.0 49.0 57.0 EBIT margin 1.3 2.1 2.8 3.5 4.1 Depreciation 84.9 69.3 73.0 73.0 76.0 ROIC 0.8 4.7 7.8 9.6 11.3 CAPEX -72.4 -75.1 -70.0 -65.0 -65.0 Inv. cap. (CHF m) 539 509 512 508 503 in WC 40.3 23.9 -5.8 -4.5 -5.5 Free cash flow 57.4 42.7 37.2 52.5 62.5
Made in Switzerland + | Helvea 43
Bachem Price: CHF36.0 NEUTRAL Target: CHF37.0 M&S
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
Founded in 1971, Bachem is a biochemicals company offering a comprehensive range of services to the pharma and biotechnology industries. The company focuses on manufacturing peptide active pharmaceutical ingredients (APIs) and developing and producing research chemicals for commercial and scientific purposes. With its headquarters at Bubendorf (Switzerland) and operating six production locations in Europe and the USA, Bachem is active on a global scale. With sales of close to CHF146m in 2011, the group is the world’s largest independent manufacturer of peptides. CEO: Thomas Früh; CFO: Stephan Schindler; Website: www.bachem.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Chemicals/Switzerland CHF55 Major shareholders Ingro Finanz AG (P. Grogg, founder) 51.2%, Knoch 50 Gottlieb (Vice-Chairman of Bachem) 8.6%, Grogg 45 Family 6.0%, Sarasin 4.5%, Employees 2.6% 40 35 Shares outstanding (m) 13.60 EV/EBITDA (X) 30 Market cap. 490 2011 16.9 (CHF m) 25 Free float 27% 2012E 12.1 20 EBITDA/CAGR 2011-2014E 23.3% 2013E 10.3 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Bachem 12-mth tgt Absolute -5% -6% -25% Bloomberg BANB SW Buy Acc. Neut. Red. N.R. Rel. to local -3% -12% -17% Reuters BANB.S
News flow
■ September 2011: new Chairman and CEO (Messrs Sommer and Früh) to take over as from AGM in April 2012 ■ November 2011: introduction of increased working hours at Swiss sites to cope with strengthened Swiss franc ■ December 2011: profit warning for 2011 due to delays in Q3 – 2011 sales to grow at 6%-8% in l.c. (prev. 10%) ■ March 2012: 2011 sales in line with guidance, EBIT meeting consensus; pipeline with 173 projects, + 25% ■ Forthcoming event: 24 August 2012 – H1 2012 results ■ Guidance & consensus: guiding for 2012 local sales growth in the range of 6%-10% with slightly better operating profitability; consensus EBIT estimates of CHF19m for 2012 and CHF25m for 2013
Investment case
We expect Bachem to achieve attractive underlying growth from 2012 as well as in the longer run based on the recent positive regulatory news flow at clients, an increasing pipeline, larger order levels of customers and fading after-effects from the financial crisis on growth in demand for peptides. That said, FDA scrutiny and an overall tough environment in the healthcare sector are likely to persist, thus keeping order volatility from customers at a high level, in our view. Moreover, due to substantially weaker exchange rates and likely ongoing price pressure in generics, we believe that historical EBIT margins in the region of 30%-35% are no longer achievable, and we would argue for future peak margins at close to 25%, all of which implies the shares being fairly valued at current levels.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
18% 27%
n.a. Europe North America
73% 82%
Active Pharmaceutical Ingredients Research Ingredients
44 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Ongoing customer destocking unlikely to end before 2012 ■ NOPLAT expected to rise in 2012 from a very low level thanks to ■ Flow of orders to pick up in 2012 from a low baseline a projected recovery in profitability, and climb further in 2013 ■ Improving funding situation for biotech customers ■ We expect net working capital to improve in 2012 ■ Growing project pipeline and improving mix ■ Free cash flow to increase in 2012 from the 2011 level following ■ Strong headwind from substantially weaker currencies an exceptional working capital effect
MARGINS INVESTED CAPITAL AND RETURNS
■ Some margin recovery in 2012 with better absorption of fixed ■ Capital spending expected to stay at relatively low levels in 2012 costs, but margins otherwise still pressurised by price and 2013 due to major investments in earlier years competition in generics and currency headwinds ■ Invested capital to remain flattish in 2012 and 2013 ■ Potential for margin expansion by transferring less profitable ■ ROIC likely to improve in 2012 and 2013 from a low baseline, manufacturing steps to low-cost production sites mainly on the back of higher sales and profitability levels
SWOT analysis STRENGTHS OPPORTUNITIES
■ Global leader in a growing peptides market ■ Increased intake of medical drugs due to demographic changes ■ Strong track record with regulators and customers ■ Increasing number of applications/indications for peptides ■ Cost leadership, comparatively strong margins ■ Peptides more in focus through genomics/proteomics projects ■ High flexibility in dealing with customer needs ■ Venture capital for biotech potentially to rise again in the long run ■ Pricing power (although historically diminished) ■ Outsourcing growth
WEAKNESSES THREATS
■ Low transparency as regards customer relationships and ■ High volatility in demand for APIs compounds produced ■ Financing difficulties for innovators like smaller biotech firms ■ Dependence on customers’ developments and market success ■ Competition from Lonza as well as from Asian players ■ Registration delays on drug approvals for marketing, lumpiness ■ Generic competition for AstraZeneca’s Zoladex/goserelin of sales and customers’ order volatility lower visibility ■ Market withdrawals of major products by customers
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 15.8 16.9 12.1 10.3 9.0 Current assets 194 202 191 201 211 EV/EBIT 34.0 35.8 20.3 15.9 13.4 Net fixed assets 236 230 227 227 230 EV/Inv. Capital 1.4 1.4 1.4 1.4 1.4 Goodwill 10.4 10.4 10.4 10.4 10.4 P/E 17.1 51.5 23.5 18.2 15.1 Total assets 459 460 445 455 468 Cash P/E 17.1 51.5 23.5 18.2 15.1 Sharehold. equit. 359 334 334 339 348 P/CF 14.9 17.4 12.5 10.8 9.5 Working capital 171 177 166 174 180 P/BV 1.4 1.5 1.4 1.4 1.4 Net debt 6.5 28.8 2.7 -5.0 -18.1
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 153 146 165 185 202 in sales -15.9 -4.6 13.2 11.8 9.4 EBITDA 33.7 31.5 44.0 51.9 59.0 in EBITDA -49.0 -6.6 39.8 17.9 13.7 EBIT 15.7 14.9 26.3 33.4 39.8 in EBIT -69.2 -5.2 76.6 27.3 19.1 Net profits 28.3 9.4 20.6 26.7 32.1 in cash EPS -38.6 -66.7 n.m. 29.2 20.5 Cash EPS (CHF) 2.10 0.70 1.53 1.98 2.39 Net debt/equity 1.8 8.6 0.8 -1.5 -5.2 Reported EPS (CHF) 2.10 0.70 1.53 1.98 2.39 FCF/net fin. results n.m. 11.0 362 199 227 DPS (CHF) 2.50 1.50 1.60 1.80 2.10 Current ratio (X) 4.1 2.8 3.3 3.2 3.1
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 15.7 14.9 26.3 33.4 39.8 Gross margin 34.4 29.6 34.7 37.0 39.0 Taxes -1.6 -3.3 -5.0 -6.3 -7.6 EBITDA margin 22.1 21.6 26.7 28.1 29.2 NOPLAT 14.0 11.5 21.3 27.1 32.2 EBIT margin 10.3 10.2 15.9 18.1 19.7 Depreciation 18.0 16.6 17.7 18.5 19.2 ROIC 3.6 3.0 5.7 7.3 8.5 CAPEX -16.2 -8.7 -12.4 -16.6 -20.2 Inv. cap. (CHF m) 384 383 368 375 385 in WC -0.3 -5.8 11.1 -7.4 -6.7 Free cash flow 12.2 11.4 36.2 19.9 22.7
Made in Switzerland + | Helvea 45
Barry Callebaut Price: CHF860.- NEUTRAL Target: CHF900.- M&S
Andreas von Arx ([email protected]) – Tel. +41 (0)43 388 9257
Barry Callebaut is the world’s largest chocolate manufacturer, processing approx.12% of all volumes. Barry Callebaut offers business-to-business (B2B) products for all stages of the chocolate value chain (hence it is not a household name) from cocoa beans to liquid chocolate to semi-finished and/or private-label products. The company’s strategy is based on four pillars: 1) cost leadership (and outsourcing); 2) geographical expansion; 3) innovation; and 4) sustainable cocoa sourcing. CEO: Juergen Steinemann; CFO: Victor Balli; Website: www.barry-callebaut.com (FY to end-August)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Food and Beverage/Switzerland 1,000CHF Major shareholders Jacobs Holding AG 50.1%, Renata Jacobs 8.5%, 950 Nicolas Jacobs 3.1%, Nathalie Jacobs 3.1%, Others 900 35.2% 850 Shares outstanding (m) 5.18 EV/EBITDA (X) 800 Market cap. (CHF m) 4,458 10/11A 11.8 750 Free float 41% 11/12E 11.8 700 EBITDA/CAGR 10/11A-13E/14E 5.3% 12E/13E 11.1 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Barry Callebaut 12-mth tgt Absolute -3% 3% 3% Bloomberg BARN SW Buy Acc. Neut. Red. N.R. Rel. to local -1% -3% 13% Reuters BARN.S
News flow
■ April 2012: H1 2011/12 results show accelerated top line and weak profitability not more pronounced than projected – 6.7% volume growth vs. Helvea 4.1%, consensus 2.4%; EBIT of CHF175.1m vs. Helvea CHF195.0m and consensus CHF193.8m; medium-term targets were reiterated ■ Forthcoming event: 5 July 2012 – key sales figures for the first nine months of 2012 ■ Guidance: four-year 2009/10-2012/13 targets for volume growth of +6%-8% p.a. and EBIT growth ‘at least in line with volume growth’ (local currencies); consensus EBIT estimates stand at CHF357m for 2011/12 and at CHF395m for 2012/13
Investment case
We continue to like the successful strategy (i.e. outsourcing, emerging markets, superior scale) which is delivering industry-leading (organic) growth potential among European food producers. However, H1 2011/12 clearly showed that the high growth comes at the expense of relative margin pressure. Whereas the branded FMCG peers are expected to increase both top line and margins, Barry Callebaut seems unable to deliver on the latter; hence the flat medium-term margin guidance plus the continuously high capex and NWC needs. Barry Callebaut is an attractive long-term growth model, but at over 11X 2012 EV/EBITDA, the relative valuation offers limited upside vs. peers like Nestlé which are benefiting from the same emerging market growth driver.
Divisional breakdown (2010/11) Regional breakdown – Sales (2010/11)
Sales EBIT
16% 24% 17% United States France UK 41% n.a. 11% Belgium Italy 9% Germany Switzerland 1% 60% 7% 7% Other 7% Cocoa Products Food Manufacters Products
Gourmet & Specialties Products
46 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Company operates mainly on a ‘cost-plus’ basis, so both sales ■ Given high growth rates in emerging markets and outsourcing, and margins fluctuate with the price of cocoa and are unreliable we expect capital spending to remain high indicators of how the business is really developing ■ Thanks to tax losses carried forward, the company currently ■ We forecast volume growth of 10.5% for 2011/12, 5.4% for enjoys a low tax rate of approx.15%, which management thinks is 2012/13 and 5.3% for 2013/14 ‘sustainable’ in the medium term
MARGINS INVESTED CAPITAL AND RETURNS
■ Investors should focus on volume growth and EBIT/tonne as a ■ At approx.20% of sales optimally at the year-end in August, net proxy for profitability working capital forms a significant portion of invested capital and ■ We forecast a decline in EBIT/tonne in 2011/12 of approx.10% is dependent on the price of cocoa given the (temporary) effects of the accelerated (outsourcing) ■ NOPLAT main driver of ROIC growth (2012/13 EBIT/tonne flat)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Undisputed global leader in the supply of industrial chocolate ■ Further outsourcing of bulk chocolate by branded manufacturers, ■ Economies of scale and control of the whole value chain make especially the contract with Kraft it a preferred industrial partner ■ Expansion in emerging markets (producing for Kraft) ■ High-margin food service business (sub-)division – Gourmet & ■ Acting as consolidator in the Gourmet & Specialties category Specialties (approx.15% of sales, but approx.20% EBIT margin) ■ Barry Callebaut sees an edge from improved sourcing of beans
WEAKNESSES THREATS
■ Confectionery is a rather low-growth category ■ Current ‘monopoly’ on large outsourcing contracts could be ■ Barry Callebaut more exposed to changing raw material prices challenged or companies might turn to in-house production than the ‘cost-plus’ business model would have us believe ■ High margins in Gourmet & Specialties might not be sustainable ■ Outsourcing as a growth driver depends, to a certain extent, on ■ Some raw materials (e.g. hazelnuts) cannot be hedged the relationship with Kraft
Valuation ratios Balance sheet (X) 09/10 10/11 11/12E 12/13E 13/14E (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E EV/EBITDA 12.3 11.8 11.8 11.1 10.1 Current assets 1,792 1,571 2,121 2,330 2,535 EV/EBIT 15.0 14.2 14.3 13.3 11.9 Net fixed assets 914 755 860 965 1,063 EV/Inv. Capital 2.4 2.6 2.3 2.1 2.0 Goodwill 429 366 366 366 366 P/E 17.7 25.0 20.7 16.2 14.2 Total assets 3,571 3,263 3,918 4,232 4,535 Cash P/E 14.3 13.4 13.8 12.7 11.4 Sharehold. equit. 1,302 1,217 1,352 1,558 1,781 P/CF 11.9 11.3 11.6 10.9 9.9 Working capital 1,004 871 953 1,040 1,104 P/BV 3.4 3.6 3.3 2.8 2.5 Net debt 871 790 842 828 767
Income statement Growth rates & balance-sheet ratios (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E (In %) 09/10 10/11 11/12E 12/13E 13/14E Sales 4,525 4,554 4,981 5,435 5,773 in sales -7.3 0.7 9.4 9.1 6.2 EBITDA 415 432 433 460 505 in EBITDA -9.1 4.2 0.3 6.2 9.8 EBIT 341 361 358 385 430 in EBIT -2.8 5.7 -0.6 7.5 11.6 Net profits 251 178 214 275 313 in cash EPS -6.7 6.6 -3.1 8.9 11.2 Cash EPS (CHF) 60.1 64.1 62.1 67.7 75.2 Net debt/equity 66.9 64.9 62.3 53.1 43.0 Reported EPS (CHF) 48.6 34.4 41.5 53.2 60.7 FCF/net fin. results 3.2 3.8 1.2 2.0 3.0 DPS (CHF) 14.0 15.5 13.2 17.5 20.6 Current ratio (X) 1.9 2.0 1.6 1.6 1.7
Cash flow statement Ratios, margins and returns (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E (In %) 09/10 10/11 11/12E 12/13E 13/14E EBITA 341 361 358 385 430 Gross margin 14.4 14.5 14.6 14.6 14.6 Taxes -38.7 -37.2 -50.5 -50.1 -55.9 EBITDA margin 9.2 9.5 8.7 8.5 8.7 NOPLAT 302 323 308 335 374 EBIT margin 7.5 7.9 7.2 7.1 7.4 Depreciation 73.5 71.5 75.0 75.0 75.4 ROIC 13.8 15.5 14.7 14.6 15.2 CAPEX -146 -155 -180 -180 -173 Inv. cap. (CHF m) 2,174 2,007 2,193 2,385 2,548 in WC -17.1 133 -81.6 -87.0 -64.6 Free cash flow 227 281 89.6 143 211
Made in Switzerland + | Helvea 47
Basilea Price: CHF41.3 BUY Target: CHF105.- M&S
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
Roche divested its anti-infectives and dermatologicals as a spin-off in October 2000 by setting up Basilea (IPO in March 2004). Its advanced pipeline addresses the hospital and dermatology market: the antibiotic ceftobiprole will need to be retested in Ph.III for skin infection (J&J violated Good Clinical Practice, leading to global rights being returned to Basilea); proprietary Toctino/alitretinoin for chronic hand eczema launched in the EU and in Canada; isavuconazole for severe fungal infections in Ph.III licensed out to Astellas; BAL30072 for multi-resistant Gram-negative bacteria is in mid-Phase I. CEO: Anthony Man; CFO: Joachim Blatter; Website: www.basilea.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Switzerland CHF110 Major shareholders HBM Bioventures 20.1%, Franklin Res. / Templeton 95 11.3%, Roche Finance Ltd. 5.8%, Varuma 4.4%, State 80 of New Jersey 3.0%, Sectoral Asset Mgmt 3.0% 65 Shares outstanding (m) 9.59 EV/EBITDA (X) 50 Market cap. (CHF m) 395 2011 n.m. 35 Free float 50% 2012E n.m. 20 EBITDA/CAGR 2011-2014E n.m. 2013E n.m. 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Basilea 12-mth tgt Absolute -14% 31% -42% Bloomberg BSLN SW Buy Acc. Neut. Red. N.R. Rel. to local -11% 23% -36% Reuters BSLN.S
News flow
■ October 2011: second Ph.I trial on anti-Gram-negative superbug antibiotic BAL30072 completed; former CFO Ron Scott becomes COO, with Joachim Blatter recruited in December as the new CFO, to report to the COO ■ January 2012: ceftobiprole to be filed in Europe for severe pneumonia treated in hospital ■ March 2012: single pivotal US Ph.III study on Toctino in hand eczema meets primary and secondary endpoints ■ Forthcoming events: 16 August 2012 – H1 2012 results ■ Guidance & consensus: 2012 Toctino sales to grow at low double-digit; 2012 opex of CHF120m; cons. n.m.
Investment case
Based on our research, we expect all three drugs of Basilea in late clinical trials to be successfully marketed eventually, but lagging launch and repeatedly lowered guidance for Toctino sales in 2011 have disappointed. After USD130m awarded by arbitration (J&J breached the licence agreement), we expect ceftobiprole to be re-partnered for co-development and co-commercialisation to secure its commercial potential. The drug will be filed in H2 2012 for severe pneumonia in hospitalised patients; US filing depends on discussions with the FDA (market exclusivity until 2024: we forecast peak sales potential of CHF550m by 2019). Basilea fully owns Toctino, a dermatological agent targeting a niche market with no rival. Its antifungal was licensed out to Astellas.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
150% Sales EBIT Sales EBIT
100
50
0 n.a.
-50
-100 100.0% 100.0%
-150 All drugs All drugs
48 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Roll-out of EU and Actelion’s Canadian launch of alitretinoin ■ Strong gross cash position of CHF197.1m by end-2011 (Toctino) in 2012 to boost revenues from own sales ■ 2012 operating losses to stay at 2011 level of CHF6-7m/month ■ Company likely to book upfront and milestone payments on ■ 2012 cash burn will depend on partnering deal on ceftobiprole partnering of ceftobiprole and, possibly, Toctino in 2012, as we ■ Strong cash flow projected from Astellas’ milestones in 2013 expect – these extra revenues are not yet part of our forecasts
MARGINS INVESTED CAPITAL AND RETURNS
■ Margin trend highly dependent on spending in R&D on ■ Former investments in clinical development of isavuconazole to ceftobiprole and commercialisation of Toctino bear fruit with forthcoming milestone payments from Astellas ■ Sustained profitability from late 2014 based on possibly still ■ Sustainable returns forecast from late 2014 high expenses on late-stage trials vs. ramp-up of Toctino sales ■ Difference between development of net profits and shareholders’ in the USA coinciding with milestone payments by Astellas equity due to proceeds from exercise of share options
SWOT analysis STRENGTHS OPPORTUNITIES
■ Exceptionally strong clinical data for all three drugs ■ Upside from competitive advantages of ceftobiprole and ■ No significant competition for alitretinoin (Toctino) in sight isavuconazole allowing deeper market penetration ■ No patent expiry risk ■ Potential to take over further business activities from Roche ■ Product pipeline diversified within focused therapeutic areas ■ Sustainable output estim. at 1 new clinical entity every 18 months ■ Experienced high-quality management ■ Partnering for drug discovery and development
WEAKNESSES THREATS
■ Marketing of Toctino under-resourced and understaffed ■ Ceftobiprole and isavuconazole cause rare, but fatal toxicity ■ Potential exploration of the many ex-Roche compounds would ■ Pregnancy-prevention programme for alitretinoin not observed bind resources ■ Development of equivalent drugs by competitors ■ Little innovation as developing drugs within established classes ■ Diminishing interest from Astellas in collaboration ■ Risk aversion makes Basilea stay with traditional drug targets ■ Delays in clinical trials, filing, approval or launch
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 1.8 n.m. n.m. n.m. 13.6 Current assets 300 219 163 219 424 EV/EBIT 1.8 n.m. n.m. n.m. 18.8 Net fixed assets 15.6 16.2 16.5 16.8 17.2 EV/Inv. Capital 6.4 5.4 4.6 4.0 2.8 Goodwill 0.0 0.0 0.0 0.0 0.0 P/E 3.7 n.m. n.m. n.m. 39.8 Total assets 317 237 181 237 443 Cash P/E 3.7 n.m. n.m. n.m. 39.8 Sharehold. equit. 210 153 106 86.5 121 P/CF 3.6 n.m. n.m. n.m. 27.3 Working capital 15.4 20.9 26.5 32.5 54.4 P/BV 1.9 2.6 3.7 4.6 3.3 Net debt -283 -197 -135 -185 -368
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 243 66.8 51.2 66.5 123 in sales n.m. -72.5 -23.4 29.8 84.8 EBITDA 112 -53.2 -64.1 -40.3 14.6 in EBITDA n.m. n.m. n.m. n.m. n.m. EBIT 108 -57.3 -68.2 -44.3 10.6 in EBIT n.m. n.m. n.m. n.m. n.m. Net profits 108 -57.6 -68.4 -44.8 10.2 in cash EPS n.m. n.m. n.m. n.m. n.m. Cash EPS (CHF) 11.2 -6.01 -7.08 -4.60 1.04 Net debt/equity -135 -129 -127 -214 -303 Reported EPS (CHF) 11.2 -6.01 -7.08 -4.60 1.04 FCF/net fin. results n.m. 140 154 n.m. n.m. DPS (CHF) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 5.2 6.4 6.4 9.3 17.8
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 108 -57.3 -68.2 -44.3 10.6 Gross margin 99.1 96.5 95.3 96.3 97.9 Taxes 0.0 0.0 0.0 0.0 0.0 EBITDA margin 45.9 -79.6 n.m. n.m. 11.9 NOPLAT 107 -57.8 -68.8 -45.0 9.8 EBIT margin 44.3 -85.6 n.m. n.m. 8.6 Depreciation 4.0 2.9 4.6 4.6 4.7 ROIC n.m. n.m. n.m. n.m. 16.2 CAPEX -1.0 -3.1 -0.3 -0.3 -0.3 Inv. cap. (CHF m) 31.0 37.1 43.0 49.3 71.6 in WC 10.7 -29.4 3.1 83.5 192 Free cash flow 121 -86.9 -60.8 43.5 207
Made in Switzerland + | Helvea 49
Bayer Price: EUR51.1 ACCUMULATE Target: EUR60.0 Large Caps
Karl-Heinz Koch ([email protected]) – Tel. +41 (0)43 388 9258
Bayer is a multinational conglomerate, with its headquarters in Germany, focusing on fast-growing, innovation-driven health-care, nutrition and high-tech materials businesses. The group’s activities are centred around its pharmaceuticals and consumer health businesses on the health-care side, and on crop sciences and material sciences in the chemicals field. Higher-margin life-sciences businesses account for approximately 70% of total sales, generating roughly 90% of underlying group EBITDA. In 2010, Bayer generated sales of EUR35.1bn and employed a total of 111,400 people. CEO: Marijn Dekkers; CFO: Werner Baumann; Website: www.bayer.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Germany EUR 66 Major shareholders Capital Group Companies 10.0%, Capital Research and 60 Management 10.1% 54 48 Shares outstanding (m) 827 EV/EBITDA (X) 42 Market cap. (EUR m) 42,290 2011 9.3 36 Free float 100% 2012E 8.2 30 EBITDA/CAGR 2011-2014E 10.1% 2013E 7.4 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Bayer 12-mth tgt Absolute -8% 5% -10% Bloomberg BAY GR Buy Acc. Neut. Red. N.R. Rel. to local 1% 2% 5% Reuters BAYG.DE
News flow
■ April 2012: Q1 2012 results 3% ahead of estimates for sales, 10% for net profits and 14% for EPS, mainly thanks to stronger performances in CropScience and MaterialScience as HealthCare performed in line ■ Pipeline news: HealthCare produced validation on 5 new drugs: Xarelto (anti-thrombotic), Alpharadin (prostate), Eylea (AMD), regorafenib (colorectal cancer) and ATX-101 (submental fat), together offering >EUR5bn in sales ■ Forthcoming events: 31 July 2012 – Q2/H1 2012 results; H2 2012 – EU approval of Eylea (AMD) ■ Guidance: despite superior Q1 2012, management maintained full-year guidance of +3% for sales (EUR37bn), slight increases in adj. EBITDA (2011: EUR7.6bn) & core EPS (2011: EUR4.83); upgrade expected at Q2 2012
Investment case
In Bayer HealthCare (BHC), the launch of Xarelto (rivaroxaban) is a major opportunity with solid clinical validation across two chronic indications [VTE treatment; prevention of strokes in atrial-fibrillation (SPAF) patients] offering a >EUR2bn opportunity despite strong competition (e.g. Eliquis/apixaban – BMS/Pfizer) in SPAF. Alpharadin (bone metastases of prostate cancer) and regorafenib (refractory colorectal cancer and GIST) are also two blockbuster opportunities. Eylea too is likely to carve out at least EUR500m in the macular degeneration market. Bayer CropScience (BCS) continues to benefit from premium-priced new products driving sales and margins. Bayer MaterialScience (BMS) is consolidating market positions, with stable prices, but margins dented by high oil prices.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
80% Sales EBIT Sales EBIT 70 3.5% 3.8% 13.9% 16% Europe 60
5029.7% 40% North America 40 47.0% 12.3%
30 21% Asia/Pacific
20 70.0% Latin America / Africa / 10 19.9% Middle East 23% 0
-10 Healthcare Crop Science Material Science Reconciliation Healthcare Crop Science Material Science Reconciliation
50 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ New drug launches offer combined revenue potential of ■ Earnings leverage expected from new drug launches, in particular >EUR5bn, driving growth above the market-average Xarelto, Alpharadin, regorafenib, Eylea, ATX-101 ■ Underlying business is resilient, but has limited growth ■ Restructuring payments in 2012 to dampen cash flow ■ Solid market environment for BCS in 2012 and 2013 ■ Higher operating cash flow in 2012 and 2013 on higher earnings ■ Lower volumes at BMS in H1 2012, recovery in H2 and 2013 ■ NOPLAT expected to rise further in 2012 and 2013
MARGINS INVESTED CAPITAL AND RETURNS
■ Scope for medium-term underlying EBITDA margin target ■ BHC likely to drive additional M&A going forward upgrades in BHC as new, high-margin drugs start delivering ■ Working capital likely to increase in 2012 and 2013 ■ Disproportionate profit consolidation of Xarelto (JNJ) in USA ■ Higher capital spending expected in 2012 and 2013 ■ BCS: volumes up, positive pricing and cost benefits in 2012 ■ Inv. capital to decline in 2012 and 2013, partly owing to high D&A ■ BMS: negative operating leverage, but lower raw mat’ls in 2012 ■ ROIC before special items to rise in 2012 and 2013
SWOT analysis STRENGTHS OPPORTUNITIES
■ BHC’s strong position in emerging growth market of China ■ Xarelto in overlapping stroke prevention in AF and ACS ■ Increasingly innovative new drugs pipeline ■ Alpharadin to treat bone metastases of prostate cancer patients ■ No.2 player in global crop-protection market ■ Increasing need for productivity improvements in agriculture ■ Global market leader in all BMS’s sub-segments ■ Secular trends in management of scarce resources, climate ■ Solid pricing power at BMS change, mobility and growing wealth
WEAKNESSES THREATS
■ Lack of significant US presence in pharmaceuticals ■ Competition to Xarelto (e.g. Eliquis/apixaban – BMS/Pfizer) ■ Relative low scale overall among top pharmaceutical companies ■ Faster than expected erosion of Betaseron (multiple sclerosis) ■ Relatively large tail of baseline portfolio in pharmaceuticals ■ New management may be too acquisitive to raise scale in BHC ■ Only No.6 player in global seeds and traits market ■ Generic producers of off-patent compounds in BCS ■ High degree of cyclicality in BMS’s three main businesses ■ Global economy potentially heading for double-dip scenario
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 10.0 9.3 8.2 7.4 7.0 Current assets 18,318 20,068 22,643 26,172 30,077 EV/EBIT 23.0 14.9 12.2 10.6 9.8 Net fixed assets 9,835 9,823 9,014 8,235 7,482 EV/Inv. Capital 1.8 1.7 1.7 1.7 1.8 Goodwill 20,163 19,455 19,455 19,455 19,455 P/E 12.2 10.6 9.7 8.8 8.0 Total assets 51,506 52,765 54,532 57,281 60,433 Cash P/E 12.2 10.6 9.7 8.8 8.0 Sharehold. equit. 18,833 19,212 21,103 23,515 26,285 P/CF 7.5 7.6 6.8 6.2 5.9 Working capital 3,826 3,723 4,098 4,242 4,406 P/BV 2.2 2.2 2.0 1.8 1.6 Net debt -8,993 -9,909 -7,584 -4,538 -1,178
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 35,088 36,528 38,104 39,446 40,964 in sales 12.6 4.1 4.3 3.5 3.8 EBITDA 6,286 6,711 7,661 8,424 8,959 in EBITDA 10.2 6.8 14.2 10.0 6.4 EBIT 2,730 4,214 5,150 5,888 6,401 in EBIT -9.2 54.4 22.2 14.3 8.7 Net profits 1,301 2,470 3,212 3,816 4,257 in cash EPS 15.2 15.4 9.4 10.4 9.1 CORE EPS (EUR) 4.19 4.83 5.29 5.84 6.37 Net debt/equity -47.8 -51.6 -35.9 -19.3 -4.5 Reported EPS (EUR) 4.19 4.83 5.29 5.84 6.37 FCF/net fin. results 4.7 5.0 6.0 8.3 10.7 DPS (EUR) 1.50 1.60 1.70 1.80 1.90 Current ratio (X) 1.7 1.5 1.7 1.9 2.2
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 2,730 4,214 5,150 5,888 6,401 Gross margin 51.3 50.8 51.3 51.8 52.3 Taxes n.a. n.a. n.a. n.a. n.a. EBITDA margin 17.9 18.4 20.1 21.4 21.9 NOPLAT 2,078 3,098 3,708 4,240 4,609 EBIT margin 7.8 11.5 13.5 14.9 15.6 Depreciation 3,556 2,497 2,511 2,536 2,558 ROIC 5.9 8.6 10.1 11.7 12.9 CAPEX -1,453 -1,340 -1,703 -1,757 -1,805 Inv. cap. (EUR m) 35,194 37,050 36,616 35,982 35,392 in WC 1,002 -112 -375 -144 -163 Free cash flow 4,783 3,919 4,142 4,874 5,199
Made in Switzerland + | Helvea 51
Belimo Price: CHF1,740.- NEUTRAL Target: CHF1,700.- M&S
Patrick Appenzeller ([email protected]) – Tel. +41 (0)43 388 9267
Belimo, founded in 1975, develops, manufactures and distributes electric actuators for air dampers and valve technology for heating, ventilation and air-conditioning (HVAC) systems. The company employs over 1,200 people in more than 70 countries. With a market share of over 40%, Belimo ranks as the global market leader for electric damper actuators and has also reached a strong position in valve actuators within a short space of time. Around two-thirds of all damper actuators installed in Europe and a third of all those installed in the USA are manufactured by Belimo. CEO: Dr Jacques Sanche; CFO: Beat Trutmann; Website: www.belimo.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland 2,000CHF Major shareholders Group Linsi 19.3%, Werner Roner 5.7%, Capital Group 1,900 10.0%, Others 65.1% 1,800 1,700 Shares outstanding (m) 0.61 EV/EBITDA (X) 1,600 Market cap. (CHF m) 1,058 2011 12.2 1,500 Free float 75% 2012E 11.1 1,400 EBITDA/CAGR 2011-2014E 11.5% 2013E 9.9 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Belimo 12-mth tgt Absolute -3% 13% -10% Bloomberg BEAN SW Buy Acc. Neut. Red. N.R. Rel. to local -1% 7% 0% Reuters BEAN.S
News flow
■ August 2011: H1 2011 results in line with our forecasts (sales of CHF216m; organic growth of 14.5%; EBIT of CHF40m), with greater currency uncertainty leading to a focus on costs ■ March 2012: results exactly in line with our estimates and no financial guidance (as usual) ■ Forthcoming events: 6 August 2012 (after close) – H1 2012 results ■ Guidance & consensus: (as usual) no financial guidance for 2012 at this stage; consensus EBIT estimates stand at CHF76m for 2012 and at CHF83m for 2013
Investment case
Although growth in 2012 is likely to be dampened by Europe, Belimo’s growth drivers are unchanged, driven by the trend towards energy efficiency resulting from ever more stringent rules and regulations as well as ongoing motorisation, thereby boosting demand for Belimo’s actuators. In the next few years, we project growth to be higher in the Americas than in Europe with unchanged high growth in Asia/Pacific. Belimo offers impressive and relatively solid long-term growth potential but, given its valuation and the tough comparison baseline for H1 2012, we do not expect much upside potential in the short term.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
10%
Europe Americas 38% n.a. 35% 55% 62% Asia/Pacific
Air applications Water applications
52 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Belimo expects long-term organic sales growth of 10% p.a., ■ Still high and relatively reliable free cash flow in 2012 and 2013 helped by higher refurbishment activity levels and market share ■ Ongoing high investments in new products as well as in a new gains with water applications supported by recent innovations building in Danbury (USA) ■ Growth drivers: rising demand for more comfort/convenience, ■ Acquisitions are unlikely considering Belimo’s already solid safety and lower energy consumption; more regulations market positioning
MARGINS INVESTED CAPITAL AND RETURNS
■ High and historically stable EBIT margin (2000-11: average of ■ Capital spending is expected to double to almost CHF32.5m in 15.3%), but the substantially higher margin level reported in 2012, mainly on account of capacity expansion in the USA 2010 is unlikely to be achieved again in the near future ■ Net working capital should increase at a lower tempo than sales ■ Belimo intends to avoid attracting in new competitors and ■ ROIC should continue to run at a superior level, around 30% also triggering more in-house production from controls contractors in 2012 and 2013
SWOT analysis STRENGTHS OPPORTUNITIES
■ Clear market leader in damper actuators and strong position in ■ Energy-saving trend and increased motorisation bolstering valve actuators in the USA demand for Belimo’s actuators ■ Interesting niche with high barriers to entry ■ More stringent rules and regulations supporting fire- and smoke- ■ Technology and price leadership, plus innovation powers protection business ■ Governments/public sector accounting for some 50% of sales ■ US recovery, especially for renewal of heating/cooling systems
WEAKNESSES THREATS
■ No diversification: Belimo is basically a one-product company ■ Ongoing downturn in non-residential building sectors ■ Dependence on OEMs and control contractors ■ High exposure to the US dollar ■ Lack of transparency: no quarterly figures and no breakdown of ■ Consolidation of controls manufacturers and contractors (equal profits by segment opportunities and risks) ■ Low share liquidity ■ Governments/public sector accounting for some 50% of sales
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 10.4 12.2 11.1 9.9 8.8 Current assets 187 202 221 253 300 EV/EBIT 12.0 14.8 13.4 12.0 10.7 Net fixed assets 88.0 88.9 106 113 112 EV/Inv. Capital 5.4 5.2 4.7 4.4 4.3 Goodwill 0.0 0.0 0.0 0.0 0.0 P/E 17.2 20.8 17.5 15.6 13.9 Total assets 286 305 340 380 426 Cash P/E 17.2 20.8 17.5 15.6 13.9 Sharehold. equit. 212 231 259 292 330 P/CF 13.1 15.1 13.8 12.3 11.0 Working capital 96.9 105 108 113 118 P/BV 5.0 4.6 4.1 3.7 3.2 Net debt -47.4 -55.4 -68.8 -94.5 -133
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 426 416 450 497 549 in sales 10.5 -2.4 8.1 10.5 10.5 EBITDA 96.6 81.8 90.2 101 113 in EBITDA 28.9 -15.3 10.3 12.1 12.2 EBIT 83.2 67.8 74.5 83.3 93.2 in EBIT 34.5 -18.5 9.9 11.8 11.9 Net profits 61.3 51.6 61.1 68.6 77.1 in cash EPS 24.3 -17.1 18.5 12.4 12.3 Cash EPS (CHF) 101.1 83.8 99.3 111.6 125.4 Net debt/equity -22.4 -24.0 -26.6 -32.4 -40.3 Reported EPS (CHF) 101.1 83.8 99.3 111.6 125.4 FCF/net fin. results 7.3 8.6 n.m. n.m. n.m. DPS (CHF) 55.0 50.0 60.0 65.0 75.0 Current ratio (X) 5.3 5.8 5.9 6.2 6.6
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 83.2 67.8 74.5 83.3 93.2 Gross margin 59.3 57.6 58.1 58.4 58.0 Taxes -15.6 -11.8 -13.8 -15.4 -17.2 EBITDA margin 22.6 19.7 20.1 20.4 20.7 NOPLAT 67.6 56.0 60.7 67.9 75.9 EBIT margin 19.5 16.3 16.6 16.8 17.0 Depreciation 13.4 14.0 15.7 17.9 20.3 ROIC 37.5 29.6 29.8 30.9 33.3 CAPEX -14.9 -16.3 -32.5 -25.0 -20.0 Inv. cap. (CHF m) 185 193 214 226 230 in WC -9.5 -7.6 -3.6 -4.8 -5.0 Free cash flow 56.6 46.1 40.4 56.0 71.3
Made in Switzerland + | Helvea 53
BioInvent Price: SEK13.7 BUY Target: SEK29.0 M&S
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
BioInvent’s primary business is discovering and developing therapeutic antibodies using its proprietary n-CoDeR library which is also used for fee-for-service business. The company’s clinical pipeline is built on a programme co-developed with ThromboGenics for prevention of venous thrombosis (TB-402, partial anti-FVIII; Ph.II proof-of-concept established), two Roche-partnered programmes, one on solid tumours (TB-403, anti-PlGF; Ph.Ib/IIa), and one in acute coronary syndrome (BI-204, anti-oxLDL; Ph.II) and a proprietary programme in multiple myeloma (BI-505, anti-ICAM-1; in Ph.IIa). CEO: Svein Mathisen; CFO: –; Website: www.bioinvent.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Sweden SEK34 Major shareholders JP Morgan BANk 7.3%, B&E Participation 5.8%, DnB 30 NOR 5.3%, Avanza Pension Insurance 4.6%, Staffan 26 Rasjö 4.4% 22 Shares outstanding (m) 67.21 EV/EBITDA (X) 18 Market cap. (SEK m) 921 2011 n.m. 14 Free float 73% 2012E 3.0 10 EBITDA/CAGR 2011-2014E n.m. 2013E n.m. 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols BioInvent 12-mth tgt Absolute -14% -16% -43% Bloomberg BINV SS Buy Acc. Neut. Red. N.R. Rel. to local -6% -16% -33% Reuters BINV.ST
News flow
■ June 2011: approx. SEK136m raised in private placement ■ December 2011: enrolment of patients into Ph.IIb study on TB-402 after hip surgery completed ahead of plan ■ January 2012: oncology collaboration started with Servier ■ March 2012: partner Genentech completed enrolment of patients into Ph.II study on BI-402 (anti-oxLDL) ■ April 2012: SEK104.8m raised in gross proceeds from rights issue, 10% of previous shares outstanding ■ Forthcoming events: 19 July 2012 – H1 2012 results ■ Guidance & consensus: not meaningful
Investment case
BioInvent stands to benefit from its Roche-partnered drug candidate TB-403 targeting placental growth factor (PLGF). In our view, TB-403 has the potential to extend the strong Roche franchise in anti-angiogenic treatments against cancer. BioInvent’s technology platform, which is also library-based like MorphoSys’, is starting to be recognised, with partnerships so far with Human Genome Sciences, Daiichi Sankyo, Mitsubishi Tanabe, Bayer, Xoma and Servier. Potential upside could come from: 1) TB-402, with the potential for increased safety and convenience, and presence of an antidote being developed for prevention of thrombosis in hip surgery and chronic atrial fibrillation; 2) BI-204 drug candidate is tested for secondary prevention of acute coronary syndrome (ACS).
Divisional breakdown (2011) Regional breakdown – Sales (2011)
150% Sales EBIT Sales EBIT
100
50
0 n.a.
-50
-100 100.0% 100.0%
-150 All drugs All drugs
54 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ In 2012, potential milestone payment for Ph.II proof-of-concept ■ Cash and financial assets of SEK235m in April after rights issue on BI-204, upfront payment from partnering of TB-402 ■ Improving cash position in short- to-medium term likely to depend (prevention of post-surgical thromboembolic complications and on successful partnering, i.e. TB-402 post Ph.IIb in late 2012, as BI-505 (multiple myeloma) we surmise, or also possibly BI-505, and BI-204 for its rights ex- ■ We do not expect royalties on product sales before 2015 US should the Ph.II proof-of-concept trial be positive (data in Q3)
MARGINS INVESTED CAPITAL AND RETURNS
■ Margin trend highly dependent on potential upfront and ■ Depending on upfront payments from partnering and potential milestone payments milestone payments, 2012 looks to be a profitable year ■ Sustainable net profits forecast from 2015 on revenues from royalties on product sales
SWOT analysis STRENGTHS OPPORTUNITIES
■ Validated technology platform for target and lead discovery has ■ Broad spectrum of likely indications for TB-403 (PLGF) in cancer led to a series of licensing deals with pharmaceutical and ■ Unexplored potential of BI-204 (oxLDL) as disease-modifying biotech companies agent in acute coronary syndrome and cardiovascular disease ■ All four highly innovative drug candidates at clinical stage ■ Upside from higher safety of TB-402 in thrombosis prevention ■ Strong partnerships with Roche and former Genentech ■ Partnering of further drug candidates (TB-402, BI-505)
WEAKNESSES THREATS
■ Slow development of TB-402 (partial Factor VIII inhibitor) ■ Development of competitor drugs also targeting PLGF ■ Revenues from milestones and sales royalties of TB-402 and ■ Lower than expected commercial potential for TB-403 as Avastin- TB-403 shared with ThromboGenics (60%; BioInvent: 40%) combined therapy or little interest in Avastin-related drugs overall ■ Technology platform without proven lead-optimisation ■ BI-204 development halted by Roche if it were to favour capability development of its own proprietary pipeline
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In SEK m) 2010 2011 2012E 2013E 2014E EV/EBITDA n.m. n.m. n.m. n.m. n.m. Current assets 124 193 438 376 873 EV/EBIT n.m. n.m. n.m. n.m. n.m. Net fixed assets 11.2 11.0 11.6 12.1 12.7 EV/Inv. Capital 85.9 n.m. n.m. n.m. n.m. Goodwill 3.1 1.9 1.9 2.0 2.1 P/E n.m. n.m. n.m. n.m. n.m. Total assets 138 206 452 390 888 Cash P/E n.m. n.m. n.m. n.m. n.m. Sharehold. equit. 74.2 138 388 326 824 P/CF n.m. n.m. n.m. n.m. n.m. Working capital -4.5 -17.1 -17.1 -17.2 -17.2 P/BV 11.3 6.7 2.6 3.0 1.2 Net debt -106 -174 -419 -357 -873
Income statement Growth rates & balance-sheet ratios (In SEK m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 82.9 125 437 124 881 in sales 2.7 50.4 n.m. -71.7 n.m. EBITDA -118 -62.3 250 -66.8 687 in EBITDA n.m. n.m. n.m. n.m. n.m. EBIT -128 -71.7 241 -76.2 678 in EBIT n.m. n.m. n.m. n.m. n.m. Net profits -128 -67.1 243 -76.2 510 in cash EPS n.m. n.m. n.m. n.m. n.m. Cash EPS (SEK) -2.12 -1.04 3.62 -1.13 7.58 Net debt/equity -143 -126 -108 -110 -106 Reported EPS (SEK) -2.12 -1.04 3.62 -1.13 7.58 FCF/net fin. results 122 13.6 n.m. 9.6 n.m. DPS (SEK) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 1.9 2.8 6.8 5.9 13.6
Cash flow statement Ratios, margins and returns (In SEK m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA -128 -71.7 241 -76.2 678 Gross margin n.m. n.m. n.m. n.m. n.m. Taxes 0.0 0.0 0.0 0.0 169 EBITDA margin n.m. n.m. n.m. n.m. n.m. NOPLAT -128 -71.7 241 -76.2 508 EBIT margin n.m. n.m. n.m. n.m. n.m. Depreciation 9.4 6.3 6.6 7.0 7.3 ROIC n.m. n.m. n.m. n.m. n.m. CAPEX 0.0 0.0 -0.6 -0.6 -0.6 Inv. cap. (SEK m) 9.8 n.m. n.m. n.m. n.m. in WC -2.4 2.7 -3.8 0.1 0.1 Free cash flow -121 -62.6 243 -69.7 515
Made in Switzerland + | Helvea 55
Bobst Price: CHF25.0 BUY Target: CHF35.0 M&S
Volkan Göçmen ([email protected]) – Tel. +41 (0)22 354 9157
Bobst is the largest dry-packaging machinery manufacturer. Its main lines of activity in this field are threefold: corrugated board, folding carton and flexible packaging. The former two form the backbone of the group whereas Bobst has expanded the latter through acquisitions (e.g. Fischer & Krecke in 2008). Reorganisation of the group structure resulted in the three business areas mentioned above being moulded into three new divisions as of early 2010: Sheet-Fed; Web- Fed; Services. Bobst also owns a Chinese machine manufacturer which it runs on an independent basis. CEO: Jean-Pascal Bobst; CFO: Attilio Tissi; Website: www.bobstgroup.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF58 Major shareholders JBF Finance 47.0%, others 53.0% 50 42 34 Shares outstanding (m) 16.52 EV/EBITDA (X) 26 Market cap. (CHF m) 414 2011 9.9 18 Free float 53% 2012E 8.3 10 EBITDA/CAGR 2011-2014E 30.0% 2013E 6.1 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Bobst 12-mth tgt Absolute 4% 41% -32% Bloomberg BOBNN Buy Acc. Neut. Red. N.R. Rel. to local 7% 33% -25% Reuters BOBNN.S
News flow
■ November 2011: accelerated implementation of group transformation programme to offset franc’s strength – 8% reduction in headcount by Q2 2013, with savings of CHF60m being targeted; softer demand seen in Europe ■ March 2012: full-year 2011 results delivered higher than expected bottom-line results, with expectations being exceeded in all three divisions ■ Forthcoming event: 28 August 2012 – H1 2012 results/conference call ■ Guidance & consensus: management guiding in 2012 for sales of CHF1.13-1.23bn and EBIT at roughly CHF35m; consensus EBIT estimates stand at CHF39.7m for 2012 and at CHF67.1m for 2013
Investment case
We reinitiated coverage of Bobst a positive rating, but addressing the recommendation explicitly to longer-term value-oriented investors. Bobst has an outstanding industrial platform, is highly focused, and possesses a truly global footprint and world-class reputation for top quality. It is, however, currently a ‘construction site’ (in the best sense of the term), in the throes of laying down new operating foundations. Initial results achieved in 2011, despite Bobst running into harsh conditions on the currency front, were very encouraging, beating both the market’s and our expectations. Although, growth-wise, Bobst’s business might not appear exciting at first glance, it is very attractive with regard to its cash-generating capabilities. The stock is clearly undervalued: BUY.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
200% Sales EBIT Sales EBIT 0.5% 3.0% 150 4% Europe 27.2% 21% 100 33.6%
50 Americas 47.9% 47% 51.3% 0 Asia & Oceania
-50 24.4% 12.2% 28% Africa -100
-150 Sheet-fed Web-fed Services Other Sheet-fed Web-fed Services Other
56 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Lower order backlog to lead to declining sales at both ■ Free cash flow could turn slightly positive thanks to improved machinery divisions (Sheet-Fed and Web-Fed) in 2012 NOPLAT in 2012 ■ Rising sales estimated for the Services division ■ In absolute terms, free cash flow is to remain very low, mainly ■ DRUPA trade fair in May 2012 could stimulate the order intake due to ongoing high capital spending as part of group somewhat during H2 2012 transformation; capex needs to fall substantially from 2013
MARGINS INVESTED CAPITAL AND RETURNS
■ Margin gain in machinery-related businesses mainly thanks to ■ Ongoing increase in invested capital due to high capital spending lower cost base in 2012, with short-time working (approximately as part of the group transformation process in 2012 (moving into 30%) from January for six months new premises) ■ Sales improvement at high-margin service business to improve ■ Despite rise in invested capital, we expect ROIC to increase in sales mix 2012 thanks to NOPLAT, but it is likely to stay below WACC
SWOT analysis STRENGTHS OPPORTUNITIES
■ Highly focused on packaging industry, but, within that, it is ■ Growth in service business excellently diversified in terms of both application areas and ■ Growth opportunities in emerging markets, mainly through deeper client structure penetration of mid-range segment (not to be confused with ■ Excellent top-quality franchise and technology leadership ‘cheap’ machines – these are still ‘premium’ products) ■ Genuinely global footprint and high pricing power ■ JIT concept to make Bobst a really lean, highly flexible company
WEAKNESSES THREATS
■ Still a long ‘to do’ list in the whole transformation process ■ Still vulnerable to exogenous shocks during this transformation ■ Too heavily geared to Switzerland in terms of production base, process, particularly considering that, in Europe for instance, Italy and, within that, it is also somewhat disadvantaged from a ranks as Bobst’s No.2 market recruitment perspective by its location in Western Switzerland ■ Still some blank spots in middle segment of product range
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 7.0 9.9 8.3 6.1 4.5 Current assets 998 975 951 1,063 1,065 EV/EBIT 10.7 23.9 14.9 9.4 6.1 Net fixed assets 260 311 360 369 366 EV/Inv. Capital 1.1 0.9 0.9 0.8 0.8 Goodwill 115 136 127 118 109 P/E 8.4 n.m. 18.8 9.2 5.7 Total assets 1,643 1,718 1,719 1,837 1,835 Cash P/E 7.0 24.8 13.3 7.7 5.0 Sharehold. equit. 578 566 616 673 757 P/CF 5.1 7.4 6.1 4.5 3.4 Working capital 239 296 283 296 309 P/BV 0.7 0.7 0.7 0.6 0.5 Net debt 163 256 240 145 85.1
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 1,280 1,270 1,215 1,273 1,330 in sales 21.3 -0.8 -4.4 4.8 4.5 EBITDA 94.4 66.4 79.0 107 146 in EBITDA n.m. -29.7 19.0 35.4 36.4 EBIT 61.3 27.5 44.0 70.0 108 in EBIT n.m. -55.1 60.0 59.1 54.3 Net profits 49.3 0.5 22.0 45.0 73.0 in cash EPS n.m. -71.6 85.6 74.2 51.9 Cash EPS (CHF) 3.57 1.01 1.88 3.27 4.96 Net debt/equity 28.3 45.2 39.0 21.6 11.2 Reported EPS (CHF) 2.98 0.03 1.33 2.72 4.42 FCF/net fin. results n.m. n.m. 0.6 4.6 10.2 DPS (CHF) 0.00 0.00 0.00 0.82 1.33 Current ratio (X) 1.8 2.0 2.1 1.8 2.1
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 70.9 43.7 53.0 79.0 117 Gross margin 37.2 38.6 38.6 38.7 39.5 Taxes -13.2 -10.8 -11.0 -15.0 -25.0 EBITDA margin 7.4 5.2 6.5 8.4 11.0 NOPLAT 57.7 32.9 42.0 64.0 92.0 EBIT margin 4.8 2.2 3.6 5.5 8.1 Depreciation 23.5 22.7 26.0 28.0 29.0 ROIC 8.5 4.9 5.6 8.2 11.7 CAPEX -56.8 -87.6 -75.0 -37.0 -26.0 Inv. cap. (CHF m) 614 742 769 783 784 in WC 46.2 -56.8 12.9 -13.5 -13.3 Free cash flow 70.6 -88.8 5.9 41.5 81.7
Made in Switzerland + | Helvea 57
Bossard Price: CHF120.- NEUTRAL Target: CHF135.- M&S
Stefan Gächter, CFA ([email protected]) – Tel. +41 (0)43 388 9262
Bossard is an industrial company that procures/provides globally every type of fastening element such as screws, nuts, bolts, washers, etc. Bossard is not a producer, but nor is it a pure trader. It is focused on end-user industries and client groups that both require technological advice and have an explicit need for logistics services of so-called C-parts such as the machinery and electrical engineering industries. It is precisely Bossard’s ability to combine these strengths that enables the group to generate higher margins than a purely trading company. CEO: David Dean; CFO: Stephan Zehnder; Website: www.bossard.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF168 Major shareholders Kolin/Bossard families (55.8% of votes) 27.3%, Sarasin 155 Investmentfonds AG 5.1% 142 129 Shares outstanding (m) 2.98 EV/EBITDA (X) 116 Market cap. (CHF m) 357 2011 6.4 103 Free float 68% 2012E 6.6 90 EBITDA/CAGR 2011-2014E 2.1% 2013E 6.3 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Bossard 12-mth tgt Absolute -3% 15% -28% Bloomberg BOS SW Buy Acc. Neut. Red. N.R. Rel. to local 0% 9% -20% Reuters BOS.S
News flow
■ April 2012: rather weak first quarter sales as a result of negative sales growth in Europe and Asia (only America posted positive growth), but the company remains confident for 2012 ■ Forthcoming events: 13 July 2012 – H1 2012 preliminary results; 28 August 2012– H1 2012 results ■ Guidance & consensus: when it released Q1 sales figures on 2 April, Bossard’s guidance was for sales growth in local currencies of 5% to 8% for the financial year 2012; consensus EBIT estimates stand at CHF49m for 2012 and at CHF52m for 2013
Investment case
Bossard in our view is continuing to do an excellent job and is likely to outgrow its addressed markets medium to longer term on the back of a broader range of engineering solutions offered to clients relative to its competitors and by Bossard increasing its share of speciality and niche branded products relative to standard catalogue articles. As cyclical risks persist in the current stage of the cycle and given that we only see limited near-term upside on valuation grounds (EV/EBITDA multiple >7X for 2012E), we nevertheless retain our NEUTRAL recommendation on Bossard shares. However, we consider Bossard to be rock solid as well as a very well-managed company.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
27% Europe & Middle East
n.a. n.a. Asia 56%
17% Americas
58 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We forecast only muted top-line growth in 2012 on the back of ■ FCF in 2012 to increase only marginally on the back of lower a rather weak industrial business cycle especially in Europe – NOPLAT figures and still higher capital spending stemming from the industrial indicators we monitor are mostly signalling slower the construction of a new site in Zug, Switzerland, in 2011 and growth momentum 2012
MARGINS INVESTED CAPITAL AND RETURNS
■ Regions-wise, Bossard is continuing to reap the benefits of past ■ Invested capital to rise slightly in 2012 with the expansion of the restructuring work in its Asian and American businesses, but we Zug site also leading to higher capital spending in 2011 and 2012 expect operating margins overall to fall slightly from their peak ■ ROIC to decline in 2012 because of higher invested capital, but levels of 2011 owing to higher procurement costs (among other also on the assumption of slightly lower operating margins factors)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Seasoned management ■ Outsourcing trends and geographical expansion of large ■ Sound and highly focused business model geared not simply industrial groups towards pure trading, but also towards adding value through ■ Offering broader range of engineering solutions to clients and consultancy and logistics increasing the share of speciality and niche branded products ■ Extensive geographical reach ■ Further expansion in Asia and America
WEAKNESSES THREATS
■ Procurement costs are sensitive to movements in raw material ■ Product liabilities prices, i.e. steel, nickel ■ Introduction of anti-dumping duties in important end markets ■ High working capital needs as a percentage of sales ■ Currency movements and fluctuations in raw material prices
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 6.7 6.4 6.6 6.3 6.0 Current assets 231 259 259 284 312 EV/EBIT 8.2 7.7 8.1 8.1 7.7 Net fixed assets 55.0 64.9 83.6 86.4 87.0 EV/Inv. Capital 1.5 1.3 1.2 1.2 1.1 Goodwill 0.0 0.0 0.0 0.0 0.0 P/E 8.1 8.1 8.6 8.6 8.7 Total assets 293 331 349 377 406 Cash P/E 7.8 7.8 8.4 8.3 8.4 Sharehold. equit. 176 203 227 252 277 P/CF 7.9 9.0 6.2 6.9 7.4 Working capital 174 194 195 205 220 P/BV 2.0 1.8 1.6 1.4 1.3 Net debt 25.7 29.6 22.6 8.2 -1.6
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 459 458 476 500 525 in sales 20.8 -0.2 4.0 5.0 5.0 EBITDA 57.8 60.1 58.6 61.5 64.0 in EBITDA 89.4 4.1 -2.6 5.0 4.1 EBIT 47.3 50.3 47.7 47.9 50.1 in EBIT n.m. 6.3 -5.1 0.5 4.4 Net profits 44.3 44.3 41.3 41.5 41.0 in cash EPS n.m. 0.2 -6.6 0.4 -1.2 Cash EPS (CHF) 15.3 15.4 14.4 14.4 14.2 Net debt/equity 14.6 14.6 9.9 3.3 -0.6 Reported EPS (CHF) 14.8 14.9 13.9 13.9 13.8 FCF/net fin. results 34.0 8.6 18.3 26.6 23.6 DPS (CHF) 6.00 6.00 5.55 5.57 5.50 Current ratio (X) 2.1 2.2 2.3 2.5 2.6
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 48.9 51.7 49.1 49.4 51.5 Gross margin 41.1 40.5 39.3 39.1 38.7 Taxes -0.5 -3.4 -4.7 -4.7 -7.3 EBITDA margin 12.6 13.1 12.3 12.3 12.2 NOPLAT 44.2 49.4 44.5 44.6 44.1 EBIT margin 10.3 11.0 10.0 9.6 9.5 Depreciation 8.9 8.4 9.412.112.5 ROIC 17.1 17.8 14.6 13.8 13.0 CAPEX -7.1 -12.2 -28.1 -15.0 -13.1 Inv. cap. (CHF m) 262 294 317 331 349 in WC -12.5 -20.3 -1.1 -9.8 -15.5 Free cash flow 36.4 18.0 21.0 30.9 26.0
Made in Switzerland + | Helvea 59
Bucher Industries Price: CHF161.- ACCUMULATE Target: CHF215.- M&S
Stefan Gächter, CFA ([email protected]) – Tel. +41 (0)43 388 9262
Bucher is an industrial conglomerate with decades of experience in equipment and machinery for agricultural markets (Kuhn Group), wine and fruit juices production (Bucher Specials) and the glass container industry (Emhart Glass). In addition, Bucher is also active in the municipal vehicle (Bucher Municipal) and hydraulic system solutions (Bucher Hydraulics) segments. Apart from Hydraulics, all units are late-cycle activities, but Bucher is tapping into several trends (e.g. changes in global nutrition patterns) which should enable its longer-term top-line growth to outstrip GDP growth. CEO: Philip Mosimann; CFO: Roger Baillod; Website: www.bucherind.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF238 Major shareholders Hauser Family 34.1%, Bucher/Bucher Beteiligungs- 215 Stiftung 4.8% 192 169 Shares outstanding (m) 9.81 EV/EBITDA (X) 146 Market cap. (CHF m) 1,580 2011 6.3 123 Free float 61% 2012E 5.4 100 EBITDA/CAGR 2011-2014E 10.0% 2013E 5.0 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Bucher Industries 12-mth tgt Absolute -16% 4% -23% Bloomberg BUCN SW Buy Acc. Neut. Red. N.R. Rel. to local -14% -2% -15% Reuters BUCN.S
News flow
■ March 2011: Kuhn entered the North American crop production sector when it acquired US-based Krause Corp. ■ November 2011: Moscow placed an order of EUR52m for municipal vehicles for delivery before May 2012 ■ April 2012: group order intake fell short of expectations, but prospects for farming machinery business intact ■ Forthcoming event: 9 August 2012 – H1 2012 results ■ Guidance & consensus: when it reported results for the first three months, Bucher guided for an improvement in sales, operating profits and profits for the financial year 2012, but at lower growth rates than in the previous year; consensus EBIT estimates stand at CHF223m for 2012 and at CHF221m for 2013
Investment case
In our opinion, Bucher continues to offer one of the rare still attractive stories among industrials (solid medium- to longer-term prospects for the farm machinery business more than compensating for possible cyclical weakness in the hydraulics business and for Bucher Municipal’s exposure to the austerity measures in Europe). As for Kuhn Group (farm machinery equipment accounts for roughly 50% of group EBIT and is the most important driver in the Bucher investment case), most of the indicators we track are still indicating that Western European farm machinery markets are enjoying continued good demand growth. In addition, Bucher remains one of the very few attractive (European) names available for investors to play the longer-term ‘agricultural equipment’ growth story.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
70% Sales EBIT Sales EBIT 0.6% 6.7% 60 7% 5% 14.6% 7.0% 50 Switzerland 40 20% Europe & Middle East 43.4% 15.9% 16.9%30 52.7% 20 Asia
10 5.6% 9% Americas 59% 0 8.5% 12.1% Rest of world -10 16.1% -20 Kuhn Group Bucher Municipal Bucher Specials Kuhn Group Bucher Bucher Specials Bucher Emhart Glass Other / Bucher HydraulicsMunicipal Emhart Glass Hydraulics Other / consolidationconsolidation
60 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Top line in 2012 to be driven mainly by ongoing good demand ■ Free cash flow in 2012 to rise on lower working capital needs and from European agricultural equipment markets (Kuhn Group) higher operating margins and Emhart Glass; however, top-line growth is to be curbed by ■ Rise in NOPLAT in 2012 on higher EBITA margins Bucher Municipal potentially suffering from the austerity measures in Europe from the beginning of H2 2012
MARGINS INVESTED CAPITAL AND RETURNS
■ Group margins to benefit in 2012 from ongoing cost-cutting ■ Capex to reach ‘only’ normal maintenance levels in 2012 measures but, to some extent, also from the expected ■ Invested capital to rise slightly, partly as a result of the first-time profitability rebound at Emhart Glass consolidation of Krause Corporation ■ ROIC projected to remain more or less stable only in 2012 (acquisition of Krause increases invested capital)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Brand name and seasoned management ■ Higher soft commodity prices on changes in global nutrition ■ Leading position in most of the markets that Bucher addresses patterns triggering capex in new agricultural equipment ■ Decades of experience in equipment and machinery for ■ Demand for higher value beverages and consumers favouring agriculture markets, wine and fruit juice production, and the glass over plastic bottles to benefit Emhart Glass glass container industry ■ Offerings extended into new areas like wastewater treatment
WEAKNESSES THREATS
■ Bucher’s business portfolio overly diversified, in our view: there ■ Bucher Municipal’s business model needs to cope with public are only very limited synergies among the five business tendering processes (aggressive pricing) divisions ■ Lower tax revenues hitting the budgets of Bucher Municipal clients ■ Bucher still generates the bulk of its sales in Europe, making it ■ Forex (mainly translation) effects potentially making huge dent in highly dependent on this region Bucher’s top-line growth rates
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 7.3 6.3 5.4 5.0 4.7 Current assets 1,402 1,531 1,549 1,667 1,794 EV/EBIT 10.8 8.6 7.5 7.0 6.6 Net fixed assets 366 449 501 544 588 EV/Inv. Capital 1.4 1.2 1.1 1.0 1.0 Goodwill 53.4 74.7 74.7 74.7 74.7 P/E 16.9 12.9 11.7 10.4 9.7 Total assets 1,985 2,248 2,300 2,445 2,599 Cash P/E 14.5 11.4 10.4 9.3 8.8 Sharehold. equit. 737 781 875 978 1,087 P/CF 4.4 8.4 6.3 5.5 5.1 Working capital 509 581 634 671 710 P/BV 2.3 2.2 1.8 1.6 1.4 Net debt -19.0 71.5 46.3 -10.5 -72.7
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 2,034 2,336 2,486 2,630 2,783 in sales -5.1 14.9 6.4 5.8 5.8 EBITDA 224 260 302 325 346 in EBITDA 18.0 16.1 16.1 7.8 6.5 EBIT 151 190 217 233 248 in EBIT 35.5 25.6 14.3 7.2 6.2 Net profits 95.4 125 140 152 162 in cash EPS n.m. 27.0 9.7 11.6 6.4 Cash EPS (CHF) 11.1 14.1 15.5 17.3 18.4 Net debt/equity -2.6 9.2 5.3 -1.1 -6.7 Reported EPS (CHF) 9.53 12.5 13.8 15.5 16.6 FCF/net fin. results 26.5 n.m. 2.9 5.6 6.1 DPS (CHF) 3.00 4.00 4.66 5.04 5.40 Current ratio (X) 2.4 1.9 2.0 2.0 2.1
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 167 206 234 250 265 Gross margin 48.9 45.3 48.4 48.4 48.2 Taxes -42.9 -44.4 -55.7 -60.1 -64.3 EBITDA margin 11.0 11.1 12.1 12.4 12.4 NOPLAT 100 155 175 187 197 EBIT margin 7.4 8.1 8.7 8.9 8.9 Depreciation 56.8 54.0 67.4 75.2 81.6 ROIC 7.9 12.3 12.4 12.3 12.3 CAPEX -61.1 -117 -119 -118 -125 Inv. cap. (CHF m) 1,168 1,355 1,476 1,556 1,638 in WC 131 -72.5 -52.4 -36.8 -39.2 Free cash flow 299 -32.9 55.0 107 114
Made in Switzerland + | Helvea 61
Burckhardt Compression Price: CHF221.- NEUTRAL Target: CHF225.- M&S
Volkan Göçmen ([email protected]) – Tel. +41 (0)22 354 9157
Burckhardt Compression is a world-leading manufacturer of piston compressors, with a comprehensive range of products covering all applications for reciprocating compressors serving various end-user industries, such as hydrocarbon processing, chemicals, industrial gases, and gas transport & storage. Alongside equipment & services, the company is developing a components business for compressors. Not only does Burckhardt Compression have a strong market position, but it is also able to convert this into outstanding operating profitability. It went public in June 2006. CEO: Marcel Pawlicek; CFO: Rolf Brändli; Website: www.burckhardtcompression.com (FY to end-March)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF296 Major shareholders Burckhardt management 14.8%, TIAA-CREF 5.0%, 270 Others 80.2% 244 218 Shares outstanding (m) 3.40 EV/EBITDA (X) 192 Market cap. (CHF m) 751 10/11A 9.5 166 Free float 80% 11/12E 9.6 140 EBITDA/CAGR 10/11A-13E/14E 6.5% 12E/13E 8.9 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Burckhardt Compression 12-mth tgt Absolute -10% 0% -21% Bloomberg BCHN SW Buy Acc. Neut. Red. N.R. Rel. to local -8% -6% -13% Reuters BCHN.S
News flow
■ September 2011: profit warning issued on currency grounds sent the share price tumbling ■ November 2011: solid set of H1 2011/12 results, particularly on the order front (+20.4%), but sales (–17% to CHF144m) and EBIT (–31.4% to CHF21.2m) were roughly in line with our estimates ■ Forthcoming event: 5 June 2012 – full-year 2011/12 results ■ Guidance & consensus: guiding for sales of CHF330m and middle of 10%-20% EBIT margin range in 2011/12; higher sales/similar margins in 2012/13; consensus EBIT estimates stand at CHF56m for 2011/12 and at CHF61m for 2012/13
Investment case
Our recent company visit left us with a very positive impression as regards not only the trading environment, but also the further progress Burckhardt Compression has made at its factory and plant level where it will soon be able to house all of its businesses/divisions under one roof at Oberwinterthur, further enhancing its operational flexibility. In the meantime, the three largest of its four end-user industries are recovering further. We expect the company to deliver positive surprises, particularly on the order front, when it reports its full-year results; the bottom line could also beat consensus estimates slightly. We like the way the company is making further progress on the product development front, on top of its excellent bottom-line management. However, the stock is already ‘priced to deliver’.
Divisional breakdown (2010/11) Regional breakdown – Sales (2010/11)
Sales Gross profit
8% 12% 1% Switzerland
35% Other Europe, Africa & ME 45% 30% USA & Canada 56% 62% 43% Latin America 5% Asia Pacific 3%
New machines Customer Support Service (CSS) Compressor Components
62 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Order book filling up further from most of its end-user industries, ■ Rising NOPLAT in 2012-2014 dented by increased working- pointing towards sales growth ahead in the coming 2-3 years capital needs ■ Growth driven by not only new-machinery business, but also ■ As capital-spending needs have clearly peaked, we expect the customer support & services as well as components business company to generate operating free cash flow of roughly CHF40- 50m p.a. over the coming years
MARGINS INVESTED CAPITAL AND RETURNS
■ Declining gross margins on the cards for 2012/13 in the new- ■ Virtually unchanged invested capital now that the capital- machinery business as we expect the currency impact to start spending cycle has clearly peaked filtering through into the P&L ■ Rising NOPLAT to lead again to resumption of ROIC advances, ■ However, the overall impact on the group should be relatively even though its ROIC is already well above average compared to limited, with sustained growth at higher-margin divisions both competitors’ and peers’ returns
SWOT analysis STRENGTHS OPPORTUNITIES
■ Technological leadership and positioning in high-end segment ■ Growth in the services business given the sizeable population of of the application range, particularly in LNG installed equipment where OEMs have gone out of business ■ Operating profitability ■ Strong generation of free cash flow and balance-sheet strength to ■ Cash-generation capability enable opportunities on the acquisition front and to accelerate ■ Strong balance sheet growth in services and components businesses
WEAKNESSES THREATS
■ Market position in North America ■ Prolonged downturn to have a significant impact on the pricing ■ Poor match-up of costs and revenues in corresponding environment currency areas ■ Strong Swiss franc
Valuation ratios Balance sheet (X) 09/10 10/11 11/12E 12/13E 13/14E (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E EV/EBITDA 8.0 9.5 9.6 8.9 7.8 Current assets 313 346 366 413 462 EV/EBIT 8.8 10.7 10.9 10.0 8.7 Net fixed assets 122 124 124 125 126 EV/Inv. Capital 3.0 3.1 3.2 3.1 3.0 Goodwill 32.8 30.1 28.2 26.3 24.4 P/E 13.4 16.7 16.5 14.7 12.6 Total assets 470 502 520 567 615 Cash P/E 13.0 16.0 15.8 14.1 12.2 Sharehold. equit. 235 258 285 315 348 P/CF 11.4 13.1 13.4 12.5 11.1 Working capital 61.7 55.7 53.0 61.6 67.0 P/BV 3.2 2.9 2.5 2.3 2.0 Net debt -66.2 -94.9 -126 -151 -184
Income statement Growth rates & balance-sheet ratios (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E (In %) 09/10 10/11 11/12E 12/13E 13/14E Sales 343 356 338 393 428 in sales -19.2 3.6 -4.8 16.1 8.9 EBITDA 81.9 69.5 68.3 73.8 83.9 in EBITDA -17.8 -15.2 -1.7 8.1 13.7 EBIT 74.2 61.5 60.4 65.6 75.5 in EBIT -21.2 -17.1 -1.8 8.6 15.1 Net profits 56.0 45.1 44.4 48.6 56.5 in cash EPS -22.2 -18.7 1.1 11.9 15.6 Cash EPS (CHF) 17.0 13.8 14.0 15.6 18.1 Net debt/equity -28.2 -36.8 -44.3 -48.0 -52.7 Reported EPS (CHF) 16.5 13.3 13.4 15.0 17.5 FCF/net fin. results n.m. 23.1 26.5 28.4 44.4 DPS (CHF) 5.00 5.00 5.00 6.00 7.00 Current ratio (X) 1.9 2.0 2.2 2.3 2.3
Cash flow statement Ratios, margins and returns (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E (In %) 09/10 10/11 11/12E 12/13E 13/14E EBITA 76.1 63.4 62.3 67.5 77.4 Gross margin 37.0 32.5 36.8 33.7 34.2 Taxes -17.9 -14.2 -14.1 -15.5 -17.8 EBITDA margin 23.9 19.5 20.2 18.8 19.6 NOPLAT 58.2 49.2 48.2 52.0 59.6 EBIT margin 21.6 17.3 17.8 16.7 17.6 Depreciation 7.7 7.9 7.9 8.2 8.4 ROIC 34.0 23.1 23.2 24.8 27.7 CAPEX -87.9 -12.1 -8.5 -9.0 -9.2 Inv. cap. (CHF m) 216 209 205 213 217 in WC -11.1 6.0 2.7 -8.6 -5.5 Free cash flow -33.1 51.0 50.3 42.6 53.3
Made in Switzerland + | Helvea 63
Bureau Veritas Price: EUR69.6 NEUTRAL Target: EUR72.0 M&S
Chris Burger, CFA ([email protected]) – Tel. +41 (0)43 388 9259
Founded in 1828, Bureau Veritas is a world leader in conformity assessment and certification services. It offers services and solutions in order to ensure that their products, infrastructure and processes meet standards and regulations in terms of quality, health and safety, environmental protection and social responsibility (QHSE). Bureau Veritas is recognised and accredited by major national and international organisations. The company generated revenues of EUR3.4bn in 2011 and employs 52,000 people at 940 offices and 340 laboratories in 140 countries. CEO: Didier Michaud-Daniel; CFO: Sami Badarani; Website: www.bureauveritas.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./France EUR75 Major shareholders Wendel Investissement 51.5%, Lone Pine Capital 7.8%, 70 Others 40.7% 65 60 Shares outstanding (m) 110 EV/EBITDA (X) 55 Market cap. (EUR m) 7,635 2011 14.8 50 Free float 48% 2012E 12.6 45 EBITDA/CAGR 2011-2014E 12.0% 2013E 11.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Bureau Veritas 12-mth tgt Absolute 12% 27% 19% Bloomberg BVI FP Buy Acc. Neut. Red. N.R. Rel. to local 28% 32% 58% Reuters BVI.PA
News flow
■ February 2012: full-year 2011 results (revenue: EUR3,358.6m, adj. operating profit: EUR544.3m): strong growth in Q4 (+6.5%), but restructuring cost booked related to Spain, positive outlook ■ May 2012: clearly stronger-than-expected organic growth of 8.6% in Q1 2012 (revenues: EUR868.3m) ■ Forthcoming event: 28 August 2012 – H1 2012 results ■ Guidance & consensus: strong growth in revenues and adjusted operating profits, in line with the targets set out in its strategic plan BV2015 (organic revenue CAGR: 6-8%); consensus EBIT estimates stand at EUR593m for 2012 and at EUR662m for 2013
Investment case
The TIC industry is benefiting from powerful structural growth drivers (new regulations; increasing awareness of the importance of inspection, testing and certification; growth in global trade; relocation of manufacturing to less developed markets; outsourcing; privatisation; growing speed of innovation). We also welcome Bureau Veritas’s commitment to acquisitions because acquisitions in this sector usually become earnings-enhancing very quickly as the acquired know-how and the new clients can be leveraged through the company’s own network and services. We still see potential to improve margins at Bureau Veritas, especially in the growing Industry and the acquired Commodity business. However, we think this favourable outlook is already reflected in the current valuation.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT 9% 16% 17% 8% 19% 21% France 12% 22% EMEA 18% 11% 15% Asia Pacific
Latin America 28% 13% 9% 31% 16% 13% North America 10% 12% Marine Industry In-Service Inspection & Verification Certification Commodities Consumer Product Other
64 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ High single-digit organic growth in 2012 expected ■ Strong and relative steadily increasing cash flow generation ■ Positive impact of acquisitions and currencies on top ■ Capex above depreciation to finance future growth ■ Strong structural growth drivers such as new regulations, ■ Free cash flow 2010-2012 distorted by acquisitions (especially increasing awareness, global trade, globalisation, outsourcing, Inspectorate in 2010), but no potential future acquisitions privatisation and increasing speed of innovation included
MARGINS INVESTED CAPITAL AND RETURNS
■ 2012 margins suffer from mix impact (Marine), but ■ Invested capital to increase further owing to ongoing growth compensated for by improvements in other division opportunities ■ Economies of scale from increased capacity utilisation ■ Return on invested capital (ROIC) projected to increase slightly ■ In addition, margins to benefit from moving to more added- from the current high level value, higher-margin services
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading position in TIC industry ■ Globalisation and outsourcing ■ Very diversified offerings ■ Increasing regulations and safety standards ■ Strong position in highly profitable Marine business ■ Industry consolidation ■ High exposure to fast-growing markets ■ Bolt-on acquisitions at reasonable prices with high leverage ■ Good track records in terms of acquisitions potential
WEAKNESSES THREATS
■ Higher exposure to more cyclical businesses like Marine and ■ Economic slowdown, especially faltering growth in the all- Construction than SGS and Intertek important Asian market ■ Higher exposure to Europe, especially to France ■ Reputation risk ■ Acquisition risk
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 16.2 14.8 12.6 11.5 10.5 Current assets 1,183 1,262 1,356 1,471 1,585 EV/EBIT 18.2 16.4 14.4 13.0 11.9 Net fixed assets 281 320 323 329 338 EV/Inv. Capital 4.7 4.3 4.0 3.9 3.9 Goodwill 1,660 1,711 1,878 1,878 1,878 P/E 25.9 25.6 20.5 18.1 16.2 Total assets 3,273 3,478 3,742 3,863 3,985 Cash P/E 23.9 21.9 19.0 16.9 15.2 Sharehold. equit. 844 1,065 1,307 1,581 1,888 P/CF 18.2 16.6 14.0 12.7 11.7 Working capital 133 189 222 243 264 P/BV 8.9 7.2 5.8 4.8 4.0 Net debt 1,099 1,068 1,029 782 504
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 2,930 3,359 3,825 4,130 4,424 in sales 10.6 14.6 13.9 8.0 7.1 EBITDA 552 605 708 779 849 in EBITDA 14.5 9.5 17.1 10.0 9.1 EBIT 491 544 623 688 751 in EBIT 13.2 11.0 14.5 10.4 9.3 Net profits 290 298 371 420 471 in cash EPS 14.8 9.3 15.1 12.3 11.3 Cash EPS (EUR) 2.91 3.18 3.66 4.11 4.58 Net debt/equity 130 100 78.8 49.5 26.7 Reported EPS (EUR) 2.68 2.72 3.39 3.84 4.30 FCF/net fin. results n.m. 4.1 3.9 8.6 11.3 DPS (EUR) 1.15 1.27 1.43 1.60 1.78 Current ratio (X) 1.3 1.1 1.1 1.1 1.2
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 484 533 623 688 751 Gross margin n.a. n.a. n.a. n.a. n.a. Taxes -125 -133 -161 -179 -197 EBITDA margin 18.8 18.0 18.5 18.9 19.2 NOPLAT 358 400 462 508 554 EBIT margin 16.7 16.2 16.3 16.6 17.0 Depreciation 61.6 60.4 85.0 91.0 98.0 ROIC 23.4 20.3 21.4 22.3 24.1 CAPEX -75.3 -113 -129 -138 -148 Inv. cap. (EUR m) 1,884 2,059 2,262 2,290 2,319 in WC -23.9 -39.2 -32.9 -21.6 -20.7 Free cash flow -238 238 218 440 484
Made in Switzerland + | Helvea 65
Bâloise Price: CHF59.9 ACCUMULATE Target: CHF76.0 M&S
Daniel Bischof, CFA ([email protected]) – Tel. +41 (0)43 388 9263
Bâloise is a leading insurer in the Swiss market, with some subsidiaries abroad. The group has a small banking subsidiary (SoBa). Bâloise’s strategy has been broadly focused on client segmentation and avoiding value-destroying clients. We expect Bâloise to continue to look for new consolidation targets in Switzerland and abroad, especially Germany and Belgium. Bâloise is implementing a profit improvement programme, aiming to achieve up to CHF200m in incremental profits by 2012. CEO: Martin Strobel; CFO: German Egloff; Website: Baloise.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Insurance/Switzerland CHF103 Major shareholders Signal Iduna Group 5.0%, Blackrock 5.0%, Credit 95 Suisse 3.0% 87 79 Shares outstanding (m) 46.75 P/E (X) 71 Market cap. (CHF m) 2,800 2011 46.0 63 Free float 95% 2012E 6.5 55 Op. profits/CAGR 2011A-2014E 66.7% 2013E 6.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Bâloise 12-mth tgt Absolute -16% -7% -33% Bloomberg BALN VX Buy Acc. Neut. Red. N.R. Rel. to local -14% -13% -26% Reuters BALN.VX
News flow
■ November 2011: profit warning issued because of write-downs on Greek debt, a goodwill impairment (Croatia) and the likelihood of impairment charges on equity holdings ■ March 2012: full-year 2011 results fell short of expectations as losses on investments and investment income were worse than expected; underlying profitability was solid; dividend unchanged ■ Forthcoming event: 30 August 2012 – H1 2012 results ■ Guidance and consensus: Combined ratio well below 100%; new business margin >10%, consensus net income estimates: CHF450m for 2012 and CHF489m for 2013
Investment case
Bâloise’s strategy has been focused on client segmentation and operational improvements for the last couple of years. Bâloise has a strong balance sheet with a Solvency I ratio of over 200%, despite having an exposure to equities that is high by current industry standards. The Bâloise 2012 programme is intended to deliver CHF200m in incremental net profits by 2012 (vs. 2008). Although the partial write-off of Greek debt and low equity prices did trigger losses in financial income, the group’s underlying solvency and profitability remained solid. Given the attractive valuation and strong underlying earnings capacity, we rate the shares at ACCUMULATE.
Divisional breakdown (2011) Regional breakdown – Premiums (2011)
Premiums Operating profits
4% 7% 3% 12%
34% Switzerland Germany
43% 53% 22%
63% Benelux Others 59%
Life/health Property/casualty Banking
66 Helvea SA | Made in Switzerland +
Value drivers PROFITS AND MARGINS BALANCE SHEET
■ Low interest rates likely to put margins under pressure, but ■ The group has the widest duration gap among peers non-recurrence of write-downs and impairment charges will ■ Bâloise is still strongly capitalised, with a solvency ratio of 203% lead to an improved financial result in 2012 as of 31 December 2011 ■ Profit improvement programme (extra CHF200m by 2012 ■ Swiss Solvency Test may increase capital requirements versus 2008) expected to lift profits further in 2012 ■ Group can afford to pay an unchanged dividend even if not ■ Bâloise’s life insurance portfolio is more sensitive to shifts in covered by earnings interest rates than those of its peers ■ Combined ratio in 2012 to decline as 2011 hailstorms drop out
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong position in the Swiss market ■ Business expansion by targeting the best customers ■ Enthusiastic management team that started in 2009 ■ Eliminate losses from worst portions (approx.2%) of the portfolio ■ Client segmentation drive has had a positive impact on the ■ Selective growth in international markets combined ratio ■ New operational initiatives after successful implementation of the ■ Realistic assessment of growth and profitability opportunities Bâloise 2012 profit improvement programme
WEAKNESSES THREATS
■ Dependent on mature markets ■ Increased competition in Switzerland ■ Small positions in some international markets ■ Low interest rates ■ Challenging business conditions in Serbia and Croatia ■ Acquisition risk ■ Achievement of profit targets reliant on capital markets ■ Growth in Swiss life segment may put ROE target under pressure ■ Relatively high exposure to risk assets implies volatility in earnings, as was seen in the H2 2011 result
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E P/NAV 0.7 0.8 0.7 0.7 0.7 Non-life reserves 5,166 5,683 5,920 5,921 5,921 P/EV 0.6 0.7 0.6 0.5 0.5 Life reserves 38,051 39,481 40,987 42,529 44,108 P/E 6.6 46.0 6.5 6.2 6.1 Total AuM (bn) 59.847 62.344 64.838 67.432 70.129 SOTP (CHF) 83.8 3rd-p. AuM (bn) 0.000 0.000 0.000 0.000 0.000 Mkt cap/reserves (%) 6.5 6.2 6.0 5.8 5.6 Sharehold. equ. 4,100 3,860 4,083 4,130 4,183 Mkt cap/premiums (%) 40.9 41.1 39.2 38.3 37.5 Net asset value 3,959 3,719 3,942 3,989 4,042 Dividend yield (%) 7.5 7.5 7.5 7.5 7.5 Embedded value 4,530 3,974 4,452 5,126 5,820
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Gross premiums 6,854 6,807 7,153 7,311 7,472 in premiums 0.2 -0.7 5.1 2.2 2.2 Net invest. income 1,811 1,767 1,662 1,706 1,759 in op. profits 8.0 -76.3 336 4.9 1.4 Operating profits 607 144 626 657 666 in pre-tax profits 7.3 -84.0 543 5.4 1.5 Pre-tax profits 554 88.8 571 602 611 investments 0.0 4.2 4.0 4.0 4.0 Net profits 433 61.0 433 450 457 NAV/min. solvency 248 226 229 227 224 Reported EPS (CHF) 9.14 1.30 9.26 9.63 9.77 NL Res./premium 160 173 172 168 164 DPS (CHF) 4.50 4.50 4.50 4.50 4.50 NL Res./claims 250 267 270 263 257
Investments Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Total investments 59,847 62,344 64,838 67,432 70,129 Retention rate NL 95.0 95.0 95.0 95.0 95.0 Equities 9,844 9,704 9,726 10,115 10,519 Claims ratio NL 62.9 63.5 63.4 63.3 63.4 Fixed income 25,841 28,918 28,010 29,130 30,296 Combined ratio 95.4 95.9 94.8 94.7 94.8 Real estate 5,047 5,138 5,467 5,686 5,914 Expense ratio life 32.5 32.4 31.4 31.4 31.4 Loans/mortgages 17,694 17,668 19,169 19,936 20,733 Pre-tax margin 8.3 1.3 8.2 8.5 8.4 Net invest. yield 3.0% 2.8% 2.6% 2.5% 2.5% ROE 10.0 1.5 10.9 11.0 11.0 Cap. gains/total 0.8% -1.5% 0.3% 0.3% 0.3% Return/techn. res. 1.0 0.1 0.9 0.9 0.9
Made in Switzerland + | Helvea 67
Calida Group Price: CHF27.0 NEUTRAL Target: CHF32.0 M&S
Michael Heider ([email protected]) – Tel. +41 (0)43 388 9255
Calida Group is a leading lingerie company possessing two well established brands, Calida and Aubade. Both brands enjoy leading market positions in their respective home markets and unmatched brand recognition. Calida is positioned as a mid-priced underwear brand, predicated on the core values of ‘well-being’, ‘natural’ and ‘quality’. Aubade is a leading luxury lingerie brand, positioned as one of the most expensive and stylish brands in the industry. The company is predominantly active in Europe. CEO: Felix Sulzberger; CFO: Thomas Stöcklin; Website: www.calida.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Retail/Switzerland CHF38 Major shareholders Kellenberger family 34.6%, M.I.3 SA 10.1%, LODH AM 36 34 5.3%, Nicolas Mathys 4.7% 32 30 Shares outstanding (m) 7.92 EV/EBITDA (X) 28 Market cap. (CHF m) 213 2011 5.6 26 24 Free float 55% 2012E 5.6 22 EBITDA/CAGR 2011-2014E 3.4% 2013E 5.3 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Calida Group 12-mth tgt Absolute -7% 3% -9% Bloomberg CALN SW Buy Acc. Neut. Red. N.R. Rel. to local -5% -3% 1% Reuters CALN.S
News flow
■ February 2011: record full-year 2010 results, with net sales of CHF202m (+5.8% y-o-y currency-neutral) and a 12.2% EBIT margin (EBIT +17.7% y-o-y to CHF24.6m); doubling of dividend to CHF0.80 and 1:20 share split ■ July 2011: excellent H1 2011 – 5.9% currency-adjusted sales growth (CHF89m); 23% EBIT growth (CHF9.2m) ■ March 2012: strong full-year 2011 results – 4.5% currency-adj. sales growth (CHF104m); EBIT +0.5% (CHF24.7m) ■ Forthcoming event: 27 July 2012 – H1 2012 results ■ Guidance & consensus: management remains cautious for 2012 given ongoing weak consumer spending; consensus EBIT estimates stand at CHF24.4m for 2012 and at CHF25.3m for 2013
Investment case
Calida has an excellent management team with a proven track record. A little over 10 years ago, Felix Sulzberger initiated a transformation process for the group (shift from producer of undergarments to brand management company) which included the outsourcing of production to low-wage countries and taking control of its retail channels by rolling out its own branded stores. The resultant financial strength allowed Calida Group to acquire the well-positioned French luxury lingerie brand Aubade, which spurred the group’s growth profile. Today, Calida enjoys rock-solid financials, carrying a net cash balance of some CHF37m and a 73% equity ratio, and it has a portfolio of two healthy brands which are set to be rolled out internationally. But the valuation currently looks full.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
80% Sales EBIT Sales EBIT 70 0.0% 7.7% 60 19% 30.1% Switzerland 50 32% 40 33.4% 30 Other Europe, Africa & ME 58.9% 20 10 69.9% Other 0 49% -10 -20 Calida Aubade Corporate Calida Aubade Corporate
68 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Single-digit growth profile at the group level, but diminishing ■ NOPLAT and, especially, free cash flow will be dented by a consumer confidence in Europe points towards a flat 2012 growing requirement for net working capital and higher capital ■ Store openings driving top line spending for accelerated store expansion ■ Double-digit growth in own store sales ■ Free cash flow yields are still expected to remain at relatively ■ Declining sales in the wholesale channel attractive levels of around 7% as of 2012
MARGINS INVESTED CAPITAL AND RETURNS
■ Calida brand peaked at 14% EBIT margin in 2010 and is set to ■ ROICs are highly attractive at sustainable levels of around 20% suffer from soaring cotton prices and store openings ■ Rising invested capital in line with increasing profits and rather ■ Aubade posted a record 16.7% EBIT margin in 2011 stable NOPLAT make a further rise in the next couple of years ■ Increased tempo of expansion in its own retail stores will weigh unlikely on margins in the medium term
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong management with proven track record ■ International expansion of brands: Aubade has international ■ Unmatched brand recognition and market shares in home potential and Calida European potential markets guaranteeing shelf-space in leading department stores ■ Expansion of brand portfolio through an acquisition – ■ Calida the only mid-priced underwear brand with a clear retail management has gained experience and built a track record from strategy including its own-brand shop network the Aubade acquisition in 2005
WEAKNESSES THREATS
■ Underwear category limits scope for brand leveraging ■ Sales decline in the wholesale channel might outpace sales ■ Brand awareness outside home markets very limited increase in own stores, which hinges on finding the right locations ■ Relatively small size of business in absolute terms restricts ■ Continued market share loss of brands versus private labels as overall marketing and acquisition budget underwear is ‘unseen’ clothing with relatively stable demand, long replacement cycles and quicker trading-down risk
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 5.5 5.6 5.6 5.3 5.0 Current assets 97.5 108 115 123 132 EV/EBIT 6.9 6.9 7.2 6.7 6.5 Net fixed assets 21.6 32.4 34.4 37.2 38.8 EV/Inv. Capital 2.3 1.8 1.7 1.5 1.4 Goodwill 0.0 0.0 0.0 0.0 0.0 P/E 9.9 9.3 10.810.210.4 Total assets 139 164 177 192 207 Cash P/E 9.8 9.3 10.810.210.4 Sharehold. equit. 99.8 119 133 147 161 P/CF 8.2 7.5 8.0 7.5 7.5 Working capital 46.2 50.9 52.1 54.0 55.6 P/BV 2.1 1.8 1.6 1.5 1.3 Net debt -37.9 -37.3 -43.6 -49.3 -56.1
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 202 194 195 201 207 in sales 1.0 -4.0 0.5 3.5 3.0 EBITDA 31.2 30.6 30.3 32.3 33.9 in EBITDA n.m. -1.8 -1.0 6.5 5.0 EBIT 24.6 24.7 23.8 25.2 26.2 in EBIT n.m. 0.3 -3.7 6.2 3.7 Net profits 20.9 22.9 19.7 20.9 20.5 in cash EPS n.m. 6.2 -14.7 6.3 -2.3 Cash EPS (CHF) 2.74 2.91 2.49 2.64 2.58 Net debt/equity -38.0 -31.3 -32.8 -33.5 -34.8 Reported EPS (CHF) 2.73 2.91 2.49 2.64 2.58 FCF/net fin. results 7.1 n.m. 21.3 21.1 22.9 DPS (CHF) 0.80 0.80 0.80 0.80 0.90 Current ratio (X) 4.2 4.7 5.0 5.3 5.6
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 25.4 25.4 24.5 26.1 27.2 Gross margin 63.8 64.9 65.0 65.0 65.0 Taxes -5.1 -2.3 -3.7 -3.9 -5.4 EBITDA margin 15.5 15.8 15.6 16.0 16.3 NOPLAT 20.3 23.1 20.8 22.2 21.7 EBIT margin 12.2 12.7 12.2 12.5 12.6 Depreciation 5.7 5.2 5.8 6.2 6.7 ROIC 26.4 27.3 21.4 21.0 19.1 CAPEX -6.9 -20.0 -12.6 -14.1 -13.5 Inv. cap. (CHF m) 74.8 94.1 101 110 117 in WC -0.3 -4.7 -1.3 -1.8 -1.6 Free cash flow 18.8 3.6 12.7 12.4 13.4
Made in Switzerland + | Helvea 69
Comet Holding AG Price: CHF203.- BUY Target: CHF260.- M&S
Reto Amstalden ([email protected]) – Tel. +41 (0)43 388 9261
The Comet group is a leading global supplier of components, modules and complete systems, comprising core products such as X-ray and e-beam tubes, vacuum capacitors and power generators based on its core competence in high- vacuum and high-voltage technologies as well as material sciences. The systems hold key positions for controlling the plasma process in semiconductor and solar-cell manufacturing, and for inspecting component parts in automotive, aerospace and electronics industries as well as for baggage/cargo at airports/borders. Comet has some 700 employees. CEO: Ronald Fehlmann; CFO: Markus Portmann; Website: www.comet-group.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF256 Major shareholders Garlito B.V. 5.1%, Pictet Funds 5.0%, Swisscanto 4.9%, 230 Migrosbank 4.8%, UBS Funds 5.1% 204 178 Shares outstanding (m) 0.76 EV/EBITDA (X) 152 Market cap. (CHF m) 154 2011 6.7 126 Free float 100% 2012E 6.4 100 EBITDA/CAGR 2011-2014E 8.7% 2013E 5.8 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Comet Holding AG 12-mth tgt Absolute 15% 45% -2% Bloomberg COTN SW Buy Acc. Neut. Red. N.R. Rel. to local 17% 36% 8% Reuters COTN.S
News flow
■ March 2012: Comet posted H2/full-year 2011 results in line with expectations; the bright spot was the strong FCF generation (yield: 10%) while the guidance calls for flattish sales and profitability in 2012 ■ March 2012: Tetra Pak presented its next-generation high-speed carton filling machine which integrates Comet’s disruptive e-beam sterilisation technology; controlled roll-out until broad-based launch in 2015 ■ Forthcoming event: 23 August 2012 – H1 2012 results ■ Guidance & consensus: 2012 sales and profitability at around 2011 levels, consensus EBIT forecasts stand at CHF15.5m for 2012 and at CHF18.5m for 2013
Investment case
Comet offers an interesting investment opportunity for investors looking for a small-cap stock with an attractive structural growth profile at an undemanding price (cash P/E: 10X). While Comet is in the midst of executing a successful forward integration strategy for its semiconductor business (doubling the addressed market), the structural growth opportunities have gained extra visibility and a sharper profile with the recent announcement that Comet’s e-beam technology will enable Tetra Pak’s next-generation high-speed carton filling machine. While this application alone has the potential to change Comet’s sales and profit levels in three to five years, Comet has signed further development contracts for non-liquid food applications. We thus reiterate our BUY recommendation.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
100% Sales EBIT Sales EBIT 0.0% 5.0% 0.6% 80 12.9% 27% Switzerland 60 39% Europe 48.0% 52.0%40 North America 20
82.1% Asia 0 33%
-20 Modules & Components Systems Corporate Modules & Components Systems Corporate
70 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Slightly higher sales in 2012 thanks to a significant recovery in ■ Free cash flow generation to remain strong in 2012 the semiconductor business in H1 2012 over H2 2011 ■ Sustainable capital spending needs are moderate, amounting to ■ Strong structural growth beyond 2012 on addressable market approximately 3% of group sales expanded with Stolberg acquisition in semiconductors, technol. ■ Attractive FCF-generation capabilities, resulting in a yield of substitution by digital radiography and e-beam sterilisation approximately 9%
MARGINS INVESTED CAPITAL AND RETURNS
■ Slight increase in the profit margin in 2012 amid a recovery of ■ Invested capital to rise slightly in coming years as a result of the high-margin semiconductor business scalable production capacity and assembly activities for X-ray ■ Sustainable margin to rise amid successful ‘forward integration’ systems business (cross-selling, higher-value-adding products), systematic ■ Sustainable ROIC to rise to a double-digit rate servicing of installed base of X-ray inspection systems
SWOT analysis STRENGTHS OPPORTUNITIES
■ Global market leader in vacuum capacitors and X-ray tubes ■ Expansion of addressable market as Comet offers entire supply ■ Technological leadership in industrial X-ray inspection systems unit to control plasma chamber in semiconductor/solar production for the aerospace and automotive industries ■ Cross-selling of X-ray system components as a ‘one-stop shop’ ■ Comet’s disruptive process technology for sterilisation by e- ■ E-beam sterilisation to become the standard process in fluid food beams is highly innovative packaging; e-beam technology to be used in other applications
WEAKNESSES THREATS
■ EBIT noticeably dependent on USD/CHF exch. rate (i.e. high ■ Dependence on volatile investment cycle in semiconductor and cost base located in Switzerland – unfavourable natural hedge) capital goods industries ■ No meaningful synergies between vacuum capacitors and X- ■ Ongoing strength of the Swiss franc ray components/systems business ■ Fluctuations in raw material prices ■ Still unsatisfactory returns of X-ray systems business (division)
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 6.5 6.7 6.4 5.8 5.2 Current assets 99.5 92.6 107 125 145 EV/EBIT 11.3 12.5 11.4 9.6 8.1 Net fixed assets 57.4 58.0 57.3 57.0 57.0 EV/Inv. Capital 1.0 1.0 1.0 1.0 1.0 Goodwill 55.3 53.6 49.0 44.5 40.1 P/E 20.5 15.4 13.5 11.6 9.7 Total assets 215 208 218 231 247 Cash P/E 13.4 11.0 9.9 8.9 7.7 Sharehold. equit. 112 119 128 138 151 P/CF 14.3 13.1 13.7 11.8 9.9 Working capital 44.6 39.1 40.6 42.0 44.1 P/BV 1.4 1.3 1.2 1.1 1.0 Net debt 44.4 32.1 19.8 6.1 -9.0
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 217 217 221 234 250 in sales 44.2 -0.2 2.0 5.8 6.7 EBITDA 28.3 27.3 28.6 31.7 35.1 in EBITDA n.m. -3.6 4.8 10.6 10.8 EBIT 16.2 14.7 16.0 19.1 22.5 in EBIT n.m. -9.7 9.2 19.1 17.9 Net profits 7.5 10.1 11.5 13.4 16.0 in cash EPS n.m. 22.4 10.5 12.0 14.7 Cash EPS (CHF) 15.1 18.5 20.5 22.9 26.3 Net debt/equity 39.7 26.9 15.5 4.4 -6.0 Reported EPS (CHF) 9.89 13.2 15.0 17.6 21.0 FCF/net fin. results 2.3 4.4 9.9 10.6 11.5 DPS (CHF) 3.50 4.00 4.00 4.00 4.00 Current ratio (X) 1.9 2.0 2.2 2.5 2.7
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 10.9 9.2 10.5 13.6 17.1 Gross margin 37.5 37.1 37.5 37.9 38.0 Taxes -4.0 -1.1 -3.2 -4.4 -5.2 EBITDA margin 13.0 12.6 12.9 13.5 14.0 NOPLAT 17.6 19.0 18.3 20.1 22.7 EBIT margin 7.5 6.8 7.2 8.2 9.0 Depreciation -6.8 -7.2 -7.1 -7.1 -7.2 ROIC 9.5 10.7 10.3 11.2 12.4 CAPEX -6.1 -8.0 -7.3 -7.7 -8.2 Inv. cap. (CHF m) 179 178 179 182 185 in WC 0.8 5.4 -1.4 -1.5 -2.1 Free cash flow 14.3 17.6 16.6 17.9 19.4
Made in Switzerland + | Helvea 71
Credit Suisse Group Price: CHF18.4 NEUTRAL Target: CHF22.5 Large Caps
Tim Dawson ([email protected]) – Tel. +41 (0)22 354 9169
Credit Suisse Group is a global financial services company, with strong positions in private banking, asset management and investment banking. In the past, it has had a reputation for being ‘accident-prone’ and suffered financial losses due to excessive risk-taking, but, in the sub-prime crisis, it performed exceptionally well, evidence that the restructuring of its investment bank under Brady Dougan’s leadership has been successful.
CEO: Brady Dougan; CFO: David Mathers; Website: www.credit-suisse.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Banks/Switzerland CHF 51 Major shareholders 45 39 33 Shares outstanding (m) 1,209 Cash P/E (X) 27 Market cap. (CHF m) 22,258 2011 9.0 21 Free float 100% 2012E 7.9 15 Op. profits/CAGR 2011A-2014E 26.4% 2013E 5.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Credit Suisse 12-mth tgt Absolute -24% -16% -50% Bloomberg CSGN VX Buy Acc. Neut. Red. N.R. Rel. to local -22% -21% -45% Reuters CSGN.VX
News flow
■ February 2012: full-year 2011 results saw good progress in reducing risk-weighted assets, albeit at some short- term cost to profits; management also highlighted its cost-reduction programmes ■ April 2012: Q1 2012 results saw the favourable balance-sheet and expense trends continuing (reduction in risk- weighted assets ahead of schedule) and underlying profits remained solid; capital ratios strengthened ■ Forthcoming event: 26 July 2012 – H1 2012 results ■ Guidance: no guidance given; consensus net profit estimates stand at CHF3.1bn for 2012 and CHF4.5bn for 2012
Investment case
We have a NEUTRAL recommendation on Credit Suisse. It has negligible exposure to the so-called PIIGS countries, good liquidity and capital ratios, but it is heavily exposed to the many macroeconomic uncertainties through its equity operations in wealth management, asset management and investment banking. Underlying profitability appears to be holding up well, but growth in wealth management remains rather mediocre. The recent weakness in the price has brought the shares back to interesting valuation levels. but a near-to-medium-term breakout from the range will, we believe, require a more favourable external environment.
Divisional breakdown (2011) Breakdown of AuM (2011)
60% Total income Pre-tax profitTotal income Pre-tax profit 3.6% 7.2% 2.5% 50 8.4% 40 7.3% 17.2% 35% 30 45.2% 20 45.7% Private banking Other 10 65% 0 35.5% 27.4% -10
-20 Investment banking Wealth management InvestmentCorporate banking and retail Wealth banking Corporate and retailAssetAsset management management Corporate centre Corporate centremanagement banking
72 Helvea SA | Made in Switzerland +
Value drivers PROFITS BALANCE SHEET AND AUM
■ Investment banking profits to return to more ‘normal’ levels in ■ Core Tier 1 ratio of 15.6% at end-Q3 2011 under Basel 2.5; we 2012, driven by the elimination of exceptional costs, with the expect Credit Suisse to meet its TBTF (‘too big to fail’) capital cost/income ratio falling from 99% to 76% requirements by 2014, well ahead of the 2019 deadline ■ Wealth Management profits to rise in 2012, driven by a lower ■ Further declines in risk-weighted assets expected as the year cost/income ratio progresses ■ Asset-management results boosted by gain on Aberdeen ■ Average assets under management to be up 9% in 2012 disposal
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading position in wealth management, with a global platform ■ Cost control better at its Wealth Management operations, which and a solid reputation have been overly focused on growth in net new money and ■ Investment bank has leading positions in Europe and the USA assets under management over the last decade ■ The bank believes that the integrated banking model improves the referral of business from one division to another
WEAKNESSES THREATS
■ Its FICC (fixed income, currencies & commodities) market ■ Loss of FICC business creates a downward spiral in business, share is much smaller than that of some other players, so it which increasingly depends on flow and scale may not get enough ‘flow business’ to make acceptable profits ■ Banks in emerging markets are competing more aggressively for ■ Integrated banking model failed at UBS and may do the same wealth-management business whereas those in developed at Credit Suisse markets are benefiting from a move to onshore where Credit ■ There does not seem enough cost control in the Wealth Suisse is not in such a strong position Management unit which has focused too much on growth
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E Cap/AuM (%) 1.8 1.8 1.7 1.5 1.4 Total assets (bn) 1,031.43 1,000.48 1,000.48 1,000.48 1,000.48 SOTP/share (CHF) 27.6 Sharehold. equ. 33,282 33,674 37,612 40,852 44,532 P/SOTP (%) 66.6 Intangibles 8,897 8,876 8,876 8,876 8,876 P/E 4.5 9.0 7.9 5.5 5.0 Tangible equity 24,385 24,798 28,736 31,976 35,656 Cash P/E (ful. diluted) 4.7 13.4 7.9 5.5 5.0 Tier 1 ratio (%) 17.2 18.1 16.3 17.7 19.2 P/BV 0.6 0.7 0.6 0.6 0.5 BV/share (CHF) 28.3 28.0 30.1 32.7 35.7 Dividend yield (%) 7.1 4.1 4.1 4.1 4.1 Tang. BV/s. (CHF) 20.8 20.6 23.0 25.6 28.6
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Revenues 30,625 26,225 27,977 30,463 31,767 in revenues -8.9 -14.4 6.7 8.9 4.3 Expenses -23,904 -22,577 -23,104 -23,725 -24,432 in expenses -2.5 -5.6 2.3 2.7 3.0 LLP 79.0 -187 -350 -350 -352 in LLP n.m. n.m. 87.2 0.0 0.6 Net profits 4,955 2,449 2,875 4,176 4,615 in net profits -22.9 -50.6 17.4 45.3 10.5 Reported EPS (CHF) 4.13 2.04 2.32 3.34 3.70 in cash EPS -24.4 -64.7 69.1 44.2 10.4 Cash EPS (CHF/ f.d.) 3.89 1.37 2.32 3.34 3.69 in report. EPS -22.3 -50.7 13.9 44.2 10.5 DPS (CHF) 1.30 0.75 0.75 0.75 0.75 in DPS -35.0 -42.3 0.0 0.0 0.0
Asset under management Ratios, margins and returns (In CHF bn) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E AuM NII/total revenue 22.1 24.5 23.5 22.0 21.5 Total 1,250 1,227 1,340 1,457 1,582 Cost/income 78.1 86.1 82.6 77.9 76.9 Private banking 808 792 860 931 1,005 Pre-tax margin 22.2 13.2 16.2 21.0 22.0 NNM PB gr. marg. (bp) 120 114 109 113 115 Total 73.9 44.9 73.0 74.0 77.1 IB comp. ratio 49.5 58.0 49.8 49.8 49.8 Private banking 45.3 37.8 45.0 45.0 46.0 ROE 14.0 7.3 8.1 10.6 10.8 PB NNM growth 5.6% 4.7% 5.7% 5.2% 4.9% Cash ROE 14.0 7.3 8.1 10.6 10.8
Made in Switzerland + | Helvea 73
Daetwyler Price: CHF70.0 NEUTRAL Target: CHF85.0 M&S
Stefan Gächter, CFA ([email protected]) – Tel. +41 (0)43 388 9262
Daetwyler is a niche player dedicated to the supply of industrial components and distribution of engineering and electronic components. Over the last few years, Daetwyler has not only become more profitable, but the cyclicality of its portfolio has also been reduced: Daetwyler disposed of some activities, streamlined its industrial activities and expanded further its Pharma Packaging and Technical Components divisions. We also believe that additional portfolio activity is likely to be on the cards (e.g. disposal of Cabling Solutions), potentially making Daetwyler look even more focused. CEO: Paul J. Hälg; CFO: Reto Welte; Website: www.datwyler.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF100 Major shareholders Pema Holding (80.34% of voting rights) 52.7% 90 80 70 Shares outstanding (m) 15.47 EV/EBITDA (X) 60 Market cap. (CHF m) 1,083 2011 5.6 50 Free float 47% 2012E 4.7 40 EBITDA/CAGR 2011-2014E 7.6% 2013E 4.7 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Daetwyler 12-mth tgt Absolute -3% 27% -11% Bloomberg DAE SW Buy Acc. Neut. Red. N.R. Rel. to local 0% 19% -2% Reuters DAE.S
News flow
■ November 2011: new Nespresso agreement and acquisition for the Sealing Technology business announced ■ March 2012: solid full-year 2011 figures, thus providing confirmation that the company has managed the FX turmoil, volatile raw material markets and economic uncertainties ■ Forthcoming event: 17 August 2012 – H1 2012 results ■ Guidance & consensus: Daetwyler is guiding for continued growth of 5% to 10% for 2012 and again wants to meet its goal of an EBIT margin within its target band of 9% to 12% it has set itself; consensus EBIT estimates stand at CHF145m for 2012 and at CHF148m for 2013
Investment case
Daetwyler remains a solid story, but there is only limited upside to our price target, which is why we have Daetwyler only at NEUTRAL. Nevertheless, we believe that Daetwyler will be able to achieve an EBIT margin above the low end of its guidance thanks to (amongst others) smaller restructuring charges for 2012, diminishing negative FX effects and the relatively fast-growing and attractive Nespresso related business. The main upside risks to our investment case remain a potential significant weakening of the Swiss franc, improving industrial markets or material portfolio changes (e.g. a disposal of the Cables business). As such, we stick to our NEUTRAL stance on the shares.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
60% Sales EBIT Sales EBIT 0.3% 0.0%3.7% 50 18.6% 5% 16.7% 17% Switzerland 40
30 Asia 48.2% 12.5% 20 55.2% 13% Americas 24.4% 10 65% Rest of world 0 20.4%
-10Cabling Solutions Sealing Technologies Pharma Packaging Cabling Solutions Sealing Pharma Packaging Technical Corporate / Technical ComponentsTechnologiesCorporate / EliminationsComponents Eliminations
74 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Top line in 2012 set to be driven mainly by the first-time ■ Free cash flow in 2012 to decrease on the back of higher consolidation of Phoenix Dichtungstechnik and incremental working-capital requirements and the acquisition of Phoenix Nespresso-related business Dichtungstechnik ■ Industrial business cycle risks remain high, and top-line growth at Technical Components possibly at risk, in our view
MARGINS INVESTED CAPITAL AND RETURNS
■ Overall, the group operating margin is expected to end up only ■ Invested capital to increase slightly in 2012 on the back of slightly higher in 2012 as higher input costs take their toll external growth (acquisition of Phoenix Dichtungstechnik) (among other factors) ■ ROIC to rise slightly on higher operating margins ■ Operating result could also benefit from the planned sale of property in the canton of Uri (not yet included in our estimates)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading positions in niche markets with high entry barriers ■ Daetwyler’s balance sheet allows the company to act as a ■ Strong brand names and decades of experience consolidator in the technical components industry ■ Solid balance sheet: debt-free and high equity ratio ■ Pharma Packaging moving up the complexity ladder and set to ■ Resilience of Pharmaceutical Packaging business reap benefits of past capital spending (e.g. new clean rooms) ■ Disposal of cables and automotive businesses would unlock value
WEAKNESSES THREATS
■ No meaningful synergies between different activities ■ Euro and (for Cabling) copper prices have a big impact on ■ Sales exposure heavily skewed to Europe Cabling Solutions’ and Sealing Technologies’ financial results ■ Cabling Solutions continuing to dilute group margins ■ Acquisition risks ■ Ownership structure does not sit comfortably with modern ■ Long-term trend to ‘complete systems’ instead of ‘components- corporate governance practices only’ may trigger changes in Pharma Packaging business model
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 5.3 5.6 4.7 4.7 4.5 Current assets 472 507 555 629 704 EV/EBIT 7.3 7.6 6.5 6.4 6.1 Net fixed assets 328 344 348 355 364 EV/Inv. Capital 0.8 0.8 0.8 0.8 0.7 Goodwill 0.0 0.0 0.0 0.0 0.0 P/E 11.0 33.1 9.9 9.9 9.5 Total assets 847 892 963 1,044 1,127 Cash P/E 10.8 32.0 9.7 9.7 9.3 Sharehold. equit. 584 643 717 790 867 P/CF 6.7 5.9 6.9 5.9 5.8 Working capital 377 363 406 423 445 P/BV 1.9 1.7 1.5 1.4 1.2 Net debt -36.2 -92.5 -111 -169 -222
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 1,320 1,291 1,395 1,480 1,558 in sales 17.6 -2.2 8.1 6.1 5.3 EBITDA 177 168 198 201 210 in EBITDA 31.8 -4.7 17.9 1.2 4.4 EBIT 128 124 145 146 154 in EBIT 53.5 -2.9 16.7 0.9 5.3 Net profits 98.2 96.2 110 109 114 in cash EPS 49.8 -66.3 n.m. 0.0 4.0 Cash EPS (CHF) 6.49 2.18 7.24 7.24 7.53 Net debt/equity -6.2 -14.4 -15.5 -21.4 -25.6 Reported EPS (CHF) 6.36 2.12 7.11 7.08 7.37 FCF/net fin. results 12.1 41.4 17.3 41.5 42.8 DPS (CHF) 2.20 2.20 2.35 2.34 2.43 Current ratio (X) 2.5 2.9 3.2 3.5 3.8
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 130 127 147 149 156 Gross margin 49.6 49.8 50.2 49.5 49.4 Taxes -20.3 -25.4 -32.8 -34.6 -38.0 EBITDA margin 13.4 13.0 14.2 13.6 13.5 NOPLAT 100 101 116 116 120 EBIT margin 9.7 9.6 10.4 9.9 9.9 Depreciation 46.7 41.0 51.6 52.2 53.3 ROIC 8.8 8.9 9.9 9.5 9.6 CAPEX -33.0 -64.1 -55.8 -59.2 -62.3 Inv. cap. (CHF m) 1,135 1,128 1,206 1,233 1,266 in WC -14.4 13.7 -42.4 -17.4 -22.2 Free cash flow 113 108 37.6 89.6 87.0
Made in Switzerland + | Helvea 75
Danone Price: EUR51.9 ACCUMULATE Target: EUR60.0 Large Caps
Andreas von Arx ([email protected]) – Tel. +41 (0)43 388 9257
Danone is now in four fairly ‘healthy’ categories: Fresh Dairy (undisputed global leader in yoghurt); Baby Food (No.2 globally, with market share of about 15%); Waters (No.3, with about 10%); Medical Nutrition. Its main blockbuster brands are Activia and Actimel in Dairy, its immunity (Aptamil) and superior nutrition (i.e. Milupa) platforms in Baby Food, plus Volvic, Evian and Bonafont in Waters. The French company’s main mission is to ‘bring health through food & beverages to a maximum number of people’. After the Unimilk acquisition, Russia has become Danone’s largest market. CEO: Franck Riboud; CFO: Pierre-André Terisse; Website: www.danone.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Food and Beverage/France EUR 58 Major shareholders Treasury shares 5.6%, Eurazeo 2.6%, Sofina and 55 Henex 2.1%, Caisse des Depots ed Consignations 52 1.8%, Danone investment fund 1.4% 49 Shares outstanding (m) 604 EV/EBITDA (X) 46 Market cap. (EUR m) 31,344 2011 10.7 43 Free float 94% 2012E 9.8 40 EBITDA/CAGR 2011-2014E 7.8% 2013E 9.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Danone 12-mth tgt Absolute 2% 6% 2% Bloomberg BN FP Buy Acc. Neut. Red. N.R. Rel. to local 17% 11% 35% Reuters DANO.PA
News flow
■ April 2012: Q1 2012 results came in ahead of forecasts thanks to Waters (6.9% organic growth vs. estimates of 5.0% by Helvea and the consensus’ 5.8%); outlook reiterated ■ Forthcoming event: 27 July 2012 – H1 2012 results ■ Guidance & consensus: for 2012, Danone is targeting 5%-7% organic growth and guiding for a flat operating margin, which compares with Helvea’s estimates of +7.0% and 0.0bp y-o-y change in trading profits, respectively, and consensus forecasts of 6.1% and +10bp, respectively; in a recent interview with the French press, CEO Riboud pointed to Q2 organic growth of ‘around’ 5% (Helvea: 5.7%; consensus as of 5 April: 5.5%)
Investment case
On multiples, Danone is currently more cheaply valued than Nestlé despite its ‘healthier’ categories (higher organic growth potential) and Danone’s historical premium of 10%-20%. Given Danone’s (relatively) high(er) exposure of ca.40% to Europe and growth weakness in Dairy with current competitive boost to rivals from health-claim products (Actimel/Activia), some investors view a discount as (temporarily) justifiable. However, with expected acceleration in Fresh Dairy in Russia (ca.10% of sales) – switch from bottom- to top-line focus – and the USA (ca.10% of sales) – extended capacity for Greek Oikos – momentum is returning; with mid-term improvement in European markets, plus Souvenaid’s launch to restore faith in R&D capabilities, Danone might regain its premium on a 12-month basis.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
80% Sales EBIT Sales EBIT 70 7.3% 0.0% 4.5% 9.3% 60 29% Europe (with Russia) 5022.8% 40 Asia 30 28.0% 58.2% 56%
20 69.8% 15% Rest of World (with USA) 10
0
-10 Fresh Dairy Baby Nutrition Medical Nutrition Other Fresh Dairy Baby Nutrition Medical Nutrition Other
76 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We forecast organic growth of 7.0% for 2012, 6.6% in 2013 and ■ Danone enjoys negative net working capital – this helps in DCF- 6.7% in 2014 (+7.8% in 2011) based valuations for a fast-growing company ■ We expect volume growth to quicken from 3.0% in 2011 to 4.0% ■ With its short-shelf-life fresh yoghurt products, Danone’s input in 2012, driven by lower input-cost inflation and acceleration in costs tend to react faster to changes in commodity prices than the USA and Russia (despite base effect in Waters) peers’ costs do
MARGINS INVESTED CAPITAL AND RETURNS
■ Danone only expected to deliver flat trading profit margin y-o-y ■ Given the defensive business model and growth from emerging in 2012 on the back of switch of focus to top-line growth markets, projected returns should show steady increases in the ■ Without turnaround in Europe and/or return of high(er)-margin coming years health-oriented yoghurt products, we believe progress on ■ At an estimated 2.8% for 2012, Danone’s dividend yield is lower margin front could be subdued over the medium term than yields of direct peers
SWOT analysis STRENGTHS OPPORTUNITIES
■ Danone geared to fast-growing emerging markets (about 50% of ■ Rising per capita consumption levels provide opportunities in sales); together with its ‘healthier’ categories, this leads to the Fresh Dairy, especially in Russia following the Unimilk acquisition high(est) organic growth potential among branded FMCG groups ■ With Dumex, Danone is leading in Baby Food in China – the ■ Undisputed global leader in Fresh Dairy, leading positions in largest market and most attractive category in food & beverages emerging markets in Waters and high-margin Medical division ■ Danone has leading positions in emerging-market waters
WEAKNESSES THREATS
■ Danone over-exposed to Europe (40% of sales), making it ■ Without EFSA health claim, high-margin Actimel’s (approximately vulnerable to corresponding negative macroeconomic news EUR1bn sales) and Activia’s (ca.EUR2.7bn) consumer ■ Given its smaller size vs. direct peers (‘only’ four categories), proposition and future growth potential are at risk slightly higher balance-sheet leverage and greater reliance on premium-priced products, Danone is seen as a higher beta
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 11.7 10.7 9.8 9.2 8.6 Current assets 4,720 4,889 6,317 7,765 9,398 EV/EBIT 14.8 13.7 12.2 11.2 10.4 Net fixed assets 8,623 8,705 8,845 8,950 9,018 EV/Inv. Capital 1.8 1.8 1.8 1.8 1.8 Goodwill 11,311 11,289 11,289 11,289 11,289 P/E 17.0 18.7 16.3 14.9 13.8 Total assets 28,020 28,426 29,994 31,547 33,248 Cash P/E 13.6 12.9 11.5 10.7 10.0 Sharehold. equit. 11,737 12,100 13,180 14,368 15,671 P/CF 11.9 11.2 10.3 9.7 9.1 Working capital -991 -1,198 -1,314 -1,400 -1,494 P/BV 2.7 2.6 2.4 2.2 2.0 Net debt 8,421 8,004 6,948 5,779 4,450
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 17,010 19,318 21,181 22,574 24,095 in sales 13.5 13.6 9.6 6.6 6.7 EBITDA 3,189 3,480 3,808 4,057 4,363 in EBITDA 12.2 9.1 9.4 6.6 7.5 EBIT 2,517 2,729 3,058 3,322 3,591 in EBIT 0.2 8.4 12.0 8.7 8.1 Net profits 1,875 1,671 1,917 2,092 2,266 in cash EPS 1.0 5.7 11.5 7.7 7.2 Cash EPS (EUR) 3.81 4.03 4.50 4.84 5.19 Net debt/equity 71.7 66.1 52.7 40.2 28.4 Reported EPS (EUR) 3.05 2.77 3.18 3.47 3.76 FCF/net fin. results n.m. 12.1 14.4 15.4 16.9 DPS (EUR) 1.30 1.39 1.50 1.60 1.80 Current ratio (X) 0.7 0.7 0.9 1.0 1.1
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 2,597 2,843 3,108 3,322 3,591 Gross margin 53.2 50.6 50.6 50.6 50.6 Taxes -556 -689 -772 -838 -906 EBITDA margin 18.7 18.0 18.0 18.0 18.1 NOPLAT 2,041 2,154 2,336 2,484 2,685 EBIT margin 14.8 14.1 14.4 14.7 14.9 Depreciation 592 637 700 735 772 ROIC 10.8 10.7 11.6 12.3 13.3 CAPEX -832 -885 -840 -840 -840 Inv. cap. (EUR m) 20,205 20,202 20,226 20,245 20,219 in WC 57.0 207 116 86.3 94.3 Free cash flow -884 2,113 2,312 2,465 2,711
Made in Switzerland + | Helvea 77
DKSH Price: CHF48.5 NEUTRAL Target: CHF50.0 M&S
Chris Burger, CFA ([email protected]) – Tel. +41 (0)43 388 9259
DKSH is the leading pan-Asian provider of market expansion services. It supports companies looking for a reliable outsourcing partner to expand into new markets or consolidate their position in existing markets. To this effect, it offers a comprehensive range of services across the entire value chain for any product: from sourcing, research and analysis, marketing, sales, distribution and logistics to after-sales services. Business activities are organised into four segments: Consumer Goods, Healthcare, Performance Materials and Technology. CEO: Joerg Wolle; CFO: Bernhard Schmitt; Website: www.dksh.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Non Cyclical G. & S./Switzerland CHF53 52 Major shareholders Diethelm Keller Holding 46.1%, FFP Invest 6.8%, 51 Rainer-Marc Frey 6.3%, Others 40.8% 50 49 48 Shares outstanding (m) 62.73 EV/EBITDA (X) 47 Market cap. (CHF m) 3,043 2011 11.8 46 45 Free float 31% 2012E 10.7 44 EBITDA/CAGR 2011-2014E 11.4% 2013E 9.5 03/12 05/12 Share perform. 3m 6m 12m Symbols DKSH 12-mth tgt Absolute 8% 8% 8% Bloomberg DKSH SW Bu Acc. Neut. Red. N.R. Rel. to local 10% 1% 19% Reuters DKSH.S
News flow
■ March 2012; DKSH launches IPO on SIX Swiss Exchange ■ March 2012: DKSH sets offering price for its IPO at CHF48 per share ■ March: 2012: Over-allotment (green shoe) option of DKSH shares fully exercised ■ Forthcoming event: 8 August 2012 – H1 2012 results ■ Guidance & consensus: no specific guidance: consensus EBIT estimates stands at CHF262m for 2012 and at CHF301m for 2013
Investment case
DKSH is an outstanding company, providing investors with an opportunity to lock onto growth in Asia. It is the leading pan-Asian cross-industry MES provider and well positioned to continue along its growth path. With approx. 94% of revenues generated in Asia, DKSH is very strongly placed to benefit from expanding Asian economies, coupled with a growing middle class and rising consumer spending in the region. At the same time, DKSH’s comprehensive and integrated service offering puts it in a strong position to benefit from outsourcing. Moreover, as a market leader in fragmented industries, where scale is a critical factor of success, DKSH also stands to benefit from the ongoing trend towards consolidation. However, this bright outlook already appears to have been priced in.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
80% Sales EBIT Sales EBIT 5.6%0.0% 60 9.5% 16.8% 15% Thailand 40 6.1% 39% 45.3% 44.6% Greater China 20 22% Malaysia/Singapore 0 15.2% 39.6% -20 Others 17.4% 24% -40Consumer Goods Healthcare Performance Materials Consumer Goods Healthcare Performance Technology Others Technology Others Materials
78 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ High single-digit organic growth in 2012 thanks to its high Asia ■ FCF in the past distorted by acquisitions and one-offs (flooding, exposure earlier Chinese New Year) ■ Small positive contribution from currencies and the acquisitions ■ Change in NWC in 2012 to benefit from the reversal of the already made in 2012 negative impacts of flooding and the Chinese New Year in 2011 ■ Stands to benefit from expanding middle class and outsourcing ■ Lower FCF conversion ratio than asset light service businesses
MARGINS INVESTED CAPITAL AND RETURNS
■ 2012 EBIT margin expected to decrease slightly due to non- ■ Invested capital expected to continue to increase as the growth recurring one-offs in 2011 requires additional means ■ Economies of scale should improve margin in the medium term ■ ROIC should improve further due to the disproportionate growth ■ Wage inflation in Asia to be passed on in profits ■ Low hanging fruits to improve ROIC are gone
SWOT analysis STRENGTHS OPPORTUNITIES
■ No.1 pan-Asian and pan-industry market expansion service ■ Participation from high growth in Asia driven by expanding middle provider classes ■ Continuity in management and high corporate governance ■ Outsourcing of market expansion services standards ■ Entry into new markets ■ Diversified client/customer base with long-term relationships ■ Take part in the industry consolidation process
WEAKNESSES THREATS
■ High dependence on Asia, especially on Thailand ■ Slowdown in Asia, especially in Thailand ■ High net working capital requirement ■ Potential insourcing by existing clients ■ Short track record as listed company ■ (Translational) currency risk ■ Increasing competition and price pressure
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 12.0 11.8 10.7 9.5 8.5 Current assets 2,541 2,717 2,903 3,131 3,412 EV/EBIT 14.3 13.6 12.5 11.0 9.7 Net fixed assets 116 148 159 170 181 EV/Inv. Capital 3.7 3.0 3.0 2.8 2.6 Goodwill 91.5 120 112 105 98.8 P/E 26.9 20.5 19.0 16.7 14.8 Total assets 2,854 3,068 3,257 3,490 3,775 Cash P/E 26.4 20.1 18.7 16.5 14.6 Sharehold. equit. 1,036 996 1,116 1,255 1,412 P/CF 15.9 15.6 13.9 12.5 11.2 Working capital 664 813 818 881 960 P/BV 2.8 3.1 2.8 2.5 2.2 Net debt -131 78.0 -38.6 -115 -194
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 7,295 7,340 8,267 8,881 9,648 in sales 14.8 0.6 12.6 7.4 8.6 EBITDA 270 275 303 340 380 in EBITDA 58.1 2.1 10.0 12.3 11.8 EBIT 227 238 260 295 334 in EBIT 74.3 4.8 9.5 13.5 13.0 Net profits 128 147 162 186 212 in cash EPS n.a. 31.2 7.6 13.4 12.7 Cash EPS (CHF) 1.84 2.41 2.59 2.94 3.31 Net debt/equity -12.7 7.8 -3.5 -9.2 -13.8 Reported EPS (CHF) 1.80 2.37 2.55 2.90 3.28 FCF/net fin. results 9.3 7.0 17.3 17.6 27.0 DPS (CHF) 3.50 0.65 0.75 0.85 0.95 Current ratio (X) 1.5 1.4 1.4 1.5 1.5
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 229 240 263 298 336 Gross margin 16.1 16.4 16.0 16.0 16.0 Taxes -77.9 -79.9 -84.8 -96.3 -109 EBITDA margin 3.7 3.8 3.7 3.8 3.9 NOPLAT 151 160 178 202 227 EBIT margin 3.1 3.2 3.1 3.3 3.5 Depreciation 40.7 35.3 40.3 42.4 44.4 ROIC 17.2 16.4 16.5 18.1 19.1 CAPEX 5.4 -43.5 -46.4 -48.8 -51.9 Inv. cap. (CHF m) 882 1,071 1,080 1,147 1,232 in WC -28.2 -66.3 -4.4 -63.4 -79.1 Free cash flow 135 61.5 167 132 141
Made in Switzerland + | Helvea 79
Dufry Price: CHF110.- BUY Target: CHF140.- M&S
Michael Heider ([email protected]) – Tel. +41 (0)43 388 9255
Dufry is a global travel retailer with operations in 45 countries. It operates more than 1,200 shops located in airports, cruise liners, seaports and other tourist locations. It has a strong long-term concession portfolio with airport authorities and other landlords, and it provides its customers with prestigious brands from more than 1,500 suppliers. The company is globally active, with its corporate structure organised into six regions (Europe, Africa, Eurasia, South America, Central America & Caribbean and North America). It currently employs over 13,800 people. CEO: Julián Díaz González; CFO: Xavier Rossinyol; Website: www.dufry.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Retail/Switzerland CHF138 Major shareholders Advent International 14.4%, Travel Retail Investments 125 SCA 8.2%, Credit Suisse 6.8%, Hudson Media 4.3% 112 99 Shares outstanding (m) 26.87 EV/EBITDA (X) 86 Market cap. (CHF m) 2,956 2011 11.6 73 Free float 73% 2012E 8.6 60 EBITDA/CAGR 2011-2014E 19.5% 2013E 7.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Dufry 12-mth tgt Absolute 1% 21% -1% Bloomberg DUFN SW Buy Acc. Neut. Red. N.R. Rel. to local 3% 14% 9% Reuters DUFN.S
News flow
■ November 2011: organic growth in Q3 (+9.2%) beat expectations (9M sales: CHF1.8bn; EBITDA: CHF256.4m) ■ March 2012: full-year 2011 results with organic growth of 7.5% and total growth of 16.5% (CER). Sales reached CHF2.6bn with an EBITDA margin of 14.1% (CHF371m) showing an improvement of 90bp ■ May 2012: very strong Q1 2012: organic sales growth of 7.4% and 180bp EBITDA margin increase to 13.5% ■ Forthcoming event: 30 July 2012 – H1 2012 results ■ Guidance & consensus: no specific guidance; consensus EBIT estimates at CHF324.3m for 2012 and at CHF379.6m for 2013
Investment case
Dufry is targeting organic growth above passenger growth by adding productivity gains and creating new growth opportunities through acquisitions, which has resulted in a compelling track record of a 23% CAGR between 2003 and 2011 (CER). The recent acquisitions are very attractive as they offer strong growth potential thanks to their high exposure to emerging markets. In addition, the airport-related duty-free businesses have above-company average profitability and long-term contracts; additionally, they allow for synergies on the operational side. With strong cash generation, financial leverage seems less of an issue and covenants have been easily met after the acquisition. Growth momentum seems intact and the valuation is still attractive, hence our BUY recommendation.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
60% Sales EBIT Sales EBIT 0.9% 50 1.0% 11.5% 6.3% 4.2% 12% Europe 21.0% 2.3% 4026.6% 5.2% 27% 5% Africa 8.2% 30 8% Eurasia 20 17.0% Central America & 14.0% Caribbean 10 14% South America 48.3% 0 North America 33.6% 34% -10 Europe Africa EurasiaEurope Africa Eurasia CentralCentralSouth America &North CaribbeanDistribution South America America North& America America America Centres / Distribution Centres / Eliminations Caribbean Eliminations
80 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Solid organic growth of 5% expected for 2012 (Q1 2012: ■ NOPLAT expected to improve in line with EBITA +7.4%) on continued strong expansion of international traffic ■ Free cash flow distorted in 2011 by acquisitions ■ Significant contribution to growth from acquisitions and new ■ Capital spending rising as the company’s size expands concessions of about 16%E in total for 2012 ■ Ongoing focus on managing net working capital (NWC) ■ High negative currency impact in 2011 to turn positive in 2012
MARGINS INVESTED CAPITAL AND RETURNS
■ Still potential to lift gross margin after the impressive strides seen ■ Invested capital to increase following the recent acquisitions recently, but probably at a lower pace from 2012 onwards ■ As from 2012, invested capital should remain stable or even ■ Positive impact of operating leverage thanks to higher volumes decrease as capital spending (excl. potential future acquisitions) as well as acquisition-related synergies remains below amortisation charges (incl. past acquisitions) ■ On the minus side, concession fees are expected to rise ■ ROIC should continue to improve thanks to higher profits
SWOT analysis STRENGTHS OPPORTUNITIES
■ Global diversification and strong position in emerging markets, ■ Secular growth in travel retail, especially in emerging markets especially in Brazil ■ Potential to win new concessions ■ Long-term concession portfolio ■ Expansion of Hudson concept internationally ■ Good product mix ■ Taking part in industry consolidation ■ High bargaining power (number one position globally) ■ High operational and financial leverage
WEAKNESSES THREATS
■ Relatively high net debt position ■ Rising concession fees driven by increased competition ■ High amount of intangible assets ■ Political risks, incl. further restrictions (tobacco, alcohol, duty-free) ■ Relatively weak position in Asia ■ Vulnerable to exceptional events such as terrorist attacks, war, ■ Hudson operations have lower growth potential, in our view diseases (swine flu), etc. ■ Breach of covenants
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 12.5 11.6 8.6 7.5 6.8 Current assets 587 847 941 878 952 EV/EBIT 21.7 20.2 13.3 11.0 9.6 Net fixed assets 226 246 277 307 338 EV/Inv. Capital 2.5 1.6 1.6 1.6 1.6 Goodwill 338 715 740 740 740 P/E 23.7 26.4 17.012.610.2 Total assets 2,139 3,318 3,409 3,306 3,350 Cash P/E 16.8 17.5 12.0 9.6 8.2 Sharehold. equit. 734 870 959 1,135 1,383 P/CF 10.0 10.0 7.3 6.4 5.8 Working capital 153 178 184 214 236 P/BV 3.8 3.4 3.1 2.6 2.1 Net debt 638 1,361 1,218 996 709
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 2,610 2,638 3,248 3,634 3,961 in sales 9.7 1.1 23.1 11.9 9.0 EBITDA 343 371 501 573 633 in EBITDA 13.9 8.1 35.1 14.4 10.4 EBIT 198 213 323 390 446 in EBIT 21.1 7.4 52.1 20.8 14.3 Net profits 117 112 174 234 289 in cash EPS 65.9 -3.7 45.4 24.9 16.7 Cash EPS (CHF) 6.54 6.30 9.16 11.4 13.3 Net debt/equity 86.9 156 127 87.7 51.3 Reported EPS (CHF) 4.63 4.16 6.48 8.71 10.8 FCF/net fin. results 5.2 n.m. 3.3 5.0 7.9 DPS (CHF) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 2.5 2.6 2.8 2.4 2.4
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 264 285 426 488 539 Gross margin 57.5 58.2 59.1 60.0 60.3 Taxes -33.3 -49.3 -85.1 -97.6 -108 EBITDA margin 13.1 14.1 15.4 15.8 16.0 NOPLAT 230 236 340 391 431 EBIT margin 7.6 8.1 10.0 10.7 11.3 Depreciation 63.7 58.8 64.0 72.0 79.8 ROIC 12.8 10.8 12.8 14.5 16.0 CAPEX -92.5 -87.9 -119 -131 -143 Inv. cap. (CHF m) 1,708 2,649 2,678 2,692 2,703 in WC -10.3 8.3 -6.6 -29.3 -22.0 Free cash flow 166 -528 235 302 346
Made in Switzerland + | Helvea 81
EFG International Price: CHF6.9 NEUTRAL Target: CHF8.5 M&S
Tim Dawson ([email protected]) – Tel. +41 (0)22 354 9169
EFG International is a Swiss-based private bank created in 1994 by experienced, but disaffected, private bankers from Coutts and, before that, Citibank. The bank’s distinguishing feature is that it places its private bankers – or Client Relationship Officers (CROs) as it calls them – at the centre of its organisation and offers them contractually agreed bonuses based on their contribution as well as a base salary.
CEO: John Williamson; CFO: Giorgio Pradelli; Website: www.efginternational.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Banks/Switzerland CHF22 Major shareholders EFG Bank European Financial Group SA 56.0%, EFG 19 International 0.0%, Lawrence Howell 5.5%, Cuoni family 16 4.7%, Norges bank 3.0% 13 Shares outstanding (m) 147 Cash P/E (X) 10 Market cap. (CHF m) 1,005 2011 n.m. 7 Free float 18% 2012E 9.9 4 Op. profits/CAGR 2011A-2014E n.m. 2013E 7.3 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols EFG International 12-mth tgt Absolute -19% 5% -39% Bloomberg EFGN SW Buy Acc. Neut. Red. N.R. Rel. to local -15% 1% -31% Reuters EFGN.S
News flow
■ February 2012: full-year 2011 results hit by exceptional charges; March 2012: sells remaining interest in Marble Bar ■ April 2012: CEO’s AGM statement emphasised the work that is being done to address weaknesses that have built up over the years and reaffirmed the commitment to the new medium-term objectives ■ May 2012: appointment of Giorgio Pradelli as CFO ■ Forthcoming event: July 2012 – H1 2012 results ■ Guidance & consensus: guidance for net profits of CHF200m ‘within 3 years’; consensus estimates for net profits stand at CHF91m for 2012 and at CHF127m for 2013
Investment case
EFG International lost most of its supporters when it wasted its IPO money on what, in hindsight, proved disastrous diversification into hedge funds and life-settlement contracts as well as over-expansion of its core private-banking business at too fast a rate for what has proved to be a very difficult market environment. The new CEO and CFO are giving the bank the chance to start again and prove that its distinctive remuneration strategy of contractually guaranteed bonuses for profit generators can continue to build a viable business, as certainly seems to be the case in Asia. The shares look good value, but need the new management team to prove that it can indeed produce profits, not just growth, especially after the recent change in the CFO position.
Divisional breakdown (2011) Breakdown of AuM (2011)
150% Operating income Pre-taxOperating profit income Pre-tax profit 2.1%0.7% 6.4% 1.5% 2% 7.6% 100 7.8%
50
0 Private Banking Other
-50
89.6% 84.2% -100 98%
-150Private Banking Asset Management Corporate Eliminations Private Banking Asset Management Corporate Eliminations
82 Helvea SA | Made in Switzerland +
Value drivers PROFITS BALANCE SHEET AND AUM
■ The absence of one-offs should lead to a strong profit rebound ■ Average AuM to rise by just 2% in 2012, but resumption of growth in 2012 to almost CHF90m in 2013 after the disruption of recent years should deliver an 8% ■ Flat gross margins, but a resumption in average AuM growth increase in average AuM in 2013 from NNM, combined with cost control, should lead to a further ■ The bank has offered to exchange participation certificates for strong recovery in profits of slightly more than 40% in 2013 structured notes
SWOT analysis STRENGTHS OPPORTUNITIES
■ CRO-focused operation offering contractually guaranteed ■ Highly fragmented market offering opportunities for acquisitions bonuses to experienced and performing CROs, which as well as for client and CRO recruitment contrasts with the discretionary bonuses of most of its rivals ■ Experienced CROs unhappy at global banks ■ Specialist private bank with no distracting investment- or retail- ■ Distressed sellers of significant private banks (AuM CHF20bn) banking operations may throw up the opportunity to clinch a transformational deal ■ Winning reputation as the refuge of choice for many CROs when the bank has the capital to invest, but that will not be for some time while the bank rebuilds its capital base
WEAKNESSES THREATS
■ New bank in a market where an image of solidity and continuity ■ Competitors copy CRO-focused operation is important ■ Rapid expansion leads to loss of management scrutiny of clients ■ Senior management stretched from rapid expansion and CROs, resulting in damage to the bank’s and CROs’ ■ Concerns that rapid growth could lead to recruitment of reputations and compliance problems inappropriate clients and CROs ■ Poaching of successful staff by competitors
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E Cap/AuM (%) 1.2 1.3 1.2 1.1 1.0 Total assets (bn) 20.893 21.041 22.093 23.198 24.358 SOTP/share (CHF) 9.0 Sharehold. equ. 676 987 1,134 1,242 1,242 P/SOTP (%) 76.1 Intangibles 579 301 278 255 232 P/E n.m. n.m. 11.6 8.2 6.2 Tangible equity 97.2 686 856 987 1,011 Cash P/E (ful. diluted) n.m. n.m. 9.9 7.3 5.7 Tier 1 ratio (%) 13.9 12.8 16.2 18.1 15.7 P/BV 1.5 1.0 0.9 0.8 0.8 BV/share (CHF) 4.6 6.7 7.7 8.5 8.4 Dividend yield (%) 1.5 1.5 1.5 2.2 2.9 Tang. BV/s. (CHF) 0.7 4.7 5.8 6.7 6.8
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Revenues 326 763 772 830 908 in revenues -62.1 134 1.1 7.6 9.3 Expenses -689 -699 -638 -653 -685 in expenses 1.5 1.6 -8.8 2.4 4.8 LLP -0.1 -317 0.0 0.0 0.0 in LLP -98.1 316,800 n.m. n.a. n.a. Net profits -741 -289 86.4 123 164 in net profits n.m. n.m. n.m. 42.5 33.0 Reported EPS (CHF) -5.05 -1.97 0.59 0.84 1.11 in cash EPS n.m. n.m. n.m. 36.2 28.5 Cash EPS (CHF/ f.d.) -2.27 -1.88 0.69 0.94 1.21 in report. EPS n.m. n.m. n.m. 42.5 32.1 DPS (CHF) 0.10 0.10 0.10 0.15 0.20 in DPS 0.0 0.0 0.0 50.0 33.3
Asset under management Ratios, margins and returns (In CHF bn) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E AuM NII/total revenue 77.0 27.7 35.0 33.7 31.0 Total 81.9 75.2 84.2 90.7 98.4 Cost/income 212 91.6 82.7 78.6 75.4 Private Banking 80.5 73.7 76.2 80.7 87.4 Pre-tax margin -112 -33.2 17.3 21.4 24.6 NNM PB gr. marg. (bp) 94.0 93.7 95.0 95.0 96.0 Total 11.0 -1.2 4.0 4.0 5.0 IB comp. ratio n.a. n.a. n.a. n.a. n.a. Private banking 11.0 0.6 4.0 4.0 5.0 ROE -66.5 -34.8 8.1 10.4 13.2 PB NNM growth 14.1% 0.7% 5.4% 5.3% 6.2% Cash ROE -29.9 -33.1 9.6 11.6 14.4
Made in Switzerland + | Helvea 83
Elan Price: EUR11.6 REDUCE Target: EUR6.8 Large Caps
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
After selling its Elan Drug Technology (EDT) unit (develops galenic formulations for drugs that are poorly water-soluble or need controlled-release tablets) to Alkermes, Elan is built entirely on BioNeurology, its neuroscience-based biotech unit focused on discovering, developing, manufacturing and marketing advanced therapies in neurology and autoimmune diseases (Tysabri/natalizumab for multiple sclerosis and Crohn’s disease). Clinical R&D on drugs for treating Alzheimer’s (monoclonal antibody bapineuzumab in Ph.III, a subcutaneous form in Ph.II, and a vaccine) is now part of a JV with J&J. CEO: Kelly Martin; CFO: Nigel Clerkin; Website: www.elan.com (FY to end-December)
Company data as of 31 May 2012 Share price performance
Sector/Country Healthcare/Ireland EUR12 11 Major shareholders Johnson & Johnson 18.2%, Fidelity 11.9%, Invesco 10 6.0%, Blackrock 4.0% 9 8 7 Shares outstanding (m) 590 EV/EBITDA (X) 6 Market cap. (USD m) 8,446 2011 11.7 5 4 Free float 60% 2012E 88.6 3 EBITDA/CAGR 2011-2014E -33.0% 2013E 42.9 05.11 07.11 09.11 11.11 01.12 03.12 05.12 Share perform. 3m 6m 12m Symbols Elan 12-mth tgt Absolute 24% 41% 69% Bloomberg ELN ID Buy Acc. Neut. Red. N.R. Rel. to local 36% 45% 90% Reuters ELN.I
News flow
■ July 2009: J&J took 18% stake and paid USD1bn in cash for Elan’s Alzheimer’s Immunotherapy Programme ■ May 2011: sale of EDT for merger with Alkermes; Elan received USD500m and held 25% stake in Alkermes ■ January 2012: after EMA in June 2011, the FDA also included anti-JC virus antibody test in Tysabri label ■ March 2012: USD381m raised by selling 76% of its stake in Alkermes, i.e. 24.15m shares ■ Forthcoming events: H1 2012 results – date not yet finalised ■ Guidance & consensus: for 2012, management is guiding for revenues to come to USD1.2-1.25bn and adjusted EBITDA to exceed USD200m; consensus EBIT estimates stand at USD105m for 2012 and USD155m for 2013
Investment case
Tysabri/natalizumab has turned out to be the most efficacious drug for treating multiple sclerosis (MS), but with the trade-off that it causes progressive multifocal leukoencephalopathy (PML) in around 1 in 1,000 MS sufferers. PML infection looks, however, to be becoming a manageable complication in MS, particularly through stratifying patients for low risk, i.e. absence of anti-JC virus antibody, which is why Tysabri is likely to continue growing. Elan’s clinical pipeline is built on ELND005 (a lipid in Phase II for inhibiting amyloid beta aggregation, and preclinical for bipolar disorders) and ELND002 (pegylated small molecule inhibiting integrin alpha V, tested in Phase Ib/IIa in MS patients as follow-up to Tysabri); ELND007, a substrate-specific inhibitor of gamma secretase, was discontinued in Phase I.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
14% 14%
United States
48% 52%
Rest of World
86% 86%
Biopharmaceuticals Elan Drug Technologies
84 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We expect Tysabri sales to continue growing in 2012 as we ■ Tysabri became single source of free cash flow following sale of assume doctors will feel more confident in handling PML when EDT in 2011 use of the serological test for anti-JC virus antibody becomes ■ Growing free cash flow mostly used for financing R&D part of the label to stratify patients for massively lowered PML programmes, lowering debt and paying interest expenses risk
MARGINS INVESTED CAPITAL AND RETURNS
■ Gross margin likely to expand with increasing Tysabri revenues ■ Return dependent on investment in R&D on Phase IIIb/IV trials ■ Operating margin expected to improve following cost-cutting on Tysabri, MS, Alzheimer’s disease (AD) and, less so, ■ R&D spending to stay high in the short-to-mid term, caused by Parkinson’s disease (PD) ongoing Phase IIIb/IV trials on Tysabri and early clinical trials in ■ Company probably striving for licensing-in opportunities or M&A CNS indications (e.g. Alzheimer’s, bipolar disorder and MS)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Tysabri seen by many doctors as first option when first-line ■ Expertise in developing monoclonal antibodies treatments have failed in multiple sclerosis ■ Pursuing R&D at forefront of scientific mainstream ■ Expertise in approaching doctors and patients for managing ■ If Elan’s drug concepts help in AD, then likely to work in PD too PML should help to build and defend Tysabri franchise ■ Paying off debt with continuing strength of Tysabri in the market ■ Serological test for anti-JC virus antibodies a strategic asset exposes company to M&A, with J&J as potential buyer
WEAKNESSES THREATS
■ Having established world-leading expertise in Alzheimer’s ■ Tysabri’s PML cases could become more frequent than seen so disease could hamper critical self-analysis of own approaches far should the drug unexpectedly be used in patients at high risk ■ Carrying out R&D at forefront of scientific understanding runs ■ Discovery of more effective and safer drugs than Tysabri risk of being caught up by novel insights while hefty investment ■ Bapineuzumab in Alzheimer’s disease could fail in Phase III and in risky projects makes decisions to pull back difficult would then have to be retested in patients with prodromal AD
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In USD m) 2010 2011 2012E 2013E 2014E EV/EBITDA n.m. 11.7 88.6 42.9 38.9 Current assets 920 518 592 883 1,195 EV/EBIT n.m. 10.4 52.3 46.0 40.7 Net fixed assets 497 759 378 378 378 EV/Inv. Capital 8.4 9.3 13.7 9.4 7.0 Goodwill 377 310 310 310 310 P/E n.m. 15.0 n.m. 53.3 46.6 Total assets 2,017 1,754 1,451 1,619 1,931 Cash P/E n.m. 15.0 n.m. 53.3 46.6 Sharehold. equit. 194 802 907 1,077 1,392 P/CF n.m. 9.6 40.4 36.4 32.9 Working capital 171 187 263 556 870 P/BV 43.1 10.5 9.3 7.8 6.1 Net debt 625 327 -137 -418 -720
Income statement Growth rates & balance-sheet ratios (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 1,170 1,246 1,241 1,428 1,618 in sales 5.1 6.5 -0.4 15.1 13.3 EBITDA -142 749 99.1 205 225 in EBITDA n.m. n.m. -86.8 n.m. 10.2 EBIT -189 840 168 191 215 in EBIT n.m. n.m. -80.0 13.5 13.0 Net profits -325 561 -9.9 158 181 in cash EPS n.m. n.m. n.m. n.m. 14.4 Cash EPS (USD) -0.56 0.95 -0.02 0.27 0.31 Net debt/equity 322 40.8 -15.1 -38.8 -51.7 Reported EPS (USD) -0.56 0.95 -0.02 0.27 0.31 FCF/net fin. results n.m. 4.6 2.7 10.7 12.0 DPS (USD) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 1.9 1.9 2.2 3.2 4.4
Cash flow statement Ratios, margins and returns (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA -189 840 168 191 215 Gross margin 50.1 48.7 48.7 49.2 49.6 Taxes 0.0 0.0 0.0 0.0 0.0 EBITDA margin -12.1 60.1 8.0 14.3 13.9 NOPLAT -189 840 168 191 215 EBIT margin -16.1 67.4 13.5 13.3 13.3 Depreciation 63.3 35.8 41.3 41.3 41.3 ROIC -14.1 84.4 21.2 24.2 19.7 CAPEX -45.0 -45.0 -45.0 -45.0 -45.0 Inv. cap. (USD m) 1,044 946 641 934 1,248 in WC -33.9 244 14.5 15.5 16.6 Free cash flow -204 1,075 179 202 228
Made in Switzerland + | Helvea 85
Emmi Price: CHF181.- ACCUMULATE Target: CHF230.- M&S
Andreas von Arx ([email protected]) – Tel. +41 (0)43 388 9257
Emmi is the leading Swiss dairy processor, with a market share of approx.30% of all processed milk. After starting out as a co-operative, it went public (IPO) in December 2004, but is still majority-owned by farmers’ organisations. Emmi’s strategy is based on 3 pillars: 1) defending its position in Switzerland (some 70% of sales); 2) growing outside Switzerland by becoming ‘a leading company in Europe for premium dairy products’ and ‘the company for Swiss cheese’; 3) continued cost management in a market that is liberalised. Emmi’s most successful fresh dairy product is Caffè Latte. CEO: Urs Riedener; CFO: Jörg Riboni; Website: www.emmi.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Food and Beverage/Switzerland CHF250 Major shareholders ZMP Invest AG 54.2%, Zentralschweizer 235 Milchkäuferverband 4.7%, Milchverband 220 Nordostschweiz 3.6%, LODH 5.9%, Others 31.6% 205 Shares outstanding (m) 5.35 EV/EBITDA (X) 190 Market cap. (CHF m) 968 2011 6.1 175 Free float 37% 2012E 5.6 160 EBITDA/CAGR 2011-2014E 4.7% 2013E 5.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Emmi 12-mth tgt Absolute -11% 7% -14% Bloomberg EMMN SW Buy Acc. Neut. Red. N.R. Rel. to local -9% 1% -5% Reuters EMMN.S
News flow
■ March 2012: full-year 2011 profitability – underlying figures roughly in line (EBIT CHF130m vs. Helvea CHF130m, cons. CHF129m), but net profit hurt by one-offs; 2012 outlook slightly below pre-results expectations ■ Forthcoming events: 30 August 2012 – H1 2012 results ■ Guidance & consensus: for 2012, management is guiding for sales growth of 2%-3% (Helvea 2.7%, consensus 2.9%) and reported EBIT of CHF120-140m (Helvea CHF135m; figures shown on the right page are adj. Helvea EBIT); consensus EBIT estimates stand at CHF140m for 2012 and at CHF145m for 2013. We note that 2012 figures are to be impacted by the company’s exit from unprofitable businesses in Switzerland and abroad
Investment case
With Swiss production accounting for 15% of Emmi's non-domestic sales, Emmi has significant transactional currency exposure, mainly in its cheese business – this made 2011 challenging – yet full-year profitability came reasonably close to the prior-year level. The long-term story of Emmi transforming itself from an industrial, generic, Switzerland-focused producer to a branded, international FMCG player is on track and, at approx.6.0X EV/EBITDA, Emmi shares look attractively valued. Short term, the share price might move sideways as investors probably first want to see an acceleration again in the results. We think momentum could improve towards summer if the good start to the year continues; we would then see Emmi being able to over-achieve on its conservative targets (again).
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT 6% 3% 8% 0.9% 24% 6% Switzerland
21% Europe excl. Switzerland n.a.
North and South America 34% 27% 70% Asia Pacific
Fresh products Dairy products Cheese products Fresh cheese Powder/concentrates Other products & Services
86 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We forecast organic growth of –0.8% for 2012, 2.7% for 2013 ■ Margin factors (see ‘Margins’ opposite) and 2.8% for 2014 (–1.9% in 2011) as Emmi exited some ■ Net working capital affected by volatility in raw material prices unprofitable businesses in 2011 and 2012 (i.e. milk) ■ International expansion and new product launches the main ■ Emmi enjoys a (very) low corporate tax rate in the canton of drivers of organic growth Lucerne
MARGINS INVESTED CAPITAL AND RETURNS
■ Shifting of product portfolio: from low-margin generic to ■ With low margins and high capacity needs, ROIC are low branded, premium products (mainly in international markets); currently; with more added-value products, this could change generic products in Switzerland just at break-even ■ Main investment projects are additional capacity for the US ■ Negative currency impact, especially in the cheese segment; speciality cheese market (both cow and goat products) and a margins dented in 2011 doubling of capacity at A-27 in Italy
SWOT analysis STRENGTHS OPPORTUNITIES
■ Market leader in the Swiss dairy industry ■ Successful international expansion could lead to gains ■ Largest player in Swiss cheese exports ■ Balance sheet allows for further acquisitions abroad ■ Caffè Latte innovation and international expansion show ■ We see efficiency potential in Emmi’s industrial base in Emmi’s potential to develop fresh dairy products successfully Switzerland, the group’s IT systems as well as from reductions in ■ Solid balance sheet and strong management team stock-keeping units and more efficient NWC management
WEAKNESSES THREATS
■ Price of milk higher in Switzerland than in the EU ■ Further trade liberalisation with the EU ■ Strong international competition in fresh dairy (i.e. Danone); ■ Differentiation potential of Emmi products versus private label Swiss cheese is a premium product and low-cost producers ■ Domestic market (over 3/4 of group sales) is stagnating ■ With 15% of its sales from exports, FX can be a drag
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 5.9 6.1 5.6 5.5 5.3 Current assets 785 840 942 1,039 1,140 EV/EBIT 9.6 10.5 10.0 9.6 9.1 Net fixed assets 792 851 844 831 817 EV/Inv. Capital 1.2 1.0 1.0 1.0 1.0 Goodwill 75.5 164 158 152 146 P/E 11.2 11.7 10.6 11.3 10.7 Total assets 1,729 1,949 2,038 2,116 2,198 Cash P/E 5.3 5.0 4.8 4.9 4.8 Sharehold. equit. 843 901 974 1,041 1,111 P/CF 4.4 4.5 4.4 4.2 4.1 Working capital 316 353 368 379 389 P/BV 1.1 1.1 1.0 0.9 0.9 Net debt 196 346 275 199 119
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 2,684 2,721 2,787 2,865 2,944 in sales 2.5 1.4 2.4 2.8 2.8 EBITDA 230 223 240 248 255 in EBITDA 11.0 -3.1 7.8 3.2 3.2 EBIT 141 129 135 142 148 in EBIT 16.2 -8.9 4.8 4.9 4.9 Net profits 86.1 83.0 91.1 85.8 90.2 in cash EPS 17.5 4.3 5.3 -2.1 2.7 Cash EPS (CHF) 34.4 35.9 37.8 37.0 38.0 Net debt/equity 23.2 38.4 28.3 19.1 10.7 Reported EPS (CHF) 16.1 15.5 17.0 16.0 16.9 FCF/net fin. results 1.6 n.m. 11.3 13.2 13.9 DPS (CHF) 3.40 3.40 3.50 3.70 3.80 Current ratio (X) 1.9 2.2 2.4 2.5 2.7
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 141 129 135 142 148 Gross margin 33.3 33.3 33.4 33.4 33.4 Taxes -21.5 -20.8 -24.1 -23.5 -25.1 EBITDA margin 8.6 8.2 8.6 8.6 8.7 NOPLAT 120 108 111 118 123 EBIT margin 5.3 4.7 4.8 4.9 5.0 Depreciation 99.2 110 111 112 113 ROIC 10.5 8.5 8.1 8.6 9.1 CAPEX -107 -98.0 -98.0 -93.0 -93.0 Inv. cap. (CHF m) 1,173 1,368 1,371 1,362 1,353 in WC -35.2 -37.2 -15.4 -10.3 -10.5 Free cash flow 29.3 -71.9 108 127 133
Made in Switzerland + | Helvea 87
Flughafen Zürich AG Price: CHF324.- NEUTRAL Target: CHF400.- M&S
Michael Heider ([email protected]) – Tel. +41 (0)43 388 9255
Flughafen Zürich AG (Zurich Airport) is the owner, manager and operator of Zurich Airport. The company possesses an operating licence for the only hub airport in Switzerland up to 2051. The airport is located 9km from the city centre of Switzerland’s financial capital, Zurich, with excellent connections on its landside. In addition to the airport in Zurich, the company operates 11 airports in five countries, but over 99% of its revenues are generated in Switzerland. In 2011, Zurich Airport generated sales of CHF905m with a workforce of some 1,300 employees. CEO: Thomas E. Kern; CFO: Daniel Schmucki; Website: www.zurich-airport.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Cyclical G. & S./Switzerland CHF496 Major shareholders Canton of Zurich 33.4%, CP2 5.6%, City of Zurich 5.0%, 455 Fraport AG 4.5% 414 373 Shares outstanding (m) 6.14 EV/EBITDA (X) 332 Market cap. (CHF m) 1,991 2011 6.1 291 Free float 62% 2012E 5.8 250 EBITDA/CAGR 2011-2014E 3.8% 2013E 5.6 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Flughafen Zürich AG 12-mth tgt Absolute -7% -3% -15% Bloomberg FHZN SW Buy Acc. Neut. Red. N.R. Rel. to local -5% -8% -6% Reuters FHZN.S
News flow
■ March 2012: full-year 2011 results showed a 23% rise in net profits to CHF171m on passenger growth of 6.4% (to 24.3m); however, the outlook for 2012 looks more modest, with passenger growth of only 2% expected ■ April 2012: CP2 (Zurich Airport’s second largest shareholder) reduces its stake to 5.58% from 14.99% ■ Forthcoming event: 21 August 2012 – H1 2012 results ■ Guidance & consensus: passenger growth of approximately 2% and net profit growth of 5% to 10% for 2012; consensus EBIT estimates stand at CHF290m for 2012 and at CHF308m for 2013
Investment case
The air-traffic industry is heading for the next cool down after the one seen in 2009. Zurich Airport enjoyed a record year in 2011 and its home carrier SWISS is financially healthy and still adding capacity. However, passenger growth of only 2% is projected for 2012 and even the company’s expanded and optimised retail space with a centralised security area, centralised walk-through duty-free concepts and arrivals duty-free shops will not help to make growth more exciting in the short term. Furthermore, Zurich Airport’s large non-aviation development project (‘The Circle’) is still far away (if realised, it is expected to be opened in 2017) which, together with constant political headwinds, leaves the stock without a catalyst in our opinion.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
19% 0.2%
36% 41%
13% Switzerland Other
1% 67%
5% 18% 100% Aviation (flight operation) Aviation (aircraft noise)
Aviation (security) Non Aviation
88 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Air-traffic industry is slowing, limiting growth to 4%-5% in 2012E ■ Zurich Airport has completed its expansion phase and is looking ■ Market share gains and capacity expansions by SWISS to lower its capital spending needs ■ Introduction of duty-free shopping on arrivals side in 2011 ■ State-of-the-art infrastructure in place for the next decade ■ Retail floor expansion of about 40% on the air side by 2012 ■ Against this background, free cash flow is set to grow from ■ Rising spend per passenger thanks to improved retail concept CHF153m in 2010 to CHF195m in 2014
MARGINS INVESTED CAPITAL AND RETURNS
■ The company controls infrastructure assets that are in high ■ The business of operating an airport is capital intensive demand and commands pricing power over its customers ■ However, on account of the group’s favourable positioning in its ■ Costs are largely fixed and well under control capital spending cycle, capital turns are poised to rise ■ Centralised security to allow for further cost reductions as of ■ In combination with good control over operating margins, returns 2012 should rise
SWOT analysis STRENGTHS OPPORTUNITIES
■ Very strong competitive position as Zurich Airport controls the ■ Commercialisation of additional space for non-aviation activities only Swiss hub airport ■ Increasing spend per passenger thanks to walk-through concepts ■ Infrastructure is state-of-the-art and in great demand, thereby ■ Unveiling of hidden value in ‘The Circle’ non-operating asset ensuring pricing power over customers ■ Value enhancement at international holdings (India, Latin ■ Relative price competitiveness rising thanks to spare capacity America)
WEAKNESSES THREATS
■ Vulnerable to political, natural and economic shocks ■ Political risks of flight restrictions owing to noise emissions, etc. ■ Dependent on the financial well-being of home carrier SWISS ■ Long-term capacity expansion might be problematic for political ■ Relatively small catchment area reasons (however, capacity still spare for one decade) ■ Temporary flight restrictions imposed by Germany are subject to ■ Noise compensations might exceed current estimate political negotiations beyond the company’s control ■ Political risk of regulation change to the detriment of the company
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 6.8 6.1 5.8 5.6 5.4 Current assets 193 291 266 252 243 EV/EBIT 12.0 10.4 9.9 9.5 9.2 Net fixed assets 2,807 2,947 2,951 3,014 3,078 EV/Inv. Capital 0.9 0.8 0.8 0.8 0.8 Goodwill 285 305 298 292 285 P/E 14.4 11.6 11.1 10.2 9.6 Total assets 3,518 3,814 3,810 3,874 3,904 Cash P/E 16.0 13.2 12.711.911.1 Sharehold. equit. 1,684 1,802 1,937 2,071 2,194 P/CF 5.2 4.6 4.4 4.3 4.2 Working capital 51.2 70.9 73.9 76.0 78.2 P/BV 1.2 1.1 1.0 1.0 0.9 Net debt 964 1,062 962 907 821
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 852 905 944 971 999 in sales 3.8 6.3 4.3 2.9 2.9 EBITDA 436 485 511 526 543 in EBITDA 8.5 11.1 5.3 3.0 3.2 EBIT 246 284 297 310 322 in EBIT 15.3 15.5 4.5 4.6 3.6 Net profits 139 171 179 195 208 in cash EPS 22.9 20.6 4.3 6.5 7.1 Cash EPS (CHF) 20.3 24.5 25.6 27.2 29.2 Net debt/equity 57.3 59.0 49.7 43.8 37.4 Reported EPS (CHF) 22.6 27.8 29.2 31.8 33.9 FCF/net fin. results 2.1 n.m. 3.0 2.6 3.2 DPS (CHF) 7.00 9.50 10.0 10.5 11.0 Current ratio (X) 1.4 2.2 1.9 1.8 1.7
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 256 294 309 324 337 Gross margin 94.9 95.6 95.0 95.0 95.0 Taxes -52.4 -56.7 -63.3 -66.5 -69.0 EBITDA margin 51.3 53.6 54.1 54.2 54.3 NOPLAT 204 238 246 258 268 EBIT margin 28.9 31.3 31.4 32.0 32.2 Depreciation 180 191 202 202 206 ROIC 6.3 7.0 6.9 7.2 7.3 CAPEX -270 -450 -233 -292 -277 Inv. cap. (CHF m) 3,306 3,529 3,552 3,633 3,674 in WC 39.0 -19.7 -3.0 -2.1 -2.2 Free cash flow 153 -41.1 212 166 195
Made in Switzerland + | Helvea 89
Forbo Price: CHF628.- NEUTRAL Target: CHF640.- M&S
Patrick Appenzeller ([email protected]) – Tel. +41 (0)43 388 9267
Flooring Systems (65% of expected sales in 2012) is a world leader in linoleum, with a market share of approx.65%; it also produces a wide array of cushion vinyls, products with specific sound-absorbing properties and synthetic board floorings. Bonding Systems (8%) produces adhesives for applications in the building and construction industries. Movement Systems (27%) is a world leader in supplying conveyor, processing, power-transmission and flat belts, including high-quality drive/conveyor belts made of modern synthetics for industry, trade and service sectors. CEO: This E. Schneider; CFO: Jörg Riboni; Website: www.forbo.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Construction/Switzerland CHF750 Major shareholders Michael Pieper 27.3%, This E. Schneider 4.6%, own 675 shares 10.5%, Others 57.6% 600 525 Shares outstanding (m) 2.50 EV/EBITDA (X) 450 Market cap. (CHF m) 1,569 2011 5.6 375 Free float 58% 2012E 5.8 300 EBITDA/CAGR 2011-2014E -0.2% 2013E 5.7 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Forbo 12-mth tgt Absolute 4% 57% -10% Bloomberg FORN SW Buy Acc. Neut. Red. N.R. Rel. to local 7% 48% -1% Reuters FORN.S
News flow
■ December 2011: industrial adhesives activities sold to H.B. Fuller for CHF370m ■ March 2012: full-year 2011 results above expectations, what to do with the high cash? ■ April 2012: Forbo starts its share buy-back programme of up to 10% of the shares (2.3% bought as at 23 May) ■ Forthcoming event: 14 August 2012 – H1 2012 results ■ Guidance & consensus: Forbo expects group profit for 2012 to be on a par with net income from operations (from continuing operations) in 2011 (which stood at CHF115m) but reduced by the higher tax rate; consensus net profit estimates stand at CHF113m for 2012 and at CHF123m for 2013
Investment case
Forbo’s full-year 2011 results were good and the outlook remained relatively positive at that time (March 2012), assuming no further deterioration on the currency and global economic fronts. Forbo expects a net cash position of almost CHF500m by the end of the current year, which gives the company a war chest of up to CHF1bn for acquisitions. Other options include stepping up organic growth initiatives. Furthermore, the company has finally started its share buy-back programme. We have a NEUTRAL recommendation on the shares as we do not expect much organic growth and any further margin potential, neither for the Flooring business, nor for the Movement System business, in the near future.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
100% Sales EBIT Sales EBIT 0.0% 80 5.3% 5.2% 14% 14% 22.8% France 60 36.4% Benelux 17.1% 40 13% 17% Germany 20 Rest of Europe 14.4%0 62.3% 10.1% 12% -20 America Aisas/Australia/Africa -40 26.5% 30% -60Flooring Systems Bonding Systems Movement Systems Flooring Systems Bonding Systems Movement Systems Discontinued Corporate Discontinued operations Corporate operations
90 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Low growth potential for linoleum and vinyl flooring materials ■ Free cash flow will be significantly influenced by divestment of ■ High cyclicality with belting products (Movement Systems) industrial adhesives activities, which should be concluded in 2012 ■ For 2012, we expect no growth for Flooring Systems but 5% but, in 2013 and beyond, it is expected to remain clearly below organic growth for Movement; minor negative currency impact the past few years, partly due to the disposal ■ Relatively modest long-term growth potential overall ■ Free cash flow can be used for acquisitions and share buy-backs
MARGINS INVESTED CAPITAL AND RETURNS
■ EBIT margin at Flooring Systems appears to have peaked in H2 ■ Capital spending should decrease in 2012, mainly due to 2011 and we assume no further upsides from that level divestment, and is expected to grow only marginally in 2013 ■ Bonding Systems’ margin will be positively influenced by ■ Further spending could be needed to improve the cost base deconsolidation of low-margin industrial adhesives business ■ ROIC expected to increase in 2012 and beyond, also due to ■ Margins at Movement Systems likely to remain cyclical lower invested capital and divestment of low margin businesses
SWOT analysis STRENGTHS OPPORTUNITIES
■ Almost 65% worldwide market share in linoleum ■ Sales synergies from the Bonar Floors acquisition ■ Strong position with less cyclical hospitals and schools ■ Expanded sales and production network in Eastern Europe ■ Substitution of old bonding processes like welding (mainly Russia) and potential in China ■ Strong position in belting (Movement Systems division) ■ Net cash and treasury shares open up acquisition opportunities ■ ‘Green’ trend: linoleum is a sustainable natural product
WEAKNESSES THREATS
■ Still overcapacity, especially in commodity vinyl business ■ High public debt levels limit public construction spending ■ Production mainly in high-cost and union-intensive countries ■ Weak outlook for non-residential construction in most mature ■ Forbo has to demonstrate track record of recent improvement European markets in transparency, communication policy and investor relations ■ Higher raw material prices ■ Substitution of linoleum and vinyl products by other floorings
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 4.9 5.6 5.8 5.7 5.6 Current assets 750 966 969 1,017 1,058 EV/EBIT 6.5 7.4 7.7 7.5 7.4 Net fixed assets 450 360 360 354 351 EV/Inv. Capital 1.1 1.0 1.5 1.6 1.6 Goodwill 270 154 141 131 123 P/E 9.6 10.0 13.0 12.5 12.2 Total assets 1,494 1,502 1,493 1,526 1,554 Cash P/E 9.4 10.1 12.4 12.0 11.7 Sharehold. equit. 730 815 993 1,071 1,146 P/CF 8.5 9.2 9.7 9.5 9.4 Working capital 277 580 219 221 223 P/BV 2.3 1.9 1.6 1.5 1.4 Net debt 43.6 -0.5 -464 -558 -646
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 1,291 1,204 1,205 1,224 1,244 in sales -27.6 -6.8 0.1 1.6 1.6 EBITDA 227 199 191 195 197 in EBITDA 20.4 -12.5 -3.7 2.0 1.1 EBIT 169 149 144 147 149 in EBIT 38.5 -11.7 -3.2 2.3 1.0 Net profits 149 137 111 116 118 in cash EPS 60.6 -7.0 -18.3 3.6 2.3 Cash EPS (CHF) 66.5 61.9 50.6 52.4 53.6 Net debt/equity 6.0 -0.1 -46.7 -52.1 -56.3 Reported EPS (CHF) 65.4 62.8 48.4 50.3 51.5 FCF/net fin. results 15.9 14.0 78.0 41.8 125 DPS (CHF) 12.0 12.0 12.0 15.0 16.0 Current ratio (X) 2.3 4.0 4.0 4.2 4.3
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 174 154 149 152 154 Gross margin 39.2 38.1 37.5 37.5 37.5 Taxes -42.8 -27.5 -29.8 -30.5 -30.8 EBITDA margin 17.6 16.5 15.9 15.9 15.9 NOPLAT 131 126 119 122 123 EBIT margin 13.1 12.4 12.0 12.0 12.0 Depreciation 53.4 44.8 42.2 42.8 43.5 ROIC 12.1 12.1 13.1 17.1 17.5 CAPEX -37.3 -39.7 -35.0 -37.5 -40.0 Inv. cap. (CHF m) 998 1,094 720 707 696 in WC 74.3 18.1 0.0 -1.7 -1.8 Free cash flow 221 150 390 125 125
Made in Switzerland + | Helvea 91
Fresenius Medical Care Price: EUR53.7 BUY Target: EUR66.0 Large Caps
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
Fresenius Medical Care offers services and products to dialysis patients. The main reason for its dominant presence in the US market since 1997 stems from the fact that today’s company resulted from the merger of the former Fresenius at end-1996 with W.R. Grace’s US dialysis business, National Medical Care. This combined group subsequently underwent a series of restructuring phases, evolving into today’s pure dialysis play, Fresenius Medical Care. As a vestige of FMC’s corporate history, Fresenius SE & Co KGaA has remained a core shareholder, with a stake of around 35.8%. CEO: Ben J. Lipps; CFO: Michael Brosnan; Website: http://www.fmc-ag.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Germany EUR70 Major shareholders Fresenius SE & Co KGaA 31.4%, Blackrock Inc. 3.6%, 65 Fidelity Mgmt 2.8%, AXA 2.7%, Thornburg 2.1% 60 55 Shares outstanding (m) 300 EV/EBITDA (X) 50 Market cap. (USD m) 19,933 2011 10.2 45 Free float 100% 2012E 9.1 40 EBITDA/CAGR 2011-2014E 10.6% 2013E 8.3 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Fresenius Medical Care 12-mth tgt Absolute 2% 6% 7% Bloomberg FME GR Buy Acc. Neut. Red. N.R. Rel. to local 12% 3% 24% Reuters FMEG.DE
News flow
■ December 2012: entered market for dialysis services in Ecuador ■ January 2012: successfully completed placement of senior notes ■ March 2012: acquisition of Liberty Dialysis services completed ■ April 2012: licensed in EU rights for anti-pruritic TRK-820; sale of part of Liberty Dialysis acquisition completed ■ Forthcoming event: 1 August 2012 – Q2/H1 2012 results ■ Guidance & consensus: group guiding for 2012 sales to rise to ca.USD14bn and net profits to ca.USD1.14bn before book gain of USD127m; consensus EBIT estimates: USD2.38bn for 2012 and USD2.59bn for 2013
Investment case
We view Fresenius Medical Care as a company that should profit from the spread of chronic kidney disease, particularly in emerging markets as they gain economic strength. We have factored in likely pricing and margin pressures materialising in the years to come, but still forecast, in keeping with secular trends, that FMC’s total net revenues, EBIT and net profits should rise from 2010 to 2020 at CAGRs of 9.3%, 10.3% and 11.8%, respectively. Our estimates do not, notably, factor in further major acquisitions, even though one might be scheduled for next year, or additional cash flows from renal pharmaceuticals that would still need to be launched, e.g. from the intravenous iron drug Injectafer in the USA and the phosphate binder PA21 globally, both expected for 2013.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
80% Sales EBIT Sales EBIT 70 0.1% 6.9% 2% 60 50 36.2% 40 33.5% 30 Asia-Pacific Corporate 59.6% 20 63.7% 10 0 98% -10 -20 North America International Corporate North America International Corporate
92 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Positioned to grow faster than the market of end-stage kidney ■ Free cash flow continues to be invested in smaller acquisitions disease (CAGR 2010-20E: 6.1% market vs. 9.3% for revenues) ■ We forecast that debt will be paid down from 2012 ■ Growth to come more from building presence in emerging ■ We forecast free cash flow to accelerate in the years to come as markets than in Western world where growth is slackening we believe that the average tax rate is likely to decrease following ■ Extra operating income to come from JV with Galenica FMC’s expansion into emerging markets
MARGINS INVESTED CAPITAL AND RETURNS
■ Margins to improve through prioritising higher-margin ■ In the wake of the capital raised in January 2011, several businesses like pharmaceuticals dialysis-related companies have been acquired, e.g. Liberty ■ Scope for margin expansion from pushing home dialysis Dialysis ■ ROIC to increase, but not before sufficient debt is paid down, e.g. from 2013
SWOT analysis STRENGTHS OPPORTUNITIES
■ Ranked global No.1 for dialysers, dialysis machines, ■ Increase demand for higher-margin home dialysis haemodialysis concentrates and bloodlines ■ Expand presence in emerging markets ■ Treating 33% of US dialysis patients ranks it top in the USA ■ Preferred quality reference for public health-care systems for ■ With 11% of global dialysis patients treated by FMC, it is the setting up dialysis solutions, e.g. under a bundling system most important service provider worldwide ■ Expand market for renal pharmaceuticals together with Galenica
WEAKNESSES THREATS
■ Will remain outpaced by Baxter in peritoneal dialysis ■ Per capita spend by public health-care system on dialysis shrinks ■ Along with peritoneal dialysis, home dialysis also lags behind ■ Potential innovation in dialysis systems by competitors ignored ■ Developing pharmaceuticals has not been a core expertise ■ Emerging markets establish very cheap ‘good enough’ systems ■ Appearance of local players with closer relationship with local authorities, cutting FMC off from growth in emerging markets
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In USD m) 2010 2011 2012E 2013E 2014E EV/EBITDA 11.1 10.2 9.1 8.3 7.6 Current assets 5,153 5,695 6,691 7,285 7,758 EV/EBIT 14.0 13.0 11.2 10.2 9.3 Net fixed assets 2,527 2,630 3,300 3,830 4,409 EV/Inv. Capital 2.2 2.0 1.5 1.5 1.4 Goodwill 8,140 9,187 11,796 11,914 12,033 P/E 20.4 18.8 15.9 15.9 14.1 Total assets 17,095 19,533 23,822 25,078 26,264 Cash P/E 20.5 18.9 16.0 15.9 14.2 Sharehold. equit. 7,804 8,472 9,825 10,828 11,975 P/CF 11.4 10.3 9.0 8.9 8.1 Working capital 1,799 1,788 2,413 2,666 2,760 P/BV 2.6 2.4 2.1 1.9 1.7 Net debt 4,731 6,754 8,912 8,779 8,578
Income statement Growth rates & balance-sheet ratios (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 12,053 12,795 14,240 15,571 17,049 in sales 7.2 6.2 11.3 9.3 9.5 EBITDA 2,427 2,632 2,955 3,241 3,563 in EBITDA 9.7 8.5 12.3 9.7 9.9 EBIT 1,924 2,075 2,405 2,640 2,906 in EBIT 9.6 7.9 15.9 9.8 10.1 Net profits 979 1,071 1,275 1,293 1,465 in cash EPS 8.9 8.5 18.0 0.5 12.3 Cash EPS (USD) 3.24 3.51 4.15 4.17 4.68 Net debt/equity 60.6 79.7 90.7 81.1 71.6 Reported EPS (USD) 3.25 3.54 4.16 4.19 4.70 FCF/net fin. results 0.9 n.m. n.m. 2.9 3.3 DPS (EUR) 0.65 0.69 0.75 0.82 0.92 Current ratio (X) 1.4 1.3 1.1 1.1 1.1
Cash flow statement Ratios, margins and returns (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 1,924 2,075 2,405 2,640 2,906 Gross margin 34.4 35.3 35.6 35.6 35.7 Taxes -677 -701 -842 -919 -1,007 EBITDA margin 20.1 20.6 20.8 20.8 20.9 NOPLAT 1,247 1,374 1,563 1,721 1,899 EBIT margin 16.0 16.2 16.9 17.0 17.0 Depreciation 503 557 650 514 562 ROIC 10.4 10.5 10.0 9.6 10.1 CAPEX -524 -598 -671 -529 -580 Inv. cap. (USD m) 12,467 13,604 17,510 18,410 19,202 in WC -342 -555 -311 -297 -328 Free cash flow 255 -268 -1,377 1,290 1,434
Made in Switzerland + | Helvea 93
Galenica Price: CHF582.- BUY Target: CHF720.- M&S
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
Galenica has delivered double-digit earnings growth over the past 15 years following its transformation strategy, with its business focused since then on two main strategic activities: Specialty Pharma and Swiss HealthCare Services. The Pharma business was transformed by the acquisition of Aspreva in 2008 and is focused on iron-based products in international markets. The Swiss HealthCare Services business is targeted on health-care information, logistics (>50% market share) and retail pharmacies (>25% market share). The novel iron drug Ferinject is poised to innovate therapy. CEO: David Ebsworth; CFO: Jörg Kneubühler; Website: www.galenica.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Switzerland CHF746 Major shareholders Alliance Unichem 25.5% 680 614 548 Shares outstanding (m) 6.49 EV/EBITDA (X) 482 Market cap. (CHF m) 3,772 2011 11.0 416 Free float 75% 2012E 10.5 350 EBITDA/CAGR 2011-2014E 19.7% 2013E 8.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Galenica 12-mth tgt Absolute 5% 10% 0% Bloomberg GALN SW Buy Acc. Neut. Red. N.R. Rel. to local 7% 4% 11% Reuters GALN.S
News flow
■ November 2011: data of US Ph.III trials on Injectafer presented at American ‘Kidney Week 2011’ conference ■ December 2012: FDA assigns Injectafer’s PDUFA date to 3 August 2012 ■ March 2012: EBITDA fall short of consensus by 3.5% but net income before minorities surprises positively ■ April 2012: Ferinject proven in PREFER study to improve fatigue syndrome found with iron deficiency ■ Forthcoming events: 26 June 2012 – analysts’ day; 14 August 2012 – H1 2012 results ■ Guidance: 2012 net profits at 2011 level; consensus EBIT estimate stands at CHF342m for 2012 and at CHF345m for 2013
Investment case
The main investment case lies in its pharma business, with ongoing success of its iron drug Venofer and the EU launch of a new iron drug (Ferinject; USA: Injectafer) that can be safely infused into patients over a much shorter period – hence fewer EPO-type products, which are more expensive and potentially with more side-effects, are needed to treat anaemia related to chronic kidney diseases and chronic heart failure. Retail’s profitability should be boosted by offering non-medical products. Uncertainty on potential US approval of Injectafer in 2012 has lessened: two pivotal safety studies completed were positive and drug was filed in October with the FDA. CellCept revenues from Roche have seen erosion by generics since May 2009 in the USA and since end-2010 in the EU.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
90% Sales EBIT 2% Sales EBIT 80 1.0%0.1% 1.5%0.7% 5% 22.4% 15.6% 70 10% Switzerland 6032.7% 50 6.8% Europe 40
30 Americas 20 75.5% 10 Rest of World 43.9% 83% 0 -10 PharmaPharmaLogistics LogisticsRetail Other Retail (incl. HealthCare Other (incl. IT) EliminationsEliminations HealthCare IT)
94 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Decline in pharma sales caused by CellCept’s patent expiry in ■ Most cash flow being generated by pharmaceuticals 2009 and 2010, to be offset in 2012 by EU sales of Ferinject ■ Free cash flow generation to fall up to 2012 (CellCept fully ■ Leveraging capacities of OM Pharma’s sales force to promote generic) before picking up with uptake of Ferinject in the market OTC and, possibly, iron drugs in new territories ■ Cash flow generated by CellCept sufficient to fund broad clinical R&D programme on Ferinject and its further launch in Europe
MARGINS INVESTED CAPITAL AND RETURNS
■ Pharma and Group margin to expand with growing Ferinject ■ Improving returns from pharmaceuticals, particularly Ferinject ■ Retail benefiting from Sun Store’s business concept ■ Aspreva, an investment in strategic R&D and medical affairs ■ Logistics benefiting from new logistics centre personnel: pay-off with Ferinject uptake on further trial data ■ Depreciation (as a function of Aspreva-related CellCept ■ ROIC to stay flat in 2012, but to improve from 2013, mostly driven revenues) high in 2010, but expected to be minimal from 2011 by development of NOPLAT as Ferinject sales grow
SWOT analysis STRENGTHS OPPORTUNITIES
■ Unique exposure to iron business by developing this market ■ Extend iron market leadership, now with almost global joint ■ Limited competition from Feraheme and Venofer copycat drugs venture in chronic kidney disease with Fresenius Medical Care ■ Strong track record on earnings ■ Growth in iron business beyond dialysis market in new indications ■ Restructuring of business mix and setting up own sales ■ Develop new kidney drug (PA21) beyond the IV iron market organisation for iron drugs in several EU countries ■ Extend leadership in pharmacy business in Switzerland
WEAKNESSES THREATS
■ Tough pricing environment in pharmacies ■ Increasing competition for CellCept from innovative drugs that are ■ Limited geographical spread already being marketed or in late-stage development ■ Prominent share in product sales left with partners ■ Excessive erosion of CellCept revenues by generic versions ■ Limited patent protection for main products (none: Venofer) ■ Competition in development of novel phosphate binder PA21 ■ Need to expand sales organisation outside Switzerland ■ Underperforming Pharma business, poor drug commercialisation
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 9.9 11.0 10.5 8.2 6.4 Current assets 1,172 1,262 1,220 1,287 1,684 EV/EBIT 13.6 13.4 12.6 9.5 8.0 Net fixed assets 449 448 448 448 449 EV/Inv. Capital 2.3 2.2 2.2 2.3 2.3 Goodwill 1,248 1,252 1,195 1,138 1,081 P/E 16.5 16.8 16.0 11.1 9.3 Total assets 3,009 3,114 3,017 3,029 3,371 Cash P/E 11.7 12.1 11.5 8.7 7.4 Sharehold. equit. 932 1,203 1,333 1,566 1,872 P/CF 9.6 10.9 10.5 8.3 7.2 Working capital 230 256 271 277 291 P/BV 4.1 3.1 2.8 2.4 2.0 Net debt 948 820 650 367 19.5
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 3,447 3,481 3,520 3,669 3,847 in sales 5.2 1.0 1.1 4.2 4.8 EBITDA 443 399 419 536 685 in EBITDA 10.3 -9.8 4.8 28.0 27.9 EBIT 323 327 350 463 550 in EBIT 21.9 1.3 6.9 32.3 18.9 Net profits 229 223 235 337 404 in cash EPS 6.8 -2.9 4.6 32.3 17.5 Cash EPS (CHF) 49.7 48.2 50.5 66.7 78.4 Net debt/equity 102 68.2 48.7 23.4 1.0 Reported EPS (CHF) 35.3 34.6 36.4 52.2 62.6 FCF/net fin. results 5.8 8.3 8.9 16.7 20.7 DPS (CHF) 8.00 9.00 10.0 14.3 17.2 Current ratio (X) 1.7 1.5 1.4 1.5 1.8
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 323 327 350 463 550 Gross margin 40.7 39.3 33.6 36.4 39.7 Taxes -51.8 -52.3 -59.5 -83.3 -105 EBITDA margin 12.9 11.5 11.9 14.6 17.8 NOPLAT 271 275 290 380 446 EBIT margin 9.4 9.4 9.9 12.6 14.3 Depreciation 120 72.3 68.7 72.6 77.8 ROIC 14.0 14.1 14.5 19.4 23.3 CAPEX -57.3 -51.7 -63.3 -67.0 -71.8 Inv. cap. (CHF m) 1,880 2,023 1,983 1,933 1,891 in WC 17.7 13.2 13.1 9.2 5.3 Free cash flow 337 300 309 394 457
Made in Switzerland + | Helvea 95
GAM Holding Price: CHF10.2 NEUTRAL Target: CHF12.7 M&S
Tim Dawson ([email protected]) – Tel. +41 (0)22 354 9169
GAM Holding was effectively a spin-off from Julius Baer and was first quoted on 1 October 2009. It comprises two main operating subsidiaries: GAM, the UK-based fund-of-funds manager, and Swiss & Global, the Zurich-based asset manager. In addition, GAM Holding owns a stake of 27.9% in the listed US fund manager, Artio.
CEO: Hans de Gier; CFO: Andrew Willis; Website: www.gamholding.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Banks/Switzerland CHF22 Major shareholders GAM Holding 8.8%, Wellington 5.0%, Davis 5.0%, MFS 20 Investment 4.8%, Blackrock 4.2% 18 16 14 Shares outstanding (m) 187 Cash P/E (X) 12 Market cap. (CHF m) 1,907 2011 11.3 10 Free float 100% 2012E 11.1 8 Op. profits/CAGR 2011A-2014E 3.1% 2013E 9.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols GAM Holding 12-mth tgt Absolute -15% -4% -37% Bloomberg GAM SW Buy Acc. Neut. Red. N.R. Rel. to local -13% -10% -31% Reuters GAMH.S
News flow
■ March 2012: H2 2011 hit by the difficult environment with net outflows and a sharp decline in performance fees ■ April 2012: Q1 update ahead of AGM pointed to continuing fragility of clients’ risk appetite and the group still suffered outflows in the quarter. However, the positive performance led to an increase in AuM ■ Forthcoming event: 14 August 2012 – H1 2012 results ■ Guidance & consensus: no guidance on net profits; consensus estimates for net profits stand at CHF185m for 2012 and at CHF202m for 2013
Investment case
There has always been a strong valuation case behind GAM Holding, especially when allowing for its excess capital, but the shares have only performed strongly on a consistent basis when combined with robust NNM growth and a pick-up in clients’ risk appetite. This does not seem likely in the short term, but GAM Holding’s attributes of a strong balance sheet, no sovereign exposure and no exposure to regulatory uncertainty or to tax issues in Europe should not be underestimated for the longer run. It is also possible that the company will use the current market malaise to acquire cheap asset managers or distribution, which should also be of benefit in the long term. However, in the current market uncertainty, we prefer to stick to a NEUTRAL stance on the shares.
Divisional breakdown (2011) Breakdown of AuM (2011)
70% Operating income OperatingOperating profits income Operating profits 60 3.2% 0.5%
50
40 36.8% 48.3% 51.2% 30 Other 60.0% 20
10
0 100%
-10 GAM Swiss & Global Corporate Centre GAM Swiss & Global Corporate Centre
96 Helvea SA | Made in Switzerland +
Value drivers PROFITS BALANCE SHEET AND AUM
■ Revenues to fall by 4% in 2012, with a slight recovery in gross ■ GAM Holding’s average assets look set to fall slightly in 2012, but margins being offset by a fall in average AuM; we forecast a to rise by 7% in 2013 as a result of performance and inflows 7% rebound in revenues in 2013 with average AuM beginning ■ We expect the surplus capital to be used for further buy-backs to increase again although the company did announce a slowdown in buy-backs ■ Operating expenses to decline in 2012 thanks to active cost given the financial turmoil and the potential for acquisitions control, but to rise by 5% in 2013 on the back of the rebound in revenues ■ Overall, GAM Holding should return to profits in 2012, followed by an increase of 11% in 2013
SWOT analysis STRENGTHS OPPORTUNITIES
■ GAM is a leading fund-of-funds hedge-fund provider, with a ■ GAM core fund-of-funds products come back into favour with long and successful track record investors and Swiss & Global gains efficiencies through ■ Johannes A. de Gier and David Solo are experienced and increasing scale, and its equity funds come into favour as well entrepreneurial financiers, and have undertaken successful ■ Successful acquisitions from surplus capital corporate restructuring in the past, notably at Julius Baer
WEAKNESSES THREATS
■ GAM Holding is small compared with the global leaders like ■ Fund-of-funds business may not come back into fashion Fidelity and Blackrock ■ Swiss & Global products may suffer even more margin erosion ■ The firm is dependent on outside distributors to sell its ■ Management may waste capital on value-destroying acquisitions products: these may prove fickle, especially following a period or business initiatives of underperformance
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E Cap/AuM (%) 1.6 1.8 1.7 1.6 1.5 Total assets (bn) 2.883 2.426 4.000 4.000 4.001 SOTP/share (CHF) 12.7 Sharehold. equ. 2,452 2,100 2,004 2,100 2,194 P/SOTP (%) 80.1 Intangibles 1,385 1,373 1,340 1,320 1,320 P/E 9.9 n.m. 11.1 9.5 8.5 Tangible equity 1,067 726 664 780 874 Cash P/E (ful. diluted) 9.9 11.3 11.1 9.5 8.5 Tier 1 ratio (%) n.a. n.a. n.a. n.a. n.a. P/BV 0.8 0.9 0.9 0.8 0.7 BV/share (CHF) 12.5 11.9 12.0 13.4 14.0 Dividend yield (%) 4.9 4.9 4.9 4.9 5.9 Tang. BV/s. (CHF) 5.4 4.1 4.0 5.0 5.6
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Revenues 713 599 575 614 658 in revenues 20.9 -16.0 -3.9 6.6 7.2 Expenses -466 -385 -378 -395 -424 in expenses 16.4 -17.5 -1.7 4.5 7.2 LLP 0.0 0.0 0.0 0.0 0.0 in LLP n.a. n.a. n.a. n.a. n.a. Net profits 191 -95.0 146 163 176 in net profits 27.3 n.m. n.m. 11.5 7.9 Reported EPS (CHF) 1.03 -0.52 0.92 1.08 1.19 in cash EPS 42.2 -12.1 1.4 17.5 10.8 Cash EPS (CHF/ f.d.) 1.03 0.90 0.92 1.08 1.19 in report. EPS 42.2 n.m. n.m. 17.5 10.8 DPS (CHF) 0.50 0.50 0.50 0.50 0.60 in DPS n.m. 0.0 0.0 0.0 20.0
Asset under management Ratios, margins and returns (In CHF bn) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E AuM NII/total revenue 0.0 0.0 0.0 0.0 0.0 Total 118 104 110 119 130 Cost/income 65.4 64.2 65.7 64.4 64.4 NNM Pre-tax margin 34.6 35.8 34.3 35.6 35.6 Total 15.6 -4.5 4.5 4.5 6.5 PB gr. marg. (bp) n.a. n.a. n.a. n.a. n.a. IB comp. ratio n.a. n.a. n.a. n.a. n.a. ROE 7.5 -4.2 7.1 8.0 8.2 Cash ROE 8.0 -3.7 7.7 8.5 8.7
Made in Switzerland + | Helvea 97
gategroup Price: CHF24.4 ACCUMULATE Target: CHF40.0 M&S
Andreas von Arx ([email protected]) – Tel. +41 (0)43 388 9257
Gategroup is the world’s 2nd largest airline catering company with a market share of 25% in this industry worth some CHF16bn. Unlike its main peer LSG Sky Chefs, it is independent of any airline carrier. Apart from classic on-board catering and provisioning (80% of sales), gategroup also offers a full set of ‘above-the-wing’ services (e.g. comfort items, crockery, procurement). More recently, gategroup entered the low-cost airline market, with a retailer-like catering plus shop-on-board offering, with the company taking full business risk of goods sold on-board instead of just supplying them. CEO: Andrew Gibson; CFO: Thomas Bucher; Website: www.gategroupmember.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF50 Major shareholders R.-M. Frey via H21 Global Opportunities 5.4%, Janus 45 Capital 5.3%, Harris Associates 5.3%, Kempen Capital 40 5.0%, Invesco 4.9% 35 30 Shares outstanding (m) 27.17 EV/EBITDA (X) 25 Market cap. 662 2011 4.5 (CHF m) 20 Free float 95% 2012E 4.3 15 EBITDA/CAGR 2011-2014E 7.8% 2013E 3.9 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols gategroup 12-mth tgt Absolute -20% 6% -42% Bloomberg GATE SW Buy Acc. Neut. Red. N.R. Rel. to local -18% 0% -36% Reuters GATE.S
News flow
■ May 2012: Q1 2012 in line with consensus (sales CHF657m vs. CHF643m; EBITDAGate CHF25.5m vs. CHF26.0m); guidance from the analysts’ day in March was reiterated ■ Forthcoming events: 23 August 2012 – H1 2012 results ■ Guidance & consensus: for 2012, management points to ‘flat real growth’ (i.e. volume) and did not issue any ‘definitive guidance on margins’ given uncertain economic conditions. We forecast sales growth of 3.6% in l.c., i.e. 0.5% volume growth (consensus 3.6% sales growth) and EBITDAGate of CHF202.4m (consensus CHF205.3m). For 2012, we estimate EBITDAGate of CHF219.8m (consensus CHF223.6m)
Investment case
With the shares trading below 5X forward EV/EBITDA, we think gategroup’s relative valuation looks undemanding vs. Autogrill (5.3X) and our peer group at 6.2X. We think management’s medium-term targets offer significant upside vs. current projections. As a reminder, for 2015 management targets sales of CHF3.3bn (CHF3.5-3.9bn with M&A), an EBITDAGate margin of 8.0%-9.5% (9.5%-11% with M&A) – this compares with 7.5% in 2011 and management’s estimate of 7.1% for 2012. Incorporating this upside into valuation multiples would lead to a ‘fair’ value above CHF50 on our calculations. However, given short-term general macroeconomic uncertainties, the share price of this high-beta name might develop sideways in the coming weeks.
Regional breakdown (2011) Divisional breakdown – Sales (2011)
Sales EBIT
6% 20% 14% Europe and Africa
North America n.a. 49%
Asia-Pacific
31% 80% Other segments
Catering and provisioning revenue Other revenue
98 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We forecast organic growth of 1.5% for 2012, 5.5% for 2013 ■ gategroup guiding for maintenance capital spending of 1.5% of and 5.0% for 2014 (4.8% in 2011); gategroup points to flattish sales; additional contracts lead to higher demand for capex passenger volumes in 2012 given flight schedules and load ■ Depreciation high due to kitchen assets; amortisation high due to factor projections. Medium term, growth should be driven by acquired customer relationships being written down passenger growth plus (new) adjacent businesses ■ With a normalised NWC situation, FCF could increase in 2012
MARGINS INVESTED CAPITAL AND RETURNS
■ 3/4 of cost base variable, the rest affects operating leverage ■ Invested capital on the decline given less need for own kitchens ■ There are mix effects due to the move away from classic low- and amortisation of customer relationships margin airline catering to higher-margin (easyJet) retail model ■ Given its high (operating and) financial leverage, gategroup ■ Flat 2012 profitability on flat volumes plus build-up phase from generates high(er) ROEs and ROICs; we estimate an attractive moving into adjacent businesses FCF yield on enterprise value at double-digits
SWOT analysis STRENGTHS OPPORTUNITIES
■ 2nd largest player in global CHF16bn airline catering market ■ Consolidation opportunities (also non-airline-related catering) ■ Most contracts have a long duration, which heightens visibility ■ Adding more adjacent business could lead to a relative re-rating ■ After a multi-year restructuring, the company is now run highly ■ Potentially growth from outsourcing contracts in Asia efficiently by aggressive private equity style management team ■ Market leader with fast-growing in-flight retail models (easyJet) ■ gategroup combines high operating with high financial leverage ■ Airline business expected to grow at 4%-5% p.a.
WEAKNESSES THREATS
■ High dependence on volatile flight passenger numbers ■ Potential structural change in airline catering ■ Currency movements can have significant translational impact ■ Lack of differentiation potential could put pressure on margins ■ High exposure to traditional airlines ■ Relatively low barriers to entry in low-cost-airline catering field ■ Recent results showed growth underperforming IATA data ■ Seen as high beta-stock (downside in declining stock markets)
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 4.5 4.5 4.3 3.9 3.6 Current assets 888 858 945 1,047 1,149 EV/EBIT 7.4 7.3 6.7 5.9 5.2 Net fixed assets 533 502 488 474 461 EV/Inv. Capital 1.4 1.3 1.4 1.4 1.5 Goodwill 277 268 268 268 268 P/E 10.2 11.9 11.3 9.3 7.8 Total assets 1,815 1,764 1,837 1,925 2,014 Cash P/E 6.2 8.8 8.0 7.0 6.1 Sharehold. equit. 410 472 518 573 634 P/CF 4.1 4.3 4.1 3.8 3.5 Working capital -98.9 -75.7 -79.7 -84.6 -88.8 P/BV 1.1 1.0 0.9 0.8 0.7 Net debt 144 147 82.7 8.2 -70.8
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 2,700 2,688 2,832 3,003 3,153 in sales -0.5 -0.4 5.3 6.1 5.0 EBITDA 187 186 196 214 233 in EBITDA 18.2 -0.5 5.3 9.0 9.0 EBIT 114 115 125 142 162 in EBIT 34.0 1.1 8.7 14.1 13.6 Net profits 48.7 53.9 56.6 69.0 82.2 in cash EPS n.m. -29.3 9.3 15.6 14.3 Cash EPS (CHF) 3.92 2.77 3.03 3.50 4.00 Net debt/equity 35.2 31.1 16.0 1.4 -11.2 Reported EPS (CHF) 2.39 2.05 2.15 2.63 3.13 FCF/net fin. results 0.8 1.6 2.6 3.0 3.3 DPS (CHF) 0.00 0.40 0.50 0.80 0.90 Current ratio (X) 1.6 1.6 1.7 1.8 1.9
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 114 115 125 142 162 Gross margin 58.2 58.1 56.2 53.0 50.5 Taxes -26.6 -33.8 -35.6 -39.9 -45.3 EBITDA margin 6.9 6.9 6.9 7.1 7.4 NOPLAT 86.9 81.0 89.2 103 116 EBIT margin 4.2 4.3 4.4 4.7 5.1 Depreciation 73.8 71.5 71.4 71.4 71.4 ROIC 15.5 13.5 14.6 17.2 20.2 CAPEX -47.4 -52.4 -57.5 -57.5 -57.5 Inv. cap. (CHF m) 579 622 604 585 567 in WC -4.9 -23.2 4.0 4.8 4.2 Free cash flow 32.4 60.9 107 121 135
Made in Switzerland + | Helvea 99
Geberit Price: CHF188.- NEUTRAL Target: CHF200.- M&S
Patrick Appenzeller ([email protected]) – Tel. +41 (0)43 388 9267
Geberit is the European market leader in sanitary technology with a global presence. It comprises seven product lines in the two product areas of Sanitary Systems (Installation Systems; Cisterns & Mechanisms, including AquaClean shower- toilet; Faucets & Flushing Systems; Waste Fittings & Traps) and Piping Installations (Building Drainage Systems; Supply Systems). Geberit brand name products are innovative, durable and ecologically efficient, and provide high-end sanitary solutions. The company generated sales of CHF2.1bn in 2011 and has some 6,000 employees worldwide. CEO: Albert M. Baehny; CFO: Roland Iff; Website: www.geberit.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Construction/Switzerland CHF218 Major shareholders Capital Group 9.7%, BlackRock 3.2%, CS Management 205 Funds 3.1% 192 179 Shares outstanding (m) 40.97 EV/EBITDA (X) 166 Market cap. (CHF m) 7,703 2011 13.6 153 Free float 100% 2012E 12.8 140 EBITDA/CAGR 2011-2014E 6.4% 2013E 12.0 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Geberit 12-mth tgt Absolute -3% 8% -9% Bloomberg GEBN VX Buy Acc. Neut. Red. N.R. Rel. to local -1% 1% 1% Reuters GEBN.VX
News flow
■ November 2011: Q3 2011 results (EBIT: CHF131.1m) slightly above our estimate; margin guidance confirmed ■ January 2012: full-year 2011 sales in line with our expectation, margin guidance slightly lower ■ March 2012: Q4 2011 results in line with our expectations but below consensus ■ April 2012: Q1 2012 results (organic growth of 6.6%) clearly above expectations, unchanged outlook ■ Forthcoming events: 14 August 2012 – H1 2012 results ■ Guidance & consensus: Geberit is confident it will achieve solid results again in 2012; consensus EBIT estimates stand at CHF476m for 2012 and at CHF515m for 2013
Investment case
Despite the recent stock market turbulence, Geberit’s valuation has remained relatively stable, which we attribute to investors’ perception that the stock has ‘safe haven’ qualities. The fundamental outlook for Geberit’s key markets remains positive overall, although there have been some signs of a slowdown in Germany. However, margins should be positively impacted by falling metal prices. We stick to both our PT of CHF200 and NEUTRAL stance.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
8% Germany 29% 35% 34% Italy
28% n.a. Switzerland Eastern Europe
Other European markets 15% 11% 7% 9% 4% RoW 6% 14% Installation Systems Cisterns and Mechanisms Faucets and Flushing Systems Waste Fittings and Traps Building Drainage Systems Supply Systems
100 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Positive Northern (and partly Eastern) European residential ■ Ongoing high EBITDA margins should continue to lead to strong building outlook, especially in Germany, should support generation of free cash flows, although still somewhat limited in Geberit’s organic growth in 2012 and probably in 2013 as well 2012 and 2013 due to increased marketing expenses ■ Rising penetration of pre-wall concept; substitution in piping ■ Free cash flow can be used for acquisitions and share buy-backs ■ Ongoing new product introductions lead to market share gains or a combination of both
MARGINS INVESTED CAPITAL AND RETURNS
■ High innovation rate enables Geberit to charge premium prices ■ We expect capital spending to stay above depreciation charges in ■ Unchanged strong pricing power despite struggling competitors 2012 and 2013 due to ongoing high innovation activities ■ Raw material costs could positively impact margins in 2012, but ■ Continuous high ROIC supported by industry-wide unusually high this could be slightly offset by higher marketing spending operating margins
SWOT analysis STRENGTHS OPPORTUNITIES
■ Very strong brand: product reliability key in this industry as ■ Increased penetration with concealed cisterns in several regions installers have to give guarantees and warranties on their work ■ Increased substitution of copper by carbon steel, multi-layer pipes ■ High innovation rate: Geberit’s reputation as a ‘first mover’ ■ Strong position in Germany; huge potential with shower-toilets ■ Installer loyalty and strong sales network raise barriers to entry ■ Innovations; expansion into new segments and applications ■ ~ two-thirds of sales in the less cyclical renovation business ■ Acquisitions and/or share further buy-backs
WEAKNESSES THREATS
■ Still high exposure to Germany (about one-third of sales) ■ Double dip in European residential construction markets ■ Weak position in the USA ■ Slowdown of construction growth in some emerging markets ■ No direct distribution channel; possible pricing pressure from ■ Renovation activities affected by mounting unemployment, poor wholesalers, but well protected thanks to product quality consumer confidence and reluctance to finance major projects ■ Dual CEO/Chairman mandate frowned upon by some investors ■ Margin risks if organic growth falls again
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 12.6 13.6 12.8 12.0 11.2 Current assets 904 861 1,019 1,210 1,407 EV/EBIT 14.8 16.1 15.1 14.1 13.2 Net fixed assets 514 516 533 539 543 EV/Inv. Capital 5.0 4.7 4.6 4.5 4.5 Goodwill 559 645 645 645 645 P/E 18.2 18.9 17.4 16.2 15.4 Total assets 2,171 2,123 2,298 2,497 2,700 Cash P/E 18.0 18.6 17.1 16.0 15.2 Sharehold. equit. 1,521 1,420 1,549 1,694 1,838 P/CF 15.4 16.6 15.6 14.6 13.7 Working capital 358 365 383 407 432 P/BV 4.9 5.1 4.6 4.2 3.8 Net debt -513 -466 -609 -781 -957
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 2,147 2,123 2,233 2,367 2,509 in sales -1.6 -1.1 5.2 6.0 6.0 EBITDA 574 532 563 603 642 in EBITDA -6.1 -7.3 5.9 7.1 6.4 EBIT 486 449 479 513 545 in EBIT -7.7 -7.6 6.7 7.1 6.3 Net profits 407 384 410 435 458 in cash EPS 1.3 -3.0 8.5 7.1 5.1 Cash EPS (CHF) 10.4 10.1 11.0 11.8 12.4 Net debt/equity -33.7 -32.9 -39.3 -46.1 -52.1 Reported EPS (CHF) 10.3 9.96 10.8 11.6 12.2 FCF/net fin. results 34.5 52.9 135 518 1,481 DPS (CHF) 6.00 6.30 6.50 7.00 7.00 Current ratio (X) 4.3 3.0 3.5 3.9 4.4
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 492 455 485 519 551 Gross margin 61.8 60.3 60.5 60.9 60.9 Taxes -73.8 -67.3 -70.8 -74.8 -78.7 EBITDA margin 26.7 25.1 25.2 25.5 25.6 NOPLAT 418 388 414 444 473 EBIT margin 22.6 21.2 21.5 21.7 21.7 Depreciation 81.8 76.9 78.1 84.0 90.3 ROIC 27.2 26.2 26.8 28.2 29.4 CAPEX -78.4 -88.8 -95.0 -90.0 -94.1 Inv. cap. (CHF m) 1,431 1,526 1,562 1,592 1,620 in WC 72.3 10.0 -18.6 -23.9 -24.4 Free cash flow 494 386 379 414 444
Made in Switzerland + | Helvea 101
Genmab Price: DKK42.0 NEUTRAL Target: DKK44.0 M&S
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
Genmab is a biotechnology company developing fully human therapeutic monoclonal antibodies for treating patients suffering from cancer and chronic inflammatory diseases. Its Phase III/approval programmes are Arzerra/ofatumumab for chronic lymphocytic leukaemia (CLL; launch phase), non-Hodgkin’s lymphoma, rheumatoid arthritis (RA; as a subcutaneous formulation), all in co-development with GSK. Potentially, the most important Ph.II trial is on the Roche- partnered antibody RG1512 in coronary bypass surgery. Antibody drug conjugates are at the pre-clinical stage. CEO: Jan G.J. van de Winkel; CFO: David A. Eatwell; Website: www.genmab.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Denmark DKK 56 Major shareholders Hendrikus Hubertus Franciscus Stienstra 10.8%, Glaxo 50 Group 10.0%, ATP 9.8%, Meditor European Master 44 Fund 6.2% 38 Shares outstanding (m) 44.91 EV/EBITDA (X) 32 Market cap. (DKK m) 1,886 2011 n.m. 26 Free float 63% 2012E n.m. 20 EBITDA/CAGR 2011-2014E n.m. 2013E 7.0 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Genmab 12-mth tgt Absolute -3% 54% -12% Bloomberg GEN DC Buy Acc. Neut. Red. N.R. Rel. to local 7% 54% 3% Reuters GEN.Co
News flow
■ December 2011: announcement of first safety and efficacy data on daratumumab in Ph.Ib/II for multiple myeloma), progress on DuoBody platform and Lundbeck collaboration with a first pre-clinical milestone reached ■ February 2012: second pre-clinical milestone reached with Lundbeck on another antibody for a CNS indication ■ March 2012: GSK’s patent dispute with Genentech and City of Hope settled concerning the anti-CD20 antibody Arzerra; protocol amendment filed aimed at shortening Ph.III trial (ofatumumab in diffuse large B-cell lymphoma) ■ Forthcoming events: 15 August 2012 – H1 2012 results ■ Guidance & consensus: not meaningful
Investment case
Genmab stands to benefit from its drug Arzerra, co-developed with GlaxoSmithKline, for treating chronic lymphocytic leukaemia for which we think this drug shows a distinct competitive edge. In contrast, we have not seen so far data favouring superior efficacy compared to Rituxan/rituximab (Roche) in other indications. We view Genmab as an ongoing restructuring case unlikely to be attractive in the medium term. We could, however, modify our cautious stance (NEUTRAL) if the company secures greater visibility via a potential partnering of its discovery capabilities systematically across a multitude of potential drug targets and/or indications. As for its UniBody and DuoBody antibody technologies, we believe these technologies come with independent IP but no superiority.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
150% Sales EBIT Sales EBIT
100
50
0 n.a.
-50
-100 100.0% 100.0%
-150 All drugs All drugs
102 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ First royalties from sales of Arzerra in CLL since 2010, but sales ■ Cash and financial assets of DKK1.03bn at end-Q1 2012 performance likely to remain sluggish as drug not differentiated ■ Company reduced R&D costs on Arzerra as agreed with GSK enough vs. Roche’s Rituxan/MabThera ■ Sale of the manufacturing plant should lower maintenance cost of ■ Milestone payments from Roche following positive Phase II trial DKK50m a year, but due to overcapacity in the market, there results allowing antibodies to be moved into Phase III were repeated impairments, as this asset continued to lose value
MARGINS INVESTED CAPITAL AND RETURNS
■ Margin trend highly dependent on royalties from Arzerra sales ■ Genmab expects to sell its Brooklyn Park manufacturing facility in and milestone payments from successful development of 2012 for DKK320m (in 2011, the guidance was for DKK660m) partnered drugs, e.g. the most advanced with Roche in Ph.II ■ Genmab guiding for delivering one new clinical entity in 2012 ■ Sustainable profitability from 2017 from royalties on Arzerra (HuMax-cMet) and, thereafter, at least two a year, some of them and success-triggered milestone payments also antibody drug conjugates partnered with Seattle Genetics
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong clinical data on Arzerra for treatment of late-stage ■ Phase II programme with RG1512 (P-selectin) in treating chronic lymphocytic leukaemia peripheral vascular disease ■ Licensed-in validated antibody technology platforms, ■ Various pre-clinical programmes on antibody-drug conjugates particularly, the UltiMAB transgenic mouse technology from promise to establish quantum leaps in immunotherapy of cancer, Medarex, now Bristol-Myers Squibb but such strategies are pursued by other companies as well
WEAKNESSES THREATS
■ Still relatively high R&D costs for clinical co-development of ■ Likely strong competition ahead for Arzerra in CLL and in Arzerra autoimmune diseases ■ Overly confident in its proprietary DuoBody and UniBody ■ Loss of GSK’s interest in Arzerra or loss of other partners’ technology platform despite strong competition and, so far, interest in the respective collaborations little need for the UniBody approach ■ Delays in clinical trials, filings, approvals and launches
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In DKK m) 2010 2011 2012E 2013E 2014E EV/EBITDA n.m. n.m. n.m. 7.0 n.m. Current assets 2,419 1,517 1,139 1,280 1,153 EV/EBIT n.m. n.m. n.m. 8.5 n.m. Net fixed assets 41.4 32.4 32.4 32.4 32.4 EV/Inv. Capital 9.4 11.4 14.4 4.9 9.4 Goodwill 0.0 0.0 0.0 0.0 0.0 P/E n.m. n.m. n.m. 19.3 n.m. Total assets 2,482 1,564 1,186 1,322 1,195 Cash P/E n.m. n.m. n.m. 19.3 n.m. Sharehold. equit. 1,080 486 211 329 202 P/CF n.m. n.m. n.m. 20.2 n.m. Working capital 43.6 37.7 23.1 130 52.9 P/BV 1.7 3.9 8.9 5.7 9.3 Net debt -1,588 -1,051 -1,044 -955 -981
Income statement Growth rates & balance-sheet ratios (In DKK m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 582 351 326 693 386 in sales -0.7 -39.7 -7.2 n.m. -44.3 EBITDA -140 -228 -253 114 -192 in EBITDA n.m. n.m. n.m. n.m. n.m. EBIT -161 -249 -274 93.3 -214 in EBIT n.m. n.m. n.m. n.m. n.m. Net profits -321 -596 -295 97.6 -147 in cash EPS n.m. n.m. n.m. n.m. n.m. Cash EPS (DKK) -7.16 -13.3 -6.57 2.17 -3.27 Net debt/equity -147 -216 -494 -290 -485 Reported EPS (DKK) -7.16 -13.3 -6.57 2.17 -3.27 FCF/net fin. results n.m. 11.0 10.3 1.4 7.8 DPS (DKK) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 1.8 1.6 1.2 1.3 1.2
Cash flow statement Ratios, margins and returns (In DKK m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA -161 -249 -274 93.3 -214 Gross margin n.m. n.m. n.m. n.m. n.m. Taxes 0.0 0.0 0.0 11.2 0.0 EBITDA margin -24.0 -65.1 -77.8 16.5 -49.8 NOPLAT -161 -249 -274 80.0 -214 EBIT margin -27.6 -71.1 -84.2 13.5 -55.2 Depreciation 21.0 15.0 14.3 13.6 12.9 ROIC n.m. n.m. n.m. n.m. n.m. CAPEX 0.0 0.0 -15.0 -14.3 -13.5 Inv. cap. (DKK m) 85.0 70.1 55.5 162 85.3 in WC 386 -202 14.6 -106 76.7 Free cash flow 246 -436 -260 -25.0 -137
Made in Switzerland + | Helvea 103
Georg Fischer Price: CHF340.- NEUTRAL Target: CHF370.- M&S
Volkan Göçmen ([email protected]) – Tel. +41 (0)22 354 9157
Georg Fischer is an engineering conglomerate, active in automotive products (cast products for vehicle industry), piping systems (fittings and systems for various end-user industries) and machine tools (its GF AgieCharmilles subsidiary is the world leader in electrical discharge machinery & high-speed milling machinery). Georg Fischer’s major markets are in Europe (particularly Germany), but the group is increasingly expanding outside Europe. All of its divisions hold leading positions. Georg Fischer drastically reduced costs during the downturn, particularly in Europe. CEO: Yves Serra; CFO: Dr. Roland Abt; Website: www.georgfischer.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF598 Major shareholders BDS 5.2%, Blackrock 5.1%, Others 89.8% 540 482 424 Shares outstanding (m) 4.05 EV/EBITDA (X) 366 Market cap. (CHF m) 1,377 2011 4.9 308 Free float 90% 2012E 4.7 250 EBITDA/CAGR 2011-2014E 5.2% 2013E 4.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Georg Fischer 12-mth tgt Absolute -21% 1% -36% Bloomberg FI/N SW Buy Acc. Neut. Red. N.R. Rel. to local -19% -5% -29% Reuters FIN.S
News flow
■ December 2011: acquisition of Harvel Plastics (USA) to strengthen GF Piping Systems division further ■ February 2012: full-year 2011 results, which came in slightly below our expectations at an operating level, were solid overall considering the difficult circumstances, including the tough currency conditions ■ Forthcoming event: 17 July 2012 – H1 2012 results ■ Guidance & consensus: management did not provide any quantitative guidance for full-year 2012 results, but reiterated its targets for 2015 of an ROIC exceeding 15% and an EBIT margin of 8%-9%; consensus EBIT estimates stand at CHF264m for 2012 and at CHF298m for 2013
Investment case
Our main reservation about Georg Fischer shares relates to worsening visibility at the group’s end-user industries. Although premium OEMs in the automotive industry reported encouraging production figures for Q1 2012, the question is how long this solid trend can continue considering the unsettled outlook for various European sales markets. We also have some doubts with regard to the machine-tool business (GF AgieCharmilles) where we see the market overall as looking close to its peak, particularly for high-end products which are mainly sold in Europe. Overall strategic direction – seeking external growth, mainly in GF Piping Systems – makes sense, and the first steps so far have been really sound. On this front, any larger moves might be interesting catalysts. NEUTRAL.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
70% Sales EBIT Sales EBIT 60 15.1% 5% 22.0% 20% 29.0% Switzerland 50
40 45.7% Other Europe, Africa & ME 10% 30 USA & Canada 20 32.3% 65% Asia Pacific 10 55.9%
0 GF AutomotiveGF AutomotiveGF Piping Systems GF Piping SystemsGF Machine Tools GF Machine (Agie Tools Charmilles) (Agie Charmilles)
104 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Sales growth at group level in 2012 mainly acquisition-induced ■ Slight improvement in free cash flow in 2012 mainly NOPLAT- ■ Automotive business to hold up relatively well in 2012 on driven, but absolute FCF levels still below company’s potential account of broad exposure to German premium segment ■ We are looking for stronger resumption in operating free cash ■ We expect machine-tool markets to be nearing peak (GF flows as from 2013 when capital spending will also be coming AgieCharmilles subsidiary) down
MARGINS INVESTED CAPITAL AND RETURNS
■ We estimate group margins in 2012 could rise slightly on the ■ Increase in invested capital for 2012 mainly acquisition-related back of ongoing growth at high-margin GF Piping Systems and ■ Only moderate rise in NOPLAT not enough to compensate for further recovery in margins on automotive business higher invested capital – we expect little progress on this front in ■ We expect margins in GF AgieCharmilles’ machine-tool 2013 and 2014 as well business to decline
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading market positions for all the divisions ■ Expansion of GF Automotive and GF Piping Systems outside ■ Technological leadership in all businesses Europe ■ Mostly local cost base ■ Long-term, growth opportunities for GF AgieCharmilles in emerging markets, and, from a technological standpoint, in the faster-growing high-speed milling-machinery segment
WEAKNESSES THREATS
■ Long-term, too broad an exposure to the German economy in ■ Lack of sufficient production capacities in areas to which the large terms of both sales and a high cost base automotive-industry OEMs are relocating, such as Eastern ■ Some activities still very much Europe-oriented and not set up Europe, Asia and Latin America on a global platform ■ Intense price competition at the low end of the EDM machinery market
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 5.5 4.9 4.7 4.5 4.2 Current assets 1,569 1,651 1,704 1,917 1,798 EV/EBIT 10.1 7.7 7.1 6.7 6.1 Net fixed assets 955 972 1,004 1,014 1,016 EV/Inv. Capital 1.1 1.0 0.9 1.0 1.0 Goodwill 251 239 234 229 224 P/E 14.1 8.7 8.8 8.3 7.6 Total assets 2,838 2,925 3,006 3,224 3,103 Cash P/E 12.9 8.0 8.6 8.0 7.4 Sharehold. equit. 1,080 1,178 1,331 1,445 1,570 P/CF 4.4 4.0 3.9 3.8 3.6 Working capital 808 877 913 813 835 P/BV 1.3 1.2 1.0 1.0 0.9 Net debt 280 258 266 52.3 -103
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 3,447 3,638 3,785 3,850 3,955 in sales 18.6 5.5 4.0 1.7 2.7 EBITDA 329 370 384 402 431 in EBITDA n.m. 12.5 3.8 4.7 7.2 EBIT 180 235 256 272 298 in EBIT n.m. 30.6 8.9 6.3 9.6 Net profits 99.0 160 158 169 184 in cash EPS n.m. 61.1 -6.3 6.7 8.6 Cash EPS (CHF) 26.3 42.4 39.7 42.4 46.1 Net debt/equity 25.9 21.9 20.0 3.6 -6.6 Reported EPS (CHF) 24.1 39.0 38.5 41.2 44.9 FCF/net fin. results 5.6 4.0 4.0 9.3 8.0 DPS (CHF) 10.0 15.0 15.4 16.5 17.9 Current ratio (X) 1.9 1.8 2.1 1.6 2.0
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 205 259 275 291 317 Gross margin 9.5 10.2 10.1 10.4 10.9 Taxes -29.0 -36.0 -45.0 -55.0 -66.0 EBITDA margin 9.5 10.2 10.1 10.4 10.9 NOPLAT 176 223 230 236 251 EBIT margin 5.2 6.5 6.8 7.1 7.5 Depreciation 140 121 123 125 128 ROIC 9.8 13.0 12.6 12.6 13.6 CAPEX -124 -147 -155 -135 -130 Inv. cap. (CHF m) 1,688 1,737 1,921 1,840 1,862 in WC 49.8 -68.7 -35.4 99.8 22.2 Free cash flow 242 128 163 326 271
Made in Switzerland + | Helvea 105
Givaudan Price: CHF901.- NEUTRAL Target: CHF900.- Large Caps
Andreas von Arx ([email protected]) – Tel. +41 (0)43 388 9257
With a 20% market share, Givaudan is the clear leader in the global CHF20bn flavours and fragrances (F&F) industry which is fairly highly consolidated (top 4: 55% market share). Givaudan’s main attraction is its healthy exposure to emerging markets (42% of sales; to rise by about 2%pts p.a. in coming years). The main pillars of Givaudan’s strategy are: 1) developing markets; 2) research & development; 3) health & wellness; 4) sustainable sourcing; 5) targeted customers and segments. Founded in 1895 and based at Vernier near Geneva, Givaudan has about 9,000 employees. CEO: Gilles Andrier; CFO: Matthias Währen; Website: www.givaudan.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Non Cyclical G. & S./Switzerland CHF998 Major shareholders Nortrust Nominees 11.8%, William H. III Gates 10.3%, 940 Nestlé 10.0%, Chase Nominees 7.2%, Mellon Bank 882 3.4% 824 Shares outstanding (m) 9.23 EV/EBITDA (X) 766 Market cap. (CHF m) 8,315 2011 12.5 708 Free float 91% 2012E 10.9 650 EBITDA/CAGR 2011-2014E 8.7% 2013E 10.3 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Givaudan 12-mth tgt Absolute 5% 6% -4% Bloomberg GIVN VX Buy Acc. Neut. Red. N.R. Rel. to local 8% 0% 6% Reuters GIVN.VX
News flow
■ April 2012: Q1 2012 sales (8.4% growth in local currencies) ahead of expectations (sales of CHF1.06bn vs. Helvea’s CHF1.03bn and consensus CHF1.04bn); medium-term guidance reiterated, as was to be expected: Givaudan is confident it will manage to implement price hikes of CHF100m to compensate for higher input costs ■ Forthcoming event: 3 August 2012 – H1 2012 results ■ Guidance & consensus: medium-term targets are for 4.5%-5.5% organic sales growth, ‘best-in-class’ EBITDAComparable margins to return >60% of FCF after the leverage target (net debt divided by net debt plus equity) falls below 25%; for 2012, we forecast EBITDAComparable of CHF903.6m vs. consensus at CHF870m
Investment case
Givaudan is a compelling long-term story thanks to: 1) emerging-market growth; 2) further consolidation thanks to the size advantage enjoyed by large players; 3) industry structure with high barriers to entry and oligopolistic structure; 4) strong momentum in short term, as indicated by Q1 2012 results and Givaudan being on track to restore profitability lost on higher input costs. However, Givaudan is less attractive than Nestlé which offers better diversification, a branded business model, higher organic growth target and, in our view, better potential to improve margins sustainably over the long term, and which also boasts the same main emerging-market growth driver. Lastly, we see the sector as fairly valued at 10.5X EV/EBITDA in the current economic climate.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
70% Sales EBIT Sales EBIT 60 0.0% 7.2% 1% Switzerland 50 26% 31% Europe 40 41.0% 30 46.8% Africa, Middle East 53.2% 20 North America 51.8% 12% 10 Latin America 8% 0 Asia Pacific 22% -10
-20 Fragrances Flavours Adjustements Fragrances Flavours Adjustements
106 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We forecast growth in local currencies of 6.3% for 2012, 4.5% ■ Higher EBITDAComparable the main driver of FCF increase in 2012 for 2013 and 5.0% for 2014 (+5.2% in 2011) ■ Depreciation includes amortisation costs that are high given ■ The main medium-term growth driver is emerging markets, acquisitions (CHF163m in 2012; CHF177m in 2013) leading to projected market growth of 2%-3%; market share ■ Net working capital to decline in coming years (target <25% of gains should be possible thanks to economies of scale sales in 2015), and 2012 still dented by the SAP roll-out
MARGINS INVESTED CAPITAL AND RETURNS
■ For 2012, EBITDAComparable will be affected by 1) >CHF100m ■ Capital spending back to ca.4% of sales in 2012 with completion boost via price increases; 2) –CHF15m cost for new factory at of the Makó savoury factory in Hungary (CHF170m project) Makó (one-off); 3) –CHF30m from pensions (recurring) ■ Invested capital likely to be down in 2012 and 2013, mainly due ■ Short-term volume growth to drive margin expansion, but long- to further reduction in net intangibles term potential might be capped given contract structure
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leader in an industry with economies of scale (regulation ■ Emerging markets to lead to healthy market and company growth requirements and superior R&D) and high entry barriers rates over the medium term ■ Givaudan’s F&F ingredients perceived as crucial in consumer ■ The brief/bidding process with target prices from FMCG clients buying decisions, yet the products represent only 3%-5% of the leads to stable margins as long as the markets are growing end-product price
WEAKNESSES THREATS
■ Difficulties in (immediately) passing on rising raw material costs ■ Customers and/or regulators might question the oligopolistic ■ As supplier and a B2B player, Givaudan does not have direct industry structure access to consumers nor brand recognition ■ Pressure from less sophisticated competitors with cheap offerings ■ There are limits as to what FMCG players are willing to accept for more commodity-oriented products in terms of F&F profitability
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 10.2 12.5 10.9 10.3 9.7 Current assets 2,257 2,179 2,478 2,759 3,084 EV/EBIT 17.7 22.2 15.6 14.8 13.7 Net fixed assets 2,273 2,213 2,130 2,040 1,956 EV/Inv. Capital 2.1 2.0 2.0 2.3 2.4 Goodwill 1,744 1,716 1,716 1,716 1,716 P/E 23.8 32.5 20.0 18.7 17.0 Total assets 6,923 6,716 6,931 7,124 7,364 Cash P/E 14.5 17.7 14.2 13.2 12.2 Sharehold. equit. 3,446 3,495 3,704 3,389 3,627 P/CF 10.9 12.5 10.6 10.1 9.5 Working capital 987 1,195 1,211 1,164 1,172 P/BV 2.3 2.3 2.2 2.4 2.3 Net debt 1,353 1,453 1,176 830 517
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 4,239 3,915 4,213 4,397 4,617 in sales 7.1 -7.6 7.6 4.4 5.0 EBITDA 964 790 904 952 1,013 in EBITDA 17.6 -18.0 14.4 5.3 6.5 EBIT 556 443 631 665 721 in EBIT 20.9 -20.3 42.3 5.4 8.5 Net profits 340 252 410 437 483 in cash EPS 30.0 -18.0 25.0 7.2 8.2 Cash EPS (CHF) 61.9 50.8 63.5 68.1 73.7 Net debt/equity 39.3 41.6 31.7 24.5 14.2 Reported EPS (CHF) 37.9 27.7 45.0 48.1 53.1 FCF/net fin. results 4.1 1.5 4.6 5.4 5.3 DPS (CHF) 21.5 22.0 25.0 27.0 30.0 Current ratio (X) 2.9 2.5 2.8 3.2 3.6
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 556 443 631 665 721 Gross margin 46.1 42.6 45.6 45.6 45.6 Taxes -123 -91.9 -120 -126 -137 EBITDA margin 22.7 20.2 21.4 21.6 21.9 NOPLAT 433 351 511 538 584 EBIT margin 13.1 11.3 15.0 15.1 15.6 Depreciation 331 315 273 287 292 ROIC 8.8 7.2 10.4 11.8 14.0 CAPEX -192 -273 -190 -198 -208 Inv. cap. (CHF m) 4,799 4,948 4,881 4,219 4,143 in WC -83.0 -208 -16.0 47.2 -8.2 Free cash flow 489 185 578 675 660
Made in Switzerland + | Helvea 107
GlaxoSmithKline Price: GBPp1,438.- ACCUMULATE Target: GBPp1,620.- Large Caps
Odile Rundquist, PhD ([email protected]) – Tel. +41 (0)22 354 9159
GlaxoSmithKline is one of the five largest drug companies worldwide, with leading positions in respiratory & antiviral, vaccines and consumer health care. The company is returning to growth thanks to the end of its ‘patent cliff’, a stable and well-diversified portfolio, combined with the launch of new products. Although its main franchise Advair/Seretide could see generic competition in Europe from this year, GSK is well positioned to defend its respiratory franchise thanks to a line-up of new once-daily fixed-dose combinations, the most promising being Zephyr (LABA/LAMA) for COPD. CEO: Andrew Witty; CFO: Simon Dingemans; Website: www.gsk.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/United Kingdom GBPp1,648 Major shareholders Blackrock 6.0%, Invesco 3.6%, Legal & General 3.4%, 1,565 Others 87.1% 1,482 1,399 Shares outstanding (m) 4,963 EV/EBITDA (X) 1,316 Market cap. (GBP m) 71,368 2011 8.5 1,233 Free float 100% 2012E 8.0 1,150 EBITDA/CAGR 2011-2014E 7.3% 2013E 7.3 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols GlaxoSmithKline 12-mth tgt Absolute 4% 2% 9% Bloomberg GSK LN Buy Acc. Neut. Red. N.R. Rel. to local 14% 6% 23% Reuters GSK.L
News flow
■ February 2012: presentation at full-year 2011 reporting stage – growth recovery and gradual margin gains as from 2012 thanks to better product mix and savings; emphasis placed on enhancing returns to shareholders by raising dividend and initiating a long-term share buy-back programme, with GBP2-2.5bn shares expected to be repurchased this year and GBP1bn to be repurchased every year (until 2015) ■ Forthcoming events: 25 July 2012 – Q2 2012 results; 2012 – ALTTO results (Tykerb in adjuvant breast cancer) ■ Guidance & consensus: no specific guidance provided by GSK; consensus net profit estimates stand at GBP8.956bn for 2012 and GBP9.283bn for 2013
Investment case
Unlike some of its peers, GSK’s ‘patent cliff’ is now largely behind it. The company is, in our view, well positioned to improve its long-term financial performance thanks to revenue growth and margin expansion. Although its main franchise Advair/Seretide could see generic erosion in Europe as from this year, the regulatory pathway in the USA for potential generics remains unclear. Moreover, GSK is well positioned to defend its respiratory franchise, with multiple new once-daily fixed-dose combinations, the most promising being Zephyr (LABA/LAMA) for COPD. GSK’s net portfolio ‘add-on’ potential is positive (pipeline potential > generic risk), with increasing visibility on its pipeline projects (data will have been reported on 15 late-stage projects by the end of 2012).
Divisional breakdown (2011) Regional breakdown – Sales (2011)
120% Sales EBIT Sales EBIT 0.0% 5.6% 100 4% 19.0% 7.7% 8% USA 6% 80 32% 10.6% Europe 60 Emerging Markets 18% 40 Asia Pacific
20 Japan 76.2% 81.0% Others 0 32%
-20Pharmaceuticals Consumer Healthcare Corporate Major restructuring Pharmaceuticals Consumer Healthcare Corporate Major restructuring
108 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ GSK’s ‘patent cliff’ is behind it, and a better product mix will ■ High profitability thanks to streamlining efforts coupled with drive a growth recovery as from 2012 recovering sales growth ■ Advair/Seretide could see generic competition in Europe, but ■ Investment in capital spending and working capital well controlled any delay in generic entry will provide upside ■ Underlying tax rate of 25%
MARGINS INVESTED CAPITAL AND RETURNS
■ Margin improvement from 2012 onwards on the back of strong ■ High returns on low asset base likely to be sustained underlying sales momentum and cost savings from the ■ Long-term share buy-back programme reinitiated restructuring programme ■ Very high dividend payout ratio ■ Large clinical programmes starting for primary-care drugs likely to drive up R&D spending (Tyressa)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong leadership position in respiratory and vaccines ■ Positive data with Tykerb in adjuvant breast cancer (ALTTO) and ■ Broad and deep early-stage new drugs pipeline may allow 1st-line metastatic breast cancer GSK to rebuild previous leadership positions in future ■ Interesting emerging drugs pipeline maturing in Phase III studies ■ Near-term pipeline largely de-risked ■ Interesting next-generation antibody platform (i.e. Domantis) ■ Marketing prowess
WEAKNESSES THREATS
■ Portfolio of mature products in multiple indications ■ Important Advair/Seretide franchise at risk of generic erosion in ■ Uphill struggle to build leadership positions in cardiology, Europe oncology and central nervous system disorders ■ Branded competition from Novartis’ new LAMA/LABA ■ Price pressure in many European countries combination expected as from 2013 in Europe
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In GBP m) 2010 2011 2012E 2013E 2014E EV/EBITDA 13.9 8.5 8.0 7.3 6.9 Current assets 16,036 16,167 16,989 21,062 23,503 EV/EBIT 21.5 10.4 9.7 8.8 8.1 Net fixed assets 9,108 8,748 9,240 9,736 10,257 EV/Inv. Capital 3.5 3.9 3.9 3.9 3.9 Goodwill 12,075 11,556 11,134 10,754 10,389 P/E 44.8 13.7 12.6 11.0 9.9 Total assets 42,470 41,080 41,972 46,161 48,758 Cash P/E 22.1 10.6 9.9 8.8 8.1 Sharehold. equit. 8,887 8,032 8,803 12,625 14,830 P/CF 13.1 11.2 11.0 10.9 10.8 Working capital 1,741 357 362 376 391 P/BV 8.2 9.0 8.0 5.5 4.6 Net debt 8,750 8,268 7,572 3,880 1,846
Income statement Growth rates & balance-sheet ratios (In GBP m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 28,392 27,387 28,134 29,245 30,428 in sales 0.1 -3.5 2.7 3.9 4.0 EBITDA 5,873 9,615 10,196 11,125 11,878 in EBITDA -43.7 63.7 6.0 9.1 6.8 EBIT 3,783 7,807 8,367 9,283 10,022 in EBIT -55.1 n.m. 7.2 10.9 8.0 Net profits 1,634 5,280 5,580 6,278 6,914 in cash EPS -53.4 n.m. 7.4 11.9 9.2 CORE EPS (GBPp ) 53.9 115.6 124.1 137.3 148.9 Net debt/equity 98.5 103 86.0 30.7 12.4 Report. EPS (GBPp) 32.1 105.0 114.0 130.6 145.2 FCF/net fin. results 6.2 8.7 7.6 8.6 7.4 DPS (GBPp ) 65.0 70.0 74.1 81.0 84.2 Current ratio (X) 1.3 1.1 1.1 1.4 1.5
Cash flow statement Ratios, margins and returns (In GBP m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 7,323 7,413 7,228 7,228 7,229 Gross margin 73.3 72.9 73.4 73.9 73.8 Taxes -3,025 -2,152 -1,879 -1,843 -1,807 EBITDA margin 20.7 35.1 36.2 38.0 39.0 NOPLAT 4,298 5,261 5,349 5,385 5,422 EBIT margin 13.3 28.5 29.7 31.7 32.9 Depreciation -1,146 -1,095 -1,125 -1,170 -1,187 ROIC 18.7 24.1 25.8 25.9 25.9 CAPEX -1,525 -1,570 -1,617 -1,666 -1,708 Inv. cap. (GBP m) 22,924 20,661 20,736 20,866 21,037 in WC 482 1,384 -4.7 -14.3 -15.2 Free cash flow 4,402 6,171 4,852 4,875 4,886
Made in Switzerland + | Helvea 109
Goldbach Group Price: CHF21.0 NEUTRAL Target: CHF25.0 M&S
Chris Burger, CFA ([email protected]) – Tel. +41 (0)43 388 9259
Goldbach Group is the leading network for electronic communications solutions as well as the competence- and logistics- centre for representation and sales of advertising in electronic, mobile and interactive media. The group’s core business ranges from consulting, creative production, media planning to traffic-monitoring and optimisation of advertising campaigns in electronic off- and online- media. The company aims to grow rapidly in the dynamic online market and plans to enter selected East European markets. CEO: Klaus Kappeler; CFO: Stephan Bergamin; Website: www.goldbachgroup.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Media/Switzerland CHF45 Major shareholders Beat Curti 19.9%, United Internet 15.0%, Deutsche 40 Bank 10.5%, UBS 5.5%, Klaus Kappeller 4.6% 35 30 Shares outstanding (m) 6.01 EV/EBITDA (X) 25 Market cap. (CHF m) 126 2011 7.0 20 Free float 61% 2012E 7.0 15 EBITDA/CAGR 2011-2014E 5.5% 2013E 6.4 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Goldbach Group 12-mth tgt Absolute -16% -7% -44% Bloomberg GBMN SW Buy Acc. Neut. Red. N.R. Rel. to local -14% -12% -38% Reuters GBMN.S
News flow
■ September 2011: Stephan Bergamin named as the new CFO of Goldbach Group (from 1 January 2012) ■ January 2012: higher-than-expected 2011 sales (CHF446m) thanks to strong performance of Goldbach Media ■ March 2012: full-year 2011 EBIT (CHF30.0m) in line, net profit (CHF6.0m) below expectations, guidance broadly in line with our estimates ■ Forthcoming events: 21 August 2012 – H1 2012 results ■ Guidance & consensus: single-digit turnover growth in 2012; consensus EBIT estimates stand at CHF34m for 2012 and at CHF37m for 2013
Investment case
Electronic media in Switzerland are still lagging behind their peers in neighbouring countries in terms of their importance relative to traditional media. As such, we expect the shift from print advertising towards electronic media, especially the Internet, to continue, with Goldbach Group set to benefit from this trend. On the other hand, Goldbach’s online business accounted for only 15% of group EBIT in 2011 and the company still has to prove that it is capable of leveraging the growth to achieve a higher EBIT margin. Some 85% of group EBIT comes from the solid Offline business, which offers less growth excitement. The share price is not demanding, but we currently see no trigger for a revaluation.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
140% Sales EBIT Sales EBIT 120 8.7% 0.4% 19.9% 13% 100 8015.1% 60 4.7% 40 Switzerland International 7.2% 20 68.3% 0 75.7% -20 87% -40 -60Golbach Media Goldbach Audience Goldbach Interactive Others Golbach Media Goldbach Audience Goldbach Interactive Others
110 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Return to high single-digit growth in Media in 2012 after the ■ Operating cash flow expected to increase in line with EBITA group benefited in 2011 from several contract wins ■ Capital spending expected to remain relatively low ■ Good growth in Interactive, but still only low growth in ■ Free cash flow was distorted in 2010 by high positive change in Audience expected in 2012 net working capital ■ Benefiting from shift from print to electronic media advertising
MARGINS INVESTED CAPITAL AND RETURNS
■ Ongoing pricing pressure in Audience and Interactive in 2012, ■ No further significant investment needed but more than compensated for through cost savings ■ Invested capital expected even to decline due to relatively high ■ Slight slowdown from record high margins in Media in 2012 amortisation of intangibles ■ Potential to improve EBIT margin in Audience in future thanks ■ Huge and increasing ROIC due to its asset-light brokerage to focus on performance marketing and economies of scale business model
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading marketer in electronic advertising ■ Online segment offers high growth potential ■ Strong position in growing Online segment ■ Expansion into non-mature Eastern European markets ■ Strong international partners (RTL, Pro Sieben Sat 1, adLINK ■ Ongoing deregulation Media, Adconion) ■ Opportunities from convergence of media, and cross-media ■ Good position for cross-media
WEAKNESSES THREATS
■ Switzerland a structurally awkward market for TV advertising ■ Potential loss of sizeable exclusive contracts ■ Highly dependent on some exclusive contracts and key people ■ Increasing competition and price pressure ■ Relatively weak position in French-speaking Switzerland ■ Economic slowdown ■ Short track record as listed company ■ Acquisition and integration risk from expansion into Eastern Europe
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 8.8 7.0 7.0 6.4 6.0 Current assets 140 150 165 181 196 EV/EBIT 11.2 8.7 7.7 7.0 6.5 Net fixed assets 3.4 1.6 1.7 1.8 1.9 EV/Inv. Capital 10.3 17.1 20.0 23.6 28.3 Goodwill 51.7 42.1 41.5 40.9 40.3 P/E 24.2 20.4 10.8 9.3 8.3 Total assets 199 198 212 227 242 Cash P/E 12.3 9.9 8.8 7.8 7.0 Sharehold. equit. 48.7 49.0 56.1 64.6 74.0 P/CF 6.4 4.3 4.4 4.0 3.7 Working capital -23.1 -24.1 -25.8 -27.2 -28.5 P/BV 2.6 2.6 2.2 1.9 1.7 Net debt -31.7 -46.8 -56.2 -66.6 -77.8
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 329 446 480 509 535 in sales 3.6 35.4 7.5 6.1 5.1 EBITDA 29.7 37.3 37.5 40.8 43.8 in EBITDA 46.1 25.8 0.3 8.8 7.4 EBIT 23.3 30.0 34.1 37.3 40.2 in EBIT 97.8 28.8 13.5 9.4 7.8 Net profits 5.1 6.0 11.4 13.2 14.9 in cash EPS -19.7 23.9 11.9 13.3 11.7 Cash EPS (CHF) 1.71 2.12 2.37 2.68 3.00 Net debt/equity -65.1 -95.5 -100 -103 -105 Reported EPS (CHF) 0.87 1.02 1.94 2.24 2.54 FCF/net fin. results 34.4 30.4 25.2 33.2 45.6 DPS (CHF) 0.71 0.71 0.78 0.92 1.08 Current ratio (X) 1.4 1.5 1.5 1.6 1.6
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 28.2 36.4 36.6 39.9 42.9 Gross margin 23.9 22.2 22.2 22.2 22.2 Taxes -9.8 -8.0 -8.5 -9.3 -10.0 EBITDA margin 9.0 8.4 7.8 8.0 8.2 NOPLAT 18.4 28.4 28.0 30.5 32.8 EBIT margin 7.1 6.7 7.1 7.3 7.5 Depreciation 1.4 0.9 0.9 0.9 0.9 ROIC 54.3 n.m. n.m. n.m. n.m. CAPEX -2.1 -2.8 -2.9 -3.0 -3.1 Inv. cap. (CHF m) 25.2 15.2 13.0 11.0 9.2 in WC 7.7 0.9 1.7 1.5 1.3 Free cash flow 24.7 26.1 27.7 29.9 31.9
Made in Switzerland + | Helvea 111
Gurit Price: CHF451.- BUY Target: CHF620.- M&S
Reto Amstalden ([email protected]) – Tel. +41 (0)43 388 9261
Gurit has been entirely focused on its Composite Technologies business for a few years now. This business manufactures advanced composites for a broad range of applications (mainly wind turbine blades, marine and commercial aircraft interiors). Gurit is a leading player in the wind turbine industry and in marine applications whereas it is a smaller player in the aircraft industry (where it supplies materials primarily for aircraft interiors rather than primary structures). Its products include structural foams, gel coatings, adhesives, glass fibre and carbon fibre pre-pregs, and balsa wood kits. CEO: Rudolf Hadorn; CFO: Markus Knuesli; Website: www.gurit.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Chemicals/Switzerland CHF698 Major shareholders Huwa Finanz (33% of votes) 9.4%, VV Vorsorge 4.9%, 640 Blackrock 2.8% 582 524 Shares outstanding (m) 0.47 EV/EBITDA (X) 466 Market cap. (CHF m) 210 2011 6.0 408 Free float 86% 2012E 5.2 350 EBITDA/CAGR 2011-2014E 5.4% 2013E 5.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Gurit 12-mth tgt Absolute -8% 6% -30% Bloomberg GUR SW Buy Acc. Neut. Red. N.R. Rel. to local -6% 0% -22% Reuters GUR.S
News flow
■ March 2012: Gurit agrees to continue to supply pre-preg materials for all Airbus aircraft types for the years 2012 and 2013 (agreement volume of up to CHF20m sales) ■ April 2012: Gurit shows it maintained strong sales momentum, growing 21% y-o-y to CHF95.8m in Q1 2012 ■ May 2012: Gurit signs long-term supply agreement for balsa core material with Sino Composite for China ■ Forthcoming event: 30 August 2012 – H1 2012 results ■ Guidance & consensus: Gurit sees further organic growth potential and expects operating profitability in the 8%- 10% range for 2012; consensus EBIT estimates stand at CHF32.9m for 2012 and at CHF33.4m for 2013
Investment case
Measures that include greater industrialisation of production and high production flexibility have enabled Gurit to protect its high single-digit margins and manage a volatile demand situation in its core wind market (approx.60% of sales). Management has used its strong FCF generation to embark on bolt-on acquisitions in a bid to fill strategic gaps, to complete its product offering and to expand its distribution network which, in turn, has led to new customers and market share gains in wind, marine or aerospace. We believe Gurit has laid the foundations for a solid operational and financial framework to outperform significantly the subdued (near-term) trend in the wind industry. A robust free cash flow generation with a yield of 10% points to an attractive valuation: BUY.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT 5.1% 15% Europe 21.3%
15% 43.3% Asia n.a. 57% Americas
13% RoW 30.4%
Wind Energy Tooling Transportation Marine
112 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Sales to major new US customer will boost Gurit’s sales growth ■ Significantly improved FCF track record over the past few years by up to 9% whilst overall global wind market is under pressure ■ Strong and stable FCF generation in 2012 and 2013 given proven ■ Chinese wind energy sector set to recover gradually in 2012 asset light business model (capex as % of sales: approx. 3%) ■ New contracts/customers to drive growth in marine and auto ■ Focus on stringent management of payment terms with Chinese ■ Pending extension of US wind subsidies may weigh on H1 2013 customers given the continued tough financing conditions
MARGINS INVESTED CAPITAL AND RETURNS
■ Significant increase in capacity utilisation in wind energy to ■ Closer focus on capital spending, M&A activity and increased drive margin expansion in 2012 industrialisation of production have led to a sustainable ROIC in ■ Strong ability to manage volatile capacity utilisation at Tooling the double-digit range ■ Improved contribution from auto thanks to volume ramp-up ■ Moderate capital investment for absorption of growth given the ■ Flattish margin trend in 2013 on potential drop in US wind focus on product innovation and expansion of distribution network
SWOT analysis STRENGTHS OPPORTUNITIES
■ Broad expertise in materials, production processes, vertical ■ Higher revenue generation from expanded customer base in wind markets, coupled with engineering competences energy, including major US client (for carbon fibre pre-pregs) ■ Increasingly global presence; fast-moving management ■ Expansion of customer base in the auto and marine industries ■ Leading player in the pre-preg market for wind energy ■ Strengthening of structural foams activities as regards geography ■ Leader in marine industry and good position in aviation interiors ■ Continued expansion of Red Maple (Tooling) sales outside China
WEAKNESSES THREATS
■ Spread thin in terms of resources and production plants ■ Still sizeable exposure to Gamesa and GE Wind ■ Shallow penetration of aviation industry (primary structures) ■ Prospects for wind energy industry remain mixed ■ Gurit cannot fully decouple from the volatile demand situation in ■ High price pressure in the Chinese market wind given the ongoing changes in wind subsidy programmes ■ Raw material and forex volatility requires rapid reaction times worldwide
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 6.3 6.0 5.2 5.5 5.1 Current assets 135 166 190 207 229 EV/EBIT 9.5 8.6 7.1 7.6 7.0 Net fixed assets 97.1 97.1 96.0 94.4 93.2 EV/Inv. Capital 1.3 1.0 1.0 1.0 1.0 Goodwill 6.0 5.5 5.0 4.4 3.9 P/E 8.4 9.4 8.3 8.9 8.2 Total assets 241 273 295 310 330 Cash P/E 8.4 9.4 8.3 8.9 8.2 Sharehold. equit. 138 146 163 179 196 P/CF 6.3 6.2 5.4 5.7 5.4 Working capital 45.1 98.6 95.3 87.0 91.5 P/BV 1.5 1.4 1.3 1.2 1.1 Net debt -9.7 32.4 9.4 -17.6 -33.1
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 312 345 377 368 382 in sales -0.9 10.6 9.3 -2.2 3.7 EBITDA 38.2 40.2 46.2 44.0 47.0 in EBITDA 15.8 5.1 15.1 -4.7 6.7 EBIT 25.4 28.1 34.0 31.6 34.4 in EBIT 15.7 10.7 20.7 -6.9 8.9 Net profits 24.9 22.3 25.3 23.5 25.6 in cash EPS 19.1 -10.6 13.3 -7.1 9.1 Cash EPS (CHF) 53.6 48.0 54.3 50.5 55.0 Net debt/equity -7.1 22.2 5.8 -9.9 -16.9 Reported EPS (CHF) 53.6 48.0 54.3 50.5 55.0 FCF/net fin. results n.m. n.m. 20.8 31.4 20.8 DPS (CHF) 15.0 15.0 17.4 16.6 18.1 Current ratio (X) 2.0 2.3 2.5 2.8 3.0
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 26.3 28.9 34.8 32.5 35.4 Gross margin 50.1 45.8 43.9 44.4 44.4 Taxes -4.5 -6.3 -7.5 -7.3 -7.9 EBITDA margin 12.3 11.6 12.3 12.0 12.3 NOPLAT 21.7 22.6 27.4 25.3 27.5 EBIT margin 8.2 8.2 9.0 8.6 9.0 Depreciation 11.9 11.2 11.4 11.5 11.6 ROIC 12.2 10.4 11.1 10.5 11.6 CAPEX -29.8 -10.1 -10.5 -10.3 -10.7 Inv. cap. (CHF m) 184 249 245 236 240 in WC -12.6 -36.5 3.3 8.2 -4.5 Free cash flow -8.4 -27.5 31.3 34.7 23.8
Made in Switzerland + | Helvea 113
Hannover Re Price: EUR43.3 NEUTRAL Target: EUR44.0 Large Caps
Daniel Bischof, CFA ([email protected]) – Tel. +41 (0)43 388 9263
Hannover Re ranks as the 3rd largest global reinsurer according to gross premiums written. The group is a subsidiary of the German Talanx/HDI insurance group. Hannover Re has diversified over time, systematically growing its life and health business while adopting a more opportunistic approach in property/casualty. Hannover Re has been a pioneer in transferring risk and financing requirements to the capital markets through its ‘L’, ‘K’ securities issues and other capital- market transactions. CEO: Ulrich Wallin; CFO: Roland Vogel; Website: www.hannover-re.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Insurance/Germany EUR47 Major shareholders Talanx 50.2%, Deutsche Bank 2.5%, Others 47.3% 44 41 38 Shares outstanding (m) 121 P/E (X) 35 32 Market cap. (EUR m) 5,216 2011 8.6 29 Free float 50% 2012E 7.6 26 Op. profits/CAGR 2011A-2014E 13.2% 2013E 7.5 05.11 07.11 09.11 11.11 01.12 03.12 05.12 Share perform. 3m 6m 12m Symbols Hannover Re 12-mth tgt Absolute 4% 12% 17% Bloomberg HNR1 GR Buy Acc. Neut. Red. N.R. Rel. to local 14% 9% 36% Reuters HNRGn.DE
News flow
■ March 2012: good full-year 2011 results slightly ahead of expectations following significant releases from reserves in non-life and higher than expected investment income ■ May 2012: strong Q1 2012 results on the back of a very good investment performance and few catastrophes; encouraging comments from management about April renewals ■ Forthcoming event: 10 August 2012 – H1 2012 results ■ Guidance & consensus: guiding for growth of 5%-7% in gross written premiums in 2012; consensus estimates for net profits currently stand at EUR724m for 2012 and at EUR738m for 2013
Investment case
Hannover Re is seeking to shift to a business strategy of lower risk and lower volatility. This can clearly be seen in its investment portfolio (almost no equities) although the group does appear to be retaining its opportunistic approach to cycle management. The group has a strong reserving position, and 2012 reinsurance renewals have been showing solid price rises due to losses in Australasia, Japan and Thailand in the previous year. However, a generalised upturn in casualty rates will probably still need improved conditions in original markets. The shares are trading at a premium to the rest of the sector. We prefer SCOR at this stage and we maintain our NEUTRAL rating.
Divisional breakdown (2011) Regional breakdown – Premiums (2011)
Premiums Operating profits
11% Europe 29% 16% 45% North America 47% 55% Australasia
71% 26% Others
Life/health reinsurance Property/casualty reinsurance
114 Helvea SA | Made in Switzerland +
Value drivers PROFITS AND MARGINS BALANCE SHEET
■ 2012 likely to see price increases and, hence, better margins, ■ AA– rating, reaffirmed by S&P, with ‘Stable’ outlook and we expect the group to grow its treaty book ■ Company still retains some ‘buffer’ capital relative to S&P floor ■ Increasing margin in life thanks to one-off effects in 2011 ■ Equity exposure now reduced/hedged to negligible level ■ Low-risk investment portfolio will limit scope for capital gains in ■ Generally high-quality fixed-income portfolio the coming quarters ■ Strong position in reserves ■ Higher ROE supported by a more aggressive balance-sheet structure
SWOT analysis STRENGTHS OPPORTUNITIES
■ Highly regarded management team with good cycle- ■ Play cyclical moves in reinsurance management record ■ Continue to expand businesses other than non-life ■ Lowered risk profile ■ Improving demand in reinsurance (Solvency II; capital-relief deals ■ Diversified portfolio in Asia; recalibration of risk-management models) ■ Strong position in targeted life reinsurance segments ■ Expand business through merger or acquisition ■ Good capital management and use of securitisation
WEAKNESSES THREATS
■ Dependence on S&P rating to maintain business position ■ Reinsurance is cyclical and the group could mistime an ■ Historic policy of ‘managing’ reported earnings has reduced expansion drive visibility and transparency in the past ■ Clients retaining more risk and buying less reinsurance ■ Persistent earnings disappointments in recent years (2001, ■ Hard markets are short-lived because of fresh capital 2005, 2008) ■ Increasing competition in life reinsurance ■ Capital-markets-based risk transfer could supplant traditional reinsurance
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E P/NAV 1.2 1.1 0.9 0.9 0.8 Non-life reserves 16,637 18,934 19,450 19,856 20,117 P/EV 1.0 0.9 0.8 0.8 0.7 Life reserves 11,006 12,630 13,659 14,244 14,814 P/E 7.0 8.6 7.6 7.5 7.4 Total AuM (bn) 38.047 41.931 43.488 44.496 45.350 SOTP (EUR) 46.5 3rd-p. AuM (bn) 0.000 0.000 0.000 0.000 0.000 Mkt cap/reserves (%) 18.9 16.5 15.8 15.3 14.9 Sharehold. equ. 4,509 4,971 5,605 6,034 6,463 Mkt cap/premiums (%) 45.6 43.1 40.3 38.6 37.3 Net asset value 4,463 4,911 5,546 5,974 6,403 Dividend yield (%) 5.3 4.9 5.1 5.3 5.3 Embedded value 5,134 5,599 6,302 6,806 7,319
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Gross premiums 11,429 12,096 12,945 13,499 14,001 in premiums 11.2 5.8 7.0 4.3 3.7 Net invest. income 1,201 1,308 1,273 1,330 1,385 in op. profits 3.1 -28.3 41.1 0.8 1.9 Operating profits 1,174 841 1,187 1,196 1,219 in pre-tax profits 2.4 -31.8 46.6 0.8 1.9 Pre-tax profits 1,089 742 1,088 1,097 1,118 investments 9.6 10.2 3.7 2.3 1.9 Net profits 749 606 686 693 707 NAV/min. solvency 74.5 76.4 80.0 81.6 83.8 Reported EPS (EUR) 6.21 5.02 5.69 5.75 5.86 NL Res./premium 274 280 274 264 258 DPS (EUR) 2.30 2.10 2.20 2.30 2.30 NL Res./claims 381 355 380 362 351
Investments Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Total investments 38,047 41,931 43,488 44,496 45,350 Retention rate NL 85.1 87.3 86.0 87.0 87.0 Equities 537 40.4 432 441 448 Claims ratio NL 71.8 78.9 72.0 72.9 73.4 Fixed income 21,438 25,170 25,673 26,187 26,710 Combined ratio 98.4 105 97.3 98.1 98.6 Real estate 394 525 406 412 412 Expense ratio life 24.5 23.3 23.1 23.1 23.1 Loans/mortgages 841 931 867 880 880 Pre-tax margin 9.5 6.1 8.4 8.1 8.0 Net invest. yield 3.2% 3.1% 2.9% 3.0% 3.1% ROE 16.6 12.2 12.2 11.5 10.9 Cap. gains/total 0.3% 0.4% 0.2% 0.2% 0.2% Return/techn. res. 3.0 2.1 2.3 2.3 2.3
Made in Switzerland + | Helvea 115
HeidelbergCement Price: EUR35.1 NEUTRAL Target: EUR42.0 Large Caps
Patrick Appenzeller ([email protected]) – Tel. +41 (0)43 388 9267
Since the acquisition of Hanson in 2007, HeidelbergCement (HC) has been the No.1 player in aggregates, No.3 in cement and No.3 in ready-mix concrete. In 2,500 locations (of which half are ready-mix concrete plants) in over 40 countries, the company employs 52,500 employees. The group has cement capacity of 118m tonnes and aggregates reserves of 19bn tonnes; it generated 42% of its revenues in growth markets (60% of cement capacity, but only 14% of aggregates reserves in emerging markets). The group is particularly strong in Germany, USA, Indonesia & E. Europe. CEO: Dr. Bernd Scheifele; CFO: Dr. Lorenz Näger; Website: www.heidelbergcement.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Construction/Germany EUR55 Major shareholders Ludwig Merckle 25.1%, Others 74.9% 50 45 40 35 Shares outstanding (m) 188 EV/EBITDA (X) 30 Market cap. 6,578 2011 7.5 (EUR m) 25 Free float 75% 2012E 7.0 20 EBITDA/CAGR 2011-2014E 8.7% 2013E 6.4 05.11 07.11 09.11 11.11 01.12 03.12 05.12 Share perform. 3m 6m 12m Symbols HeidelbergCement 12-mth tgt Absolute -13% 12% -27% Bloomberg HEI GY Buy Acc. Neut. Red. N.R. Rel. to local -5% 9% -15% Reuters HEID.DE
News flow
■ December 2011: Helvea initiated coverage with a NEUTRAL rating
■ February 2012: 2011 operating profits slightly above our estimate; pensions support, virtually no CO2 certificates ■ March 2012: lower than expected net profits mainly due to one-offs; less debt and optimistic outlook ■ May 2012: Q1 2012 results came in below expectations; outlook confirmed ■ Forthcoming event: 31 July 2012 – H1 2012 results ■ Guidance & consensus: guiding for rise in revenues and operating profits driven by volume growth, price hikes and cost savings; consensus EBITDA estimates stand at EUR2.45bn for 2012 and at CHF2.68bn for 2013
Investment case
Although the negative impact of energy costs should ease during 2012, we no longer expect HeidelbergCement to deliver a recovery in margins as early as this year (unlike its major competitors). Apart from varying effects due to the group’s regional breakdown of business and despite low exposure to some ‘problem’ countries where the construction outlook is rather subdued, this delay is partly attributable to its currently unfavourable segment mix (more growth is expected in 2012 in cement than in aggregates and concrete).
Divisional breakdown (2011) Regional breakdown – Sales (2011)
80% Sales EBITDA Sales EBITDA 70 3.9% 11.7% 3.3% 8% 1% 60 4.7% W. & N. Europe 50 36.9% 33% E. Europe & Central Asia 40 23% 23.3% N. America 30 29.2% 20 Asia-Pacific 64.8% 10 Africa-Medit. Basin 0 11% 15.2% Group Services & Recon. -10 7.1% 24% -20Cement Aggregates Building products Cement Aggregates Building products Concrete-service- Reconciliation Concrete-service-other Reconciliation other
116 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Growth in worldwide cement consumption through population ■ Free cash flows should rise in 2012 and 2013, mainly on the back growth and urbanisation, particularly in emerging markets of reduced capital spending ■ Ongoing decline in volumes in some European markets ■ FOX 2013: cumulative cash savings of EUR850m targeted ■ Capacity expansion predominantly in emerging markets ■ NOPLAT still suffering from (energy) cost inflation, but to be ■ Currently small exposure to major troubled countries increasingly helped by a positive pricing impact
MARGINS INVESTED CAPITAL AND RETURNS
■ Management expects price increases, cost savings and ■ Focus on increasing liquidity and deleveraging, with the clear efficiency improvements to compensate for rising costs goal of returning to investment-grade credit status ■ FOX 2013: P&L-effective savings to rise to EUR220m by 2013 ■ Company is assuming 5% increase in energy costs in 2012 ■ Historically low margins in 2011 should rebound as of 2012, ■ ROIC unlikely to cover cost of capital any time soon, partly due to helped by higher cement prices starting to offset higher costs still inflated goodwill (Hanson)
SWOT analysis STRENGTHS OPPORTUNITIES
■ No.1 in aggregates with 19bn tonnes reserves (intrinsic value) ■ Ongoing and accelerated cost-cutting programmes (FOX 2013) ■ Minor position in debt-affected European countries and in ■ 60% of cement capacities in emerging markets with mostly Northern Africa and Middle East favourable growth in cement demand ■ Highest degree of alternative fuels, partly on account of its ■ Increased use of alternative fuel and reduction in clinker factor strong positions in mature markets vs. peers ■ Potential recovery in the USA after a long-lasting downturn
WEAKNESSES THREATS
■ Low capacity utilisation in many European countries and USA ■ Debt crisis could spill over to Central and Northern Europe ■ Margins depressed, especially in the USA and Western Europe ■ Austerity measures could curb public construction spending ■ Dependence on political decisions, various cartel investigations ■ Longer-lasting downturn in aggregates and concrete volumes around the globe, but formal accusations are seldom levelled ■ Crisis in emerging markets, especially Asia; falling pricing power ■ Low long-term growth profile in developed countries ■ High volatility in energy prices; export/import excess capacities
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 7.7 7.5 7.0 6.4 5.8 Current assets 4,336 5,625 6,529 8,692 10,813 EV/EBIT 12.1 11.7 10.6 9.3 8.1 Net fixed assets 10,924 11,036 9,264 7,434 5,646 EV/Inv. Capital 0.7 0.7 0.8 0.8 0.9 Goodwill 10,561 10,763 10,763 10,763 10,763 P/E 19.2 18.9 10.9 8.3 6.8 Total assets 27,377 29,020 28,102 28,385 28,718 Cash P/E 19.2 18.9 10.9 8.3 6.8 Sharehold. equit. 12,884 13,569 14,010 14,666 15,399 P/CF 3.4 3.4 3.1 2.9 2.6 Working capital 2,282 2,307 2,404 2,465 2,625 P/BV 0.5 0.5 0.5 0.4 0.4 Net debt 8,242 7,868 5,649 3,143 739
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 11,762 12,902 13,939 14,492 15,252 in sales 5.8 9.7 8.0 4.0 5.2 EBITDA 2,239 2,321 2,477 2,715 2,983 in EBITDA 6.5 3.6 6.7 9.6 9.9 EBIT 1,430 1,473 1,635 1,865 2,125 in EBIT 8.6 3.0 11.0 14.1 13.9 Net profits 343 348 604 794 964 in cash EPS n.m. 1.5 73.6 31.4 21.5 Cash EPS (EUR) 1.83 1.86 3.22 4.23 5.14 Net debt/equity 64.0 58.0 40.3 21.4 4.8 Reported EPS (EUR) 1.83 1.86 3.22 4.23 5.14 FCF/net fin. results 1.6 1.3 1.7 2.1 2.5 DPS (EUR) 0.25 0.35 0.60 1.00 1.50 Current ratio (X) 1.4 1.2 1.6 2.2 2.8
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 1,430 1,473 1,635 1,865 2,125 Gross margin 63.7 61.9 61.9 62.0 62.1 Taxes -286 -295 -327 -373 -425 EBITDA margin 19.0 18.0 17.8 18.7 19.6 NOPLAT 1,144 1,179 1,308 1,492 1,700 EBIT margin 12.2 11.4 11.7 12.9 13.9 Depreciation 769 765 792 800 808 ROIC 5.0 4.9 5.6 6.9 8.6 CAPEX -715 -1,050 -980 -1,030 -980 Inv. cap. (EUR m) 23,767 24,106 22,431 20,662 19,035 in WC -97.0 -24.7 -97.5 -60.8 -160 Free cash flow 1,321 869 1,022 1,201 1,368
Made in Switzerland + | Helvea 117
Helvetia Price: CHF271.- ACCUMULATE Target: CHF380.- M&S
Daniel Bischof, CFA ([email protected]) – Tel. +41 (0)43 388 9263
Helvetia is one of the leading insurers in Switzerland and has smaller operations in other national markets, notably Germany, Italy and Spain. Helvetia is active in both non-life and life insurance. Outside its home market of Switzerland, the company mainly runs non-life operations. Distribution partners in Switzerland include Swiss cantonal banks and the Raiffeisenbank network. After a period of focusing on efficiency, Helvetia now seems to be looking for growth.
CEO: Stefan Loacker; CFO: Paul Norton; Website: www.helvetia.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Insurance/Switzerland CHF418 Major shareholders Patria Mutual 30.1%, Vontobel 4.0%, Raiffeisen 4.0% 385 352 319 Shares outstanding (m) 8.62 P/E (X) 286 Market cap. (CHF m) 2,333 2011 8.3 253 Free float 62% 2012E 7.3 220 Op. profits/CAGR 2011A-2014E 8.1% 2013E 6.9 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Helvetia 12-mth tgt Absolute -15% -2% -28% Bloomberg HELN SW Buy Acc. Neut. Red. N.R. Rel. to local -13% -8% -20% Reuters HELN.S
News flow
■ September 2011: H1 2011 net profits of CHF170m driven by solid operating results in both the life and non-life divisions; Solvency I ratio of 214% ■ March 2012: full-year 2011 results better than expected on the back of good cost control and less investment income being allocated to policyholders; Solvency I ratio of 219% ■ Forthcoming event: 3 September 2012 – H1 2012 results ■ Guidance & consensus: guiding for 94%-96% combined ratio and ROE of 10%-12% by 2013, with a Solvency I ratio above 175%; consensus estimates for net profits stand at CHF346m for 2012 and CHF370m for 2013
Investment case
Helvetia has a good position in the Swiss market, and its focus on customers in rural areas should lessen its exposure to any adverse cyclical trends. The company has recently made various bolt-on acquisitions in Italy, France and Switzerland, but Helvetia still has one of the strongest balance sheets of the small-/mid-cap insurers in our coverage although its business mix gives it some exposure to Italian and Spanish bonds. We reiterate our ACCUMULATE rating as we currently regard Helvetia as one of the lowest-risk shares in the sector at an undemanding valuation.
Divisional breakdown (2011) Regional breakdown – Premiums (2011)
Premiums Operating profits
6% 6% Switzerland Germany 34% 14% 46% 54% Italy Spain 62% 66% 12% Others
Life/health Property/casualty
118 Helvea SA | Made in Switzerland +
Value drivers PROFITS AND MARGINS BALANCE SHEET
■ We expect to see a rebound in profits in 2012, underpinned by ■ Shares and alternative investments at 6% of total investments a normalisation of investment results ■ GIIPS exposure of 36% of shareholders’ equity ■ Healthy margins in the Swiss non-life business expected as ■ Helvetia’s Solvency I ratio a very strong 219% as at 31 December consumers are less price sensitive than elsewhere 2011 and, although the Swiss Solvency Test is likely to increase ■ New business margins in life insurance are likely to remain capital requirements in life business, we believe Helvetia to be under pressure from the ongoing low interest-rate environment well capitalised overall ■ Dividend payout not the highest in the sector
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong position in the Swiss domestic market ■ Sustain high profitability in Switzerland and benefit from ■ Capital strength rebuilt integration of recent acquisitions ■ Reputation for high-quality service ■ Grow international operations ■ Stable rural customer base in Switzerland ■ Take full benefit from distribution partnerships ■ Distribution partnerships ■ Capital management measures ■ New 2015+ strategy continues to focus on efficiency improvement
WEAKNESSES THREATS
■ Small operations in foreign markets ■ Increased competition in the home market ■ Performance of German business unsatisfactory ■ Continued low interest rates could make targets a challenge ■ French transport insurance business exposed group to more ■ Helvetia has announced its intention to consider large cyclical lines of business acquisitions if financing possibilities revert to more normal ■ 2013 financial targets possibly considered unambitious relative conditions to previous performance and expectations
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E P/NAV 0.8 0.8 0.7 0.7 0.7 Non-life reserves 2,565 2,824 2,890 2,944 2,993 P/EV 0.7 0.7 0.6 0.6 0.6 Life reserves 25,085 26,175 27,435 28,736 30,080 P/E 6.9 8.3 7.3 6.9 6.7 Total AuM (bn) 33.587 36.090 37.714 39.411 41.184 SOTP (CHF) 421 3rd-p. AuM (bn) 0.000 0.000 0.000 0.000 0.000 Mkt cap/reserves (%) 8.4 8.0 7.7 7.4 7.1 Sharehold. equ. 3,126 3,325 3,590 3,656 3,734 Mkt cap/premiums (%) 36.0 33.8 32.8 31.9 31.1 Net asset value 2,812 3,041 3,305 3,372 3,449 Dividend yield (%) 5.9 5.9 6.3 6.6 6.8 Embedded value 3,250 3,444 3,802 3,977 4,076
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Gross premiums 6,472 6,911 7,110 7,305 7,506 in premiums 2.7 6.8 2.9 2.7 2.7 Net invest. income 783 939 942 944 962 in op. profits -2.6 -10.9 15.6 5.3 3.8 Operating profits 407 363 419 441 458 in pre-tax profits -2.0 -11.1 15.7 5.3 3.8 Pre-tax profits 404 359 415 438 454 investments 1.6 7.5 4.5 4.5 4.5 Net profits 339 287 327 344 357 NAV/min. solvency 204 208 216 211 207 Reported EPS (CHF) 39.3 32.6 37.1 39.2 40.7 NL Res./premium 127 132 132 132 132 DPS (CHF) 16.0 16.0 17.0 18.0 18.5 NL Res./claims 197 196 202 201 201
Investments Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Total investments 33,587 36,090 37,714 39,411 41,184 Retention rate NL 87.5 88.9 88.9 88.9 88.9 Equities 3,915 3,133 1,898 1,983 2,073 Claims ratio NL 64.5 67.1 65.4 65.5 65.6 Fixed income 19,277 20,755 21,793 22,882 24,027 Combined ratio 95.3 97.1 95.0 95.1 95.2 Real estate 4,480 4,764 4,906 5,054 5,205 Expense ratio life n.a. n.a. n.a. n.a. n.a. Loans/mortgages n.a. n.a. n.a. n.a. n.a. Pre-tax margin 6.2 5.2 5.8 6.0 6.1 Net invest. yield 2.3% 2.6% 2.5% 2.4% 2.3% ROE 10.9 8.9 9.4 9.5 9.7 Cap. gains/total 0.5% -0.3% 0.2% 0.4% 0.4% Return/techn. res. 1.2 1.0 1.1 1.1 1.1
Made in Switzerland + | Helvea 119
Holcim Price: CHF51.6 BUY Target: CHF72.0 Large Caps
Patrick Appenzeller ([email protected]) – Tel. +41 (0)43 388 9267
In 2011, Holcim once again became the world’s largest building-materials company, No.1 in cement and among the top suppliers of aggregates (crushed stone, sand and gravel), concrete and construction-related services. Holcim has a market presence in around 70 countries and is particularly well positioned in emerging markets (roughly 75% of installed cement capacity). In 2011, Holcim sold 144.3m tonnes of cement, 173mt of aggregates, 48.4mt of ready-mix concrete, 5.1mt of mineral components and 10.3mt of asphalt. The group employs over 80,000 people. CEO: Bernard Fontana; CFO: Thomas Aebischer; Website: www.holcim.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Construction/Switzerland CHF89 Major shareholders Thomas Schmidheiny 20.1%, Eurocement 10.1%, 80 Others 69.8% 71 62 Shares outstanding (m) 327 EV/EBITDA (X) 53 Market cap. (CHF m) 16,878 2011 8.2 44 Free float 70% 2012E 7.5 35 EBITDA/CAGR 2011-2014E 12.6% 2013E 6.5 05.11 07.11 09.11 11.11 01.12 03.12 05.12 Share perform. 3m 6m 12m Symbols Holcim 12-mth tgt Absolute -13% 1% -24% Bloomberg HOLN VX Buy Acc. Neut. Red. N.R. Rel. to local -10% -5% -16% Reuters HOLN.VX
News flow
■ November 2011: Q3 2011 operating results above consensus; guidance confirmed ■ February 2012: Q4 2011 operating EBITDA slightly ahead of expectations; no surprise on outlook statement ■ May 2012: Q1 2012 results slightly below expectations; restructuring programme pre-announced ■ May 2012: Holcim Leadership Journey to deliver additional operating profits of at least CHF1.5bn by end-2014 ■ Forthcoming event: 15 August 2012 – H1 2012 results ■ Guidance & consensus: Holcim expects to achieve organic growth in terms of operating EBITDA; consensus operating EBITDA estimates stand at CHF4.2bn for 2012 and at CHF4.6bn for 2013
Investment case
It will take time, some persuasion and results from Holcim and its management before the market is prepared to believe in the significant beneficial effects from the planned cost-cutting programme (Holcim Leadership Journey) which is geared towards propelling the group’s operating profits to at least CHF3.8bn in 2014. Current consensus estimates remain way below that level. This means a yawning gap has opened up between Holcim’s targets and current analyst estimates, which can, of course, be partly explained by the current high degree of uncertainty on the macroeconomic front. Nevertheless, if those concerns prevailing in the market do begin to materialise, we would at least expect current preferences for Holcim’s major rivals to switch in the near future.
Regional breakdown (2011) Regional breakdown – Sales (2011)
50% Sales OperatingSales EBITDA 2.9% 5.0%Operating EBITDA 40 21.2% 27.8% Europe 29% 30 38% North America 36.3% 20 38.7% 7.9% Latin America
10 13.6% Africa / Middle East 14% 20.2% 0 4.4% 4% Asia Pacific 15.0% 7.1% 15% -10 Europe North America Latin America Europe North America Latin America Africa / Middle Asia Pacific Corporate / Africa / Middle East Asia Pacific East Corporate / Elimin.Elimin.
120 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Growth in worldwide cement consumption through population ■ Free cash flows should rise in 2012 and, especially, from 2013, growth and urbanisation, particularly in emerging markets mainly on the back of reduced capital spending ■ Ongoing decline in volumes in some European markets ■ NOPLAT still suffering from (energy) cost inflation, but to be ■ Capacity expansion predominantly in emerging markets increasingly helped by the positive price impact and ongoing ■ Possible acquisitions, increases in stakes or divestments robust growth in emerging markets
MARGINS INVESTED CAPITAL AND RETURNS
■ Clustering of activities and increased plant reliability ■ Significant reduction in capital spending in 2012 ■ Plant modernisation and alternative-fuel programmes ■ Relatively low gearing (clearly below Holcim’s long-term range) ■ Historically low margins in 2011 should rebound as of 2012, ■ Plants’ increased efficiency lowering production costs helped by higher cement prices starting to offset higher costs ■ ROIC unlikely to cover cost of capital before 2014 ■ Long-term target of average 5% internal EBITDA growth p.a. ■ Cost-cutting programme should take ROIC above 8% from 2014
SWOT analysis STRENGTHS OPPORTUNITIES
■ Network of capacity to adjust to fluctuations in cement demand ■ High share of production capacities in emerging markets with ■ Ongoing vertical integration into aggregates (sand, gravel, etc.) favourable growth in cement demand, especially in India ■ Benchmarking and sharing of knowledge across the group ■ Global pricing power thanks to greater industry consolidation
■ Highly efficient, mostly dry kilns, ongoing reduction in CO2 ■ Significant cost-cutting, esp. for materials, energy and logistics ■ High market shares in Latin America, India & South-East Asia ■ Potential recovery in the USA after a long-lasting downturn
WEAKNESSES THREATS
■ Low capacity utilisation in many European countries and USA ■ Long-lasting downturn in debt-affected European countries, with ■ Margins depressed, especially in the USA and Western Europe austerity measures to curb public construction spending ■ Dependence on political decisions, various cartel investigations ■ Crisis in emerging markets, especially Asia; falling pricing power around the globe, but formal accusations are seldom levelled ■ High exposure to euro, US dollar and emerging-market currencies ■ Low long-term growth profile in developed countries ■ High volatility in energy prices; export/import excess capacities
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 7.2 8.2 7.5 6.5 5.7 Current assets 8,512 8,153 8,445 8,715 8,994 EV/EBIT 12.4 16.7 11.8 9.6 8.1 Net fixed assets 23,343 22,933 22,821 23,066 23,091 EV/Inv. Capital 0.9 1.0 1.0 1.0 1.0 Goodwill 9,061 8,453 8,333 8,213 8,093 P/E 14.0 60.0 13.4 10.2 8.3 Total assets 44,259 42,554 42,463 42,858 43,042 Cash P/E 12.1 23.2 12.2 9.5 7.8 Sharehold. equit. 21,121 19,658 20,481 21,645 22,881 P/CF 4.7 6.3 4.9 4.3 3.8 Working capital 2,359 2,258 2,493 2,669 2,862 P/BV 0.8 0.9 0.8 0.8 0.7 Net debt 11,333 11,545 10,495 9,495 8,245
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 21,653 20,744 21,909 22,985 24,098 in sales 2.5 -4.2 5.6 4.9 4.8 EBITDA 4,513 3,958 4,326 4,951 5,644 in EBITDA -2.5 -12.3 9.3 14.5 14.0 EBIT 2,619 1,933 2,751 3,356 4,018 in EBIT -5.8 -26.2 42.3 22.0 19.7 Net profits 1,182 275 1,249 1,646 2,021 in cash EPS -25.9 -47.8 89.4 29.0 21.3 Cash EPS (CHF) 4.27 2.23 4.21 5.44 6.59 Net debt/equity 53.7 58.7 51.2 43.9 36.0 Reported EPS (CHF) 3.69 0.86 3.84 5.07 6.22 FCF/net fin. results 4.7 1.1 2.0 3.6 4.5 DPS (CHF) 1.50 1.00 1.30 1.65 2.00 Current ratio (X) 1.2 1.1 1.1 1.2 1.2
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 2,619 1,933 2,751 3,356 4,018 Gross margin 42.8 41.1 43.5 44.6 45.9 Taxes -720 -767 -743 -906 -1,085 EBITDA margin 20.8 19.1 19.7 21.5 23.4 NOPLAT 1,899 1,166 2,008 2,450 2,933 EBIT margin 12.1 9.3 12.6 14.6 16.7 Depreciation 1,711 1,527 1,455 1,475 1,506 ROIC 5.2 3.4 6.0 7.2 8.6 CAPEX -1,592 -1,638 -2,000 -1,700 -1,500 Inv. cap. (CHF m) 34,763 33,644 33,647 33,948 34,046 in WC 981 101 -235 -176 -193 Free cash flow 2,999 1,156 1,229 2,049 2,745
Made in Switzerland + | Helvea 121
Huber+Suhner Price: CHF37.6 NEUTRAL Target: CHF40.0 M&S
Reto Amstalden ([email protected]) – Tel. +41 (0)43 388 9261
Huber+Suhner is an international manufacturer of components (cables, connectors) and systems for electrical and optical connectivity headquartered in Switzerland. It designs and produces highly customised solutions based on its expertise in radio frequency, fibre optics, cables and polymers under one roof. The products are sold to markets such as telecom infrastructure (e.g. components for base stations for mobile phone networks), transport (e.g. railway infrastructure and automotive) and industry (e.g. building infrastructure, aerospace/defence, solar, wind). CEO: Urs Kaufmann; CFO: Ivo Wechsler; Website: www.hubersuhner.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF 66 Major shareholders H.C.M. Bodmer 11.9%, Metrohm AG 10.6%, Hoffmann 60 S. 6.3%, Lombard Odier 4.7%, Others 71.2% 54 48 Shares outstanding (m) 19.47 EV/EBITDA (X) 42 Market cap. (CHF m) 732 2011 6.9 36 Free float 71% 2012E 7.2 30 EBITDA/CAGR 2011-2014E 8.4% 2013E 5.7 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Huber+Suhner 12-mth tgt Absolute -19% -10% -42% Bloomberg HUBN SW Buy Acc. Neut. Red. N.R. Rel. to local -18% -16% -36% Reuters HUBN.S
News flow
■ November 2011: CHF60m broadband power line project with Realm Energy in Malaysia announced ■ January 2012: weaker-than-expected Q4 2011 sales/orders, lowers its profitability guidance ■ March 2012: harsh business condition led to a steep EBIT margin decline to 3.5% in H2 from 9.3% in H1 2011; negative sales/profit trend continuing in 2012; medium-term EBIT margin target cut to 6%-9% (old: 9%-12%) ■ Forthcoming event: 27 August 2012 – H1 2012 results ■ Guidance & consensus: management guiding for declining sales and profits in 2012; consensus EBIT estimates stand at CHF40.8m for 2012 and at CHF52.4m for 2013
Investment case
Huber+Suhner is suffering from strong margin pressure, thus reflecting a continued adverse currency impact and pricing pressure in the solar market as well as a temporary decline in business volumes from the Chinese railway market. The negative trend is likely to continue in 2012. We forecast sales and the EBIT margin to decline further and, especially, we expect that the significant pressure in the solar business cannot be offset by the growing fibre optics business. On a positive note, Huber+Suhner’s business should bottom out in H1 2012. However, there is no strong catalyst on the cards. Even based on our assumption of a fast recovery of the EBIT margin to around the mid-point of the company’s new medium-term target range of 6% to 9% in 2013, the valuation looks demanding.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
70% Sales EBIT Sales EBIT 60 0.0% 9.6% 20.3% 10% 50 29.3% 40 34% Switzerland Europe
30 53.6% 20 19.3% 10 50.7% 46% Americas Asia 17.1% 0 10%
-10
-20Radio Frequency Fiber Optics Low Frequency Corporate centre Radio Frequency Fiber Optics Low Frequency Corporate centre
122 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Adverse business trends in the key solar and railway ■ FCF generation to be dented in 2012 due to high capital spending businesses are unlikely to be offset in 2012 by the uptrend and for building up cable production capacity in China (extra capital new large order won in fibre optics business spending of approx.CHF20m in 2012, creating additional sales ■ Strong positioning in next-generation LTE networks and electric capacity of CHF60-80m) vehicles bode well for a return to growth in 2013 ■ Capex to fall back to maintenance, i.e. depreciation, level in 2013
MARGINS INVESTED CAPITAL AND RETURNS
■ Depressed solar and railway businesses continuing to create ■ ROIC to bottom out in 2012 and likely to rise considerably in 2013 significant margin pressure in 2012 thanks to margin recovery and rising utilisation of new cable plant ■ However, rising volume effects in fibre optics and cost-cutting ■ But ROIC likely to stay below 10% in the next two years benefits (e.g. workforce relocated from Switzerland to low-cost countries) should help to stabilise the EBIT margin in H1 2012
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong expertise in connectivity technologies (low & high ■ Major growth opportunities in the high voltage environment of frequency, fibre optics) to offer system solutions (e.g. in railway) hybrid/electric cars ■ Well-balanced business portfolio between industrial, ■ Broadband wireless (e.g. LTE) and wireline (e.g. fibre optics) communication and transport applications access to become mass markets worldwide ■ Debt-free, strong cash position
WEAKNESSES THREATS
■ High production exposure to high-cost countries (Switzerland) ■ Fibre optic components and networks to cannibalise to some ■ Under-represented in the Americas extent copper cable applications in mobile phone base stations ■ Dependence on volatile investment cycle of the telecom ■ Customer spending of telecom OEMs to remain depressed and infrastructure and solar industries intensify competition among suppliers ■ Continued strength of the Swiss franc vs. euro and US dollar
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 3.8 6.9 7.2 5.7 5.4 Current assets 529 519 511 544 574 EV/EBIT 5.2 10.6 14.0 9.4 8.7 Net fixed assets 154 163 180 179 179 EV/Inv. Capital 1.3 1.1 1.1 1.1 1.0 Goodwill 5.0 16.6 20.5 22.6 24.8 P/E 9.2 14.7 24.5 16.7 15.6 Total assets 714 726 740 773 805 Cash P/E 8.7 14.3 23.5 16.2 15.2 Sharehold. equit. 550 573 591 618 646 P/CF 6.0 11.4 11.2 9.1 8.8 Working capital 205 231 222 237 245 P/BV 1.3 1.3 1.2 1.2 1.1 Net debt -206 -178 -187 -198 -216
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 800 759 703 749 775 in sales 26.7 -5.1 -7.3 6.6 3.5 EBITDA 141 76.8 73.6 93.1 97.9 in EBITDA 67.6 -45.6 -4.1 26.5 5.1 EBIT 102 50.2 37.8 56.4 61.2 in EBIT 91.3 -50.7 -24.6 49.2 8.4 Net profits 79.0 49.8 29.9 43.8 46.9 in cash EPS 62.0 -39.4 -39.0 44.8 6.8 Cash EPS (CHF) 4.33 2.62 1.60 2.32 2.48 Net debt/equity -37.4 -31.1 -31.6 -32.1 -33.5 Reported EPS (CHF) 4.10 2.56 1.54 2.25 2.41 FCF/net fin. results 13.0 0.4 n.m. n.m. n.m. DPS (CHF) 1.51 0.95 0.61 0.90 0.96 Current ratio (X) 4.5 4.7 5.0 5.0 5.1
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 108 51.8 39.5 58.1 62.8 Gross margin 37.6 31.4 31.3 33.1 33.3 Taxes -19.6 -12.5 -8.0 -12.6 -14.3 EBITDA margin 17.7 10.1 10.5 12.4 12.6 NOPLAT 88.1 39.3 31.6 45.5 48.6 EBIT margin 12.7 6.6 5.4 7.5 7.9 Depreciation 33.5 24.9 34.1 35.0 35.0 ROIC 22.5 9.0 6.7 9.4 9.7 CAPEX -38.6 -50.6 -51.3 -33.7 -34.9 Inv. cap. (CHF m) 414 463 477 494 506 in WC -44.3 -27.1 7.2 -15.1 -9.0 Free cash flow 34.6 2.0 21.5 31.7 39.7
Made in Switzerland + | Helvea 123
Implenia Price: CHF29.5 BUY Target: CHF42.0 M&S
Patrick Appenzeller ([email protected]) – Tel. +41 (0)43 388 9267
Implenia was formed from the merger of two listed Swiss construction groups, Zschokke and Batigroup. Implenia’s strategy is geared towards moving into higher added-value services in the construction value chain, primarily those that come before or after physical construction work, and mainly involve early project development and technical facility management. The move in this direction should boost margins and returns on capital as these activities usually generate superior profitability. With a market share of about 5%, Implenia ranks as the undisputed market leader in Switzerland. CEO: Anton Affentranger; CFO: Beat Fellmann; Website: www.implenia.ch (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Construction/Switzerland CHF45 Major shareholders Parmino Holding 16.3%, Rudolf Maag 10.8%, Group 40 Ammann 8.4%, Others 64.4% 35 30 Shares outstanding (m) 18.47 EV/EBITDA (X) 25 Market cap. (CHF m) 546 2011 3.2 20 Free float 64% 2012E 3.3 15 EBITDA/CAGR 2011-2014E 0.5% 2013E 3.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Implenia 12-mth tgt Absolute 7% 30% -2% Bloomberg IMPN SW Buy Acc. Neut. Red. N.R. Rel. to local 10% 22% 9% Reuters IMPN.S
News flow
■ September 2011: H1 2011 results – sales slightly up but operating profits down 37% y-o-y to CHF12.3m ■ October 2011: former Chairman Anton Affentranger becomes CEO and Dr Markus Dennler the new Chairman ■ December 2011: measures for sustained improvements in earnings announced, positive profit statement issued ■ March 2012: full-year 2011 results well above our expectations, positive outlook, sustainable higher profits ■ Forthcoming event: 30 August 2012 – H1 2012 results ■ Guidance & consensus: no quantitative guidance for 2012 was provided, but Implenia still expects to achieve operating profits of CHF100m by 2014; consensus EBIT estimates of CHF96m for 2012 and CHF102m for 2013
Investment case
Implenia’s full-year 2011 results were excellent, especially when considering the weak first-half year results and even though they were supported by an extraordinary contribution of CHF10m from the settlement between Consorzio TAT and ATG. However, various restructuring and optimisation measures as well as the acquisitions have not yet fully contributed to Implenia’s results. H1 2012 results will compare against a weak baseline and might trigger further earnings upgrades. Nevertheless, the stock remains extremely cheap and we would not be surprised to see a revaluation in the near future.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
50% Sales EBIT Sales EBIT 0.7%0.2% 0.1% 0.0% 2.4%0.0% 4% 40 20.0% 18.4%
30 Switzerland 38.2% 43.2% 20
10 25.7% Rest of the world 0 33.4% 9.3% 8.4% 96% -10 General Contracting / Services Project Development TunnellingGeneral Project Tunnelling Infrastruct.Infrastruct.Prime ConstructionHead office One off costs ContractingPrime buildings / Development ConstructionHeadbuildings office and miscellan.and / charges OneServices off costs / charges miscellan.
124 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Robust Swiss construction market expected in 2012 and 2013 ■ Capital spending should be below depreciation in next few years ■ Long-term modest top-line growth in Switzerland; potential in ■ Selective and adequate investments to develop foreign activities activities abroad, especially in tunnelling & project management and to improve the project development pipeline ■ We forecast strong growth in real estate project development in ■ Free cash flow should rise in 2012 thanks to higher earnings and the next few years, helped by a strong project pipeline normalised net working capital development
MARGINS INVESTED CAPITAL AND RETURNS
■ Historically low margins in the Swiss construction industry as a ■ Satisfactory ROIC (>20%) despite low group EBIT margins result of overcapacities in a highly fragmented market ■ ROIC supported by relatively low working capital thanks to high ■ Implenia’s vision is to achieve a group margin of 4%-4.5% in (net) ‘work-in-progress’ liabilities on the balance sheet the medium term and EBIT of CHF100m by 2014 ■ We expect ROIC to rise further in 2012 and beyond, partly helped by recent acquisitions which should start to pay off in 2013/2014
SWOT analysis STRENGTHS OPPORTUNITIES
■ Market leadership in Switzerland: more than double the size of ■ Strengthening of real estate project development and general the No.2; 10% market share in industrial and traditional contracting businesses which are less dependent on cycles construction, >20% in general contractor/total solution sector ■ Growth in pre- and post-construction services ■ Sizeable resources spread around Switzerland ■ Foreign potential with tunnelling and project-management skills ■ Cost leader in Switzerland with significant economies of scale ■ More potential in Norway, access to other markets in Scandinavia
WEAKNESSES THREATS
■ High dependence on the Swiss construction market ■ Increased activities by foreign players in the Swiss market, ■ Still a lot of small and mid-sized players with low-cost especially in regions close to the border (strong Swiss franc) structures squeezing prices in Switzerland ■ Higher risks in Infra and general building contracting business ■ Absence of real, sizeable long-term growth potential ■ Intensified pricing pressure and rising material costs ■ Low EBIT margins; low share liquidity ■ Reputation risks related to big projects, e.g. Letzigrund Stadium
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 3.9 3.2 3.3 3.2 3.1 Current assets 1,301 1,470 1,552 1,621 1,685 EV/EBIT 5.7 4.7 4.6 4.2 4.1 Net fixed assets 221 225 222 221 220 EV/Inv. Capital 1.3 1.3 1.3 1.3 1.3 Goodwill 69.2 85.7 85.7 85.7 85.7 P/E 10.3 9.0 8.5 7.7 7.5 Total assets 1,677 1,888 1,967 2,034 2,098 Cash P/E 10.1 8.7 8.3 7.5 7.3 Sharehold. equit. 495 544 571 604 651 P/CF 5.8 4.6 4.9 4.7 4.6 Working capital 75.7 51.4 53.5 56.0 58.5 P/BV 1.1 1.0 0.9 0.9 0.8 Net debt -150 -194 -228 -265 -313
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 2,388 2,523 2,636 2,712 2,749 in sales 4.8 5.6 4.5 2.9 1.3 EBITDA 113 140 133 140 142 in EBITDA 7.6 24.8 -5.1 5.1 1.7 EBIT 77.7 93.7 97.3 105 107 in EBIT 14.8 20.6 3.8 7.6 2.7 Net profits 51.5 60.3 63.4 69.6 73.4 in cash EPS 9.7 16.4 5.0 9.5 3.9 Cash EPS (CHF) 2.93 3.41 3.58 3.92 4.07 Net debt/equity -30.2 -35.7 -40.0 -43.9 -48.1 Reported EPS (CHF) 2.88 3.30 3.47 3.81 3.96 FCF/net fin. results 4.1 5.6 6.1 7.0 8.7 DPS (CHF) 0.90 1.10 1.20 1.25 1.30 Current ratio (X) 1.5 1.4 1.5 1.5 1.5
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 79.7 96.2 97.3 105 107 Gross margin 38.0 37.9 37.5 37.5 37.5 Taxes -18.3 -22.1 -22.4 -24.1 -24.7 EBITDA margin 4.7 5.6 5.1 5.2 5.2 NOPLAT 61.3 74.1 74.9 80.6 82.8 EBIT margin 3.3 3.7 3.7 3.9 3.9 Depreciation 32.9 44.3 36.0 35.5 35.0 ROIC 17.9 21.3 21.6 23.6 24.4 CAPEX -31.5 -25.6 -33.0 -34.0 -34.0 Inv. cap. (CHF m) 346 350 343 339 338 in WC 44.2 -25.5 -2.1 -2.5 -2.5 Free cash flow 39.9 67.3 75.8 79.5 81.3
Made in Switzerland + | Helvea 125
Inficon Price: CHF189.- NEUTRAL Target: CHF220.- M&S
Reto Amstalden ([email protected]) – Tel. +41 (0)43 388 9261
Inficon is a leading developer, manufacturer and supplier of vacuum instrumentation and sensor technologies: these are used to measure and control production processes in the semiconductor, flat panel display, optical storage and other industries. The company also supplies instrumentation for gas leak detection, toxic chemical as well as environmental pollution analysis to the air conditioning (e.g. in vehicles), emergency response and industrial (e.g. petrochemical) markets. Inficon’s headquarters have returned to Bad Ragaz, with a larger production and R&D site at Balzers. CEO: Lukas Winkler; CFO: Matthias Troendle; Website: www.inficon.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF230 Major shareholders UBS AM 3.4%Vontobel 4.4%, Corisol 20.3%, Pictet 210 3.0% 190 170 Shares outstanding (m) 2.19 EV/EBITDA (X) 150 Market cap. (USD m) 426 2011 6.1 130 Free float 100% 2012E 6.5 110 EBITDA/CAGR 2011-2014E 2.1% 2013E 6.1 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Inficon 12-mth tgt Absolute -2% 35% -4% Bloomberg IFCN SW Buy Acc. Neut. Red. N.R. Rel. to local 0% 27% 5% Reuters IFCN.S
News flow
■ March 2012: subdued Q4 2011 sales but profits more than 10% above expectations; sober 2012 guidance (sales: USD270-310m, EBIT USD35-53m) but the low end looks too conservative ■ April 2012: stronger-than-expected Q1 2012 results driven the rebound of the semiconductor and emergency response business; the mid-point of the sales/EBIT guidance was raised slightly ■ Forthcoming event: 9 August 2012 – Q2 2012 results ■ Guidance & consensus: management now guiding for sales of USD280-310m and EBIT of USD38-54m for 2012; consensus EBIT estimates stand at USD50.0m for 2012 and at USD53.6m for 2013
Investment case
Inficon’s proven business model and strong market position enabled the company to generate high sustainable cash flows and, hence, pay a high sustainable dividend (yield: ~7%) in 2011 as well as going forward. However, the flattish-to-downward trends on sales and profits projected for 2012 look likely to curb share appreciation potential. Moreover, we do not see any catalysts on the cards (yet), such as a reversal of the cooling investment cycle for industrial markets or a new cycle of significant structural growth (recent bolt-on acquisitions are unlikely to secure that). As such, we regard the stock as fairly valued, factoring in the prospect of the EBIT margin at an ‘over-the- cycle’ level of 18% (versus a historical average of 10%-11% over 2004-2009): NEUTRAL.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
6% 3% 1%
35% Europe USA 32% 37% 48% 43% 43%
Asia Pacific Others
16% 17% 19% Semiconductor and Vacuum Coating Refrigeration/Air Conditioning
General Vacuum Processes Emergency Response and Security
126 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Semiconductor business (some 30% of sales) likely to have ■ Free cash flow generation to remain good (yield of >8%) on peaked, but still high investments in the industry likely in 2012 limited capital spending needs and tight management of working ■ Recent bolt-on acquisitions should temper adverse impact of capital semiconductor volatility and the downturn in industrial markets ■ Capital spending to work out at 2.5% of group sales, which is (mainly in the EU) slightly above the depreciation level
MARGINS INVESTED CAPITAL AND RETURNS
■ EBIT margin has peaked, but is likely to fall only slightly in 2012 ■ Capital intensity should remain low given Inficon’s high level of thanks to Inficon’s favourable product mix as well as the outsourcing (only assembly in-house) and focus on R&D stringent management of its cost base ■ ROIC to remain in the high thirties based on the assumption of an ‘over-the-cycle’ EBIT margin of approx.18%
SWOT analysis STRENGTHS OPPORTUNITIES
■ Innovative products for migration of sensor technology into ■ Next generation ceramic diaphragm gauges: increasing market toxic chemical and environmental pollution analysis share at OEMs for 300mm equipment manufacturing ■ Excellent position in global leak detection market ■ Expanding on-scene detection market for water safety and ■ Market leader in in-situ analysis tools for advanced 300mm explosives detection (e.g. petrochemical industry) semiconductor manufacturing ■ Leak detection in food packaging amid new hygiene regulations
WEAKNESSES THREATS
■ Dependence on government spending cycle in the security and ■ Semiconductor equipment OEMs may enter the instrumentation emergency applications market as well as the volatile market themselves instead of buying from smaller suppliers semiconductor investment cycle ■ Larger metrology companies (e.g. KLA-Tencor, MKS ■ Two customers (Pfeifer Vacuum and OC Oerlikon’s Leybold Instruments) are squeezing out smaller competitors with first-tier Vacuum) account for about 30% of group sales chip manufacturers
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In USD m) 2010 2011 2012E 2013E 2014E EV/EBITDA 8.1 6.1 6.5 6.1 5.7 Current assets 147 170 177 185 195 EV/EBIT 9.5 6.6 7.1 6.7 6.3 Net fixed assets 26.8 28.8 32.4 36.0 39.6 EV/Inv. Capital 3.8 3.6 3.3 3.1 2.9 Goodwill 25.3 32.8 6.4 5.9 5.4 P/E 15.6 9.8 11.3 10.7 10.1 Total assets 216 247 230 239 251 Cash P/E 15.2 9.7 11.2 10.6 10.0 Sharehold. equit. 160 176 155 162 171 P/CF 11.2 8.8 9.4 9.0 8.4 Working capital 68.8 72.6 79.0 82.9 86.8 P/BV 2.6 2.4 2.7 2.6 2.5 Net debt -66.9 -73.6 -72.4 -75.6 -81.5
Income statement Growth rates & balance-sheet ratios (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 265 312 308 319 331 in sales 46.1 17.6 -1.3 3.7 3.7 EBITDA 45.4 60.4 56.3 60.0 64.2 in EBITDA n.m. 33.1 -6.6 6.5 7.0 EBIT 38.6 55.9 51.9 55.1 58.8 in EBIT n.m. 44.7 -7.2 6.1 6.7 Net profits 27.1 43.7 38.1 39.9 42.7 in cash EPS n.m. 56.4 -12.7 4.9 6.8 Cash EPS (USD) 12.8 20.0 17.4 18.3 19.5 Net debt/equity -41.7 -41.8 -46.8 -46.8 -47.6 Reported EPS (USD) 12.5 19.8 17.3 18.1 19.4 FCF/net fin. results 16.8 n.m. 29.4 32.8 35.2 DPS (CHF) 4.00 10.0 14.0 14.0 14.0 Current ratio (X) 3.2 2.9 2.9 2.9 3.0
Cash flow statement Ratios, margins and returns (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 39.6 56.3 52.4 55.6 59.3 Gross margin 47.1 47.8 49.2 48.9 48.8 Taxes -7.2 -11.8 -11.2 -12.5 -13.5 EBITDA margin 17.1 19.3 18.3 18.8 19.4 NOPLAT 32.4 44.5 41.2 43.0 45.8 EBIT margin 14.6 17.9 16.9 17.2 17.7 Depreciation 5.8 4.0 4.0 4.4 4.9 ROIC 36.2 45.2 38.7 37.4 37.3 CAPEX -3.6 -5.9 -7.6 -8.1 -8.6 Inv. cap. (USD m) 95.6 101 111 119 126 in WC 5.0 -5.9 -5.2 -3.4 -3.4 Free cash flow 33.2 26.4 32.4 36.1 38.8
Made in Switzerland + | Helvea 127
Interroll Price: CHF310.- NEUTRAL Target: CHF380.- M&S
Reto Amstalden ([email protected]) – Tel. +41 (0)43 388 9261
Interroll is a global market leader of components and subsystems for materials-handling systems. The group develops and manufactures components (like belt drives and rollers) and subsystems like belt curves or cross-belt sorters for automation and logistics installations. Interroll’s products are used in various application fields, such as airports, food, pharma, parcel/post, and automotive suppliers. Interroll generates 66% of group revenues in Europe. In contrast, Eastern Europe and Asia only account for a small portion of revenues, but represent the greatest growth opportunities. CEO: Paul Zumbühl; CFO: Jürg Häusermann; Website: www.interroll.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Technology/Switzerland CHF438 Major shareholders D. Specht and family 12.7%, Ghisalberti/Moreschi 405 13.2%, Axmann and family 4.3%, Vontobel 5.0%, 372 Sarasin / VV Vorsorge 11.2%, Corisol 4.0% 339 Shares outstanding (m) 0.78 EV/EBITDA (X) 306 Market cap. (CHF m) 241 2011 7.1 273 Free float 70% 2012E 6.6 240 EBITDA/CAGR 2011-2014E 10.7% 2013E 5.8 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Interroll 12-mth tgt Absolute -7% 5% -23% Bloomberg INRN SW Buy Acc. Neut. Red. N.R. Rel. to local -5% -1% -15% Reuters INRN.S
News flow
■ September 2011: Interroll moves into a larger production facility in China to strengthen its Asian footprint ■ January 2012: top-line results in line with expectations, but with the order trend down 12% ■ March 2012: poor margin trend in H2 2011 due to adverse sales mix shift and high strategic investments; outlook suggests a good start in 2012 but demand situation remains volatile ■ Forthcoming event: 10 August 2012 – H1 2012 results ■ Guidance & consensus: no quantitative guidance given, but management is cautiously optimistic about 2012; consensus EBIT estimates stand at CHF24.2m for 2012 and at CHF28.0m for 2013
Investment case
We are not unduly concerned about the recent poor margin trend as the main thrust of the shortfall stems from Interroll’s sizeable strategic investment programme (expansion of infrastructure/sales network in Asia; new IT infrastructure with SAP) which should ultimately put Interroll in pole position to capture promising market opportunities in emerging regions (Asia). On the other hand, we believe the subsequent rebound in margins will be starting from a lower-than-expected threshold given the higher than projected upfront costs for the expansion in the emerging areas. Overall, we reiterate our NEUTRAL stance and PT of CHF380 as we believe the market has already priced in a decent recovery in the EBIT margin from 7.5% in 2011 (HelveaE: 10%+ by 2014).
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
7% 12% Europe 34%
22% North America
66% 66% Asia 93%
Components Subsystems
128 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Poor economic conditions in European markets likely to ■ Capex to remain considerably above depreciation level in 2012 increase customers’ reluctance to invest in 2012 and 2013, but to drop below the levels of 2010 and 2011 ■ Negative business trends in Europe likely to be compensated ■ In 2012, FCF to turn significantly positive after extraordinarily high for by market share gains following investments in new capex and build-up of working capital in 2011 production capacity and service network in emerging countries ■ Net debt to turn into a net cash position by 2013
MARGINS INVESTED CAPITAL AND RETURNS
■ We expect the EBIT margin to expand gradually in the next ■ Limited progress in expanding ROIC in next two to three years, two to three years, with benefits from operational optimisation though ROIC is clearly above cost of capital (e.g. via SAP roll-out) and significant investment in the ■ Back to maintenance capital spending (5% of sales) in 2013 expansion of the sales network as well as market share gains in emerging countries
SWOT analysis STRENGTHS OPPORTUNITIES
■ Global presence and worldwide distribution network ■ Cost pressures fuelling demand for more automation in ■ Covering key components and modules in materials-handling manufacturing and in warehousing/distribution systems (e.g. belt drives, roller drives, cross-belt sorters) ■ System integrators increasing outsourcing of materials handling ■ Global leadership in drum motors for food-processing industry ■ Strong e-commerce expansion in emerging countries to drive ■ Strong branding; broadly diversified customer base investments in large distribution centres
WEAKNESSES THREATS
■ Low market share in North America ■ More stringent demands in terms of R&D (R&D to rise to 5% as a ■ Strong reliance on German market and low exposure to fast- proportion of sales at Interroll) growing emerging countries (10% to 15% of sales) ■ Sourcing of materials from large suppliers with high pricing power ■ High sensitivity to delay and cancellation of large-scale ■ Asian (Chinese) copy-cats automation and dynamic-storage projects
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 7.2 7.1 6.6 5.8 5.2 Current assets 88.6 115 128 141 165 EV/EBIT 12.6 12.6 11.1 9.6 8.2 Net fixed assets 82.9 82.1 87.8 93.3 98.3 EV/Inv. Capital 1.3 1.2 1.1 1.1 1.0 Goodwill 22.1 18.7 17.1 15.2 13.3 P/E 16.7 13.6 13.8 11.9 10.3 Total assets 211 239 259 277 299 Cash P/E 13.5 10.7 11.1 9.5 8.5 Sharehold. equit. 127 143 161 177 196 P/CF 8.1 7.1 7.0 6.3 5.7 Working capital 35.5 48.0 43.1 44.9 52.7 P/BV 1.9 1.7 1.5 1.4 1.3 Net debt 12.9 17.6 1.0 -8.1 -21.0
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 283 272 279 289 304 in sales 21.0 -3.9 2.5 3.5 5.4 EBITDA 35.8 36.2 39.2 44.1 49.1 in EBITDA 89.9 1.3 8.3 12.4 11.3 EBIT 20.4 20.4 23.1 26.8 31.3 in EBIT n.m. 0.1 13.5 15.7 16.9 Net profits 14.4 18.2 17.9 20.7 23.9 in cash EPS 35.8 26.1 -3.3 16.3 12.1 Cash EPS (CHF) 23.0 28.9 28.0 32.6 36.5 Net debt/equity 10.1 12.3 0.6 -4.6 -10.8 Reported EPS (CHF) 18.6 22.9 22.5 26.0 30.1 FCF/net fin. results n.m. n.m. 115 103 90.9 DPS (CHF) 5.00 6.00 6.00 6.50 7.00 Current ratio (X) 1.5 1.5 1.6 1.7 1.9
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 24.9 25.7 28.5 33.1 37.6 Gross margin 57.9 58.4 58.3 58.5 58.7 Taxes -6.0 -2.3 -5.0 -5.8 -7.2 EBITDA margin 12.6 13.3 14.1 15.3 16.1 NOPLAT 18.8 23.4 23.4 27.2 30.4 EBIT margin 7.2 7.5 8.3 9.3 10.3 Depreciation 10.9 10.5 10.8 11.0 11.5 ROIC 9.7 11.3 10.6 11.8 12.4 CAPEX -27.4 -19.6 -16.0 -16.0 -16.0 Inv. cap. (CHF m) 198 218 225 238 251 in WC -11.1 -19.5 4.9 -1.7 -7.8 Free cash flow -8.5 -5.6 23.1 20.5 18.2
Made in Switzerland + | Helvea 129
Intertek Price: GBPp2,645.- NEUTRAL Target: GBPp2,600.- M&S
Chris Burger, CFA ([email protected]) – Tel. +41 (0)43 388 9259
Through its network of over 33,000 people in 1,000 laboratories and offices in 100 countries, Intertek provides quality and safety solutions to a wide range of industries across the world. Besides testing, inspecting and certifying products; it helps customers improve performance, gain efficiencies in manufacturing and logistics, overcome market constraints, and reduce risk. It can ensure that the products of its customers meet quality, health, environmental safety and social accountability standards for almost any market around the world. CEO: Wolfhart Hauser; CFO: Lloyd Pitchford; Website: www.intertek.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./United Kingdom GBPp2,698 Major shareholders DWS Investments 7.2%, Marathon Asset Management 2,515 5.6%, Capital Research 5.0%, Others 82.3% 2,332 2,149 Shares outstanding (m) 160 EV/EBITDA (X) 1,966 Market cap. (GBP m) 4,229 2011 14.5 1,783 Free float 100% 2012E 12.4 1,600 EBITDA/CAGR 2011-2014E 12.1% 2013E 11.3 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Intertek 12-mth tgt Absolute 14% 37% 29% Bloomberg ITRK LN Buy Acc. Neut. Red. N.R. Rel. to local 26% 42% 46% Reuters ITRK.L
News flow
■ March 2012: full-year 2011 results (revenue: EUR1,749.4m, adj. operating profit: GBP281.1m) slightly above our expectations ■ March 2012: Intertek acquires 4th Strand ■ April 2012: Intertek acquires Automation Technology ■ Forthcoming event: 26 July 2012 – H1 2012 results ■ Guidance & consensus: no specific guidance; consensus EBIT estimates stands at GBP327m for 2012 and at EUR364m for 2013
Investment case
Intertek, just like the TIC industry in general, is facing good growth prospects as it is benefiting from powerful structural growth drivers (new regulations; increasing awareness of the importance of inspection, testing and certification; growth in global trade; relocation of manufacturing to less developed markets; outsourcing; privatisation; growing speed of innovation). Nevertheless, we believe that these drivers are already discounted in Intertek’s current share price.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT 8% 5% 24% 16% 30% Asia Pacific 17% 32% 35%
Americas
18% 18% Europe, Middle East and 27% 37% Africa 33% Commodities Industry & Assurance Consumer Goods Commercial & Electrical Chemicals & Pharmaceuticals
130 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ High single-digit organic growth in 2012 expected ■ Strong and relative steadily increasing cash flow generation ■ Positive impact of acquisitions (Moody) and currencies ■ Capex above depreciation to finance future growth ■ Strong structural growth drivers such as new regulations, ■ Free cash flow 2010-2012 distorted by acquisitions (especially increasing awareness, global trade, globalisation, outsourcing, Moody in 2011), but no potential future acquisitions included privatisation and increasing speed of innovation
MARGINS INVESTED CAPITAL AND RETURNS
■ Margins expected to improve not only in Industry & Assurance ■ Jump of invested capital in 2011 due to Moody acquisition after the acquisition of Moody, but also at the other divisions ■ Invested capital to increase further owing to ongoing growth ■ Economies of scale from increased capacity utilisation opportunities ■ In addition, margins to benefit from the shift to more added- ■ Return on invested capital (ROIC) expected to increase slightly value, higher-margin services from the current high level
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading position in TIC industry ■ Globalisation and outsourcing ■ Highly scalable business ■ Increasing regulations and safety standards ■ Strong position in highly profitable Commodity business ■ Industry consolidation ■ High exposure to emerging markets ■ Bolt-on acquisitions at reasonable prices with high leverage ■ Continuity in management team potential due to its scalable business
WEAKNESSES THREATS
■ Less diversified than SGS and Bureau Veritas ■ Economic slowdown, especially a stalling of growth in the all- important Asian market ■ Reputation risk ■ Acquisition risk
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In GBP m) 2010 2011 2012E 2013E 2014E EV/EBITDA 17.5 14.5 12.4 11.3 10.3 Current assets 542 637 836 1,024 1,234 EV/EBIT 22.3 18.1 15.1 13.6 12.4 Net fixed assets 243 265 300 338 379 EV/Inv. Capital 7.8 4.5 4.4 4.3 4.3 Goodwill 346 807 772 737 702 P/E 32.8 30.5 23.5 20.5 18.2 Total assets 1,157 1,737 1,936 2,128 2,343 Cash P/E 29.1 24.2 20.6 18.5 16.6 Sharehold. equit. 459 523 654 803 972 P/CF 18.7 16.2 13.3 12.0 11.0 Working capital 58.8 98.2 126 139 155 P/BV 9.2 8.1 6.5 5.3 4.4 Net debt 171 581 471 331 176
Income statement Growth rates & balance-sheet ratios (In GBP m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 1,374 1,749 2,050 2,201 2,372 in sales 11.1 27.3 17.2 7.3 7.8 EBITDA 290 351 408 450 494 in EBITDA 9.4 20.9 16.4 10.1 9.9 EBIT 228 281 336 372 411 in EBIT 8.9 23.6 19.5 10.7 10.5 Net profits 129 139 181 208 236 in cash EPS 9.7 20.0 17.4 11.8 11.4 Cash EPS (GBPp ) 91.0 109.1 128.1 143.3 159.7 Net debt/equity 37.2 111 72.0 41.2 18.1 Report. EPS (GBPp) 80.7 86.8 112.7 129.2 145.6 FCF/net fin. results 6.0 n.m. 6.7 8.4 9.6 DPS (GBPp ) 28.1 33.7 39.7 44.3 49.5 Current ratio (X) 1.5 1.6 1.9 2.2 2.5
Cash flow statement Ratios, margins and returns (In GBP m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 219 259 333 372 411 Gross margin n.a. n.a. n.a. n.a. n.a. Taxes -55.3 -68.0 -87.3 -98.6 -110 EBITDA margin 21.1 20.1 19.9 20.4 20.8 NOPLAT 164 191 246 273 301 EBIT margin 16.6 16.1 16.4 16.9 17.3 Depreciation 62.7 69.7 72.5 78.0 83.5 ROIC 27.4 21.5 21.5 23.5 25.5 CAPEX -65.1 -79.0 -101 -109 -117 Inv. cap. (GBP m) 653 1,127 1,154 1,171 1,192 in WC -10.9 -40.4 -27.4 -13.7 -15.6 Free cash flow 99.6 -323 188 227 250
Made in Switzerland + | Helvea 131
Julius Baer Group Price: CHF30.5 NEUTRAL Target: CHF31.5 Large Caps
Tim Dawson ([email protected]) – Tel. +41 (0)22 354 9169
Julius Baer underwent a complete transformation thanks to its acquisition of three small private banks, together with the hedge-fund manager GAM, from UBS. This brought welcome new dynamism to the bank. However, the failure to sell hedge-fund products to the private bank and divisions within the group led to the bank deciding to split into two parts, a private bank (Julius Baer Group) and an asset manager (GAM Holding). This split was completed on 1 October 2009, with both parts being quoted on the Swiss market. CEO: Boris Collardi; CFO: Dieter Enkelmann; Website: www.juliusbaer.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Banks/Switzerland CHF 42 Major shareholders MFS 10.0%, Davis 6.4%, Blackrock 5.0%, Wellington 39 4.4%, Harris 4.4% 36 33 Shares outstanding (m) 195 Cash P/E (X) 30 Market cap. (CHF m) 5,947 2011 15.4 27 Free float 100% 2012E 14.3 24 Op. profits/CAGR 2011A-2014E 14.4% 2013E 11.9 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Julius Baer Group 12-mth tgt Absolute -14% -6% -18% Bloomberg BAER VX Buy Acc. Neut. Red. N.R. Rel. to local -12% -12% -10% Reuters BAER.VX
News flow
■ November 2011: 10-month interim statement confirmed that the gross margin remained depressed at around 105bp and the cost/income ratio elevated at around 67% because of adverse market conditions; a CHF40m cost-reduction programme to be initiated, with a CHF50m one-off charge booked in H2 2011 ■ February 2012: full-year 2011 results confirmed weak performance in H2 2011 ■ May 2012: four-month update showed further pressures on revenue margin and cost/income ratio ■ Forthcoming event: 23 July 2012 – H1 2012 results ■ Guidance & consensus: no guidance; consensus net profit estimates of CHF393m for 2012 & CHF506m for 2013
Investment case
Julius Baer Group has a clear strategy to expand its business and can do so unencumbered by hedge-fund, asset- management and investment-banking operations. The shares are an excellent way of investing in a bull market, but, on the other hand, they will be sensitive to any setbacks in these fragile markets. Julius Baer is also perceived as being a bank more exposed to concerns surrounding banking secrecy, with over 40% of its AuM derived from Western Europe and probably largely untaxed. It is also heavily exposed to the Swiss franc’s strength, with 80% of costs in Swiss francs and just 20% of revenues denominated in francs. The bank is keen to secure another in- market cost-saving merger, but missed out on acquiring Sarasin last year. We maintain our NEUTRAL rating.
Divisional breakdown (2011) Breakdown of AuM (2011)
Operating income Operating profits
Private banking
100% 100% 100%
Julius Baer Group
132 Helvea SA | Made in Switzerland +
Value drivers PROFITS BALANCE SHEET AND AUM
■ Margins look set to be lower in 2012, but growth in average ■ Average assets under management to rise by 4% in 2012 thanks, assets under management from net inflows should help to mainly, to net inflows and by 8% in 2013 assuming some market sustain revenues; for 2013, we should see revenues climb by performance to help as well 8% although we still expect the margin to remain depressed ■ Tier 1 ratio was a healthy 21.8% at end-March 2012 and, with a ■ An absence of one-offs, plus cost savings, should see target ratio of at least 12%, this implies a surplus of over CHF1bn expenses fall in 2012, but they are likely to rise again modestly which could be deployed for acquisitions in 2013
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong franchises in Germany and Switzerland, and increasing ■ Win market share from larger banks presence in Asia ■ Consolidation opportunities in Switzerland to allow cost-cutting ■ No distractions from investment banking ■ Struggling private banks may provide M&A opportunities, ■ No in-house asset manager, meaning that it can claim to be especially from distressed sellers in Switzerland committed to ‘open architecture’ and a ‘pure’ private bank
WEAKNESSES THREATS
■ No investment bank for referrals or bespoke products ■ Further erosion of Swiss banking secrecy and effective tax ■ Much smaller than the large players, such as UBS, CS and amnesties in Europe leading to a flight of money from Switzerland others, so it may not attract ultra-high-net-worth clients ■ Swiss banks losing ‘brand image’ in growth markets such as Asia ■ Dependence on favourable capital markets for revenue as a result of banking secrecy changes damaging reputation of generation ‘Brand Switzerland’, compounded by more competition from locals ■ Strong franc making bank uncompetitive and eroding profits
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E Cap/AuM (%) 3.5 3.5 3.2 3.0 2.7 Total assets (bn) 46.287 52.929 53.723 54.529 55.347 SOTP/share (CHF) 31.7 Sharehold. equ. 4,482 4,308 4,519 4,816 5,200 P/SOTP (%) 96.0 Intangibles 1,798 1,707 1,617 1,527 1,437 P/E 17.9 23.9 18.2 14.5 12.0 Tangible equity 2,684 2,601 2,902 3,289 3,763 Cash P/E (ful. diluted) 13.0 15.2 12.6 10.7 9.3 Tier 1 ratio (%) 23.8 21.8 23.4 25.6 28.2 P/BV 1.4 1.4 1.3 1.2 1.1 BV/share (CHF) 21.7 22.1 23.1 24.7 26.6 Dividend yield (%) 2.0 3.3 2.0 2.0 2.0 Tang. BV/s. (CHF) 13.0 13.3 14.9 16.8 19.3
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Revenues 1,794 1,753 1,772 1,913 2,059 in revenues 13.1 -2.3 1.1 7.9 7.6 Expenses -1,203 -1,148 -1,179 -1,217 -1,255 in expenses 20.3 -4.6 2.7 3.2 3.2 LLP -24.8 -88.4 -25.0 -27.1 -29.3 in LLP -2.7 256 -71.7 8.4 8.0 Net profits 353 258 330 415 503 in net profits -25.4 -26.8 27.8 25.7 21.1 Reported EPS (CHF) 1.70 1.27 1.67 2.10 2.54 in cash EPS 2.5 -14.6 20.8 17.8 15.6 Cash EPS (CHF/ f.d.) 2.34 2.00 2.42 2.84 3.29 in report. EPS -25.4 -25.3 31.2 25.7 21.1 DPS (CHF) 0.60 1.00 0.60 0.60 0.60 in DPS 50.0 66.7 -40.0 0.0 0.0
Asset under management Ratios, margins and returns (In CHF bn) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E AuM NII/total revenue 25.4 30.4 31.1 31.3 31.5 Total 170 170 185 201 217 Cost/income 67.1 65.5 66.5 63.6 61.0 Private banking 170 170 185 201 217 Pre-tax margin 31.6 29.5 32.1 35.0 37.6 NNM PB gr. marg. (bp) 105 104 99.7 99.0 98.5 Total 8.7 10.2 10.0 10.0 10.0 IB comp. ratio n.a. n.a. n.a. n.a. n.a. Private banking 8.7 10.2 10.0 10.0 10.0 ROE 8.1 5.9 7.5 8.9 10.0 PB NNM growth 5.7% 6.0% 5.9% 5.4% 5.0% Cash ROE 11.2 9.2 10.8 12.0 13.0
Made in Switzerland + | Helvea 133
Kaba Price: CHF332.- NEUTRAL Target: CHF390.- M&S
Patrick Appenzeller ([email protected]) – Tel. +41 (0)43 388 9267
Kaba is one of the leading (No.3) providers of access management solutions worldwide. Kaba’s product portfolio encompasses security mechanical and mechatronic locks and access systems (including security doors), data collection systems and key systems (keys and machines). The company is increasingly leveraging its ability to offer integrated access and data systems solutions in European markets. Kaba has built a solid geographical position through acquisitions although more progress is required. Its two main rivals include Assa Abloy and Ingersoll-Rand. CEO: Riet Cadonau; CFO: Beat Malacarne; Website: www.kaba.com (FY to end-June)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF460 Major shareholders Heirs of Leo Bodmer 15.5%, Ulrich Bremi 5.1%, Gekla 420 AG 3.6%, Others 75.8% 380 340 Shares outstanding (m) 3.58 EV/EBITDA (X) 300 Market cap. (CHF m) 1,185 10/11A 8.0 260 Free float 76% 11/12E 7.9 220 EBITDA/CAGR 10/11A-13E/14E 5.1% 12E/13E 7.6 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Kaba 12-mth tgt Absolute -10% 3% -11% Bloomberg KABN SW Buy Acc. Neut. Red. N.R. Rel. to local -8% -3% -1% Reuters KABN.S
News flow
■ September 2011: H2 2010/11 – organic sales growth of 7.8%, but EBIT dented by CHF30.8m in one-off costs ■ November 2011: Capital Market Days – cost-cutting at its European activities with the aim of pruning costs by CHF10m in three years; medium-term group EBITDA margin target of 18% (2014/15); more acquisitions eyed ■ March 2012: H1 2011/12 sales and EBIT marginally above our expectations ■ Forthcoming event: 17 September 2012 – full-year 2011/12 results ■ Guidance & consensus: sales growth in local currency of around 5% and an EBITDA margin of 15%-16% for FY2011/12; consensus EBIT estimates stand at CHF120m for 2012/12 and at CHF129m for 2012/13
Investment case
Kaba’s achievements over the past ten years are mixed: average organic growth of 2.3% is rather on the low side and margins relatively stable, but Kaba (which got a new CEO and CFO in 2011) has posted continuously strong free cash flows. Since the divestment of Doors Systems, Kaba has lowered its net debt position to almost zero and is ready to make larger acquisitions. However, this will depend on opportunities and several criteria have to be met first. Thanks to its defensive character and good (free cash flow) visibility, we believe the stock should be well supported on the downside but is likely to underperform if high-leveraged industrial stocks come back in favour again.
Divisional breakdown (2010/11) Regional breakdown – Sales (2010/11)
80% Sales EBIT Sales EBIT 2.5% 60 12% 13% 20.0% 27.5% 40 27.4% Switzerland Germany 10% 20 46.9% 0 29% ROE Americas -2017.3% 10.2% 13.0% -40 Asia-Pacific 13.4% 21.9% 36% -60 ADS EMEA/AP ADS Americas Industrial Locks -80 KeyADS Systems EMEA/AP ADS AmericasOther/Consolidation Industrial Locks Key Systems Other/Consolidation
134 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ 5% sales growth (CER) targeted for full-year 2011/12 ■ FCF generation was again strong in 2010/11 at 8.4% of sales ■ Organic growth set to slow in H2 2011/12 and 0%-1% in 2012/13 ■ Capital spending set to remain low in 2011/12 ■ Key Systems: demand to be affected by destocking? ■ Continued tight working capital management ■ Acquisitions likely over the next 18-24 months ■ We are looking for a sustainable FCF yield of about 7% p.a. ■ Higher focus on vertical markets/growth countries medium term
MARGINS INVESTED CAPITAL AND RETURNS
■ CHF10m cost cuts at European activities over the next 3 years ■ We forecast net debt at CHF16m in 2011/12 despite payout of an ■ Non-recurrence of one-off costs should enable higher EBITDA extraordinary dividend following divestment of Door Automation margin despite group guidance; slight dilution from acquisitions ■ Small to medium-sized acquisitions likely in the medium term ■ Margins at Industrial Locks to remain at high levels ■ Key Systems: lower inventories have reduced capital intensity ■ Kaba targets an EBITDA margin of 18% by 2014/15 ■ Wah Yuet labour-intensive
SWOT analysis STRENGTHS OPPORTUNITIES
■ Global leader in high-security and electronic-access solutions ■ Increasing demand for integrated solutions ■ Technology and ‘concept’ leader in the total-access market ■ Shift to electronic access thanks to greater convenience/safety ■ Broadly diversified portfolio and distribution network ■ Strengthening geographical position, including via acquisitions ■ Low-cost manufacturing base through Wah Yuet ■ Emerging markets still largely untapped ■ Excellent cash flow generation ■ Potential to strengthen vertical markets
WEAKNESSES THREATS
■ Limited growth potential in traditional hardware business (keys) ■ Low entry barriers in electronic access control ■ Geographical presence and market share still needs to improve ■ New competition in total access market, especially from large US ■ Historical poor visibility on US demand trends multinationals focusing on complete building automation solutions ■ Mixed track record on acquisitions ■ Key Systems: raw material prices and low-cost competition ■ Ongoing change in segment reporting distorts comparability
Valuation ratios Balance sheet (X) 09/10 10/11 11/12E 12/13E 13/14E (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E EV/EBITDA 7.6 8.0 7.9 7.6 6.9 Current assets 512 427 431 435 447 EV/EBIT 9.6 10.1 10.0 9.5 8.5 Net fixed assets 185 158 166 169 174 EV/Inv. Capital 1.8 2.2 2.2 2.1 2.1 Goodwill 264 255 240 240 240 P/E 14.5 5.7 15.1 14.0 12.3 Total assets 991 866 863 870 887 Cash P/E 14.5 23.2 15.1 14.0 12.3 Sharehold. equit. 374 458 479 538 600 P/CF 6.7 10.3 10.0 9.6 8.8 Working capital 205 119 125 130 136 P/BV 3.4 2.8 2.6 2.3 2.1 Net debt 233 32.8 16.1 -34.4 -87.7
Income statement Growth rates & balance-sheet ratios (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E (In %) 09/10 10/11 11/12E 12/13E 13/14E Sales 952 945 954 964 1,003 in sales -18.4 -0.7 1.0 1.0 4.0 EBITDA 159 151 152 159 175 in EBITDA -6.7 -5.2 0.7 4.5 10.2 EBIT 125 120 120 127 142 in EBIT -3.3 -4.4 0.8 5.4 11.7 Net profits 78.4 222 83.4 89.9 102 in cash EPS 22.8 -37.5 53.6 7.8 13.9 Cash EPS (CHF) 22.9 14.3 22.0 23.7 27.0 Net debt/equity 62.2 7.2 3.4 -6.4 -14.6 Reported EPS (CHF) 22.9 58.3 22.0 23.7 27.0 FCF/net fin. results 5.9 8.9 17.1 39.8 n.m. DPS (CHF) 7.00 14.0 7.00 7.50 8.00 Current ratio (X) 1.2 1.3 1.4 1.6 2.0
Cash flow statement Ratios, margins and returns (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E (In %) 09/10 10/11 11/12E 12/13E 13/14E EBITA 125 120 120 127 142 Gross margin 31.2 29.7 30.5 31.3 31.8 Taxes -32.8 -26.6 -29.7 -33.9 -36.1 EBITDA margin 16.7 16.0 15.9 16.5 17.5 NOPLAT 92.2 118 86.7 91.5 102 EBIT margin 13.1 12.6 12.6 13.2 14.2 Depreciation 34.1 31.4 31.5 31.8 33.1 ROIC 13.3 19.0 15.6 16.3 17.9 CAPEX -29.3 -33.6 -33.5 -34.0 -37.0 Inv. cap. (CHF m) 684 558 557 565 576 in WC -1.1 23.2 -6.0 -5.1 -6.2 Free cash flow 111 99.1 78.7 84.2 92.1
Made in Switzerland + | Helvea 135
Komax Price: CHF78.6 BUY Target: CHF110.- M&S
Stefan Gächter, CFA ([email protected]) – Tel. +41 (0)43 388 9262
Komax’s main line of activity is the production of cable and wire-processing equipment (Wire), which is used primarily by the automotive industry. This ranges from cutting, stripping and crimping machines to automated systems for manufacturing wire harnesses. Komax is the global leader in this field. In addition, Komax Solar is also active in the solar equipment space, being mainly known for its stringers which are used to manufacture solar modules. Finally, Komax Medtech produces customer-specific machine systems for the automatic assembly of mass-produced medical devices. CEO: Beat Kälin; CFO: Andreas Wolfisberg; Website: www.komaxgroup.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF140 Major shareholders Max Koch 6.8%, Nordea Investment Funds 5.4% 125 110 95 Shares outstanding (m) 3.46 EV/EBITDA (X) 80 Market cap. (CHF m) 272 2011 4.4 65 Free float 88% 2012E 6.3 50 EBITDA/CAGR 2011-2014E -1.5% 2013E 4.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Komax 12-mth tgt Absolute -9% 18% -26% Bloomberg KOMN SW Buy Acc. Neut. Red. N.R. Rel. to local -7% 11% -18% Reuters KOMN.S
News flow
■ March 2012: full-year 2011 results show impressive performance of core Wire business (‘peak’ operating margin in H2 >26%), making Komax Wire one of the most profitable activities in the manufacturing universe we cover ■ Forthcoming event: 21 August 2012 – half-year 2012 results ■ Guidance & consensus: management expects a sound group result for 2012; however, it guides for a substantial sales contraction and an operating loss at Komax Solar. At its core Wire division, Komax guides for H1 2012 sales similar to H1 2011; consensus EBIT estimates stand at CHF34.9m for 2012 and at CHF39.6m for 2013
Investment case
Given attractive longer-term prospects for Komax Wire (the automotive related business is set to reap the benefits of the trend towards ever-increasing electronic content in cars as a result of tougher safety standards or hybrid/electrical cars gaining traction), Komax’s attractive valuation and the fact that its portfolio is bound to be reshuffled at some point, we have re-initiated coverage on shares of Komax at BUY with a price target of CHF110. As the main risks to our investment case, we identify uncertainties regarding the global economy and management not pressing ahead to shift its focus more on Komax Wire by exiting Komax Solar and Komax Medtech.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
140% Sales EBIT Sales EBIT 0.6% 120 13.4% 22.4% 20% 100 5.2% Europe 80 4.6% 60 51% Asia / Pacific 40 58.1%
2018.9% 29% North America 0 76.8%
-20
-40 Wire Solar Medtech Corporate Wire Solar Medtech Corporate
136 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We expect a pause in Wire’s top line growth in 2012 after an ■ Solid historical track record for FCF generation thanks to the Wire extraordinarily strong 2011. Longer term, the auto-related unit division’s high margins and limited capital spending needs should also benefit from growing electronic content in cars ■ FCF in 2012 also driven by less working capital being needed ■ Solar equipment sales to collapse in 2012 as capital also on the back of Komax Solar being downsized expenditure in the solar industry has come to a virtual standstill ■ Medtech contribution to FCF to remain marginal at best
MARGINS INVESTED CAPITAL AND RETURNS
■ ‘Peak’ operating Wire margins (H2 2011: 26%) to normalise ■ Invested capital to decrease slightly in 2012 on less working downwards to more sustainable 20%-22% over the next years capital being needed ■ Group margin in 2012 to be dragged down by expected losses ■ Return on invested capital (ROIC) in 2012 to be lower on and restructuring of Komax Solar expected losses of Komax Solar ■ Medtech: we forecast only a marginal profit contribution in 2012
SWOT analysis STRENGTHS OPPORTUNITIES
■ Excellent reputation and strong market position in its core Wire ■ Growing interest in hybrid/electric cars will increase electronics business content in cars and hence also drive demand for Wire solutions ■ Global presence and broad product range ■ Potential to divest Solar and Medtech activities since both units lack scale and have materially diluted group earnings in the past
WEAKNESSES THREATS
■ Profitability remains poor outside the Wire division ■ High margins at Wire potentially attracting new competitors ■ Relative high dependence on automotive suppliers’ capex ■ Medtech: business can experience volatile revenues and behaviour (Wire division’s automotive exposure: about 80%) profitability; repeat orders are essential ■ Lacking critical mass at both Komax Solar and Komax Medtech ■ Industry consolidation in the solar equipment industry not yet over
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 6.4 4.4 6.3 4.5 4.6 Current assets 212 249 258 282 307 EV/EBIT 8.0 5.1 8.1 5.3 5.4 Net fixed assets 71.3 68.0 66.8 66.3 66.1 EV/Inv. Capital 1.0 0.9 0.9 0.9 0.9 Goodwill 26.1 26.1 26.1 26.1 26.1 P/E 14.8 6.7 12.0 7.8 7.9 Total assets 319 361 368 391 416 Cash P/E 14.8 6.7 11.2 7.5 7.6 Sharehold. equit. 213 247 262 284 306 P/CF 15.7 20.5 5.2 5.2 6.1 Working capital 138 179 165 166 174 P/BV 1.3 1.1 1.0 0.9 0.9 Net debt -12.0 -5.6 -30.4 -55.2 -71.9
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 339 370 311 340 359 in sales 62.7 9.1 -15.8 9.0 5.7 EBITDA 37.3 54.9 38.0 53.5 52.4 in EBITDA n.m. 47.1 -30.8 40.8 -2.0 EBIT 30.0 47.5 29.6 45.3 44.4 in EBIT n.m. 58.5 -37.8 53.3 -2.0 Net profits 17.8 39.4 22.3 34.3 33.7 in cash EPS n.m. n.m. -39.7 49.6 -2.1 Cash EPS (CHF) 5.31 11.7 7.05 10.5 10.3 Net debt/equity -5.7 -2.3 -11.6 -19.5 -23.5 Reported EPS (CHF) 5.31 11.7 6.56 10.1 9.90 FCF/net fin. results 3.2 n.m. 41.7 27.3 22.4 DPS (CHF) 1.97 3.97 2.30 3.53 3.46 Current ratio (X) 3.8 4.2 5.0 5.4 5.5
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 30.0 47.5 31.2 46.8 45.8 Gross margin 52.3 53.9 52.2 55.8 54.7 Taxes -6.8 -6.8 -6.3 -9.7 -9.5 EBITDA margin 11.0 14.8 12.2 15.8 14.6 NOPLAT 26.5 36.7 24.7 36.8 36.0 EBIT margin 8.8 12.8 9.5 13.3 12.4 Depreciation 7.3 7.4 6.8 6.7 6.6 ROIC 11.4 14.2 9.1 13.9 13.4 CAPEX -4.2 -5.3 -5.6 -6.1 -6.5 Inv. cap. (CHF m) 239 278 263 265 274 in WC -20.0 -41.7 14.3 -1.3 -7.6 Free cash flow 14.6 -2.5 39.2 35.0 27.5
Made in Switzerland + | Helvea 137
Kone Price: EUR45.1 NEUTRAL Target: EUR44.0 M&S
Volkan Göçmen ([email protected]) – Tel. +41 (0)22 354 9157
Kone is the world’s No.4 elevator & escalator company and has an extensive international footprint. Like Schindler, Kone has a strong entrepreneur-shareholder and is genuinely managed with long-term goals in mind. Although it entered the Chinese market relatively late, by comparison with, for instance, Schindler or OTIS, its very strong foothold in the residential segment has made it one of the fastest-growing elevator & escalator companies. Kone is also one of the most profitable groups in the industry, ranking as No.2 in terms of margins behind OTIS, but ahead of larger rivals. CEO: Matti Alhuhta; CFO: Henrik Ehrnrooth; Website: www.kone.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Finland EUR48 Major shareholders Herlin Antti 20.0%, Others 80.0% 46 44 42 40 Shares outstanding (m) 261 EV/EBITDA (X) 38 Market cap. (EUR m) 11,758 2011 13.7 36 34 Free float 80% 2012E 12.3 32 EBITDA/CAGR 2011-2014E 8.6% 2013E 11.4 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Kone 12-mth tgt Absolute 1% 8% 3% Bloomberg KNEBV FH Buy Acc. Neut. Red. N.R. Rel. to local 13% 7% 32% Reuters KNEBV
News flow
■ January 2012: strong set of Q4/full year 2011 results, with Q4 2012 orders up by 9.2% (+9.3% in local currencies); strong final quarter on the margin front (15.9% vs. 15.3% in Q4 2010) ■ April 2012: very strong Q1 2012, particularly on the order front as orders jumped by 30.7% (+27.1% in local currencies), but slightly short on margins (10.7% vs. 11.3% in Q1 2011); guidance slightly raised ■ Forthcoming event: 19 July 2012 – H1 2012 results/conference call ■ Guidance & consensus: management expects net sales to ‘grow by 10%-15%’ and is looking for an EBIT range of EUR750-800m; consensus EBIT estimates stand at EUR801m for 2012 and EUR893m for 2013
Investment case
Not only do we like the elevators & escalators industry in general, but we particularly like Kone and Schindler: both are genuinely managed for the longer term given the control by strong entrepreneur-shareholders. Kone has not only done an excellent job on the operational front, but also seems to be benefiting at present particularly from an extremely one-sided market with strong volume growth in the Chinese residential segment. Given its strong positioning in this area, we would expect Kone to deliver above-industry-average top-line growth overall. Our hesitation about shifting to a more positive rating is entirely valuation-related. We believe not only Kone but also Schindler are already ‘priced to deliver’, with surprise potential not great enough to justify this valuation. NEUTRAL.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
26% Europe, M. East & Africa (EMEA)
n.a. n.a. Americas 56%
18% Asia Pacific
138 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Strong order backlog at the outset of 2012 to lead to higher ■ Strong sales growth in 2012 will more than compensate for lower sales in both new equipment/modernisation area and the margin and lead to rise in gross operating cash flow service business ■ Together with lower capital spending, we expect a significant ■ First-time consolidation of GiantKONE (China) increase in free cash flow to nearly EUR700m
MARGINS INVESTED CAPITAL AND RETURNS
■ Most of the estimated moderate margin decline in 2012 will, in ■ Slight decline in invested capital in 2012 our view, stem from a shift in the sales mix towards less ■ Lower invested capital, on the back of rising NOPLAT, to lead to profitable new-equipment business improving an ROIC that is already above most of its competitors’ ■ Ongoing stiff price competition, particularly in Southern ■ Elevator & escalator business generally has very low capital- European markets with hard-hit new-equipment business spending needs (estimated at roughly 1.5%-2% of sales)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Entrepreneur-shareholder company with a true long-term ■ Strong (net) cash position to enable Kone to continue playing direction active part in ongoing industry consolidation process ■ Strong balance sheet ■ Further growth opportunities in the very sizeable Chinese ■ Operational excellence residential segment ■ Strong foothold in fast-growing residential market in China
WEAKNESSES THREATS
■ Absent from several key countries/regions: ■ Increasing competition from Schindler on the cards in the – blank spot: Japan (only a cooperation deal with Toshiba) Chinese residential segment – blank spot: Latin America ■ Southern Europe could become a drag with regard to future – blank spot: South Korea margin development
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 14.3 13.7 12.3 11.4 10.7 Current assets 1,822 2,015 2,540 2,923 3,404 EV/EBIT 15.6 15.0 13.9 12.3 11.5 Net fixed assets 205 232 252 282 282 EV/Inv. Capital 9.7 7.3 7.8 8.0 7.7 Goodwill 860 1,165 1,107 1,082 1,057 P/E 21.9 18.3 19.1 17.0 15.9 Total assets 3,245 3,765 4,252 4,640 5,096 Cash P/E 21.0 17.6 17.4 16.4 15.3 Sharehold. equit. 1,599 2,027 2,319 2,649 3,025 P/CF 20.2 19.0 16.7 15.7 14.8 Working capital -372 -441 -502 -527 -550 P/BV 7.4 5.8 5.0 4.4 3.8 Net debt -748 -824 -1,191 -1,524 -1,872
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 4,987 5,225 5,950 6,250 6,520 in sales 5.1 4.8 13.9 5.0 4.3 EBITDA 762 791 883 952 1,012 in EBITDA 20.8 3.8 11.6 7.8 6.3 EBIT 696 725 780 882 942 in EBIT 22.9 4.1 7.6 13.1 6.8 Net profits 535 644 613 689 737 in cash EPS 13.7 19.1 1.0 6.4 6.7 Cash EPS (EUR) 2.15 2.57 2.59 2.76 2.94 Net debt/equity -46.8 -40.6 -51.4 -57.5 -61.9 Reported EPS (EUR) 2.06 2.47 2.37 2.66 2.85 FCF/net fin. results n.m. n.m. n.m. n.m. n.m. DPS (EUR) 0.90 1.40 1.18 1.33 1.42 Current ratio (X) 1.4 1.4 1.5 1.7 1.9
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 720 750 838 907 967 Gross margin 22.7 21.8 21.7 22.1 22.3 Taxes -179 -172 -180 -204 -218 EBITDA margin 15.3 15.1 14.8 15.2 15.5 NOPLAT 542 578 658 703 749 EBIT margin 14.0 13.9 13.1 14.1 14.4 Depreciation 41.9 41.0 45.0 45.0 45.0 ROIC 48.9 44.2 45.8 51.1 54.0 CAPEX -46.2 -92.1 -65.0 -75.0 -78.0 Inv. cap. (EUR m) 1,126 1,486 1,387 1,367 1,406 in WC 147 68.7 61.1 25.3 22.8 Free cash flow 684 595 699 698 739
Made in Switzerland + | Helvea 139
Kudelski Price: CHF7.5 ACCUMULATE Target: CHF9.0 M&S
Reto Amstalden ([email protected]) – Tel. +41 (0)43 388 9261
The Kudelski group operates in three main business lines: Digital TV (solutions supplied to pay-TV providers), Middleware & Advertising (OpenTV) and Public Access (physical access solutions for, mostly, car parks, ski-lifts and stadiums). Digital TV is the key division, generating about 65% of group revenues and the largest EBIT contribution; its revenues come mainly from Europe (>50%); its key customers are EchoStar, Virgin Media and the Canal+ group. Europe is also key for the Middleware & Advertising and Public Access business lines: 30% and 75% of revenues, respectively. CEO: André Kudelski; CFO: Mauro Saladini; Website: www.kudelski.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Technology/Switzerland CHF20 Major shareholders Kudelski family (57% of votes) 23.0%, Others (only 18 16 bearer shares) 77.0% 14 12 Shares outstanding (m) 53.17 EV/EBITDA (X) 10 Market cap. (CHF m) 396 2011 5.8 8 6 Free float 87% 2012E 5.5 4 EBITDA/CAGR 2011-2014E 5.2% 2013E 5.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Kudelski 12-mth tgt Absolute 6% -28% -48% Bloomberg KUD VX Buy Acc. Neut. Red. N.R. Rel. to local 9% -32% -42% Reuters KUD.VX
News flow
■ February 2012: important contract win in the telecom market with BT in the UK (subscriber base: ~700,000), Kudelski will replace the legacy IPTV platform of BT ■ February 2012: mixed H2 2011 results; shortfall on the top line (due to digital TV segment) fully offset by higher cost savings on the operating profit line; subdued outlook with sales continuing to decline ■ Forthcoming event: 21 August 2012 – H1 2012 results ■ Guidance & consensus: management guiding for revenue growth of –5% to –7% and EBIT of CHF35m to CHF50m; consensus EBIT estimates stand at CHF24.6m for 2012 and at CHF50.8m for 2013
Investment case
Our recent recommendation upgrade to ACCUMULATE from NEUTRAL is mainly predicated on the additional visibility and confidence we have gained that Kudelski’s business trends have not deteriorated. Moreover, we regard concerns about Kudelski’s business model and execution of its large cost-saving programme as overdone. We believe the business model remains valid, as reflected by the recent expensive purchase of Kudelski’s main peer of content protection, NDS, by Cisco, and by the fact that incumbent TV operators have not lost subscribers to new delivery platforms (e.g. over-the-top). As such, we think Kudelski is on track to achieve a successful turnaround and that the improving trends are not reflected in the share price given the undemanding valuation.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
120% Sales EBIT Sales EBIT
16% 100 24.2% 23.3% Europe 80
60 4.1% Americas 54% 12.2% 63.6% 30% 40 72.6% Asia and Oceania 20
0 Digital TV Middleware (OpenTV) Public Access Digital TV Middleware (OpenTV) Public Access
140 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Sales base to drop 5% in 2012, but no further deterioration in ■ Operating free cash flow to increase in 2012 as capital spending recent business trends, resilient subscriber trends at key should fall back to maintenance levels of around CHF45m, thus customers and in emerging regions (Latin America) putting it at around depreciation/amortisation levels ■ Middleware business to stabilise and may return to growth trajectory given new material contract win in advertising
MARGINS INVESTED CAPITAL AND RETURNS
■ EBIT margin trend to reverse course in 2012 mainly on the ■ ROIC to improve again in 2012 and 2013 thanks to cost-cutting back of huge cost-cutting benefits efforts and streamlining of the product portfolio, but are unlikely to ■ Continued high profit sensitivity to USD/CHF changes; average reach former peak levels in the high teens any time soon rate of 0.92 (year-to-date) creates noticeable upside to profit ■ Sustainable return on invested capital expected to be in the low levels given rate of 0.90 embedded in Kudelski’s guidance teens and thus exceed Kudelski’s cost of capital significantly
SWOT analysis STRENGTHS OPPORTUNITIES
■ One of the major suppliers of conditional-access systems ■ Digitisation of TV broadcasting driving pay-TV from premium to (CAS) for digital TV worldwide, with customers worldwide mass adoption, especially in Europe and Asia (India, Indonesia) ■ First mover in mass adoption of new pay-TV services in the EU ■ Ongoing migration to digital TV, not only for terrestrial access, but ■ Public Access division well positioned (SkiData), with solutions also by cable companies: this content usually needs a CAS not only for ski access, but also for stadiums and car parks
WEAKNESSES THREATS
■ Marked EBIT dependence on USD/CHF and EUR/CHF ■ Free and premium content ‘over the top’ watching (being pushed exchange rates (i.e. high cost base in Switzerland)) by launch of Apple TV platforms) potentially undermining ■ Lack of transparency to assess sustainable R&D spending incumbent pay-TV operators’ subscriber base level owing to broad product portfolio and high innovation ■ New broadband IP and IPTV delivery platforms for pay-TV speed favouring software only to traditional hardware-based CA solution
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 3.4 5.8 5.5 5.2 4.9 Current assets 599 649 464 522 580 EV/EBIT 5.3 16.4 13.5 12.2 10.8 Net fixed assets 147 166 150 135 124 EV/Inv. Capital 1.0 1.0 1.0 1.0 1.0 Goodwill 136 136 136 136 136 P/E 6.6 n.m. n.m. 12.1 10.6 Total assets 1,105 1,179 968 1,014 1,064 Cash P/E 6.6 n.m. n.m. 12.1 10.6 Sharehold. equit. 451 420 432 462 497 P/CF 2.5 4.3 3.7 3.8 3.6 Working capital 239 212 230 240 249 P/BV 0.9 0.9 0.9 0.9 0.8 Net debt 218 226 210 165 118
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 1,035 874 833 858 879 in sales -1.6 -15.6 -4.7 3.0 2.4 EBITDA 173 101 106 112 118 in EBITDA 25.5 -41.7 5.2 5.4 5.2 EBIT 110 35.3 43.1 47.7 54.0 in EBIT 50.0 -67.9 21.9 10.8 13.1 Net profits 65.7 -18.1 1.3 35.5 40.8 in cash EPS 34.1 n.m. n.m. n.m. 15.0 Cash EPS (CHF) 1.14 -0.31 0.02 0.61 0.71 Net debt/equity 48.3 53.8 48.6 35.7 23.8 Reported EPS (CHF) 1.14 -0.31 0.02 0.61 0.71 FCF/net fin. results n.m. 2.6 3.4 7.5 7.8 DPS (CHF) 0.30 0.10 0.10 0.10 0.10 Current ratio (X) 2.4 1.1 1.4 1.5 1.7
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 135 64.0 68.9 73.8 80.3 Gross margin 78.2 75.1 71.2 71.1 71.1 Taxes -14.8 -8.7 -0.4 -7.2 -8.1 EBITDA margin 16.7 11.5 12.7 13.0 13.4 NOPLAT 120 55.3 68.4 66.6 72.2 EBIT margin 10.6 4.0 5.2 5.6 6.1 Depreciation 37.7 36.9 37.2 38.1 37.3 ROIC 19.7 9.4 11.9 11.6 12.6 CAPEX -71.8 -74.4 -45.4 -49.7 -54.0 Inv. cap. (CHF m) 597 576 577 573 572 in WC -23.7 10.7 -24.1 -6.2 -4.9 Free cash flow 30.6 31.3 41.2 48.8 50.7
Made in Switzerland + | Helvea 141
Kuehne + Nagel Price: CHF103.- NEUTRAL Target: CHF113.- M&S
Chris Burger, CFA ([email protected]) – Tel. +41 (0)43 388 9259
Over its 120-year history, Kuehne + Nagel has evolved from a traditional international freight forwarder to a leading global provider of innovative and fully integrated supply-chain solutions. Today, the Kuehne + Nagel Group has more than 1,000 offices in over 100 countries, with over 63,000 employees. It is the No.1 seafreight forwarder, a Top 3 global air-cargo forwarder, a Top 3 global contract-logistics provider and a European Top 6 road/rail logistics provider. It provides logistics services to virtually all key industry sectors. CEO: Reinhard Lange; CFO: Gerard van Kesteren; Website: www.kn-portal.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF139 Major shareholders Kuehne Holding 54.1%, Kuehne Foundation 4.3% 130 121 112 Shares outstanding (m) 119 EV/EBITDA (X) 103 Market cap. (CHF m) 12,313 2011 11.9 94 Free float 42% 2012E 12.7 85 EBITDA/CAGR 2011-2014E 6.2% 2013E 10.8 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Kuehne + Nagel 12-mth tgt Absolute -13% -7% -23% Bloomberg KNIN VX Buy Acc. Neut. Red. N.R. Rel. to local -11% -12% -15% Reuters KNIN.VX
News flow
■ March: 2012: EU Commission impose high fines on Kuehne + Nagel and Panalpina for operating price fixing cartels ■ April 2012: disappointing profitability in Q1 2012 (gross profit: CHF1,502m, underlying EBIT: CHF165m) ■ Forthcoming event: 16 July 2012 – H1 2012 results ■ Guidance & consensus: management guidance for 2012 – Seafreight (TEU) +10%+; Airfreight (tonnes) +6%- 8%; Road & Rail (turnover) +8%-10%; Contract Logistics (turnover) +5%; consensus EBIT estimates of CHF733m for 2012 and CHF914m for 2013
Investment case
The long-term investment case for logistics companies is unchanged. Kuehne + Nagel is a very well managed company and is well positioned to benefit from strong trends like globalisation and outsourcing. The company’s asset-light business models offer plenty of opportunities and generate handsome returns on invested capital (ROIC). However, we consider that the shares are currently trading at relatively high multiples, which already factor in the positive long-term outlook. We thus reiterate our NEUTRAL recommendation.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
60% Sales EBIT Sales EBIT 0.6%0.0% 5.0% 50 2.3% 7% 21.3% 8.1% 9% Europe 40 1.7% 42.5% Americas 30 53.0% 20 20% 15.1% Asia Pacific 29.9% 64% 10 Middle East, Central Asia 0 20.5% and Africa
-10 Seafreight Airfreight Road & Rail Logistics Seafreight Airfreight Road & Rail Contract Insurance Real Estate Contract logistics InsuranceLogistics brokeragelogistics brokerageReal Estate
142 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Ongoing volume growth in 2012 similar to the 2011 level ■ Free cash flow distorted in 2010-2011 period by disposals and ■ Market share gains against smaller competitors and carriers acquisitions – no future acquisitions included ■ Gross profits/unit (in CHF) to stabilise in 2012 ■ Relatively low capital spending thanks to asset-light business ■ Stands to benefit from globalisation, outsourcing and the trend model towards one-stop shopping over the long term ■ Ongoing focus on days sales outstanding (DSO)
MARGINS INVESTED CAPITAL AND RETURNS
■ Mix impact should have a positive effect on margins in 2012 ■ Asset-light business model with high ROIC ■ Margin at Seafreight will suffer from higher freight rates/revenue ■ Rise in invested capital in 2011 due to acquisitions ■ Profit in airfreight to suffer from anti-trust fine (CHF65m) ■ Relatively stable invested capital going forward ■ Road & Rail should reach break-even ■ ROIC is expected to progress further thanks to higher profits with ■ Relative stable developments at Contract Logistics in 2012 the same network
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong positions, especially in Seafreight and Asia-to-Europe ■ Globalisation will continue and increase demand for logistics ■ Offers integrated services ■ Outsourcing of logistics functions by companies ■ Very good IT solution, which is crucial for logistics ■ Trend towards one-stop shopping ■ Strong management team with a good track record ■ Lowering of trade barriers ■ Strong balance sheet ■ Acquisitions and market consolidation
WEAKNESSES THREATS
■ Contract Logistics is more asset-intensive and makes the ■ Economic risk; slowdown in China company less flexible on costs ■ Higher fixed assets at Contract Logistics business limits flexibility ■ Relatively weak in Rail & Road – target to reach CHF5bn ■ Bad debt risk owing to high accounts receivable ■ Relatively weak in trans-Pacific trade-lanes and intra-Asia ■ Integration of potential acquisitions ■ Relatively small free float ■ Legal risk (e.g. anti-trust)
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 11.6 11.9 12.7 10.8 10.0 Current assets 3,883 3,902 4,613 5,190 5,763 EV/EBIT 15.2 15.5 16.6 13.7 12.4 Net fixed assets 1,083 1,146 1,120 1,095 1,075 EV/Inv. Capital 10.5 8.6 8.8 9.1 9.5 Goodwill 766 892 896 896 896 P/E 20.4 20.5 22.4 18.0 16.3 Total assets 5,941 6,141 6,830 7,382 7,935 Cash P/E 20.4 20.3 22.4 18.0 16.3 Sharehold. equit. 2,365 2,382 2,487 2,762 3,013 P/CF 14.6 15.0 16.2 13.7 12.6 Working capital -447 -398 -397 -413 -432 P/BV 5.2 5.2 5.0 4.5 4.1 Net debt -1,224 -1,016 -1,155 -1,480 -1,782
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 20,261 19,596 21,321 22,907 24,616 in sales 16.4 -3.3 8.8 7.4 7.5 EBITDA 1,004 978 920 1,078 1,171 in EBITDA 13.4 -2.6 -5.9 17.2 8.6 EBIT 765 750 703 853 939 in EBIT 28.8 -2.0 -6.2 21.3 10.1 Net profits 601 601 550 684 755 in cash EPS 25.7 0.4 -9.3 24.5 10.4 Cash EPS (CHF) 5.06 5.08 4.61 5.74 6.33 Net debt/equity -51.8 -42.7 -46.4 -53.6 -59.2 Reported EPS (CHF) 5.06 5.04 4.61 5.74 6.33 FCF/net fin. results 228 n.m. n.m. n.m. n.m. DPS (CHF) 4.25 3.85 3.50 4.30 4.75 Current ratio (X) 1.3 1.2 1.2 1.3 1.3
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 765 755 703 853 939 Gross margin 29.4 30.1 29.4 29.0 28.5 Taxes -162 -158 -161 -179 -197 EBITDA margin 5.0 5.0 4.3 4.7 4.8 NOPLAT 603 597 542 674 742 EBIT margin 3.8 3.8 3.3 3.7 3.8 Depreciation 239 223 217 226 232 ROIC 46.9 48.5 40.6 51.9 59.3 CAPEX -110 -200 -191 -201 -211 Inv. cap. (CHF m) 1,111 1,350 1,320 1,275 1,229 in WC -10.0 -49.0 -1.3 16.0 19.6 Free cash flow 683 149 702 714 782
Made in Switzerland + | Helvea 143
Kuoni Price: CHF282.- ACCUMULATE Target: CHF400.- M&S
Chris Burger, CFA ([email protected]) – Tel. +41 (0)43 388 9259
Founded in 1906, Kuoni is a leading global travel and destination management services company. It generates revenues of above CHF5bn and employs more than 12,000 employees in more than 60 countries on 5 continents. Kuoni is a partner for people all over the world – in direct customer contact for holidays, and as a business partner for providers and resellers of destination services.
CEO: Peter Rothwell; CFO: Peter Meier; Website: www.kuoni.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Cyclical G. & S./Switzerland CHF498 Major shareholders Silchester 18.8%, Migros 11.9%, Kuoni and 440 Hugentobler Foundation 6.3% 382 324 Shares outstanding (m) 3.86 EV/EBITDA (X) 266 Market cap. (CHF m) 1,089 2011 5.3 208 Free float 94% 2012E 4.6 150 EBITDA/CAGR 2011-2014E 10.7% 2013E 4.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Kuoni 12-mth tgt Absolute -2% 11% -20% Bloomberg KUNN SW Buy Acc. Neut. Red. N.R. Rel. to local 0% 4% -12% Reuters KUNN.S
News flow
■ December 2011: Kuoni acquires destination specialist in Namibia ■ March 2012: full-year 2011 results: Asia (VFS Global) offsets lower profit in traditional tour operating business (turnover: CHF5.1bn; Underlying EBIT: CHF168.9m) ■ Forthcoming event: 23 August 2012 – H1 2012 results ■ Guidance & consensus: no specific guidance; consensus EBIT estimates of CHF171m for 2011 and CHF198m for 2012
Investment case
Kuoni has changed significantly over the past few years. Not only is Kuoni not now comparable with what it used to be in the past, but nor is the new Kuoni directly comparable with more charter-based tour operators like TUI Travel or Thomas Cook. We believe that Kuoni is pursuing the most attractive strategy in the industry with its low vertical integration and strong positions in the fast-growing Asian market and in Destination Management. Even if the current market environment is difficult for tour operators, the current valuation is attractive in our view, especially when taking into account the faster-growing and higher-margin business of VFS Global. In addition, Kuoni has a sound balance sheet and strong free cash flow.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
120% Sales EBITA Sales EBITA 100 2.2% 11.3% 14% 80 24.1% 29.3% 60 39.3% 40 20.5% 20 Switzerland International 0 -20 -40 34.5% -60 38.9% 86% -80 Outbound Europe Global Travel Services Outbound Europe Global Travel Services Emerging Markets , Corporate/Other Emerging Markets , Specialists Corporate/OtherSpecialists
144 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ GTA acquisition will still have a substantial impact in 2012 ■ EBITA figures dented by one-offs such as restructuring ■ Global Travel Services and Emerging Markets (incl. VFS programme, the volcanic ash cloud, acquisitions Global) to remain the main organic growth drivers in 2012 ■ Free cash flow in 2011 includes payment for GTA acquisition ■ Growth in outbound Europe ongoing slightly negative in 2012 ■ Usually relatively low capital spending ■ Currency impact expected to be marginal in 2012 ■ Negative NWC, so no investment in NWC required for growth
MARGINS INVESTED CAPITAL AND RETURNS
■ Costs for the restructuring programme will diminish, and fewer ■ Jump in invested capital in 2011 as a result of GTA acquisition integration costs in 2012 will help to improve the reported EBIT ■ Inv. cap. expected to decline from 2012 due to high amortisations margin, but ongoing high amortisations (IFRS 3) ■ ROIC expected to improve again ■ Underlying EBIT margin should remain quite stable in 2012 ■ Small asset base, as vertical integration only where necessary ■ Relative flexible vertically-low integrated business model leads to highest ROIC in the industry
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong position in Visa business and growing Asian market ■ Growing Asian market and attractive destination management ■ Strong position in attractive Destination Management ■ Growing premium and specialist segment ■ Strong position in higher-margin premium and specialist travel ■ High flexibility thanks to its low vertical integration ■ Low vertical integration and relatively high flexibility ■ Sufficient means to play an active role in consolidation ■ Strong balance sheet and high free cash flow generation ■ Remains a potential takeover target
WEAKNESSES THREATS
■ Small fish compared to European giants (especially in the mass ■ Change in travel booking behaviour, with business moving market segment) increasingly towards the Internet ■ High goodwill on the balance sheet ■ Difficult markets in Switzerland and in the UK ■ Dual share structure ■ Political risk, terrorist attacks and natural disasters ■ Voting right limitation ■ Possible goodwill write-offs
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 7.6 5.3 4.6 4.2 3.9 Current assets 1,048 923 1,083 1,272 1,481 EV/EBIT 10.9 8.2 7.3 6.5 5.9 Net fixed assets 180 201 216 229 242 EV/Inv. Capital 3.1 1.3 1.4 1.5 1.7 Goodwill 497 1,287 1,222 1,157 1,090 P/E 38.0 30.6 12.1 10.1 8.4 Total assets 1,821 2,499 2,609 2,746 2,901 Cash P/E 11.0 8.9 8.2 7.3 6.5 Sharehold. equit. 554 766 825 896 984 P/CF 10.4 6.3 4.3 4.0 3.6 Working capital -219 -378 -392 -411 -430 P/BV 1.5 1.4 1.3 1.2 1.1 Net debt -66.6 306 181 37.4 -126
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 3,984 5,111 5,835 6,109 6,390 in sales 2.3 28.3 14.2 4.7 4.6 EBITDA 182 262 300 327 355 in EBITDA 61.1 43.8 14.5 9.3 8.3 EBIT 127 169 189 211 233 in EBIT n.m. 32.9 11.7 12.0 10.3 Net profits 21.3 31.8 90.1 108 130 in cash EPS 93.6 24.2 8.6 12.4 12.0 Cash EPS (CHF) 25.6 31.8 34.5 38.8 43.5 Net debt/equity -12.0 40.0 21.9 4.2 -12.8 Reported EPS (CHF) 7.43 9.22 23.3 27.9 33.7 FCF/net fin. results 3.5 n.m. 14.4 17.8 22.5 DPS (CHF) 2.50 3.00 8.00 9.50 11.0 Current ratio (X) 1.1 0.7 0.8 0.9 1.0
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 72.2 113 184 206 233 Gross margin 21.9 20.1 19.8 19.7 19.6 Taxes -22.4 -34.3 -41.9 -48.7 -54.9 EBITDA margin 4.6 5.1 5.1 5.4 5.5 NOPLAT 49.8 78.7 142 158 178 EBIT margin 3.2 3.3 3.2 3.5 3.6 Depreciation 54.9 92.8 111 116 121 ROIC 10.9 10.7 14.3 17.0 20.8 CAPEX -41.4 -55.3 -61.0 -64.0 -67.0 Inv. cap. (CHF m) 440 1,027 963 892 819 in WC 16.3 -42.1 14.4 18.5 18.9 Free cash flow 64.3 -533 206 228 252
Made in Switzerland + | Helvea 145
Lafarge Price: EUR29.7 NEUTRAL Target: EUR30.0 Large Caps
Patrick Appenzeller ([email protected]) – Tel. +41 (0)43 388 9267
Lafarge is a world leader in building materials. With 145.3m tonnes of cement sold, the French group was still marginally ahead in terms of volume, but now ranks as the No.2 in the global cement market in terms of sales. Lafarge is the world’s second largest producer of aggregates (192.7mt) and the fourth biggest supplier of ready-mix concrete (33.8m3) worldwide. In the wake of its shrinking process over the past three years, Lafarge still employed approximately 68,000 people in 64 countries at 1,604 production sites in 2011. CEO: Bruno Lafont; CFO: Jean-Jacques Gauthier; Website: www.lafarge.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Construction/France EUR50 Major shareholders Groupe Bruxelles Lambert 20.9%, NNS Holding 13.9%, 45 Dodge & Cox 5.9%, Southeastern Asset Management 40 Inc. 5.2%, Others 54.1% 35 Shares outstanding (m) 286 EV/EBITDA (X) 30 Market cap. (EUR m) 8,510 2011 7.1 25 Free float 65% 2012E 6.8 20 EBITDA/CAGR 2011-2014E 7.0% 2013E 6.4 05.11 07.11 09.11 11.11 01.12 03.12 05.12 Share perform. 3m 6m 12m Symbols Lafarge 12-mth tgt Absolute -15% 10% -38% Bloomberg LG FP Buy Acc. Neut. Red. N.R. Rel. to local -3% 15% -18% Reuters LAFP.PA
News flow
■ July 2011: Q2 2011 results below expectations; pricing guidance slightly lowered ■ November 2011: Lafarge’s comparable Q3 2011 EBITDA broadly in line with our projection ■ February 2012: full-year 2011 net profits clearly below expectations and various one-offs; rather weak outlook ■ May 2012: Q1 2012 results better than expected; outlook confirmed ■ Forthcoming event: 27 July 2012 – H1 2012 results ■ Guidance & consensus: Lafarge expects cement volume to rise by 1%-4% y-o-y and higher prices in 2012; consensus EBITDA estimates stand at EUR3.3bn for 2012 and at EUR3.6bn for 2013
Investment case
Lafarge’s Q1 2012 results were better than we had projected, and it looks as if the Middle East/Africa region seems to be recovering more quickly than we had anticipated and at least the negative pricing trend in Egypt has stopped. Furthermore, the company’s cement prices (+3% in Q1 2012 y-o-y) have developed better than we had projected, and the impact of the recent cost-cutting programme (which aims to save EUR400m in 2012) should not be underestimated either. We recently upgraded the stock from REDUCE to NEUTRAL.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
100% Sales EBIT Sales EBIT 3.5% 1.1%1.6%1.2% 1.4% 7.9% 80 16% 20% North America 17.3% Western Europe 60 6% Central & Eastern Europe 40 13.2% Middle East and Africa 64.6% 20 23% 27% Latin America 88.2% Asia 0 8% Cement Pure Aggregates Ready-mix concrete -20 othersCement A,C Pure AggregatesOther/Intersegment Ready-mix concrete others A,C Other/Intersegment
146 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Growth in worldwide cement consumption through population ■ Free cash flows should rise in 2012 and 2013, mainly on the back growth and urbanisation, particularly in emerging markets of reduced capital spending ■ Ongoing decline in volumes in some European markets ■ NOPLAT still suffering from high energy-cost inflation (Lafarge ■ Currently high exposure to main problem countries assuming 7% y-o-y increase in energy costs in 2012), but should ■ Capacity expansion predominantly in emerging markets be increasingly helped by positive price impact
MARGINS INVESTED CAPITAL AND RETURNS
■ Lafarge expects to deliver costs savings of at least EUR400m ■ Significant reduction in capital spending in 2012: EUR0.8bn, half in 2012, with most coming from a reduction in SG&A and of which for maintenance and the other half for adding capacity industrial fixed costs (roughly 50%) ■ Lafarge assuming a 7% rise in energy costs in 2012 ■ Historically low margins in 2011 should rebound as of 2012 as ■ ROIC unlikely to cover cost of capital any time soon, partly due to higher cement prices start to offset higher costs inflated goodwill from Orascom
SWOT analysis STRENGTHS OPPORTUNITIES
■ Network of capacity to adjust to fluctuations in cement demand ■ Ongoing and accelerated cost-cutting programmes ■ Strong long-term growth potential, especially in Middle East ■ Huge margin recovery potential if cement prices start to offset and Africa, where per capita cement consumption is low cost inflation and if volumes in mature markets start to rise ■ Ongoing vertical integration into aggregates (sand, gravel, etc.) ■ Increased use of alternative fuel and reduction in clinker factor ■ High market shares, especially in Middle East and Africa ■ Potential recovery in the USA after a long-lasting downturn
WEAKNESSES THREATS
■ Low capacity utilisation in many European countries and USA ■ Debt crisis spilling over to Central and Northern Europe ■ Margins depressed, especially in the USA and Western Europe ■ Austerity measures could curb public construction spending ■ Dependence on political decisions, various cartel investigations ■ Crisis in emerging markets, especially Africa; falling pricing power around the globe, but formal accusations are seldom levelled ■ High volatility in energy prices; export/import excess capacities ■ Low long-term growth profile in developed countries ■ Failure of joint venture with Anglo American, major impairments
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 6.6 7.1 6.8 6.4 5.8 Current assets 7,742 7,352 8,597 8,848 9,187 EV/EBIT 9.6 10.5 10.0 9.2 8.1 Net fixed assets 17,912 15,542 15,478 15,387 15,425 EV/Inv. Capital 0.7 0.8 0.8 0.8 0.8 Goodwill 14,327 12,701 12,701 12,701 12,701 P/E 10.3 14.4 11.6 9.6 7.4 Total assets 42,494 40,719 39,849 40,008 40,385 Cash P/E 10.3 14.4 11.6 9.6 7.4 Sharehold. equit. 18,224 18,201 18,573 19,426 20,508 P/CF 3.0 3.3 3.1 2.9 2.7 Working capital 1,425 1,332 1,525 1,591 1,688 P/BV 0.5 0.5 0.5 0.4 0.4 Net debt 13,930 11,974 10,449 9,551 8,595
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 14,834 15,284 15,982 16,542 17,219 in sales -6.6 3.0 4.6 3.5 4.1 EBITDA 3,488 3,217 3,365 3,586 3,946 in EBITDA -3.1 -7.8 4.6 6.6 10.0 EBIT 2,393 2,179 2,301 2,494 2,834 in EBIT -3.4 -8.9 5.6 8.4 13.6 Net profits 827 593 736 885 1,152 in cash EPS 4.3 -28.4 24.1 20.3 30.2 Cash EPS (EUR) 2.89 2.07 2.57 3.09 4.02 Net debt/equity 76.4 65.8 56.3 49.2 41.9 Reported EPS (EUR) 2.89 2.07 2.57 3.09 4.02 FCF/net fin. results n.m. n.m. n.m. n.m. n.m. DPS (EUR) 1.00 0.50 0.80 1.00 1.25 Current ratio (X) 1.0 1.0 1.2 1.3 1.3
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 2,393 2,179 2,301 2,494 2,834 Gross margin 26.4 23.9 23.8 24.3 25.4 Taxes -658 -599 -633 -686 -779 EBITDA margin 23.5 21.0 21.1 21.7 22.9 NOPLAT 1,735 1,580 1,668 1,808 2,055 EBIT margin 16.1 14.3 14.4 15.1 16.5 Depreciation 1,095 1,038 1,064 1,091 1,112 ROIC 5.3 5.0 5.6 6.1 6.9 CAPEX -1,331 -1,071 -800 -1,000 -1,150 Inv. cap. (EUR m) 33,664 29,575 29,704 29,678 29,813 in WC 311 93.0 -193 -65.5 -97.0 Free cash flow 1,810 1,640 1,739 1,834 1,920
Made in Switzerland + | Helvea 147
LEM Price: CHF470.- NEUTRAL Target: CHF450.- M&S
Michael Heider ([email protected]) – Tel. +41 (0)43 388 9255
LEM Holding is a highly specialised engineering company focused on current and voltage transducers used for measuring electrical parameters in a broad range of applications in industrial, traction, energy and automotive markets. The company commands global market shares above 50% in this niche. Using Hall-based technology, the products can detect an electrical current and give a feedback signal without interfering with the power circuit. This signal can be used to control the current flow to a device, which enables less energy use, greater convenience and higher safety. CEO: François Gabella; CFO: Julius Renk; Website: www.lem.com (FY to end-March)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF600 Major shareholders WEMACO 32.7%, 7-Industries 12.7%, Sarasin 8.5%, 550 Studer 7.3%, Threadneedle 5.0%, Montanaro 3.7% 500 450 Shares outstanding (m) 1.14 EV/EBITDA (X) 400 Market cap. (CHF m) 536 10/11A 8.6 350 Free float 55% 11/12E 13.2 300 EBITDA/CAGR 10/11A-13E/14E -0.9% 12E/13E 10.9 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols LEM 12-mth tgt Absolute 4% 15% -21% Bloomberg LEHN SW Buy Acc. Neut. Red. N.R. Rel. to local 7% 8% -12% Reuters LEHN.S
News flow
■ November 2011: Q2 2011/12 was the fifth consecutive quarter with declining orders (–66% y-o-y; –38% q-o-q to CHF30.9m); LEM cleans its H1 2011/12 order book (orders of CHF24.5m cancelled in the solar business) ■ February 2012: Q3 2011/12 orders decline 43% y-o-y to CHF47m, but finally show a turnaround on a sequential basis (+5.6% q-o-q on an adjusted basis). LEM raises its full-year guidance on the top line ■ Forthcoming event: 6 June 2012 – full-year 2011/12 results ■ Guidance & consensus: management is guiding for full-year 2011/12 sales of CHF225-235m and operational EBIT of about CHF31m; consensus EBIT estimates stand at CHF35.1m for 2011/12 and CHF41.9m for 2012/13
Investment case
LEM is a growth story overall, with the company being a prime beneficiary of the global energy-saving mega-trend. LEM boasts a tremendous track record on growth (18% sales CAGR over the last 30 years) mainly thanks to the company’s ability to substitute inferior current-measurement technologies (shunts) by making its transducers smaller, more precise and cheaper. However, demand has become more volatile since 2009 and is currently in a significant downswing, which seems to be bottoming out now. Although there are first signs of a turnaround in the orders trend, the valuation seems to already incorporate a significant upswing, hence our NEUTRAL recommendation.
Divisional breakdown (2010/11) Regional breakdown – Sales (2010/11)
Sales EBIT
8% 4% 2% Other Europe, Africa & ME
33% USA & Canada 50% Asia Pacific
Other 92% 96% 15%
Industrial Automotive
148 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We forecast full-year 2011/12 sales to drop by 20.5%, driven by ■ Generally low need for capital spending (3%-4% of sales) helps broad-based downturn in industrial demand and currencies to keep cash generation at a very high level even in phases of ■ Orders have stabilised sequentially (+5.6% q-o-q in Q3) weaker demand ■ We forecast 2012/13 sales to return to the growth path as ■ Reduction in net working capital attributable to sales decline is several end markets are recovering (solar, industrial) set to free cash flow
MARGINS INVESTED CAPITAL AND RETURNS
■ EBIT margin set to suffer from declining sales ■ Asset-light ‘assembly-only’ business model, with low ■ Management has announced a 15% reduction in global requirements for capital spending and high capital turns headcount to protect profitability ■ Highly attractive returns throughout the cycle: ROIC between ■ Despite the downturn, EBIT margin remains above 10% and is 20% and 60% likely to return to target range of 15%-20% next business year ■ ROIC to remain attractive even in the current trough year
SWOT analysis STRENGTHS OPPORTUNITIES
■ Dominant market position with global market share above 50% ■ New regulations for saving energy could help push further the ■ Only purely focused supplier use of transducers in additional applications ■ Significant scale advantages: 5X larger than nearest rival ■ Breakthrough for electric vehicles could boost LEM’s addressable ■ Most extensive product portfolio, highest level of customisation, market by some 30% to 40% high brand reputation and leading product quality ■ White goods could become a broad field of application
WEAKNESSES THREATS
■ Small size of niche market curbs potential in absolute terms ■ New competition could be lured in by the highly attractive returns generated in this business in combination with the constantly expanding size of this niche market ■ High cash generation could tempt LEM into dilutive acquisitions
Valuation ratios Balance sheet (X) 09/10 10/11 11/12E 12/13E 13/14E (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E EV/EBITDA 22.2 8.6 13.2 10.9 8.8 Current assets 98.6 127 103 111 130 EV/EBIT 30.5 9.7 16.113.010.2 Net fixed assets 23.7 25.6 28.3 30.3 32.2 EV/Inv. Capital 8.5 7.1 6.6 6.5 5.8 Goodwill 3.7 3.6 3.6 3.6 3.6 P/E 51.1 13.5 21.017.413.5 Total assets 133 162 141 150 170 Cash P/E 28.5 11.9 21.517.413.5 Sharehold. equit. 83.2 96.9 77.0 91.0 108 P/CF 30.5 10.7 15.913.511.0 Working capital 36.7 64.6 66.8 66.8 74.4 P/BV 6.4 5.5 6.9 5.8 4.9 Net debt -29.8 -26.6 -2.8 -15.4 -23.7
Income statement Growth rates & balance-sheet ratios (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E (In %) 09/10 10/11 11/12E 12/13E 13/14E Sales 186 296 236 256 283 in sales -5.7 59.7 -20.5 8.7 10.7 EBITDA 24.1 62.4 40.6 48.9 60.7 in EBITDA -38.0 n.m. -34.9 20.3 24.2 EBIT 17.5 55.0 33.3 41.0 52.5 in EBIT -48.2 n.m. -39.5 23.2 28.0 Net profits 10.5 39.6 25.5 30.8 39.8 in cash EPS -2.2 n.m. -44.7 23.9 29.2 Cash EPS (CHF) 16.5 39.4 21.8 27.0 34.9 Net debt/equity -35.8 -27.5 -3.7 -16.9 -21.9 Reported EPS (CHF) 9.20 34.7 22.4 27.0 34.9 FCF/net fin. results 9.1 4.2 16.2 20.8 22.6 DPS (CHF) 20.0 40.0 15.0 20.0 30.0 Current ratio (X) 2.9 2.7 2.3 2.8 3.2
Cash flow statement Ratios, margins and returns (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E (In %) 09/10 10/11 11/12E 12/13E 13/14E EBITA 18.6 56.5 34.4 42.0 53.3 Gross margin 43.4 42.6 41.4 42.0 43.0 Taxes -6.5 -12.0 -6.9 -9.2 -11.7 EBITDA margin 13.0 21.1 17.2 19.1 21.4 NOPLAT 12.1 44.5 27.5 32.7 41.5 EBIT margin 9.4 18.6 14.1 16.0 18.5 Depreciation 5.4 5.9 6.3 6.9 7.4 ROIC 19.5 64.0 35.2 40.1 47.5 CAPEX -5.8 -9.4 -9.3 -9.3 -9.8 Inv. cap. (CHF m) 63.1 75.7 80.6 82.5 92.3 in WC 8.1 -21.5 -2.2 0.0 -7.6 Free cash flow 12.4 19.5 22.2 30.3 31.6
Made in Switzerland + | Helvea 149
Lindt & Sprüngli Price: CHF2,821.- NEUTRAL Target: CHF2,600.- M&S
Andreas von Arx ([email protected]) – Tel. +41 (0)43 388 9257
Founded in 1845, Lindt & Sprüngli is the undisputed global leader in the premium chocolate segment. The company commands a chocolate market share of approx.3.5% globally, and is well respected for both its experienced management team and its conservative business approach. The company has been highly successful in achieving sizeable market presence in the USA, the UK and Australia. This, combined with the trend of consumers trading up during the economic boom, enabled Lindt & Sprüngli to generate double-digit top-line growth annually over 2004-2007. CEO: Ernst Tanner; CFO: Dieter Weisskopf; Website: www.Lindt.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Food and Beverage/Switzerland 2,998CHF Major shareholders Fonds für Pensionsergänzungen der Lindt 12.5%, 2,815 Chase Nominees 1.9%, Others 85.6% 2,632 2,449 Shares outstanding (m) 2.17 EV/EBITDA (X) 2,266 Market cap. (CHF m) 6,126 2011 13.6 2,083 Free float 88% 2012E 12.5 1,900 EBITDA/CAGR 2011-2014E 8.6% 2013E 11.6 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Lindt & Sprüngli 12-mth tgt Absolute 2% 1% 6% Bloomberg LISP SW Buy Acc. Neut. Red. N.R. Rel. to local 4% -5% 17% Reuters LISP.S
News flow
■ January 2012: 2011 organic growth significantly below at 6.0% (7.5% Helvea; 6.9% consensus) ■ March 2012: 2011 profitability results in line with expectations (CHF329m EBIT, Helvea CHF329m, consensus CHF324m), long-term guidance reiterated ■ Forthcoming events: 21 August 2012 –H1 results 2012 ■ Guidance & consensus: Lindt & Sprüngli has medium-term targets of 6%-8% and an EBIT margin improvement of 20-40bp (Helvea +50bp; consensus +60bp); consensus EBIT estimates stand at CHF361m for 2012 and at CHF394m for 2012
Investment case
Lindt & Sprüngli is a quality name, but there are others names among European food producers that look more attractive (Danone offers similar organic growth potential with higher emerging market exposure at lower multiples). The recent past indicates that the era of explosive double-digit organic growth is over – in 2011, the company achieved organic growth of 6.0% vs. Nestlé’s 7.5%, Danone’s 7.8% or Unilever’s 6.5%. In 2012, Lindt & Sprüngli, temporary boosted by favourable input costs (lower cocoa prices) might reclaim growth leadership, but this is already fully reflected in the relative valuation premium. The major driver in the FMCG sector is emerging markets growing double digits; Lindt & Sprüngli is (and will continue to) be clearly behind peers (i.e. Unilever 56% of sales).
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
12% Europe and Middle East
n.a. n.a. 28% North and Latin America 60%
Rest of the World
150 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We are forecasting organic growth of 6.5% for 2012, 7.5% for ■ Net working capital as % of sales to decline on lower cocoa 2013 and 7.5% for 2014 (6.0% in 2011; 7.3% in 2010) prices ■ With growth in Anglo-Saxon markets (USA, UK, Australia) ■ Main medium-term driver of medium-term cash flows is the seemingly to slow down on high(er) penetration, we expect improvement in NOPLAT based on a projected margin progress growth focus to start to shift to emerging markets of 20-40bp p.a. over the medium term
MARGINS INVESTED CAPITAL AND RETURNS
■ Margins in 2011 and 2012E helped by the declining cocoa ■ Stable technology, so capital spending is capacity-/maintenance- price – cocoa costs represent approx.10% of sales related ■ The additional profitability could be used to boost volume ■ Company has zero goodwill on the balance sheet growth via higher advertising and promotional (A&P) expenses ■ ROIC primarily driven by increase in NOPAT in the current still challenging consumer environment
SWOT analysis STRENGTHS OPPORTUNITIES
■ Lindt & Sprüngli is the player in premium chocolate, driving ■ Growth in demand for premium products chocolate confectionery growth around the world ■ Under-penetration in key English-speaking markets (USA, UK, ■ The company owns the only global chocolate brand in the non- Australia) offers potential to lift market share further countlines segment ■ Lack of real, global competition in its (premium) segment ■ Experienced management team ■ Starting to expand into new emerging countries
WEAKNESSES THREATS
■ Narrow focus of its business model ■ Chocolate not a healthy product – trend towards obesity might ■ Reliance on the premium segment curb growth potential ■ Lindt & Sprüngli is not an emerging market story ■ Gaining share in fast-growing emerging markets might be more ■ Recently showed vulnerability to volatile cocoa prices difficult as we Nestlé/Kraft to more fiercely defend their market ■ Forthcoming management changes might bring uncertainty positions than in the low growth developed countries
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 13.6 13.6 12.5 11.6 10.7 Current assets 1,652 1,630 1,702 1,867 2,054 EV/EBIT 17.7 17.5 15.8 14.4 13.1 Net fixed assets 755 755 790 822 851 EV/Inv. Capital 5.0 5.0 4.8 4.5 4.3 Goodwill 0.0 0.0 0.0 0.0 0.0 P/E 26.6 26.0 22.1 20.1 18.3 Total assets 2,525 2,516 2,623 2,820 3,036 Cash P/E 18.9 18.9 16.4 15.2 14.1 Sharehold. equit. 1,673 1,619 1,690 1,848 2,021 P/CF 18.0 18.0 16.6 15.3 14.2 Working capital 519 508 537 569 604 P/BV 3.8 4.0 3.8 3.5 3.2 Net debt -529 -476 -485 -577 -686
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 2,579 2,489 2,661 2,858 3,072 in sales 2.2 -3.5 6.9 7.4 7.5 EBITDA 423 422 460 498 540 in EBITDA 10.8 -0.3 9.1 8.3 8.4 EBIT 325 329 365 401 440 in EBIT 22.8 1.0 11.1 9.7 9.8 Net profits 242 247 275 303 333 in cash EPS 9.0 0.2 14.9 8.2 8.0 Cash EPS (CHF) 149.0 149.4 171.6 185.6 200.5 Net debt/equity -31.6 -29.4 -28.7 -31.3 -34.0 Reported EPS (CHF) 106.1 108.4 127.5 140.4 154.1 FCF/net fin. results 227 2,629 n.m. n.m. n.m. DPS (CHF) 45.0 50.0 64.0 70.0 77.0 Current ratio (X) 2.8 2.6 2.5 2.6 2.7
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 325 329 365 401 440 Gross margin 62.6 63.2 63.2 63.2 63.2 Taxes -82.4 -82.1 -90.3 -98.1 -108 EBITDA margin 16.4 17.0 17.3 17.4 17.6 NOPLAT 243 247 275 302 332 EBIT margin 12.6 13.2 13.7 14.0 14.3 Depreciation 98.0 93.2 95.2 97.7 100 ROIC 20.1 21.6 23.4 24.4 25.5 CAPEX -105 -87.6 -130 -130 -130 Inv. cap. (CHF m) 1,143 1,143 1,206 1,270 1,335 in WC 58.6 10.7 -28.6 -32.4 -35.0 Free cash flow 295 263 212 238 268
Made in Switzerland + | Helvea 151
Logitech Price: CHF9.9 NEUTRAL Target: CHF9.0 M&S
Stefan Gächter, CFA ([email protected]) – Tel. +41 (0)43 388 9262
Logitech markets personal interface products for PC, consumer device and gaming platforms (e.g. mice, keyboards, gaming peripherals, Webcams, audio speakers, headsets and remote controls). The bulk of sales are made through retail channels, with the rest via OEMs (about 8%). Logitech’s own primary manufacturing facilities are in China, but many products are also outsourced to Chinese contract manufacturers. Logitech has also entered the high-definition video-conferencing market following its acquisition of LifeSize (currently accounting for 7% to 8% of sales). CEO: Guerrino de Luca; CFO: Erik K. Bardman; Website: www.logitech.com (FY to end-March)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Technology/Switzerland CHF14 13 Major shareholders Daniel Borel 5.9%, Own treasury shares 14.4%, Others 12 79.8% 11 10 9 Shares outstanding (m) 170 EV/EBITDA (X) 8 Market cap. (USD m) 1,725 11/12A 7.6 7 6 Free float 80% 12/13E 5.0 5 EBITDA/CAGR 11/12A-14E/15E 22.1% 13E/14E 4.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Logitech 12-mth tgt Absolute 28% 32% -6% Bloomberg LOGN VX Buy Acc. Neut. Red. N.R. Rel. to local 31% 24% 3% Reuters LOGN.VX
News flow
■ March 2012: Logitech names Bracken P. Darrell President and new CEO from January 2013 onwards ■ April 2012: Logitech announces it will reduce its annual cost base by USD80m; Q4 FY2011/12 results may also signal that the worst could be behind Logitech – but it is too early to call it a successful turnaround, in our view ■ Forthcoming event: 26 July 2012 – Q1 2012/13 results ■ Guidance & consensus: Logitech gave no financial guidance for FY2012/13 when it reported Q4 FY2011/12 figures (so far, it only said it would be disclosing the estimated amount of restructuring charges before the quarter ending June); consensus EBIT estimates stand at USD117m for 2012/13 and at USD171m for 2013/14
Investment case
Although the worst may be behind Logitech, we believe that it is too early to call it a successful turnaround and we still lack a fundamental basis that is sufficiently good for us to re-visit Logitech’s investment case (details of the cost reduction programme not yet available, not much information on planned product initiatives available besides management claiming that Logitech has one of the best line-ups ever). As such, visibility remains low and, given the fact that the new CEO is focusing on Logitech being ‘consumer-centric’ again, we would not rule out that fewer resources being allocated to LifeSize will increase the risk of a goodwill impairment. We maintain our NEUTRAL recommendation on the shares.
Divisional breakdown (2011/12) Regional breakdown – Sales (2011/12)
Sales EBIT
6% 8% 28% 19% Other Europe, Africa & ME 4% 37% 5% n.a. USA & Canada 9%
19% Asia Oceania 21% 44%
Pointing Devices Keyboards Audio Video
Gaming Digital Home OEM LifeSize
152 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Top-line growth in 2012/13 to be driven by low double-digit ■ Free cash flow expected to improve starting from 2012/13 on the sales growth at LifeSize, Keyboards-, Pointing- or Audio back of assumed higher operating margins devices whereas Video, Gaming and Remotes are likely to post ■ NOPLAT to improve in 2012/13 on normalising operating margins a contraction in revenues
MARGINS INVESTED CAPITAL AND RETURNS
■ Operating margin in FY2012/13 hinges very much on the ■ Operating invested capital growth projected to remain more or success of the announced product initiative and on measures less stable in the absence of portfolio action to reduce the cost base by USD80m per annum. Details of the ■ ROIC in 2012/13 expected to advance on the back of higher restructuring plan have not been published yet operating margins
SWOT analysis STRENGTHS OPPORTUNITIES
■ Retail distribution and brand recognition ■ Emerging markets (e.g. China) still under-penetrated ■ Marketing know-how ■ High net cash position allows acquisitions or share buy-backs ■ Successful entry into video-conferencing market with LifeSize ■ Streamlining of Logitech’s organisational structure and its retail product portfolio (which is too large)
WEAKNESSES THREATS
■ High dependence on consumer spending ■ Consolidation in consumer electronics sector strengthening ■ Management needs to boost profitability while investing in new bargaining power of remaining retailers and Logitech clients growth areas, two pursuits almost diametrically opposed ■ Entering very competitive corporate markets with LifeSize ■ Sales exposure still very much skewed to Europe/Americas – ■ Structural headwinds, coming from tablet PCs and smart-phones, Logitech needs to build stronger foothold in developing markets cannibalising PC/notebook sales (higher peripheral attach rates)
Valuation ratios Balance sheet (X) 10/11 11/12 12/13E 13/14E 14/15E (In USD m) 10/11 11/12 12/13E 13/14E 14/15E EV/EBITDA 5.0 7.6 5.0 4.5 4.2 Current assets 1,076 1,065 1,232 1,409 1,604 EV/EBIT 7.7 15.2 7.4 6.4 5.7 Net fixed assets 84.2 86.8 88.1 90.4 93.3 EV/Inv. Capital 1.0 1.1 1.1 1.1 1.1 Goodwill 547 561 561 561 561 P/E 14.0 24.8 20.0 12.4 11.0 Total assets 1,862 1,848 1,993 2,150 2,326 Cash P/E 11.5 18.1 15.7 10.6 9.6 Sharehold. equit. 1,205 1,150 1,238 1,377 1,534 P/CF 20.7 10.1 8.0 7.1 6.6 Working capital 364 338 338 338 338 P/BV 1.5 1.5 1.4 1.3 1.1 Net debt -478 -478 -633 -802 -987
Income statement Growth rates & balance-sheet ratios (In USD m) 10/11 11/12 12/13E 13/14E 14/15E (In %) 10/11 11/12 12/13E 13/14E 14/15E Sales 2,363 2,316 2,366 2,449 2,538 in sales 20.1 -2.0 2.2 3.5 3.6 EBITDA 217 144 217 241 263 in EBITDA 45.5 -33.5 50.0 11.3 9.0 EBIT 143 72.0 147 171 193 in EBIT 82.0 -49.5 n.m. 16.9 12.5 Net profits 128 71.5 87.5 139 157 in cash EPS 97.0 -36.5 15.4 47.6 10.5 Cash EPS (USD) 0.88 0.56 0.65 0.96 1.06 Net debt/equity -39.7 -41.6 -51.2 -58.2 -64.4 Reported EPS (USD) 0.73 0.41 0.51 0.82 0.93 FCF/net fin. results n.m. n.m. n.m. n.m. n.m. DPS (CHF) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 2.3 2.2 2.5 2.7 3.0
Cash flow statement Ratios, margins and returns (In USD m) 10/11 11/12 12/13E 13/14E 14/15E (In %) 10/11 11/12 12/13E 13/14E 14/15E EBITA 170 98.5 171 194 215 Gross margin 38.6 36.7 38.5 38.8 38.5 Taxes -20.0 -19.8 -24.7 -39.3 -44.3 EBITDA margin 9.2 6.2 9.2 9.8 10.4 NOPLAT 154 85.7 150 160 175 EBIT margin 6.0 3.1 6.2 7.0 7.6 Depreciation 46.8 46.0 46.0 46.7 47.9 ROIC 15.8 8.4 14.9 15.8 17.4 CAPEX -41.3 -51.0 -47.3 -49.0 -50.8 Inv. cap. (USD m) 1,040 1,003 1,008 1,010 1,012 in WC -134 25.9 -0.3 0.4 0.4 Free cash flow 27.1 123 145 158 173
Made in Switzerland + | Helvea 153
Lonza Group Price: CHF34.5 NEUTRAL Target: CHF40.0 M&S
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
Lonza is one of the world’s leading suppliers to the pharmaceutical, health-care and life sciences industries. The group is the global leader in the production and support of active pharmaceutical ingredients (APIs) both chemically and biotechnologically. Furthermore, the company is a leader in cell-based research, endotoxin detection and cell therapy manufacturing, a leading provider of chemical and biotech ingredients to the preservation, agrochemical, nutrition, hygiene, and personal-care markets. Sales totalled CHF2.7bn in 2011, CHF3.4bn 2012E following Arch integration. CEO: Richard Ridinger; CFO: Toralf Haag; Website: www.lonza.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Chemicals/Switzerland CHF84 Major shareholders Manning & Napier 13.2%, Franklin Resources 6.3%, 75 Affiliated Managers Group 3.6% 66 57 Shares outstanding (m) 52.92 EV/EBITDA (X) 48 Market cap. (CHF m) 1,827 2011 8.2 39 Free float 77% 2012E 7.2 30 EBITDA/CAGR 2011-2014E 11.0% 2013E 6.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Lonza Group 12-mth tgt Absolute -27% -38% -53% Bloomberg LONN VX Buy Acc. Neut. Red. N.R. Rel. to local -25% -42% -48% Reuters LONN.VX
News flow
■ September 2011: FDA issued Warning Letter on manufacturing issues (biopharmaceuticals at Hopkinton, MA) ■ October 2011: Q3 2011 business update disappointed with forex effects and worsened pricing power at LSI ■ January 2012: full-year 2011 results disappoint unprepared market, dismissal of Stefan Borgas, CEO ■ April 2012: CEO Richard Ridinger recruited from BASF with mission to ‘reliably deliver’ (Chairman Rolf Soiron) ■ Forthcoming event: 25 July 2012 – H1 2012 results ■ Guidance & consensus: management guiding for 10% to 15% EBIT growth in 2012; consensus EBIT estimates of CHF390m for 2012 and CHF465m for 2013
Investment case
Although Custom Manufacturing (LCM) is seeing good momentum in terms of capacity utilisation rates, we are disappointed by the only very moderate degree to which higher utilisation is translating into earnings growth this year as a result of product mix shifts and issues related to the FDA’s recent Warning Letter. Moreover, Life Science Ingredients (LSI) is suffering from diminished pricing power on the back of volatility in raw material prices and massive competition in the vitamin B3 business is a major drag on profits, and it will keep margins compressed going forward. Developments in the joint venture with Teva are encouraging long term although much will ultimately depend on the commercial realisation of biosimilars at not too hefty a price cut and their use by doctors.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
90% Sales EBIT Sales EBIT 80 0.4% 0.0%4.1% 70 18.1% 13.7% 60 50 4.4% 48.2% 40 n.a. 30 25.9% 20 10 77.8% 0 7.5% -10Custom Manufacturing Bioscience Life Science Ingredients Custom Bioscience Life Science Microbial Control Other MicrobialManufacturing Control Other Ingredients
154 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Higher capacity utilisation in Biological Manuf. in 2012 & 2013 ■ NOPLAT to rise in 2012 (organically and via the Arch acquisition) ■ Improving product mix in Chemical Manufacturing in 2012 ■ Company intends to improve working capital in 2012 ■ Organic decline in Life Science Ingredients (LSI) in 2012 ■ Operating cash flow expected to increase in 2012 on higher ■ Microbial Control (incl. Arch) likely to see weak demand in 2012 EBITDA at the ‘old’ Lonza and from the acquisition of Arch ■ Currencies roughly neutral on top-line growth in 2012 ■ Free cash flow up in 2012 on the back of higher cash earnings
MARGINS INVESTED CAPITAL AND RETURNS
■ Volume-mix and improved fixed-cost absorption at LCM in 2012 ■ Capital spending (excluding acquisitions) well below CHF300m in ■ Improved capacity utilisation at Singapore plant in 2012 and 2013 2012 and 2013 to use cash flows for deleveraging ■ Raw material price volatility and competitive price pressures in ■ Invested capital expected to rise in 2012 following acquisition of LSI and Microbial Control in 2012 Arch Chemicals in late 2011 ■ Currencies weighing on profitability significantly in 2012 ■ No improvement in ROIC before 2013 due to the Arch acquisition
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading franchises in Custom Manufacturing, Bioscience, Life ■ Market share gains in Biopharmaceuticals Science Ingredients, and Microbial Control ■ Growing interest in outsourcing of API production ■ Good track record on pricing power ■ Pipeline deals with pharma customers and entry into biosimilars ■ Technological leader with a strong track record ■ Attractive biotech CMO market growth ■ Strong customer relationships in both Pharma and Biotech ■ Huge potential upside in Cell Therapy as part of Bioscience
WEAKNESSES THREATS
■ Custom Manufacturing lacks transparency due to imposed ■ Potential clinical trial failures, delays in drug launches, customers’ confidentiality agreements with customers management of working capital, product withdrawals by clients ■ Margins in Life Science Ingredients and Microbial Control ■ Long-term threat of emerging Asian competition in biopharma exposed to macroeconomic environment ■ Overcapacity in small molecules, leading to price erosion and ■ Moderate underlying free cash flow in the medium term mounting competition from low-cost manufacturers in Asia
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 6.9 8.2 7.2 6.5 6.0 Current assets 1,434 1,892 1,663 1,724 1,821 EV/EBIT 12.1 15.1 13.5 11.4 10.0 Net fixed assets 2,470 2,701 2,653 2,623 2,596 EV/Inv. Capital 1.2 0.9 0.9 0.9 0.9 Goodwill 410 1,132 1,132 1,132 1,132 P/E 6.2 11.6 13.1 9.6 7.2 Total assets 4,778 7,020 6,739 6,764 6,829 Cash P/E 6.4 11.7 13.1 9.6 7.2 Sharehold. equit. 2,387 2,357 2,382 2,458 2,595 P/CF 3.5 3.6 3.5 3.0 2.8 Working capital 685 968 784 842 895 P/BV 0.8 0.8 0.8 0.7 n.m. Net debt 1,151 2,641 2,413 2,385 2,292
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 2,671 2,692 3,366 3,616 3,840 in sales -0.7 0.8 25.0 7.4 6.2 EBITDA 638 537 614 676 735 in EBITDA -3.0 -15.8 14.4 10.0 8.8 EBIT 365 292 327 388 440 in EBIT -3.9 -20.0 12.0 18.7 13.4 Net profits 282 154 138 189 250 in cash EPS 68.6 -45.4 -10.5 37.0 32.6 Cash EPS (CHF) 5.38 2.94 2.63 3.60 4.78 Net debt/equity 48.2 112 101 97.0 88.3 Reported EPS (CHF) 5.55 2.98 2.63 3.60 4.78 FCF/net fin. results 3.1 n.m. 4.6 1.7 2.4 DPS (CHF) 2.15 2.15 2.15 2.15 2.15 Current ratio (X) 1.3 2.0 1.5 1.4 1.5
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 365 261 258 388 440 Gross margin 26.3 26.0 24.2 28.1 28.4 Taxes -55.2 -34.9 -47.4 -73.8 -83.6 EBITDA margin 23.9 19.9 18.3 18.7 19.1 NOPLAT 310 226 211 314 357 EBIT margin 13.7 10.8 9.7 10.7 11.5 Depreciation 273 276 316 288 295 ROIC 8.7 5.3 4.3 6.4 7.2 CAPEX -259 -241 -240 -230 -240 Inv. cap. (CHF m) 3,537 5,045 4,855 4,907 4,955 in WC 17.3 -80.0 196 -58.2 -52.3 Free cash flow 135 -738 415 263 308
Made in Switzerland + | Helvea 155
Merck KGaA Price: EUR74.8 NEUTRAL Target: EUR73.0 Large Caps
Odile Rundquist, PhD ([email protected]) – Tel. +41 (0)22 354 9159
Merck KGaA is a global pharmaceuticals and chemicals group, which has undergone significant restructuring since 2003, divesting five business units, and acquiring Swiss biotech group Serono in 2007 and US life-sciences company Millipore in 2010. Merck Serono, the group’s largest division, focuses on highly specialised therapeutic areas, such as neurodegenerative diseases, oncology, fertility and endocrinology. Its chemical businesses now comprise Merck Millipore, which supplies tools to the life-sciences industry, and Performance Materials, which supplies liquid crystals. CEO: Karl-Ludwig Kley; CFO: Mathias Zachert; Website: www.merck.de (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Germany EUR 86 Major shareholders Merck family 68.0%, Others 32.0% 80 74 68 Shares outstanding (m) 217 EV/EBITDA (X) 62 Market cap. (EUR m) 16,264 2011 7.5 56 Free float 32% 2012E 8.0 50 EBITDA/CAGR 2011-2014E 3.6% 2013E 7.1 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Merck KGaA 12-mth tgt Absolute -4% 1% -2% Bloomberg MRK GR Buy Acc. Neut. Red. N.R. Rel. to local 5% -1% 14% Reuters MRCG.DE
News flow
■ May 2012: at Merck KGaA’s first ever Capital Markets Day, management revealed details of the group’s efficiency programme, with net savings of EUR300m expected for 2014 at sizeable one-off costs of EUR600m ■ Forthcoming events: 15 August 2012 – Q2 2012 results; H2 2012 – Ph.III results for Atacicept in SLE; H1 2013 – Ph.III results of Stimuvax (NSCLC) and cilengitide (glioblastoma); H2 2013 – Erbitux in gastric cancer ■ Guidance & consensus: for 2012, management guided for total revenues amounting to around EUR10.5bn and EBITDA before one-offs of EUR2.8-2.9bn; management’s 2014 targets are for total group sales of ca.EUR10.35- 10.7bn and EPS before one-offs of EUR8.2-9.0; consensus EBIT est.: EUR1.430bn (2012); EUR1.631bn (2013)
Investment case
Following various setbacks with its pipeline portfolio, Merck Serono’s net portfolio ‘add-on’ potential (pipeline potential less generic risk exposure) is now negative. Although almost the entire generic risk relates to biological agents, including Rebif (multiple sclerosis), Erbitux (oncology) and Gonal-f (infertility), which tend to have more moderate sales erosion than chemically synthesised small-molecule drugs, competition from more efficacious oral drugs will dent growth. Performance Materials will remain flat until 2014, with margins decreasing on the back of fresh competition in liquid crystals and pricing pressures. The company has initiated a cost-cutting programme to reduce organisational complexity, set up a new leadership organisation and develop a long-term growth strategy.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
70% Sales OperatingSales profit 0.0% Operating profit 60 12.0% 22.9% 50 23.3% 40 15.8% 30 3.1% n.a. 20 57.6% 1014.3% 0 4.8% -10 46.2% -20Merck Serono Consumer Health Performance Materials Merck Serono Consumer Health Performance Merck Millipore Corporate Merck Millipore CorporateMaterials
156 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Company highly reliant on the performance of Erbitux and ■ Free cash flow climbing following rebound at Liquid Crystals Rebif division and mature pharma portfolio: this helps to reduce debt ■ Medium-term growth dependent on high-risk pipeline projects position taken on to finance the two last acquisitions ■ Millipore acquisition adds stability to group revenue growth ■ Limited investment required in manufacturing given Serono’s ■ Liquid Crystals division affected by competition state-of-the-art facilities
MARGINS INVESTED CAPITAL AND RETURNS
■ Margins will benefit from cost-cutting programme, with ■ Restructuring programme will boost the return on invested capital EUR300m savings (EUR180m on SG&A costs and EUR120m in 2013 and 2014 on R&D) expected by 2014 ■ Liquid Crystals division’s strong recovery and high margin ■ Margins in Performance Materials to decrease on the back of generate returns above the group average competition to PS-VA technology and pricing pressures
SWOT analysis STRENGTHS OPPORTUNITIES
■ New strong management team with very good track record ■ Approval of Stimuvax in non-small-cell lung cancer (NSCLC) (CFO; Pharmaceuticals management) ■ Approval of Erbitux in gastric cancer ■ Liquid Crystals business has strong leadership position, with ■ Approval of cilengitide in glioblastoma margin above its peers and global market share of about 50% ■ Millipore acquisition creates a leader in life sciences
WEAKNESSES THREATS
■ Merck Serono relies on two drugs, Rebif and Erbitux ■ Late-stage pipeline projects not approved or failed in Phase III ■ Thin late-stage R&D pipeline, with numerous high-risk projects ■ Competition from Gilenya and follow-on biologics (FOB) could (e.g. Atacicept, Stimuvax, cilengitide) undermine Rebif’s position in the medium term ■ Consumer Health division lacks critical mass ■ Strong performance by liquid crystals business unlikely to be ■ Liquid Crystals division is exposed to currencies sustainable (competition in PS-VA technology)
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 8.3 7.5 8.0 7.1 6.7 Current assets 5,664 6,397 6,698 6,887 7,383 EV/EBIT 18.4 18.0 16.612.811.6 Net fixed assets 3,241 3,113 3,071 3,032 3,001 EV/Inv. Capital 1.3 1.4 1.5 1.6 1.7 Goodwill 12,484 11,764 10,993 10,247 9,531 P/E 25.7 26.3 21.314.813.1 Total assets 22,388 22,120 21,707 21,112 20,861 Cash P/E 12.1 12.5 11.1 9.2 8.6 Sharehold. equit. 10,330 10,447 11,130 12,140 13,291 P/CF 8.8 7.5 8.1 7.2 6.9 Working capital 2,036 1,740 1,756 1,766 1,765 P/BV 1.6 1.6 1.5 1.3 1.2 Net debt 4,902 3,894 2,512 728 -1,171
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 9,291 10,276 10,515 10,573 10,566 in sales 19.9 10.6 2.3 0.6 -0.1 EBITDA 2,457 2,736 2,553 2,891 3,039 in EBITDA 51.2 11.3 -6.7 13.3 5.1 EBIT 1,113 1,137 1,239 1,600 1,775 in EBIT 79.2 2.2 9.0 29.1 11.0 Net profits 632 617 765 1,098 1,240 in cash EPS 30.2 -3.3 12.6 20.5 6.9 Cash EPS (EUR) 6.20 5.99 6.75 8.13 8.68 Net debt/equity 47.5 37.3 22.6 6.0 -8.8 Reported EPS (EUR) 2.91 2.84 3.52 5.05 5.70 FCF/net fin. results 7.0 5.0 8.0 18.5 23.1 DPS (EUR) 1.25 1.50 1.60 1.60 1.60 Current ratio (X) 1.7 1.5 1.6 2.0 2.6
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 2,019 2,214 2,111 2,447 2,595 Gross margin 74.3 72.9 72.4 72.2 72.1 Taxes -515 -578 -538 -636 -675 EBITDA margin 26.4 26.6 24.3 27.3 28.8 NOPLAT 1,504 1,636 1,572 1,811 1,920 EBIT margin 12.0 11.1 11.8 15.1 16.8 Depreciation 352 520 442 445 445 ROIC 11.9 11.1 11.2 13.7 15.4 CAPEX 500 446 499 508 518 Inv. cap. (EUR m) 15,231 14,341 13,642 12,868 12,120 in WC 397 -296 15.9 9.8 -1.2 Free cash flow 1,752 1,414 1,531 1,758 1,846
Made in Switzerland + | Helvea 157
Metall Zug Price: CHF3,700.- NEUTRAL Target: CHF4,100.- M&S
Michael Heider ([email protected]) – Tel. +41 (0)43 388 9255
Metall Zug is a conglomerate of industrial companies holding leading market positions in their respective niche markets. The group comprises the Swiss market leader in household appliances with its main brand V-Zug, the global No.3 player in infection control (Belimed) as well as the worldwide No.2 manufacturer of wire-processing machines (Schleuniger). Furthermore, it owns an attractive real-estate portfolio in Zug (Switzerland) which includes the main prime-site shopping mall in the city centre. The company is controlled by the Buhofer family. CEO: Dr. Jürg Werner; CFO: Robert Berlinger; Website: www.metallzug.ch (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland 4,600CHF Major shareholders Buhofer Family (67.2% of votes) 33.0%, U. Stöckli 4,300 (15.7% of votes) 11.1%, W. O. Weber (5.6% of votes) 4,000 11.1% 3,700 Shares outstanding (m) 0.45 EV/EBITDA (X) 3,400 Market cap. (CHF m) 1,665 2011 10.0 3,100 Free float 45% 2012E 9.1 2,800 EBITDA/CAGR 2011-2014E 6.8% 2013E 8.6 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Metall Zug 12-mth tgt Absolute -2% 9% -9% Bloomberg METN SW Buy Acc. Neut. Red. N.R. Rel. to local 0% 3% 0% Reuters METN.S
News flow
■ May 2011: spin-off of real-estate business as separately listed company announced for 2012 ■ August 2011: H1 2011 results below expectations, showing a 31% y-o-y fall in net profits to CHF24.2m ■ April 2012: full-year 2011 EBIT declines 8% y-o-y to CHF97m and net profits drop 31% to CHF63m. Results show the negative impact of adverse currency movements and unfavourable financial markets ■ Forthcoming event: 2 July 2012 – expected first trading day of the separately listed real estate business ■ Guidance & consensus: management is guiding for further growth in sales and EBIT in 2012; consensus EBIT estimates stand at CHF105m for 2012 and at CHF111.5m for 2013 (consensus comprises two estimates)
Investment case
Metall Zug is a conservatively run, family-controlled industrial conglomerate that offers ‘value’-oriented investors an interesting opportunity through the spin-off and separate listing of its real-estate business in 2012. The group is trading at a discount to intrinsic SOTP value, with industrial businesses at an undemanding EV/EBIT ratio for 2012. Owning the shares gives investors a stake in three well-run operating businesses that rank among the leading players in their respective niche markets. Moreover, Metall Zug has an attractive real-estate portfolio with a market value of CHF1,756 per share and CHF188m in net cash (end-2011 values). However, currency headwinds and a slowing economy are currently largely outweighing short-term potential from a real-estate spin-off, in our view.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
80% Sales EBIT Sales EBIT 70 12.2% 15.5% 7% 3% 60 7% Switzerland 2.7% 50 Other Europe, Africa & ME
22.6%40 18% USA & Canada 30 65.2% 20 65% Asia Pacific
10 81.7% Other 0
-10 Household Appliances Infection Control Wire Processing Household Appliances Infection Control Wire Processing
158 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We are looking for very pedestrian top-line growth in 2012, ■ Household Appliances business the group’s sustainable cash held back by structural and cyclical headwinds cow, generating free cash flow of approximately CHF60m p.a. ■ Schleuniger is highly cyclical with double-digit sales swings ■ High capital spending in Rotkreuz real-estate project of about whereas the household appliances business is much more CHF50-100m p.a. to dent FCF resilient to economic swings ■ However, capex in real estate lifts the portfolio’s market value
MARGINS INVESTED CAPITAL AND RETURNS
■ Appliances seeing margin declines as a result of pricing ■ Household Appliances very well defended, generating returns pressure from currency gains of eurozone-based competitors sustainably above 25% ■ Belimed losing competitiveness versus its main competitors ■ Schleuniger’s returns massively exposed to economic cycles; from outside Switzerland, resulting in margin slippage current strong upswing could come to an end in H2 2012 ■ Schleuniger benefiting from solid volume growth ■ Belimed’s returns currently at risk owing to declining EBIT
SWOT analysis STRENGTHS OPPORTUNITIES
■ Undisputed and sustainable No.1 in the Swiss premium ■ Spin-off of real-estate business in 2012 likely to take a slice off household appliances market the conglomerate discount ■ Very attractive real-estate portfolio, with vacancy rates below ■ Further add-on acquisitions at Infection Control and Wire 1% in Zug, one of the property ‘hot spots’ in Switzerland Processing might strengthen their respective market positions ■ Long-term-oriented family business ■ Double-digit EBIT margins at Infection Control possible
WEAKNESSES THREATS
■ Unsustainable returns at Wire Processing owing to the extreme ■ Chinese market entries into wire processing might put pressure cyclicality of this business on margins ■ Euro weakness gives European producers more incentive to start pricing aggressively in the Swiss household appliances market ■ Further diversification of conglomerate through acquisitions
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 9.4 10.0 9.1 8.6 8.2 Current assets 684 755 825 896 969 EV/EBIT 13.6 14.9 13.612.712.2 Net fixed assets 524 575 621 666 660 EV/Inv. Capital 2.0 1.9 1.8 1.7 1.7 Goodwill 0.0 0.0 0.0 0.0 0.0 P/E 18.0 26.3 19.918.818.1 Total assets 1,253 1,380 1,495 1,610 1,676 Cash P/E 18.0 26.3 19.918.818.1 Sharehold. equit. 818 855 918 974 1,031 P/CF 12.1 13.1 11.811.310.7 Working capital 205 218 224 233 243 P/BV 2.0 1.9 1.8 1.7 1.6 Net debt -217 -188 -197 -205 -265
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 832 842 870 907 947 in sales 8.0 1.3 3.3 4.2 4.4 EBITDA 153 144 159 166 175 in EBITDA 46.1 -6.1 10.3 5.0 5.1 EBIT 105 96.7 106 113 118 in EBIT 70.5 -8.3 9.5 6.9 4.4 Net profits 92.3 63.4 83.6 88.4 92.1 in cash EPS 28.6 -31.3 31.9 5.8 4.1 Cash EPS (CHF) 205.0 140.8 185.7 196.5 204.6 Net debt/equity -26.6 -22.0 -21.4 -21.1 -25.7 Reported EPS (CHF) 205.0 140.8 185.7 196.5 204.6 FCF/net fin. results n.m. 0.2 5.9 5.2 11.1 DPS (CHF) 55.0 55.0 60.0 65.0 68.0 Current ratio (X) 6.4 8.2 8.8 9.3 9.9
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 108 99.1 109 116 121 Gross margin 62.2 62.6 62.9 62.4 62.5 Taxes -15.4 -17.0 -17.5 -18.6 -19.3 EBITDA margin 18.4 17.1 18.2 18.3 18.5 NOPLAT 92.4 82.1 91.6 97.5 102 EBIT margin 12.7 11.5 12.2 12.5 12.5 Depreciation 45.1 44.6 49.4 50.3 54.0 ROIC 13.7 11.2 11.6 11.6 11.7 CAPEX -103 -110 -97.5 -97.1 -49.2 Inv. cap. (CHF m) 702 765 817 867 866 in WC 4.8 -12.6 -6.0 -9.5 -10.2 Free cash flow 39.0 3.9 37.6 41.3 96.0
Made in Switzerland + | Helvea 159
Meyer Burger Price: CHF15.3 NEUTRAL Target: CHF15.0 M&S
Stefan Gächter, CFA ([email protected]) – Tel. +41 (0)43 388 9262
Meyer Burger has a broad product range geared towards solar photovoltaics where its equipment, for instance, is used to cut silicon (wafering). The acquisition of Diamond Wire Material Technologies, the merger with 3S Industries (module production machinery) and the acquisition of Roth & Rau (cell-making equipment) clearly strengthened the business model. The group will not only be able to build up a sizeable consumables business, but is also expanding its product offering along the solar-manufacturing chain, becoming a global top-tier solar equipment manufacturer. CEO: Peter Pauli; CFO: Michel Hirschi; Website: www.meyerburger.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
CHF Sector/Country Industrial G. & S./Switzerland 47 Major shareholders Peter Pauli, CEO 3.2%, Others 96.8% 40 33 26 Shares outstanding (m) 47.72 EV/EBITDA (X) 19 Market cap. (CHF m) 730 2011 1.9 12 Free float 97% 2012E 10.5 5 EBITDA/CAGR 2011-2014E -16.4% 2013E 4.0 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Meyer Burger 12-mth tgt Absolute -4% -13% -60% Bloomberg MBTN SW Buy Acc. Neut. Red. N.R. Rel. to local -2% -18% -56% Reuters MBTN.S
News flow
■ March 2012: strong full-year 2011 results, but depressed order momentum suggests that 2012 will be a difficult year and that downside risk remains high unless a new capex cycle kicks in by Q1 2013 ■ April 2012: CHF110m straight bond (5% coupon) issued to help finance R&D strategy during the downturn ■ Forthcoming event: 16 August 2012 – H1 2012 results ■ Guidance & consensus: Meyer Burger guides for net sales of between CHF600-800m and an EBITDA margin of 4%-8%; consensus EBIT estimates stand at –CHF14m for 2012 and at CHF47m for 2013
Investment case
Even if Meyer Burger is trading below parity on EV/IC, we would remain on the sidelines: excess capacity in global solar wafer markets may persist relatively long into 2013 (capacity >40 gigawatts vs. solar end demand of 27 gigawatts in 2011), causing things to worsen before finally improving. We also fear few incremental sales from the consumables side (a faster entry into the diamond wire consumables market would have generated recurring revenues at least partly offsetting cyclical equipment business), making Meyer Burger almost fully reliant on pure capacity expansion-related capex. The main risks to our investment case are greater demand elasticity given declines in solar product prices; new end markets emerging; Meyer Burger being a possible takeover candidate.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
2% 15% Switzerland
3% Other Europe, Africa & ME n.a. n.a.
USA & Canada
80% Asia Oceania
160 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ First-time full-year consolidation of Roth & Rau (consolidated ■ Free cash flow expected to be a low positive number only and from August 2011 onwards) adding to Meyer Burger’s top line NOPLAT lower y-o-y in 2012 on negative operating leverage in 2012, but PV equipment business expected to contract weighing on the operating margins significantly (Helvea estimate: wafering approx. –60% y-o-y) on an organic basis as solar capital spending cycle has collapsed
MARGINS INVESTED CAPITAL AND RETURNS
■ 2012 operating margins to be lower on the back of expected ■ Invested capital to drop or remain more or less stable in 2012 on negative operating leverage and a dilutive effect from the first- the back of less need for working capital time full-year consolidation of Roth & Rau ■ ROIC to decline clearly in 2012 on expected lower operating ■ Upside potential for medium-/longer-term EBIT estimates as profits probably not matching WACC in excess of 10% margins on consumables sales would exceed equipment margins
SWOT analysis STRENGTHS OPPORTUNITIES
■ Meyer Burger's technology key in whole wafer-cutting process ■ Meyer Burger a prime beneficiary of the secular ‘solar ■ New diamond-wire-consumables business bolstering Meyer photovoltaics’ growth story Burger’s business model further in the medium- to -longer term ■ Expected technology shift to diamond-wire tools will enable ■ Merger with 3S and Roth & Rau takeover enable group to Meyer Burger to strengthen its business model further expand product offering along solar-manufacturing value chain ■ Expansion of product offerings in cell-manufacturing stage (R&R)
WEAKNESSES THREATS
■ ‘Production’ of MB Wafertec concentrated in Switzerland (cost ■ Dependence on PV industry’s cyclical capital spending, so Meyer base mainly in Swiss francs) Burger’s industry growth will be cyclical in the longer term ■ Increasing bargaining power of fewer and larger clients ■ PV solar industry currently struggling with huge overcapacity ■ Risks related to the integration/turnaround of Roth & Rau
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 2.8 1.9 10.5 4.0 3.2 Current assets 625 642 564 668 818 EV/EBIT 4.1 2.6 n.m. 18.1 7.9 Net fixed assets 34.2 133 149 147 146 EV/Inv. Capital 1.0 0.5 0.5 0.5 0.5 Goodwill 180 205 205 205 205 P/E 6.9 17.6 n.m. 29.7 12.9 Total assets 1,067 1,377 1,246 1,281 1,367 Cash P/E 4.6 7.0 32.4 8.0 6.1 Sharehold. equit. 643 738 690 715 771 P/CF 2.4 6.7 15.7 4.5 4.3 Working capital -24.1 146 149 116 107 P/BV 1.1 1.0 1.1 1.0 0.9 Net debt -393 -250 -235 -348 -487
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 826 1,315 711 926 1,018 in sales 96.2 59.2 -46.0 30.2 10.0 EBITDA 188 278 49.7 130 163 in EBITDA n.m. 48.4 -82.1 n.m. 25.7 EBIT 128 198 -50.8 28.9 65.9 in EBIT n.m. 54.9 n.m. n.m. n.m. Net profits 97.9 40.8 -47.4 24.6 56.4 in cash EPS n.m. -34.3 -78.2 n.m. 31.3 Cash EPS (CHF) 3.30 2.17 0.47 1.91 2.51 Net debt/equity -61.1 -33.9 -34.0 -48.7 -63.2 Reported EPS (CHF) 2.22 0.87 -0.99 0.51 1.18 FCF/net fin. results n.m. n.m. 1,047 n.m. n.m. DPS (CHF) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 1.8 1.6 1.9 2.1 2.4
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 176 259 19.2 95.4 129 Gross margin 49.5 46.2 43.0 42.0 41.5 Taxes 4.6 -34.2 8.4-4.3-9.9 EBITDA margin 22.7 21.2 7.0 14.0 16.0 NOPLAT 197 294 31.3 95.0 123 EBIT margin 15.5 15.1 -7.1 3.1 6.5 Depreciation 11.6 19.3 30.5 34.2 33.8 ROIC 47.6 38.8 3.1 9.5 12.5 CAPEX -16.5 -62.7 -46.5 -32.4 -33.1 Inv. cap. (CHF m) 521 995 1,018 988 985 in WC 120 -170 -3.3 33.5 8.8 Free cash flow -19.5 -180 9.0 124 126
Made in Switzerland + | Helvea 161
MorphoSys Price: EUR17.0 BUY Target: EUR32.0 M&S
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
MorphoSys has 2 divisions: its Therapeutic Antibodies unit for discovering therapeutic fully human antibodies, and R&D and diagnostic antibodies (AbD Serotec). Of 16 partnerships on therapeutic antibodies, the most important partnership is the strategic alliance with Novartis which will last until 2017 and set out to target over 100 discovery programmes. MorphoSys’ clinical pipeline is currently built on 17 partnered and four proprietary programmes; including early-stage projects, 71 drug programmes are ongoing, of which six are proprietary and two in co-development with Novartis. CEO: Simon E. Moroney; CFO: Dave Lemus; Website: www.morphosys.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Germany EUR32 Major shareholders Novartis Pharma 7.0%, AstraZeneca 5.0%, 29 Oppenheimer 6.9%, Management and Supervisory 26 Board 1.9%, Treasury stock 0.7% 23 Shares outstanding (m) 22.89 EV/EBITDA (X) 20 Market cap. (EUR m) 390 2011 13.6 17 Free float 79% 2012E 4.2 14 EBITDA/CAGR 2011-2014E -8.9% 2013E 17.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols MorphoSys 12-mth tgt Absolute -8% -1% -17% Bloomberg MOR GR Buy Acc. Neut. Red. N.R. Rel. to local 2% -1% -3% Reuters MORG.DE
News flow
■ December 2011: partnership signed with Novozymes on use of Slonomics Technology in ‘white’ biotechnology; MOR103 (anti-GM-CSF) enters Ph.Ib testing in patients with MS; J&J’s CNTO1959 moved into Ph.II (psoriasis) ■ March 2012: enrolment completed on Ph.Ib/II trial testing MOR103 in rheumatoid arthritis; AbD Serotec expanded range of HuCAL antibodies used in clinical diagnostic kits; a Novartis antibody enters Ph.I ■ Forthcoming events: 2 August 2012 – Q2 2012 results ■ Guidance & consensus: before revenues from new partnering agreements, revenues to amount to EUR75-80m and EBIT to EUR1-5m; consensus EBIT estimate of EUR4m for 2012 and EUR9m for 2013
Investment case
MorphoSys already benefits from its proprietary HuCAL technology platform, arguably the most advanced and widely recognised industry-leading antibody library. At present, it has 65 partnered programmes with various pharmaceutical companies, with the HuCAL alliance with Novartis lasting until 2017. We estimate that, longer term, its collaboration with Novartis should generate sales royalties of more than EUR200m, i.e. in 2027. Possible upside could come from first Ph.Ib or II proof-of-concept results expected for this year (three Novartis compounds and one J&J tested and one proprietary in rheumatoid arthritis, MOR103). We expect its proprietary Slonomics technology for antibody optimisation to allow the company to extend its leadership and initiate new partnerships.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
200% Sales EBIT Sales EBIT 180 4.0% 160 18.9% 140 120 100 n.a. 80 60 40 81.1% 96.0% 20 0 Therapeutic Antibody Segment AbD - Diagnostic Antibodies Therapeutic Antibody Segment AbD - Diagnostic Antibodies
162 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Revenues continue to be dominated by steady income from ■ Cash and financial assets of EUR137.4m at end-Q1 2012 Novartis collaboration, with further occasional payments from ■ Increase in revenues continues to be invested into boosting other partnerships or licensing-out of proprietary drugs company’s proprietary pipeline, licensing-in of drug candidates or ■ We forecast modest, but steady growth of revenues from AbD acquiring biotech companies Serotec division (some EUR20m in 2012)
MARGINS INVESTED CAPITAL AND RETURNS
■ Gross margin to expand upon further payments from partners ■ We expect future net profits to exceed 2011 level only ■ Operating margin likely to remain mostly flat as investments exceptionally, i.e. in years with upfront and milestone payments into proprietary pipeline will continue to increase ■ We expect expansion of internal pipeline by organic growth, licensing-in of antibodies or acquisition of smaller companies to quicken further long-term growth of proprietary assets
SWOT analysis STRENGTHS OPPORTUNITIES
■ HuCAL: industry’s most successful antibody library technology ■ Innovation to come from unprecedented antibody targets now in ■ Strategic alliance with Novartis securing funding up to 2017 clinical tests: e.g. DKK-1 (Novartis), MCP-1 (J&J), GM-CSF ■ Extensive pipeline with 65 partnered programmes (MorphoSys), CA-IX (Bayer Schering) and Notch-1 (Oncomed) ■ Management highly experienced in developing antibodies ■ Likely sustainable launches of a series of monoclonal antibodies ■ Exploiting the Slonomics technology secures further success ■ Business of diagnostic antibodies growing with the market
WEAKNESSES THREATS
■ MOR103 (GM-CSF) for rheumatoid arthritis without clear proof- ■ Toxicity of MOR202 (CD38) if broad CD38 expression relevant of-concept data to estimate its chances in competitive market ■ Increased competition against the most advanced programme ■ Currently too little visibility on targets of partners’ antibodies (cancer and inflammation), partnered with J&J ■ ‘Exclusive’ Novartis fee-for-service partnership from 2012 ■ AbD Serotec facing stiffer competition from other manufacturers ■ AbD Serotec strategically relevant, but sales flattish so far of diagnostic/research antibodies in a highly fragmented market
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 16.0 13.6 4.2 17.2 18.0 Current assets 133 155 196 197 206 EV/EBIT 26.0 21.1 4.7 33.6 39.2 Net fixed assets 6.2 6.1 6.1 6.1 6.1 EV/Inv. Capital 3.2 3.7 3.4 3.7 3.9 Goodwill 69.2 66.0 66.0 66.0 66.0 P/E 42.0 47.5 10.5 60.4 67.6 Total assets 210 228 270 271 279 Cash P/E 42.0 47.5 10.5 60.4 67.6 Sharehold. equit. 186 197 236 243 248 P/CF 19.2 17.3 4.9 21.6 22.9 Working capital 4.4 -3.0 2.1 -3.5 -5.7 P/BV 2.1 2.0 1.7 1.6 1.6 Net debt -108 -134 -169 -173 -182
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 87.0 101 128 105 106 in sales 7.4 15.8 27.1 -18.3 1.1 EBITDA 16.0 18.8 60.9 14.9 14.2 in EBITDA -4.7 17.6 n.m. -75.5 -4.8 EBIT 9.8 12.2 54.0 7.6 6.5 in EBIT -13.6 23.4 n.m. -85.9 -14.2 Net profits 9.2 8.2 37.2 6.5 5.8 in cash EPS 1.7 -11.6 n.m. -82.7 -10.7 Cash EPS (EUR) 0.41 0.36 1.63 0.28 0.25 Net debt/equity -58.2 -68.1 -71.5 -71.5 -73.1 Reported EPS (EUR) 0.41 0.36 1.63 0.28 0.25 FCF/net fin. results n.m. n.m. n.m. n.m. n.m. DPS (EUR) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 6.2 6.5 7.8 7.2 6.9
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 9.8 12.2 54.0 7.6 6.5 Gross margin 91.6 93.0 94.4 92.8 92.6 Taxes -3.3 -4.0 -17.8 -2.5 -2.2 EBITDA margin 18.3 18.6 47.6 14.3 13.4 NOPLAT 14.2 15.9 72.3 10.8 9.4 EBIT margin 11.3 12.1 42.1 7.3 6.2 Depreciation 6.1 6.6 7.0 7.3 7.7 ROIC 21.7 21.4 n.m. 15.1 13.9 CAPEX -13.8 -7.0 -7.3 -7.7 -8.1 Inv. cap. (EUR m) 79.8 69.1 74.2 68.6 66.5 in WC 24.7 29.8 -10.3 -9.2 -5.2 Free cash flow 30.1 45.6 61.1 0.5 3.1
Made in Switzerland + | Helvea 163
Munich Re Price: EUR100.- NEUTRAL Target: EUR110.- Large Caps
Daniel Bischof, CFA ([email protected]) – Tel. +41 (0)43 388 9263
Munich Re is one of the world’s top reinsurers. The group also includes ERGO, Germany’s second largest primary insurance group. The Munich Re group has dramatically changed its financial structure in recent years, with sizeable investments in other German groups being substantially scaled back. Munich Re’s strategy is to realise synergies given its diversified business mix: primary insurance, reinsurance and Munich Health.
CEO: Nikolaus von Bomhard; CFO: Jörg Schneider; Website: www.munichre.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Insurance/Germany EUR148 Major shareholders Berkshire Hathaway 10.8%, AllianceBernstein 3.3%, 135 Others 100.0% 122 109 Shares outstanding (m) 178 P/E (X) 96 Market cap. (EUR m) 17,804 2011 25.4 83 Free float 100% 2012E 7.1 70 Op. profits/CAGR 2011A-2014E 55.6% 2013E 6.8 05.11 07.11 09.11 11.11 01.12 03.12 05.12 Share perform. 3m 6m 12m Symbols Munich Re 12-mth tgt Absolute -8% 7% -6% Bloomberg MUV2 GR Buy Acc. Neut. Red. N.R. Rel. to local 0% 4% 9% Reuters MUVGn.DE
News flow
■ March 2012: full-year 2011 results broadly in line with expectations; dividend unchanged at EUR6.25 ■ May 2012: sale of South Korean business to AXA ■ May 2012: solid Q1 2012 results on the back of benign catastrophe developments and better than expected investment income; further price increases in non-life are expected for the rest of the year ■ Forthcoming event: 7 August 2012 – H1 2012 results ■ Guidance & consensus: for 2012, management looking for gross written premiums of EUR49-51bn and net profits of EUR2.5bn; consensus estimates for net profits stand at EUR2.6bn for 2012 and EUR2.7bn for 2013
Investment case
Munich Re remains a very conservative company, but the shares have been under pressure on account of Munich Re’s substantial exposure related to GIIPS countries. Looking ahead, we do not believe that capital is an issue for Munich Re and expect a solid investment result in 2012 considering the group’s strong valuation reserves. We see Munich Re shares as modestly attractive within the sector, and any improvement in interest rates or premium rates would benefit the share price. With a balanced trade-off between risk and reward for Munich Re, we currently have a NEUTRAL rating on the shares.
Divisional breakdown (2011) Regional breakdown – Premiums (2011)
Premiums Operating profits 0.6% 5% 3%2% 24% 10% 24% Europe 33% North America
41% Australasia 10% 55% 30% Latin America
30% Others 32% Life/health Property/casualty Life/health reinsurance Property/casualty reinsurance Asset Mgmt
164 Helvea SA | Made in Switzerland +
Value drivers PROFITS AND MARGINS BALANCE SHEET
■ 2012 with price increases in non-life and, hence, better margins ■ Broadest GIIPS exposure among reinsurers covered by Helvea ■ Restructuring of non-life primary business bearing fruit ■ Share buy-back programme halted after the H1 2011 ■ Health insurance seen as an attractive long-term opportunity catastrophes ■ Life insurance profits and new business could be hard hit by ■ Solid reserve position low interest rates and the weak economy
SWOT analysis STRENGTHS OPPORTUNITIES
■ Excellent position and reputation in reinsurance industry ■ Reorient German life operations ■ Strong distribution platform for German primary business, and ■ Expand international business through acquisitions primary business worldwide is focused on personal lines ■ Maintain high profitability in reinsurance and look for further ■ Leader in private health insurance opportunities in life/health ■ Robust balance sheet and strong capital generation ■ Reinstatement of the share buy-back programme
WEAKNESSES THREATS
■ Low interest rates make traditional life products less attractive ■ Impact of low interest rates ■ Less active in non-traditional risk-transfer markets than some ■ Major economic dislocations in the group’s important foreign competitors (although this is now changing) markets for primary business ■ German life business has been a persistent disappointment ■ MGA (managing general agency) business can generate since the creation of ERGO way back in the 1990s problems if not carefully controlled ■ Deterioration in the fiscal situation of countries at risk
(X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E P/NAV 0.9 0.9 0.8 0.8 0.8 Non-life reserves 49,556 51,101 51,950 53,202 54,414 P/EV 0.7 0.8 0.7 0.7 0.7 Life reserves 118,657 125,381 127,639 130,014 132,340 P/E 7.7 25.4 7.1 6.8 6.7 Total AuM (bn) 194.10 210.87 214.85 219.13 223.34 SOTP (EUR) 123 3rd-p. AuM (bn) 10.200 10.710 11.246 11.808 12.398 Mkt cap/reserves (%) 10.6 10.1 9.9 9.7 9.5 Sharehold. equ. 23,028 23,062 24,446 25,873 27,254 Mkt cap/premiums (%) 39.1 35.9 35.1 34.1 33.4 Net asset value 20,651 18,433 19,807 21,224 22,595 Dividend yield (%) 6.2 6.2 6.5 7.0 7.0 Embedded value 24,499 22,473 24,050 25,679 27,273
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Gross premiums 45,541 49,572 50,736 52,147 53,374 in premiums 9.9 8.9 2.3 2.8 2.4 Net invest. income 8,642 6,756 6,700 6,692 6,740 in op. profits -15.7 -70.3 260 3.2 1.4 Operating profits 3,978 1,180 4,248 4,383 4,443 in pre-tax profits -18.4 -94.9 2,240 3.3 1.6 Pre-tax profits 3,122 160 3,744 3,870 3,930 investments -0.7 8.8 1.7 1.8 1.7 Net profits 2,422 702 2,462 2,548 2,590 NAV/min. solvency 124 102 108 113 117 Reported EPS (EUR) 13.1 3.94 14.1 14.6 14.9 NL Res./premium 245 242 245 244 245 DPS (EUR) 6.25 6.25 6.50 7.00 7.00 NL Res./claims 351 288 369 365 365
Investments Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Total investments 183,899 200,158 203,603 207,318 210,944 Retention rate NL 90.4 93.3 92.0 92.0 91.9 Equities 5,995 8,458 9,304 10,234 11,258 Claims ratio NL 69.8 83.8 66.5 66.9 67.3 Fixed income 110,447 113,792 115,750 117,862 119,924 Combined ratio 101 114 96.7 97.0 97.3 Real estate 4,056 3,889 4,242 4,336 4,336 Expense ratio life 29.5 26.6 26.4 26.1 26.0 Loans/mortgages 46,280 53,260 48,401 49,480 49,480 Pre-tax margin 7.2 0.3 7.8 7.8 7.7 Net invest. yield 4.7% 3.4% 3.3% 3.2% 3.2% ROE 10.5 3.0 10.1 9.8 9.5 Cap. gains/total 0.9% 0.5% 0.5% 0.5% 0.5% Return/techn. res. 1.4 0.4 1.4 1.4 1.4
Made in Switzerland + | Helvea 165
Nationale Suisse Price: CHF33.0 NEUTRAL Target: CHF39.0 M&S
Daniel Bischof, CFA ([email protected]) – Tel. +41 (0)43 388 9263
Nationale Suisse is one of the top 10 writers of non-life business in Switzerland. In addition to its core Swiss operations, the group maintains several small subsidiaries in other European countries that operate in specific market niches. The group has been going through an important restructuring process since 2005. The turnaround of its Swiss operations has been accomplished, and the company is now in the process of re-positioning its non-Swiss operations into specific niches. The disposal of Swiss group life has given the group a clear ‘non-life’ orientation. CEO: Dr Hans Künzle; CFO: Thomas Widmer; Website: www.national.ch (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Insurance/Switzerland CHF42 Major shareholders Basler KB 8.1%, Baloise 10.0%, VHV 9.3%, Nürnberger 40 38 6.5%, Landesbank Baden-Württemberg 11.4%, Others 36 30.0% 34 Shares outstanding (m) 22.02 P/E (X) 32 Market cap. (CHF m) 727 2011 4.4 30 28 Free float 25% 2012E 8.0 26 Op. profits/CAGR 2011A-2014E -13.9% 2013E 7.6 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Nationale Suisse 12-mth tgt Absolute -3% 7% -10% Bloomberg NATN SW Buy Acc. Neut. Red. N.R. Rel. to local -1% 1% 0% Reuters NATN.S
News flow
■ September 2011: H1 2011 net profits of CHF54m helped by gain on disposal of group life business; strong growth in speciality business, but restrained volumes in life ■ February 2012: reserve release of CHF85m and impact of CHF120m from revised IAS19 standard announced ■ March 2012: full-year 2011 results boosted by reserve release, shareholders’ equity up by 22.6% to CHF907m ■ Forthcoming event: 5 September 2012 – H1 2012 results ■ Guidance & consensus: no guidance for full-year 2012, but targeting net profits above CHF100m by 2014; consensus estimates for net profits of CHF97m in 2012 and CHF100m in 2013
Investment case
After restructuring its Swiss business, Nationale Suisse unveiled a new strategy based on a niche approach to non- domestic markets. After repositioning its activities, Nationale Suisse is looking to focus on growth, customer service and speciality lines. With a solvency ratio of 272% (at H2 2011), Nationale Suisse is above the other quoted Swiss composites and now has the capacity to make add-on acquisitions in its chosen growth area of speciality lines. Given the lowered risk of the business (especially after the sale of group life), we see the shares at current levels as offering a solid potential total return to investors on a sustainable basis. However, in the absence of any foreseeable catalysts that could trigger a re-rating, we maintain our NEUTRAL stance on the shares.
Divisional breakdown (2011) Regional breakdown – Premiums (2011)
120% Premiums OperatingPremiums profits Operating profits 1.1%1.4% 100 14.0% 19.9%
80 34%
60 Switzerland Non CH 40 66% 20
66.1% 0 97.5%
-20 Life/health Property/casualty Property/casualty reinsurance Life/health Property/casualty Property/casualty reinsurance
166 Helvea SA | Made in Switzerland +
Value drivers PROFITS AND MARGINS BALANCE SHEET
■ Speciality business should grow by more than 10%, but ■ Relatively high exposure to equities and alternative investments traditional business (especially in Switzerland) will mean a (6.6% at 31 December 2011) and some GIIPS holdings lower growth rate overall in 2012 and subsequent years ■ Large real-estate portfolio representing 20% of the investment ■ 2011 included a reserve release of CHF85m, 2012 results will allocation therefore look weaker as run-off results normalise ■ Slow growth in invested assets expected in coming years because of non-life focus and sale of group life business ■ Last reported Solvency 1 ratio 272% (as of 31 December 2011)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Clear business strategy ■ Implement strategic plan and possibly upgrade targets in the ■ Strong distribution potential longer term ■ Focused operations abroad ■ Build on speciality expertise and franchise through acquisitions ■ Well-recognised leadership in niche segments such as art and ■ Management has taken a ‘deliver on strategy or sell the engineering company’ approach
WEAKNESSES THREATS
■ Potentially sub-scale European subsidiaries ■ Risk of cyclical downturn ■ Remaining life operations could be sub-scale and, in the event ■ Relatively high exposure to risk assets of a serious profitability problem in that area, they might be ■ Success of niche strategy seems dependent on M&A activity and difficult to sell on account of links with non-life operations possibly asset swaps ■ Low interest rates could have a serious impact on profitability of the remaining life business
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E P/NAV 1.0 0.8 0.8 0.7 0.7 Non-life reserves 1,981 2,231 2,337 2,440 1,989 P/EV n.a. n.a. n.a. n.a. n.a. Life reserves 4,320 2,526 2,496 2,473 2,459 P/E 7.9 4.4 8.0 7.6 7.0 Total AuM (bn) 6.962 5.638 5.857 5.578 5.640 SOTP (CHF) 43.7 3rd-p. AuM (bn) 0.000 0.000 0.000 0.000 0.000 Mkt cap/reserves (%) 11.5 15.3 15.0 14.8 16.3 Sharehold. equ. 740 907 958 1,013 1,072 Mkt cap/premiums (%) 46.8 48.4 46.4 44.4 42.5 Net asset value 721 895 946 1,001 1,060 Dividend yield (%) 4.5 5.5 5.8 6.1 6.1 Embedded value n.a. n.a. n.a. n.a. n.a.
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Gross premiums 1,554 1,500 1,565 1,637 1,708 in premiums -8.5 -3.4 4.3 4.6 4.3 Net invest. income 218 171 188 188 195 in op. profits -10.4 92.5 -43.9 5.5 7.7 Operating profits 105 203 114 120 129 in pre-tax profits 18.6 79.2 -44.5 5.3 7.5 Pre-tax profits 118 212 117 124 133 investments 0.3 -19.0 3.9 -4.8 1.1 Net profits 91.6 167 91.1 96.0 103 NAV/min. solvency 175 263 271 278 287 Reported EPS (CHF) 4.16 7.58 4.14 4.36 4.68 NL Res./premium 228 245 245 245 245 DPS (CHF) 1.50 1.80 1.90 2.00 2.00 NL Res./claims 364 496 391 392 402
Investments Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Total investments 6,962 5,638 5,857 5,578 5,640 Retention rate NL 93.1 93.0 93.1 92.5 91.8 Equities 340 324 269 250 253 Claims ratio NL 62.8 49.4 62.6 62.6 61.0 Fixed income 3,533 3,471 2,992 2,784 2,815 Combined ratio 96.4 82.0 95.4 95.4 93.2 Real estate 1,200 888 981 999 1,017 Expense ratio life 33.6 32.6 32.8 32.8 32.2 Loans/mortgages 183 206 145 134 136 Pre-tax margin 8.4 15.4 8.2 8.3 8.6 Net invest. yield 3.1% 3.0% 3.2% 3.4% 3.5% ROE 12.4 18.4 9.5 9.5 9.6 Cap. gains/total 0.9% -0.3% 0.2% 0.3% 0.3% Return/techn. res. 1.5 3.5 1.9 2.0 2.3
Made in Switzerland + | Helvea 167
Nestlé Price: CHF55.0 NEUTRAL Target: CHF56.0 Large Caps
Andreas von Arx ([email protected]) – Tel. +41 (0)43 388 9257
Nestlé is the world’s largest manufacturer (ca.CHF88bn sales) in the food & beverages (F&B) sector, with a market share of around 4%. The company is considered to be the ‘gold standard’ courtesy of its: 1) high diversification both regionally (42% in emerging markets) and in categories; 2) No.1 or No.2 market share positions in most of its categories; 3) leading ‘billionaire’ brands; 4) experienced management team; 5) solid balance sheet. Main drivers are emerging markets, but Nestlé also has an attractive machine business in developed countries (i.e. Nespresso or Dolce Gusto). CEO: Paul Bulcke; CFO: Wan Ling Martello; Website: www.ir.nestle.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Food and Beverage/Switzerland CHF60 Major shareholders Nestlé 3.9%, BlackRock 3.7%, Others 92.4% 58 56 54 52 Shares outstanding (m) 3,205 EV/EBITDA (X) 50 Market cap. (CHF m) 176,435 2011 11.8 48 46 Free float 100% 2012E 10.7 44 EBITDA/CAGR 2011-2014E 8.8% 2013E 9.8 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Nestlé 12-mth tgt Absolute 0% 8% 1% Bloomberg NESN VX Buy Acc. Neut. Red. N.R. Rel. to local 2% 1% 11% Reuters NESN.VX
News flow
■ April 2012: Q1 2011 above (consensus) expectations (7.2% vs. 6.6% organic growth); guidance reiterated ■ April 2012: Nestlé acquired Pfizer Nutrition (USD11.85bn; USD2.4bn sales); great fit in an attractive category with high emerging-market exposure, filling a (final) gap in China, but quite costly at 19.8X EV/EBITDA ■ Forthcoming event: 9 August 2012 – H1 2012 results ■ Guidance & consensus: Nestlé targeting organic growth of 5%-6% p.a. and an increase in trading operating profit at constant currencies vs. Helvea’s 6.0% organic growth forecast and consensus projection of 5.8%; we estimate an increase in trading operating profit margin in reported currency of 30bp (consensus +20bp)
Investment case
We believe that the shares, trading at above 10X forward EV/EBITDA in an environment with ongoing economic uncertainties in Europe, signs of slowdown in emerging markets and a recovery in the USA, look fairly valued in a historical context – by comparison, Nestlé’s low point in 2009 was around 8.5X and Danone’s high in 2007 ca.12.5X. On a direct large-cap comparison, we consider Unilever (56% of sales in emerging countries) and Danone (>50%; plus acceleration potential in Dairy in Russia and the USA in 2012) offer slightly more compelling investment cases. Nevertheless, we would still cite Nestlé as a candidate for investors looking for a fast(er)-growing F&B proxy or a defensive, low-risk name with growth potential in the long term.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
40% Sales EBIT Sales EBIT 0.0% 30 11.7% 10.8% 15% 21.8% 25.8% 18% Food Europe
2010.8% 12.6% Food Americas 9% Food AOA 10 7.8% 9.5% 3.3% 8% Nestlé Waters 16.7%0 14.1% 32% Nestlé Nutrition 19.6% -10 12.6% 18% 11.6% 11.4% Other Food -20Beverages Waters Milk & ice cream Nutrition Beverages Waters Milk & ice Nutrition Prepared Confect. Pet Corporate Prepared Confect.cream Pet Corporate
168 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We forecast organic growth of 6.0% for 2012, 5.5% for 2013 ■ Capital spending marked by acceleration in emerging-market and 5.5% for 2014 (+7.5% in 2011) investments ■ Emerging markets (ca.42% of sales) still a main driver ■ Working capital management an ongoing priority and linked to ■ In developed countries, ‘premiumisation’ is a main growth supply-chain initiatives and senior management remuneration, driver (like Nespresso or Dolce Gusto) but Nestlé does not expect to reach (negative) levels of peers
MARGINS INVESTED CAPITAL AND RETURNS
■ Main margin driver is organic growth, in our view ■ Asset base being utilised more efficiently, together with organic ■ Nestlé tends to profit from a favourable product mix growth, could lead to improved ROIC ■ Raw material price increases tend to put pressure on margin ■ In the wake of the Pfizer Nutrition acquisition, we expect a higher improvements, but vice-versa with raw material prices falling net debt level for 2012 ■ Efficiency programmes like NCE to bolster margins
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong diversified brand portfolio with No.1/No.2 leadership ■ Catching up in emerging markets positions in most categories ■ Machines business (like Nespresso) a unique growth driver in ■ Active in categories expected to grow faster than the average mature markets for the food & beverages sector ■ Nestlé’s Health Science initiative could become an interesting ■ Solid balance sheet and economies of scale company-specific driver in the medium term
WEAKNESSES THREATS
■ Less exposure to emerging markets than direct competitors ■ Owing to its size, No.1 position and reputation, Nestlé is often ■ Nestlé only has few truly global brands attacked by interest groups in connection with its products, ■ In the past, Nestlé was not always the innovation leader in its manufacturing methods and corporate policies categories (like fresh dairy) due to its size ■ Food industry could come under pressure from society with regard to health issues like obesity
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 11.5 11.8 10.7 9.8 9.2 Current assets 37,002 31,483 31,079 34,427 37,709 EV/EBIT 14.4 14.5 13.1 12.0 11.1 Net fixed assets 29,166 33,327 35,554 37,918 40,401 EV/Inv. Capital 1.9 1.7 1.7 1.6 1.6 Goodwill 27,031 29,008 29,008 29,008 29,008 P/E 5.4 18.5 17.1 15.7 14.6 Total assets 111,641 114,091 115,914 121,627 127,391 Cash P/E 15.5 14.2 13.0 12.1 11.3 Sharehold. equit. 61,867 56,797 50,901 55,375 60,069 P/CF 14.0 14.4 13.2 12.2 11.4 Working capital 5,366 7,002 7,732 8,258 8,712 P/BV 3.2 3.5 3.9 3.6 3.3 Net debt 3,854 14,319 23,172 21,588 19,830
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales (bn) 87.906 83.642 92.362 98.642 104.07 in sales -12.6 -4.9 10.4 6.8 5.5 EBITDA 15,858 15,463 17,107 18,620 19,924 in EBITDA -4.4 -2.5 10.6 8.9 7.0 EBIT 12,676 12,538 13,889 15,242 16,376 in EBIT -4.1 -1.1 10.8 9.7 7.4 Net profits 34,233 9,487 10,294 11,205 12,066 in cash EPS 0.3 9.5 8.9 7.9 7.1 Cash EPS (CHF) 3.55 3.88 4.23 4.56 4.89 Net debt/equity 6.2 25.2 45.5 39.0 33.0 Reported EPS (CHF) 10.2 2.97 3.22 3.51 3.78 FCF/net fin. results 35.6 2.2 10.1 9.5 10.5 DPS (CHF) 1.85 1.95 2.10 2.30 2.50 Current ratio (X) 1.3 1.0 0.9 1.0 1.0
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 12,676 12,538 13,889 15,242 16,376 Gross margin 49.1 47.2 47.5 47.8 48.1 Taxes -3,296 -3,238 -3,750 -4,115 -4,422 EBITDA margin 18.0 18.5 18.5 18.9 19.1 NOPLAT 9,380 9,300 10,139 11,127 11,955 EBIT margin 14.4 15.0 15.0 15.5 15.7 Depreciation 3,182 2,925 3,218 3,378 3,547 ROIC 9.3 9.3 9.4 10.0 10.5 CAPEX -4,984 -5,026 -5,445 -5,743 -6,030 Inv. cap. (CHF m) 93,558 106,627 109,584 112,474 115,411 in WC -546 -1,636 -730 -526 -454 Free cash flow 27,093 911 6,060 7,090 7,900
Made in Switzerland + | Helvea 169
Newron Price: CHF4.8 BUY Target: CHF21.0 M&S
Olav Zilian, MD, PhD ([email protected]) – Tel. +41 (0)22 354 9167
Newron is an Italian biopharmaceutical company specialised in developing small-molecule drugs for diseases of the nervous system and pain conditions: safinamide in Ph.III as adjunct treatment in early- and mid-to-late-stage Parkinson’s disease (PD) and considered for Ph.IIb/III development in cognitive impairment and restless leg syndrome. Originally partnered with Merck KGaA, the licensee returned the rights, which were taken over in May 2012 by the Italian company Zambon. Newron’s expertise relies on discovering and developing candidate drugs that interfere with ion channels. CEO: Stefan Weber; CFO: Roberto Galli; Website: www.newron.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Italy CHF25 Major shareholders Zambon 9.1%, Great Point Partners 8.3%, 3i Group 20 6.8%, Founders 4.2%, TVM 3.4%, Orbimed 3.0% 15 10 Shares outstanding (m) 7.99 EV/EBITDA (X) 5 Market cap. (EUR m) 32 2011 6.6 0 Free float 72% 2012E n.m. -5 EBITDA/CAGR 2011-2014E n.m. 2013E 9.4 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Newron 12-mth tgt Absolute 93% 141% -21% Bloomberg NWRN SW Buy Acc. Neut. Red. N.R. Rel. to local 97% 127% -13% Reuters NWRN.S
News flow
■ October 2011: Merck KGaA returned rights on safinamide, prompting Biotie to pull out of the merger agreement ■ February 2012: Meiji Seika signs licence agreement for safinamide covering Japan and key Asian markets ■ April 2012: Zambon signs option worth EUR20m including equity stake of 9.1% after dilution for entering into strategic collaboration and licence on safinamide rights outside Meiji’s territories (Japan and key Asian markets) ■ May 2012: MOTION and SETTLE trials successfully completed; Zambon exercises its option; CEO steps down ■ Forthcoming events: 10 September 2012 – H1 2012 results ■ Guidance & consensus: not meaningful
Investment case
Based on our research and published data on safinamide, we remain confident that, at this stage, the compound has greater chances of making it to market than has been seen with other drugs targeting disorders of the central nervous system: we see an 80% chance for safinamide in Parkinson’s disease (Phase III; usually 39%; peak sales potential of EUR700m), 30% for the same drug in cognitive disorders and restless leg syndrome (Phase II; usually 12% for a compound at this stage; peak sales potential of EUR820m and EUR96m, respectively). Newron has a series of compounds to be partnered which are not currently included in our valuation: HF0220 for neuroprotection (Ph.II), HF0229 for neuropathic pain (Ph.I) and NW3609 for schizophrenia or mania to start Phase I trial in 2012.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
150% Sales EBIT Sales EBIT
100
50
0 n.a.
-50
-100 100.0% 100.0%
-150 All drugs All drugs
170 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ With the safinamide rights transferred to Zambon from Merck ■ Cash and financial assets of EUR10.2m on 30 June 2011 KGaA’s and the MOTION and SETTLE trials successfully ■ Zambon paid EUR20m in May 2012 for the strategic collaboration completed, Newron is entitled to milestone payments and and license option on safinamide, part of it as equity stake royalties from Zambon ■ We expect monthly cash burn of less than EUR0.8m in 2012 ■ We expect filing of safinamide to trigger first payment in 2013 ■ Company unlikely, for the time being, to run costly Phase II trials
MARGINS INVESTED CAPITAL AND RETURNS
■ Margin trend highly dependent on R&D spending, which will ■ Sustainable revenues forecast from 2014 on royalties from possibly increase beyond EUR0.8m a month, as Zambon safinamide sales refinanced company by exercising its option on safinamide ■ Potentially, some pipeline compounds licensed out in 2012 ■ Profitability before 2014 dependent on sequence of upfront and ■ As Newron is solidly financed, the company could also selectively milestone payments license in product rights or acquire smaller companies.
SWOT analysis STRENGTHS OPPORTUNITIES
■ Safinamide with new combination of modes of action that is ■ Potential to innovate in therapeutic treatment of Parkinson’s and likely to innovate in its therapeutic area Alzheimer’s diseases ■ Relative to development stage, strong clinical data for ■ Acquisition or licensing-in of product rights to leverage R&D safinamide (efficacy, safety and tolerance) ■ Application of R&D approaches to indications outside CNS ■ Promising early-stage R&D activity on ion-channel drugs
WEAKNESSES THREATS
■ Potential concentration risk with safinamide and no other ■ Unexpected late-stage failure, potentially following approval, if compound with clinical proof of concept, as yet rare adverse effects seen, unforeseen, as no comparator drugs ■ Company did not keep the industry posted on progress on from the same chemical class are available for risk assessment safinamide while the drug was with former partner Merck ■ Appearance of novel, superior treatment paradigms for those KGaA: potential gridlock to engage business development now indications currently in development
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 1.9 6.6 n.m. n.m. n.m. Current assets 13.1 7.6 11.2 6.7 11.1 EV/EBIT 1.9 6.4 n.m. n.m. n.m. Net fixed assets 0.1 0.1 0.1 0.1 0.1 EV/Inv. Capital n.m. n.m. n.m. n.m. n.m. Goodwill 0.0 0.0 0.0 0.0 0.0 P/E n.m. n.m. 31.5 n.m. n.m. Total assets 19.1 13.6 17.1 12.6 17.0 Cash P/E n.m. n.m. 31.5 n.m. n.m. Sharehold. equit. 12.2 6.6 10.7 6.2 10.5 P/CF n.m. n.m. 31.4 n.m. n.m. Working capital 0.8 -0.1 -0.1 -0.1 -0.1 P/BV 2.4 4.4 3.0 5.1 3.0 Net debt -7.3 -3.3 -6.7 -2.2 -6.4
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 0.8 4.3 15.0 14.5 22.3 in sales -68.3 n.m. n.m. -3.3 53.7 EBITDA -21.5 -6.3 1.1 -4.4 4.4 in EBITDA n.m. n.m. n.m. n.m. n.m. EBIT -21.6 -6.5 0.9 -4.6 4.2 in EBIT n.m. n.m. n.m. n.m. n.m. Net profits -20.5 -6.4 1.0 -4.5 4.2 in cash EPS n.m. n.m. n.m. n.m. n.m. Cash EPS (EUR) -3.11 -0.89 0.13 -0.56 0.53 Net debt/equity -59.9 -50.1 -62.8 -35.0 -61.0 Reported EPS (EUR) -3.11 -0.89 0.13 -0.56 0.53 FCF/net fin. results n.m. 122 n.m. 58.2 n.m. DPS (CHF) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 2.8 2.7 3.9 2.3 3.7
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA -21.6 -6.5 0.9 -4.6 4.2 Gross margin n.m. n.m. n.m. n.m. n.m. Taxes -5.4 -1.6 0.2 -1.1 1.1 EBITDA margin n.m. n.m. n.m. n.m. n.m. NOPLAT -21.6 -5.4 0.9 -4.6 4.2 EBIT margin n.m. n.m. n.m. n.m. n.m. Depreciation 0.1 0.1 0.1 0.1 0.1 ROIC n.m. n.m. n.m. n.m. n.m. CAPEX 0.0 -0.1 -0.1 -0.1 -0.1 Inv. cap. (EUR m) 0.9 n.m. n.m. n.m. n.m. in WC -0.3 -0.7 0.0 -0.1 0.0 Free cash flow -16.4 -5.5 0.7 -3.5 3.2
Made in Switzerland + | Helvea 171
Nobel Biocare Price: CHF10.2 NEUTRAL Target: CHF11.2 M&S
Simon Goetschmann ([email protected]) – Tel. +41 (0)43 388 9264
Nobel Biocare pioneered dental restoration with the Brånemark implant – the first dental implant – 30 years ago. Having established itself as market leader in the dental-implant market (overall size estimated at USD3.3bn), with a global market share of some 18%, the company has been continuously losing market share in recent years. After repeated safety issues with implants and regional management problems, the company is slowly repositioning itself as an evidence-based and customer-focused dental-care company under its new CEO Richard Laube. CEO: Richard T. Laube; CFO: Dr. Dirk Kirsten; Website: www.nobelbiocare.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Switzerland CHF22 Major shareholders Government of Singapore 5.5%, Silchester 8.0%, 20 18 Governance for Owners 3.1%, Invesco Limited 5.0%, 16 Credit-Suisse Asset Management 2.0% 14 Shares outstanding (m) 124 EV/EBITDA (X) 12 Market cap. (EUR m) 1,053 2011 10.0 10 8 Free float 100% 2012E 10.0 6 EBITDA/CAGR 2011-2014E 12.2% 2013E 8.6 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Nobel Biocare 12-mth tgt Absolute -4% -12% -45% Bloomberg NOBN VX Buy Acc. Neut. Red. N.R. Rel. to local -2% -17% -39% Reuters NOBN.VX
News flow
■ February 2012: full-year 2011 results come in below expectations with revenues down 0.7%, to EUR569.2m, and operating profits down 4.5%, to EUR72.1m, at CER. Higher operational expenses announced ■ April 2012: Q1 2012 sales of EUR147.6m broadly in line with forecasts driven by a US market recovery, profitability (EBIT: EUR20.8m) exceeds estimates as announced higher opex have not become visible yet ■ Forthcoming event: 21 August 2012 – H1 2012 results ■ Guidance & consensus: Nobel Biocare targets modest revenue growth (‘2%-4%’) at CER in 2012 and EBIT in line with 2011. Consensus projections are for 4.6% sales growth and EBIT of EUR76.6m for 2012
Investment case
The market for dental restoration is projected to grow faster than GDP on the back of an ageing population, patient awareness and dentist education. However, we expect industry growth to slow from historical 15%+ rates to 5%- 7% as a result of gradually deepening penetration rates in developed markets, a slowing innovation rate and increased competition, which will additionally cause some margin pressure. Apart from these paradigm shifts, the new CEO has to tackle the ongoing market share losses. We do not expect the operational initiatives to show any material impact before H2 2012. In the light of these uncertainties and the rather demanding valuation, we prefer to stay on the sidelines.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
2% 17% Europe, Middle East & 22% Africa
41% North America n.a. Asia/Pacific
Latam/RoW 83% 35%
Implant Systems Individualized
172 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Gradual recovery seems on the cards driven by recovering US ■ Main drivers of FCF: top-line growth and operating leverage and somewhat stabilising European end-user markets ■ Given its capacity utilisation of est.70% in major plants, we do not ■ Revenue impetus from new NobelReplace (No.1 revenue forecast significant capital spending in 2012; NWC/sales in 2011 contributor), NobelActive3mm and new copings at only 2.8%; some inventory build-up and additional selling expenses likely to weigh on FCF generation in 2012/13
MARGINS INVESTED CAPITAL AND RETURNS
■ Gross margin: positive effects of better capacity utilisation and ■ Invested capital set to rise again as current level was fairly easing currency situation partially offset by negative product modest on much lower (unsustainable) working capital mix effects and pricing pressure ■ ROIC should benefit from normalised level of NOPLAT in 2012 ■ Despite a projected rise in opex of EUR20-25m, earnings are and beyond projected to climb on an operational leverage of >3X
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading market position globally (broad and established ■ Operating leverage and efficiency gains once volumes improve product offering, large marketing organisation and direct ■ Introduction of new NobelReplace generation distribution in all regions for over 90% of revenues) ■ Growth opportunities in the discount segment with Alpha-Bio Tec ■ Cash generation ■ Fix poor positions in Germany and Latin America ■ Position with US surgeons and key opinion leaders
WEAKNESSES THREATS
■ Dented industrial reputation ■ Deterioration in the global economy, in particular a worsening of ■ Small contribution from BRIC nations, in particular Latin consumer spending in Europe and North America America; poor position in Germany, Europe’s largest market ■ Digitalisation of the dentistry workflow ■ Gap in regeneratives, a future key market in implant dentistry ■ Management and Board of Directors instability ■ Proprietary character of Nobel Procera ■ Increasing competition from discount and value players
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 9.5 10.4 10.3 8.8 7.3 Current assets 427 268 338 392 477 EV/EBIT 12.8 15.1 14.4 11.6 9.1 Net fixed assets 90.2 86.3 80.3 79.1 76.9 EV/Inv. Capital 3.1 3.5 3.6 3.2 3.3 Goodwill 223 213 202 192 182 P/E 23.8 27.3 21.0 16.5 12.7 Total assets 771 592 645 689 760 Cash P/E 19.2 21.4 17.7 14.3 11.4 Sharehold. equit. 320 281 334 381 444 P/CF 18.2 12.1 12.6 11.0 9.3 Working capital 12.1 -14.1 -8.6 42.6 46.0 P/BV 3.4 3.9 3.3 2.9 2.4 Net debt 13.3 28.3 -30.4 -67.5 -140
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 577 569 589 619 652 in sales -0.8 -1.3 3.4 5.2 5.3 EBITDA 114 105 105 123 148 in EBITDA -26.8 -8.1 0.3 16.9 20.4 EBIT 84.9 72.1 75.9 94.1 119 in EBIT -34.0 -15.0 5.3 23.9 26.8 Net profits 45.7 39.8 51.8 65.8 85.6 in cash EPS -51.3 -10.3 20.9 23.6 26.2 Cash EPS (EUR) 0.46 0.41 0.50 0.61 0.77 Net debt/equity 4.2 10.1 -9.1 -17.7 -31.5 Reported EPS (EUR) 0.37 0.32 0.42 0.53 0.69 FCF/net fin. results n.m. 5.6 13.4 15.0 48.2 DPS (CHF) 0.35 0.15 0.21 0.26 0.34 Current ratio (X) 1.0 1.5 2.0 2.4 2.8
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 95.8 83.0 85.4 104 129 Gross margin 77.7 76.0 76.3 76.8 78.0 Taxes -54.7 -15.7 -19.2 -24.3 -31.7 EBITDA margin 19.8 18.5 17.9 19.9 22.8 NOPLAT 41.1 67.4 66.3 79.8 97.6 EBIT margin 14.7 12.7 12.9 15.2 18.3 Depreciation 18.7 22.1 20.0 19.2 19.2 ROIC 11.8 20.2 21.8 25.0 29.2 CAPEX -23.3 -17.0 -14.0 -18.0 -17.0 Inv. cap. (EUR m) 357 310 299 339 330 in WC 16.9 20.2 -5.5 -21.1 -3.4 Free cash flow 53.3 92.7 66.8 59.8 96.4
Made in Switzerland + | Helvea 173
Novartis Price: CHF49.2 BUY Target: CHF68.0 Large Caps
Karl-Heinz Koch ([email protected]) – Tel. +41 (0)43 388 9258
Since its inception in 1996, Novartis has increasingly focused on medicines (shedding agro, industrials and nutrition) and, in 2005, acquired Hexal/Eon Labs to become global No.2 in generics (Sandoz). In 2008, it diversified into non-drug health care, acquiring 25% of Alcon, global No.1 in eye care, and gaining 100% ownership in Q1 2011. Novartis also has Consumer Health (OTC, animal health). Thanks to its acquisition of Chiron in 2006, it is a significant vaccines supplier, complementing its flagship pharmaceuticals business. Novartis also owns 6.3% of Roche (33.3% of votes). CEO: Joe Jimenez; CFO: Jon Symonds; Website: www.novartis.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Switzerland CHF 71 Major shareholders Employee foundation 4.6%, Emasan AG 3.3%, Others 65 92.1% 59 53 Shares outstanding (m) 2,492 EV/EBITDA (X) 47 Market cap. (USD m) 129,361 2011 10.5 41 Free float 92% 2012E 9.5 35 EBITDA/CAGR 2011-2014E 10.4% 2013E 8.8 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Novartis 12-mth tgt Absolute 2% 3% -8% Bloomberg NOVN VX Buy Acc. Neut. Red. N.R. Rel. to local 5% -4% 1% Reuters NOVN.VX
News flow
■ April 2012: Q1 2012 fell short of expectations although the flagship Pharmaceutical and Alcon businesses beat estimates whereas other units were hit by tough baseline comparisons and extraordinary effects ■ Pipeline news: positive risk-benefit ratio of Gilenya (oral MS) confirmed in US/EU – benign label changes likely to lead to growth recovery on overall attractive profile: 1X/day oral tablet, high efficacy, no worrying side-effects ■ Forthcoming events: 20 June 2012 – Sandoz Investor Day; 19 July 2012 – Q2 2012 results; Q3 – Afinitor approval ■ Guidance & consensus: Novartis issued stable outlook for sales despite generic trough year with a slightly lower group margin. Consensus is in line with guidance for 2012 but significantly below indicative trends beyond 2012
Investment case
An ever-expanding health-care and diversified pharmaceuticals portfolio provides Novartis with defensive qualities. The net portfolio ‘add-on’ potential (pipeline potential less generic risk exposure) of its Pharmaceuticals & Vaccines businesses remains comfortable despite a significant rise in generic risk exposure owing to the looming Diovan patent expiry (September 2012). Recent launches of speciality-care drugs should compensate for the generic wash-out of legendary drugs. Together with efficiency-improvement programmes, this is set to lead to significant medium-term earnings upgrades. Sandoz (generics) has started to become a benefit with respect to emerging markets where Novartis is well placed, and closer integration with Pharmaceuticals may ensue.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
70% Sales EBIT Sales EBIT 60 0.0% 3.3% 17.0% 9% 0.9% 50 20.6% 21% Switzerland
403.4% Africa/Asia/Australia
307.9% 0.8% Europe 55.5% 4.7% 33% 20 59.3% USA 10 11.3% 16.2% 0 36% Canada, Latin America -10 Pharmaceuticals Sandoz Generics Pharmaceuticals Sandoz Consumer Vaccines & Alcon Corporate Consumer HealthGenerics Health DiagnosticsVaccines & Diagnosticsincome & Alcon Corporate income & expenseexpense
174 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Medium-term growth at Pharmaceuticals remains substantially ■ Strong annual free cash flow thanks to efficiency gains, margin underestimated beyond patent expiry years after 2013 expansion and a low tax rate ■ Growth unlikely to be negative due to substantial new-drug ■ High level of capital spending in 2012 and 2013 launch programme (e.g. Gilenya, Afinitor, Bexsero, QVA) ■ Share buy-backs (up to 100% cash flow) opportunistically used to ■ Alcon adds stability to group’s growth profile take advantage of low share price
MARGINS INVESTED CAPITAL AND RETURNS
■ Pharma margins to expand beyond 2012-13 thanks to further ■ Significant (6.3% capital) associate investment in Basle rival, efficiency gains and portfolio shift towards speciality-care drugs Roche ■ Vaccine margin expansion on meningitis B roll-out in 2012/13 ■ Dividend payout ratio expected to stay >50% over time ■ Alcon consolidation lifts operating margins; combination with ■ Total return in excess of 12% (including cash flow >8% and existing eye-care business offers scope for efficiency gains dividends >4%)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Broad R&D portfolio with focus on speciality-care segments ■ Significant speciality-care drugs portfolio launching into market (i.e. oncology, multiple sclerosis, vaccines, respiratory) (Gilenya – oral MS; Afinitor – cancer; Bexsero – meningitis B) ■ Expanding health-care portfolio, including Alcon (eye care), ■ Pharmaceuticals’ margin expansion on shifts in product mix adding to Vaccines and Consumer Health towards speciality-care drugs ■ Strong Vaccines business to enhance growth prospects ■ Synergies with Alcon business, particularly in ophthalmic
WEAKNESSES THREATS
■ Sandoz underlying growth variable (strongly improving in 2011 ■ Gilenya (MS) oral competition in H2 2012, but clinical profile is on M-enoxaparin, but declining in H1 2012 on baseline comp.) strong despite tightening of label requiring initial CV monitoring ■ Pharmaceutical portfolio generates low sales with biologics ■ Approval delays for late-stage pipeline drugs (e.g. QVA) ■ Consumer Health and Animal Health have sub-optimal scale to ■ Delays in regulatory pathway for follow-on biologics (FOBs) compete effectively; manufacturing quality issues in OTC ■ Earlier than expected generic launches on challenged drugs
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In USD m) 2010 2011 2012E 2013E 2014E EV/EBITDA 10.3 10.6 9.6 8.8 7.9 Current assets 26,685 24,084 25,191 28,276 38,447 EV/EBIT 12.2 12.8 11.3 10.3 9.1 Net fixed assets 15,840 15,627 16,722 17,804 18,854 EV/Inv. Capital 1.7 1.8 1.8 1.8 1.8 Goodwill 64,923 61,912 60,552 59,192 57,832 P/E 12.2 13.6 11.9 10.7 9.3 Total assets 123,318 117,496 118,338 121,145 131,006 Cash P/E 10.0 11.0 9.8 8.9 7.9 Sharehold. equit. 69,769 65,940 71,949 79,221 88,345 P/CF 11.0 11.3 10.4 9.6 8.6 Working capital 2,520 2,235 1,794 1,574 1,463 P/BV 1.7 1.9 1.7 1.6 1.4 Net debt 14,853 15,154 8,439 669 -8,875
Income statement Growth rates & balance-sheet ratios (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales (bn) 50.624 58.566 58.787 60.687 63.295 in sales 14.4 15.7 0.4 3.2 4.3 EBITDA 13,721 13,241 14,742 15,952 17,835 in EBITDA 13.7 -3.5 11.3 8.2 11.8 EBIT 11,528 10,998 12,501 13,665 15,487 in EBIT 15.5 -4.6 13.7 9.3 13.3 Net profits 9,796 9,148 10,502 11,707 13,436 in cash EPS 11.6 -8.9 11.9 9.8 12.8 CORE EPS (USD) 5.15 5.57 5.75 6.27 6.99 Net debt/equity 21.3 23.0 11.7 0.8 -10.0 Reported EPS (USD) 4.29 3.84 4.41 4.91 5.64 FCF/net fin. results 19.0 13.4 18.3 33.4 101 DPS (CHF) 2.20 2.25 2.30 2.35 2.51 Current ratio (X) 1.1 1.0 1.1 1.2 1.6
Cash flow statement Ratios, margins and returns (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 12,544 12,014 13,517 14,681 16,503 Gross margin 73.2 69.0 69.2 69.1 69.5 Taxes 1,733 1,528 2,000 2,247 2,597 EBITDA margin 27.1 22.6 25.1 26.3 28.2 NOPLAT 10,687 10,310 11,354 12,317 13,829 EBIT margin 22.8 18.8 21.3 22.5 24.5 Depreciation 1,177 1,227 1,225 1,271 1,332 ROIC 17.5 12.6 14.3 15.6 17.6 CAPEX -1,678 -2,294 -2,320 -2,353 -2,382 Inv. cap. (USD m) 83,283 79,774 79,068 78,569 78,148 in WC 1,762 881 441 220 110 Free cash flow 11,948 10,124 10,700 11,456 12,890
Made in Switzerland + | Helvea 175
Novo Nordisk Price: DKK800.- NEUTRAL Target: DKK820.- Large Caps
Karl-Heinz Koch ([email protected]) – Tel. +41 (0)43 388 9258
Novo Nordisk is a world leader in diabetes care, including the most advanced products in the field of insulin-delivery systems. In addition, Novo Nordisk has leading positions in areas such as haemostasis management, growth hormone therapy and hormone replacement therapy. Novo A/S is an unlisted company owned by the Novo Nordisk Foundation, which owns 30% of the total share capital in Novo Nordisk and 71% of the total number of votes. The B shares are quoted on the stock exchange whilst the A shares carry ten times the voting rights. CEO: L.Sorensen; CFO: J.Brandgaard; Website: www.novonordisk.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Denmark DKK900 Major shareholders Novo A/S (71% of votes) 31.0%, Others 69.0% 825 750 675 Shares outstanding (m) 604 EV/EBITDA (X) 600 Market cap. (DKK m) 483,138 2011 18.8 525 Free float 45% 2012E 16.3 450 EBITDA/CAGR 2011-2014E 12.7% 2013E 14.6 05.11 07.11 09.11 11.11 01.12 03.12 05.12 Share perform. 3m 6m 12m Symbols Novo Nordisk 12-mth tgt Absolute 2% 27% 23% Bloomberg NOVOB DC Buy Acc. Neut. Red. N.R. Rel. to local 7% 13% 30% Reuters NOVOb.CO
News flow
■ April 2012: Q1 2012 sales 1% below consensus forecasts, net profits 2% below and EPS 5% below as Victoza (diabetes) and NovoSeven (haemophilia) fell short of expectations by 8% and 12%, respectively ■ Pipeline news: Victoza (GLP-1 analogue) to continue solid growth trajectory even with rival drugs (e.g. Lyxumia, Bydureon, dulaglutide) coming to market, but visibility is required on group’s once-weekly GLP-1 analogues ■ Forthcoming event: 9 August 2012 – Q2/H1 2012 results; H2 2012 – degludec (ultra-long insulin) launch ■ Guidance & consensus: Management expects 8%-11% local-currency sales growth (+4% forex) and at least 10% operating profits (+6.5% forex) vs. consensus for sales growth of 14% and 18% for operating profits (DKK)
Investment case
Novo Nordisk has a share of >50% of the global insulin market, with growth driven by modern insulin analogues, including NovoRapid (short-acting) and Levemir (long-acting); growth should soon also be driven by degludec (ultra-long-acting) expected to reach the market in H2 2012. Its GLP-1 analogue, Victoza, has been rolled out since 2009 and provides substantial earnings leverage, with profitability likely to be as much as 3 times higher than mid- 20% insulin-based diabetes business. Delays with once-weekly GLP-1 analogue formulations have allowed more time to establish Victoza, and its combination with degludec may protect it from emerging once-weekly GLP-1 drugs. Novo Nordisk is also a beneficiary of emerging-market growth as it addresses spreading diabetes epidemic.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
19% 24% Europe 35% 34% North America 11% Japan & Oceania 65%
76% RoW 36%
Diabetes Care Biopharmaceuticals
176 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Global leader in diabetes care projected to expand by 10% p.a. ■ Stable business performance allows for optimal management of ■ Swift uptake of Victoza (GLP-1 analogue) enhances growth net working capital ■ Degludec launch to add new insulin growth engine ■ Limited capital-spending requirements despite business focus on ■ EGM potential provides floor to medium-to-longer-term growth biologic products ■ NovoSeven has limited potential to expand use in haemostasis ■ Steady increase in free cash flow forecast
MARGINS INVESTED CAPITAL AND RETURNS
■ Margin expansion from improvement in product mix thanks to ■ Strong cash flow generation allows for continued share buy-back higher-priced insulin analogues, Victoza and NovoSeven programmes ■ Strong Victoza/liraglutide sales development provides ■ Dividend payout ratio likely to remain steady at about 40% substantial leverage to profitability ■ Increasing possibility of acquisitions and licensing-in ■ Management has a track record of exceeding margin guidance ■ Increasing profitability on product mix improvements
SWOT analysis STRENGTHS OPPORTUNITIES
■ Focused product portfolio in biologics ■ Leadership in dynamic growth franchises ■ High exposure to fast-growing diabetes market, especially in ■ Dynamic franchise management through product innovation high-growth emerging markets ■ Diabetes opportunity in emerging markets is substantial, with up ■ Strong leadership positions in diabetes and haemostasis to 92m diabetes patients in China alone ■ Excellent execution track record ■ Emerging new-drugs pipeline in haemostasis and insulin agents
WEAKNESSES THREATS
■ Strong competition in the incretin mimetic area from oral drugs ■ Increasing generic competition to human insulin from local (DPP-IV inhibitors) manufacturers in emerging markets ■ Late arrival of Novo Nordisk’s proprietary once-weekly GLP-1 ■ Marketing pressure from competition, particularly Lantus (Sanofi) analogue which may face headwinds from competing drugs which has become the leading insulin brand (e.g. Amylin’s Bydureon; Eli Lilly’s dulaglutide) ■ GLP-1 analogues could eat into pre-mix insulin preparations
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In DKK m) 2010 2011 2012E 2013E 2014E EV/EBITDA 22.1 18.8 16.3 14.6 13.2 Current assets 37,293 39,750 58,677 78,321 97,899 EV/EBIT 25.0 21.1 18.1 16.1 14.5 Net fixed assets 20,507 20,843 21,390 21,985 22,625 EV/Inv. Capital 18.9 19.7 17.9 16.5 15.4 Goodwill 1,458 1,418 1,378 1,338 1,298 P/E 32.2 26.4 22.4 19.6 17.7 Total assets 61,402 64,698 84,132 104,331 124,509 Cash P/E 27.5 22.8 19.5 17.2 15.5 Sharehold. equit. 36,965 37,448 56,466 76,338 96,210 P/CF 27.9 23.9 19.7 18.9 17.9 Working capital 4,486 3,105 5,062 6,597 8,040 P/BV 12.6 12.1 7.9 5.7 4.5 Net debt -13,827 -15,364 -31,918 -49,701 -67,530
Income statement Growth rates & balance-sheet ratios (In DKK m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales (bn) 60.776 66.346 74.729 81.303 87.482 in sales 19.0 9.2 12.6 8.8 7.6 EBITDA 21,358 25,111 28,950 32,429 35,906 in EBITDA 22.2 17.6 15.3 12.0 10.7 EBIT 18,891 22,374 26,036 29,258 32,495 in EBIT 26.5 18.4 16.4 12.4 11.1 Net profits 14,403 17,097 19,823 22,233 24,641 in cash EPS 30.7 20.7 16.7 13.8 10.4 Cash EPS (DKK) 29.1 35.1 40.9 46.6 51.4 Net debt/equity -37.4 -41.0 -56.5 -65.1 -70.2 Reported EPS (DKK) 24.8 30.2 35.7 40.8 45.2 FCF/net fin. results 23.1 40.7 34.8 33.7 33.1 DPS (DKK) 10.0 14.0 16.5 18.9 20.9 Current ratio (X) 2.0 1.9 2.8 3.6 4.5
Cash flow statement Ratios, margins and returns (In DKK m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 18,891 22,374 26,036 29,258 32,495 Gross margin 80.8 81.0 81.5 82.0 82.5 Taxes 4,011 4,927 4,397 6,884 8,926 EBITDA margin 35.1 37.8 38.7 39.9 41.0 NOPLAT 14,880 17,447 21,639 22,374 23,569 EBIT margin 31.1 33.7 34.8 36.0 37.1 Depreciation 2,467 2,737 2,914 3,171 3,412 ROIC 58.3 71.3 85.9 81.3 79.6 CAPEX -3,376 -3,073 -3,461 -3,766 -4,052 Inv. cap. (DKK m) 24,993 23,948 26,452 28,582 30,665 in WC 2,357 1,381 -1,957 -1,535 -1,443 Free cash flow 13,946 18,275 19,135 20,244 21,486
Made in Switzerland + | Helvea 177
OC Oerlikon Price: CHF8.1 ACCUMULATE Target: CHF10.6 M&S
Reto Amstalden ([email protected]) – Tel. +41 (0)43 388 9261
OC Oerlikon is an industrial conglomerate which provides production systems, components and services for high- technology products based on its core competences in thin-film, vacuum technology and textile-machinery engineering. OC Oerlikon is active in protective coatings for precision tools, systems for producing vacuum (vacuum pumps), turnkey solutions for the production of thin-film solar cells, components for gear, power-train and transmission systems and textile-machinery systems. OC Oerlikon employs about 17,000 worldwide. CEO: Michael Buscher; CFO: Jürg Fedier; Website: www.oerlikon.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Technology/Switzerland CHF11 Major shareholders Lamesa (Vekselberg) 48.0% 10 9 8 7 Shares outstanding (m) 323 EV/EBITDA (X) 6 Market cap. (CHF m) 2,620 2011 5.4 5 Free float 52% 2012E 5.4 4 EBITDA/CAGR 2011-2014E 2.9% 2013E 5.1 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols OC Oerlikon 12-mth tgt Absolute 18% 58% 15% Bloomberg OERL VX Buy Acc. Neut. Red. N.R. Rel. to local 21% 49% 27% Reuters OERL.VX
News flow
■ April 2012: Oerlikon Drive Systems announces the streamlining of its manufacturing footprint in Italy ■ April 2012: Q1 2012 sales (CHF961m) and orders (CHF996m) ahead of expectations; management sees upside for its full-year sales and EBIT margin guidance ■ April 2012: Oerlikon announces the sale of its minority stake in Pilatus Aerospace (price >CHF50m, HelveaE) ■ Forthcoming event: 3 August 2012 – H1 2012 results ■ Guidance & consensus: 2012 guidance calls for a sales decline of up to 5% and an EBIT margin of around 11%; consensus EBIT estimates of CHF451m for 2012 and CHF453m for 2013
Investment case
The stronger-than-expected start to 2012 is further evidence that the turnaround at the company is continuing and that it will be sustainable. The restoration of the EBIT margin continues while further improvement potential is building on the back of an additional significant streamlining of OC Oerlikon’s portfolio (e.g. solar) as well as optimisation of its asset and cost bases (e.g. at Drive Systems) while, at the same time, the regional expansion in under-represented regions is developing smoothly (e.g. in China from Drive Systems). Oerlikon Group has turned into a high-quality company with cash returns, which should attract a greater number of investors in our opinion. OC Oerlikon’s valuation remains compelling – the stock is trading at EV/EBITDA of 5X. ACCUMULATE confirmed.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
60% Sales EBIT Sales EBIT 2.6% 7.7% 2.7%1.7% 50 11.9% 9% 19.6% 11.6% 23.5% Asia/Pacific 40 15%
30 Europe 9.8% 48% 20 North America 14.3% 10 45.9% 28% Others 0 48.7%
-10 Solar SolarCoating CoatingVacuum Textile VacuumDrive Textile systems DriveAdvanced systems Technology Advanced Technology
178 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Moderate cyclical downturn at Textile and Advanced Tech ■ High operating FCF of more than CHF250m, with an extra cash almost offset by robust business at Coating and Drive Systems inflow of over CHF250m from divestments ■ Streamlining of broad industrial business portfolio (e.g. solar, ■ Net debt position turning quickly into a net cash position in 2012 property) and production footprint in Europe free up capacity to ■ Early repayment of facility mid-2012 to lower cash outflow by push regional expansion in Asia (e.g. for Drive in China) CHF40m p.a. (fully effective from 2013 onwards)
MARGINS INVESTED CAPITAL AND RETURNS
■ Further benefits and efficiency gains from continuous cost ■ ROIC continuing to expand in next two to three years optimisation programme to expand margins in 2012/2013 ■ Average ROIC (at 11%-12%) projected to exceed cost of capital ■ Divisions-wise, Drive Systems’ margin should be driven by (WACC: 9%) over the current cycle, which has not been the case restructuring/cost benefits whilst Textile’s margin should be historically squeezed slightly by falling volume effects
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong expertise in thin-film and vacuum technology used for ■ Ongoing relocation of workforce to Asia (Drive Systems, Textile); surface coating in high-precision applications centralisation of manufacturing sites and corporate functions ■ Conglomerate with a large portfolio of valuable assets in ■ Significant opportunities for market share gains in gear various industrial markets such as textile, coating, automotive components (Drive Systems) in under-represented Asian region ■ A truly global network with a strong presence in China and India
WEAKNESSES THREATS
■ Significant part of manufacturing base still in high-cost ■ Constant copy-cat activity by Asian competitors countries like Germany (Textile) ■ Textile may miss air-jet technology concept for spinning of ■ High exposure (>40% of group sales) to cyclical textile markets natural fibres
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 10.1 5.4 5.4 5.1 4.9 Current assets 2,086 2,239 2,520 2,694 2,883 EV/EBIT 25.8 7.5 7.4 7.0 6.7 Net fixed assets 942 915 873 905 933 EV/Inv. Capital 1.0 1.0 1.1 1.1 1.0 Goodwill 1,293 1,261 1,205 1,214 1,223 P/E n.m. 11.9 7.6 9.3 8.7 Total assets 4,475 4,573 4,731 4,951 5,180 Cash P/E n.m. 11.9 7.6 9.3 8.7 Sharehold. equit. 1,430 1,586 1,875 2,072 2,283 P/CF 11.7 5.1 5.2 5.1 4.9 Working capital 240 318 244 260 295 P/BV 1.8 1.7 1.4 1.3 1.1 Net debt 289 106 -350 -502 -653
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 3,601 4,182 3,796 3,916 4,033 in sales 25.2 16.1 -9.2 3.2 3.0 EBITDA 320 603 600 629 658 in EBITDA n.m. 88.3 -0.5 4.8 4.6 EBIT 125 428 438 459 480 in EBIT n.m. n.m. 2.4 4.7 4.6 Net profits 2.8 220 343 282 301 in cash EPS n.m. n.m. 56.1 -18.0 6.9 Cash EPS (CHF) 0.01 0.68 1.06 0.87 0.93 Net debt/equity 20.2 6.7 -18.7 -24.2 -28.6 Reported EPS (CHF) 0.01 0.68 1.06 0.87 0.93 FCF/net fin. results 6.1 2.7 4.6 4.5 5.0 DPS (CHF) 0.00 0.20 0.26 0.28 0.29 Current ratio (X) 1.5 1.5 1.9 2.0 2.1
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 125 428 438 459 480 Gross margin 22.6 25.9 26.6 26.8 26.9 Taxes -96.3 -92.7 -97.9 -114 -123 EBITDA margin 8.9 14.4 15.8 16.1 16.3 NOPLAT 29.0 335 340 345 357 EBIT margin 3.5 10.2 11.5 11.7 11.9 Depreciation 195 175 162 170 177 ROIC 0.9 10.8 11.3 11.7 11.8 CAPEX -150 -167 -209 -211 -214 Inv. cap. (CHF m) 3,078 3,132 2,903 2,983 3,078 in WC 88.0 -78.3 74.7 -16.6 -34.8 Free cash flow 353 281 512 287 286
Made in Switzerland + | Helvea 179
Orior Price: CHF48.0 NEUTRAL Target: CHF51.0 M&S
Andreas von Arx ([email protected]) – Tel. +41 (0)43 388 9257
Orior is an independent supplier of refined meat and convenience food products. The company is mainly active in niche categories such as refined Mediterranean charcuterie, canton of Grisons meat specialities, ready-meals, fresh pasta, pâtés and terrines. The focus is predominantly on Switzerland, with step-by-step expansion into adjoining countries as additional growth legs. It has leading market shares in its markets. Private-label products account for about 60% of sales; best known brands are Rapelli and Spiess. Main distribution channels are retail (75% of sales) and food service (25%). CEO: Remo Hansen; CFO: Helene Weber; Website: www.orior.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Food and Beverage/Switzerland CHF60 Major shareholders Capvis 17.9%, Capital Group 6.5%, UBS Fund 58 56 Management 6.2%, Deutsche Bank and DWS 4.8%, 54 Rolf U. Sutter 3.4%, Others 61.2% 52 Shares outstanding (m) 5.91 EV/EBITDA (X) 50 Market cap. (CHF m) 284 2011 6.6 48 46 Free float 51% 2012E 6.2 44 EBITDA/CAGR 2011-2014E 4.0% 2013E 6.0 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Orior 12-mth tgt Absolute -2% 2% -13% Bloomberg ORON SW Buy Acc. Neut. Red. N.R. Rel. to local 0% -4% -4% Reuters ORON.S
News flow
■ March 2012: 2012 results roughly in line with expectations; however, we note that in an interview in Finanz und Wirtschaft in December 2011, Orior’s CEO had pointed to figures below the consensus ■ Forthcoming event: 23 August 2012 – H1 2012 results ■ Guidance & consensus: in March, Orior reiterated its medium-term guidance of 1%-2% although it now seems to be alluding to the group level and not just to the domestic business. For the export business, Orior expects 2012 to be a year of consolidation. Qualitatively, Orior points to a cooling of the economic cycle in its markets and to the issue of shopping tourism. Consensus EBIT stands at CHF41.7m for 2012 and at CHF43.3m for 2013
Investment case
Orior is a solid company with decent free cash flow, an attractive dividend yield and leading market positions in niche markets but recent results momentum was weak. Acquisitions remain a catalyst, but we do not see them as likely short term (a fantasy since its IPO). Given the low medium-term growth potential, limited size and, in our view, a ‘fair’ valuation, the overall investment case does not look attractive enough, especially for international investors. Medium term we are concerned about increased competition from the Bell/Hilcona combination, a potential liberalisation of the Swiss meat market and Orior’s high dependence on its main customer Migros. To see an equity story, Orior either needs to execute on its acquisition strategy or deliver better results momentum.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
70% Sales EBIT Sales EBIT 60 5.9% 10.7% 0.3% 4% 6.7% 50 40 41.4% 30 20 53.7% Switzerland Other 33.7% 10 47.6% 0
-10 96% -20 Refinement Convenience Refinement Convenience Corporate, Export and Adjustments and Corporate, Export and Logistics AdjustmentsLogistics and eliminationseliminations
180 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Organic growth: approx.2.6% in 2012; approx.2.1% in 2013; ■ >CHF30-40m free cash flow gives a 9%-11% FCF yield on EV approx.2.2% in 2014 (approx.–2% in 2011) ■ NOPLAT hit in 2011 by the loss of a contract and exports ■ Management guiding for organic growth on average of 1%-2% (currency impact) for the Swiss business medium term, which gives potential of ■ Orior generates stable cash flows that yielding stable dividends 1.25%-2.25% at group level with the export business
MARGINS INVESTED CAPITAL AND RETURNS
■ We expect margin progress at the Refinement division based ■ Orior already has an efficient and lean production set-up today on operational improvements ■ With a net debt/EBITDA ratio of approx.1.3X for 2011, Orior looks ■ Export business continues to be a drag on profitability capable of financing planned acquisitions ■ Convenience business expected to report flattish margins medium term
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong market position in niche markets ■ Expansion into adjoining countries, especially with Bündnerfleisch ■ Convenience and food service as growth opportunities with its protected geographical label ■ Efficient and modern production facilities (no slaughterhouses) ■ Potential acquisition of a new centre of competences abroad; ■ Small size allows for innovations to be implemented quickly company targeting acquisitions with sales of EUR70-100m
WEAKNESSES THREATS
■ Low medium-term growth potential and small size ■ Liberalisation of Swiss agriculture markets (free meat imports) ■ Lack of geographical diversification ■ High dependence on Swiss retail giants, Migros and Coop ■ Dependence on meat prices ■ Animal diseases ■ (Meat) products not regarded as a particularly ‘healthy’ food ■ Potential entry by European competitors into the Swiss market category and relatively weak input/output relationship ■ Does Orior’s size allow it to compete in Europe (in convenience)?
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 6.5 6.6 6.2 6.0 5.9 Current assets 151 150 174 189 212 EV/EBIT 8.8 9.0 8.5 8.1 7.8 Net fixed assets 156 161 160 159 158 EV/Inv. Capital 1.5 1.4 1.4 1.4 1.4 Goodwill 82.3 83.7 83.7 83.7 83.7 P/E 9.6 10.1 9.3 8.8 8.5 Total assets 389 395 418 432 454 Cash P/E 6.4 6.6 6.2 6.0 5.8 Sharehold. equit. 170 187 206 226 246 P/CF 6.0 6.0 5.7 5.5 5.4 Working capital 39.7 47.2 49.9 45.9 46.9 P/BV 1.5 1.5 1.4 1.3 1.2 Net debt 69.5 70.2 52.7 28.0 7.4
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 506 497 524 540 552 in sales 1.0 -1.8 5.6 2.9 2.2 EBITDA 54.2 53.9 56.9 58.9 60.5 in EBITDA 3.8 -0.6 5.7 3.5 2.7 EBIT 40.5 39.2 41.9 43.8 45.3 in EBIT 4.2 -3.1 6.8 4.7 3.3 Net profits 26.9 28.2 30.5 32.1 33.3 in cash EPS -14.3 -3.8 6.3 3.7 2.9 Cash EPS (CHF) 7.52 7.24 7.70 7.98 8.21 Net debt/equity 40.8 37.6 25.6 12.4 3.0 Reported EPS (CHF) 4.99 4.76 5.15 5.43 5.63 FCF/net fin. results 3.8 4.3 6.4 8.0 7.3 DPS (CHF) 1.90 1.93 2.10 2.20 2.30 Current ratio (X) 1.9 1.9 2.1 2.4 2.6
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 40.5 39.2 41.9 43.8 45.3 Gross margin 40.8 38.8 38.8 38.8 38.8 Taxes -6.9 -6.8 -7.1 -7.5 -7.7 EBITDA margin 10.7 10.8 10.9 10.9 11.0 NOPLAT 33.6 32.4 34.8 36.4 37.6 EBIT margin 8.0 7.9 8.0 8.1 8.2 Depreciation 13.7 14.7 15.1 15.1 15.3 ROIC 13.6 13.1 13.5 14.2 14.8 CAPEX -14.8 -14.5 -14.0 -14.0 -14.0 Inv. cap. (CHF m) 240 257 259 254 253 in WC -2.0 -7.5 -2.6 4.0 -1.0 Free cash flow 30.5 22.1 33.2 41.5 37.8
Made in Switzerland + | Helvea 181
Panalpina Price: CHF92.3 NEUTRAL Target: CHF101.- M&S
Chris Burger, CFA ([email protected]) – Tel. +41 (0)43 388 9259
Panalpina is one of the world’s leading providers of supply chain solutions, combining intercontinental air and ocean freight with comprehensive added-value logistics services and supply chain services. It provides globally integrated, door-to-door forwarding solutions tailored to its customers’ individual needs. It operates a global network with some 500 branches in 80 countries; in a further 80 countries, the group co-operates closely with selected partners. Panalpina employs some 15,000 people worldwide. CEO: Monika Ribar; CFO: Marco Gadola; Website: www.panalpina.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF138 Major shareholders Ernst Göhner Foundation 42.6%, Cevian Capital 10.3%, 125 Artisan 5.0% 112 99 Shares outstanding (m) 23.63 EV/EBITDA (X) 86 Market cap. (CHF m) 2,182 2011 7.9 73 Free float 56% 2012E 12.2 60 EBITDA/CAGR 2011-2014E 5.8% 2013E 7.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Panalpina 12-mth tgt Absolute -16% 2% -23% Bloomberg PWTN SW Buy Acc. Neut. Red. N.R. Rel. to local -14% -4% -15% Reuters PWTN.S
News flow
■ March 2012: EU Commission impose high fines on Kuehne + Nagel and Panalpina for operating price fixing cartels ■ May 2012: strong Ocean and weak Air Freight, Q1 2012 profits (gross profit: CHF364.1m, underlying EBITDA: CHF24.3m) marginally below expectations ■ Forthcoming event: 31 July 2012 – H1 2012 results ■ Guidance & consensus: no specific guidance; consensus EBIT estimates of CHF176m for 2012 and CHF204m for 2013
Investment case
Globalisation is not going to stop and freight forwarders are very well-positioned to benefit from such a trend. Their asset-light business models offer plenty of opportunities and generate handsome returns on invested capital. Even if Panalpina is still trading at a significant discount to Kuehne + Nagel, the current upside potential is not sufficient for us to upgrade our recommendation on the stock.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
14% Europe/Africa/Middle 27% East/CIS
North America 50% n.a. 46% Central and South 36% 10% America Asia/Pacific 17%
Air freight Ocean freight Supply Chain Management
182 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Flat growth in air tonnage freight; (inline with market) and 8% ■ Return to normal (strong) free cash flow in 2013 after distortion growth in ocean freight TEU (slightly above market) from provisions in 2010 and 2012 and from ■ Relative stable gross profit/unit in both air and ocean freight acquisitions/investments and change in NWC in 2011 ■ Stands to benefit from globalisation and outsourcing in the long ■ Generally: low capital spending as business is asset-light term ■ Ongoing focus on management of net working capital
MARGINS INVESTED CAPITAL AND RETURNS
■ 2012 margins negatively impacted by anti-trust fine (CHF59m) ■ Invested capital to increase in (2011 and) 2012 due to cash-out of ■ Limited potential to save costs in 2012 provisions, which will push ROIC back to around 35% ■ Expected to benefit from higher volumes and economies of ■ Generally asset-light business model with high ROIC scale as from 2013. Ongoing strict cost management ■ Improved DSO/DPO ratios thanks to strict management of net ■ Relatively flexible asset-light business model working capital, but further growth will need additional NWC
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong positions, especially in air freight and Asia-to-Europe ■ Globalisation will continue and increase demand for logistics ■ Asset-light business model with flexible cost structure ■ Outsourcing of logistics functions by companies ■ Good IT solution, which is crucial for logistics ■ Trend towards one-stop shopping ■ Strong balance sheet ■ Lowering of trade barriers ■ Takeover target in the medium term
WEAKNESSES THREATS
■ Relatively weak integrated business model ■ Economic risk; slowdown in China ■ Relatively weak in the trans-Pacific trade-lane ■ Legal risks ■ Several management changes ■ Bad debt risk due to high accounts receivable ■ Relatively small free float ■ Weakening of US dollar
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 26.8 7.9 12.2 7.5 6.7 Current assets 1,686 1,745 1,713 1,830 1,968 EV/EBIT n.m. 9.6 17.2 9.2 8.1 Net fixed assets 114 113 116 119 122 EV/Inv. Capital 6.1 5.1 4.4 4.0 3.8 Goodwill 78.1 142 148 156 163 P/E n.m. 17.3 38.5 16.3 14.2 Total assets 1,989 2,135 2,113 2,240 2,388 Cash P/E n.m. 17.3 38.5 16.3 14.2 Sharehold. equit. 804 906 861 943 1,037 P/CF 63.5 12.9 22.2 12.3 11.0 Working capital 158 85.6 104 129 149 P/BV 2.7 2.4 2.5 2.3 2.1 Net debt -525 -586 -490 -540 -607
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 7,164 6,500 6,764 7,164 7,497 in sales 20.2 -9.3 4.1 5.9 4.6 EBITDA 62.4 212 137 224 251 in EBITDA -21.8 n.m. -35.3 62.8 12.3 EBIT 15.4 174 97.3 182 207 in EBIT -48.6 n.m. -44.1 86.8 14.1 Net profits -27.4 126 56.7 134 153 in cash EPS n.m. n.m. -55.1 n.m. 14.4 Cash EPS (CHF) -1.16 5.34 2.40 5.67 6.49 Net debt/equity -65.3 -64.7 -56.9 -57.3 -58.5 Reported EPS (CHF) -1.16 5.34 2.40 5.67 6.49 FCF/net fin. results n.m. 15.3 7.6 56.3 83.4 DPS (CHF) 0.00 3.90 2.20 2.50 2.80 Current ratio (X) 1.7 1.6 1.5 1.6 1.6
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 15.4 174 97.3 182 207 Gross margin 20.7 22.7 22.6 22.6 22.8 Taxes -28.0 -42.5 -39.0 -45.5 -51.9 EBITDA margin 0.9 3.3 2.0 3.1 3.3 NOPLAT -12.6 132 58.3 136 156 EBIT margin 0.2 2.7 1.4 2.5 2.8 Depreciation 47.0 37.9 40.0 41.8 43.6 ROIC -4.3 43.5 16.4 34.3 36.4 CAPEX -19.7 -76.8 -51.4 -32.9 -34.3 Inv. cap. (CHF m) 277 328 381 413 442 in WC -22.8 72.9 -18.9 -24.9 -19.8 Free cash flow -24.5 86.0 9.9 101 125
Made in Switzerland + | Helvea 183
Partners Group Price: CHF161.- ACCUMULATE Target: CHF200.- M&S
Tim Dawson ([email protected]) – Tel. +41 (0)22 354 9169
Partners Group is a leading private market asset manager which invests in private equity, private debt, private real estate and private infrastructure. The company provides investment products, services and customised investment mandates for institutional investors, asset managers, private banks and high-net-worth individuals. In addition to asset management, the company proposes innovative product structures to its client base. Founded in 1996, the company went public in H1 2006. Approximately 70% of the company is owned by managers and employees. CEO: Steffen Meister; CFO: Dr. Cyrill Wipfli; Website: www.partnersgroup.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Banks/Switzerland CHF200 Major shareholders Alfred Gantner 14.2%, Marcel Erni 14.2%, Urs 185 Wietlisbach 14.2%, Other employees 25.0% 170 155 Shares outstanding (m) 26.70 Cash P/E (X) 140 Market cap. (CHF m) 4,299 2011 18.7 125 Free float 32% 2012E 14.0 110 Op. profits/CAGR 2011A-2014E 26.3% 2013E 12.0 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Partners Group 12-mth tgt Absolute -4% -5% -4% Bloomberg PGHN SW Buy Acc. Neut. Red. N.R. Rel. to local -2% -10% 6% Reuters PGHN.S
News flow
■ January/March 2012: AuM figures in line with company guidance. Full-year 2011 results show adverse effects from forex and timing of certain fee income (notably late management fees) but underlying business development remains robust ■ Forthcoming events: 12 July 2012 – H1 2012 AuM figures; 4 September 2012 – H1 2011 results ■ Guidance & consensus: management is guiding for new money of EUR4-5bn for 2012; consensus estimates for net profits of CHF261m for 2012 and CHF309m for 2013
Investment case
Partners Group’s investment case is a mix of attractive growth prospects and value embedded in current assets under management on account of their long duration. The company should benefit from longer-term growth in the private equity market, the increasing allocation to alternative investments in the asset management sector and mounting interest in private assets from growing regions like Asia. Although profits from the ‘back book’ of assets under management will be squeezed by the strong franc, we believe that rapid AuM growth will allow the group’s margins to recover quickly in coming years. Despite the recent relative strength shown by the shares, we still consider that the current valuation fails to reflect the long-term growth prospects of this high-quality company.
Divisional breakdown (2011) Revenue mix (2011)
Total revenue Assets under management 1% 9% 4%
13% Management fees
n.a. 8% Performance fees
70% Share from associates 95%
Private equity Private debt Private real estate Other
184 Helvea SA | Made in Switzerland +
Value drivers PROFITS BALANCE SHEET AND AUM
■ We expect rising AuM and maintained revenue margins to lead ■ AuM should rise in the longer run, with increased allocation to to further top-line growth in 2012; we also expect somewhat private market investments in institutional portfolios higher performance fees in 2012 and 2013 ■ Industry surveys suggest that 2012 should also see good new ■ The company has a strict cost/income ratio approach of 30%- commitments 35%, but currency distortions have put this temporarily out of ■ Alternative Investment Fund Managers Directive (AIFMD) capital reach; however, the SNB peg and the increasing development requirements very comfortably covered by the group’s equity – of non-Swiss operations should reduce future vulnerability the balance sheet is strong, with no borrowings
SWOT analysis STRENGTHS OPPORTUNITIES
■ Good franchise and reputation are key considering the lengthy ■ Listed equity markets’ poor performance increases the duration of investments attractiveness (higher returns & lower volatility) of private markets ■ One of the few independent global players in the sector ■ Increasing opportunities in private equity in Asia and other high- ■ Product-structuring capacities one of the key differentiators growth regions ■ Key people are tied in via shareholding and options plans ■ AIFMD should help to squeeze out smaller players, allowing ■ International reach for both investments and clients further market share gains for Partners Group ■ Well placed to cope with mounting regulatory burdens ■ Maintain high pricing for quality service to investors
WEAKNESSES THREATS
■ Lack of generally accessible information on fund performance ■ Possible EU pension regulation based on Solvency II (as being ■ Private market industry remains opaque to outsiders proposed by the European Parliament) could, if enacted, ■ Lack of peer group makes assessment of shares’ valuation constrain new commitments in the future harder for investors ■ Association of Partners with general partnerships by financial ■ Negative press on private equity from time to time markets whereas issues involved are not the same (but recent ■ Employee remuneration and retention model is very dependent resilience in the group’s share price suggests that investors are on a strong share price increasingly understanding the key drivers behind the business)
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E Cap/AuM (%) 16.1 14.2 12.2 10.6 9.3 Total assets (bn) 0.739 0.725 0.850 1.009 1.224 P/E 13.5 20.1 14.912.710.4 Sharehold. equ. 572 571 695 854 1,069 Cash P/E (ful. diluted) 14.0 19.2 14.512.410.3 Intangibles 46.1 49.8 49.8 49.8 49.8 P/BV 7.0 7.2 5.9 4.8 3.8 Tangible equity 525 521 645 805 1,020 Dividend yield (%) 3.1 3.4 3.7 4.3 5.0 BV/share (CHF) 23.1 22.5 27.4 33.6 42.1 Tang. BV/s. (CHF) 21.2 20.6 25.4 31.7 40.2
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Revenues 376 346 439 523 623 in revenues 15.9 -7.9 26.7 19.2 19.2 Expenses -134 -150 -177 -201 -228 in expenses 30.3 11.9 17.9 13.9 13.2 Net profits 296 202 274 322 393 in net profits 44.6 -31.8 35.8 17.4 21.9 Reported EPS (CHF) 11.9 7.99 10.8 12.7 15.5 in cash EPS 44.6 -27.2 33.0 16.7 20.3 Cash EPS (CHF/ f.d.) 11.5 8.37 11.1 13.0 15.6 in report. EPS 44.1 -33.1 35.3 17.4 21.9 DPS (CHF) 5.00 5.50 6.00 7.00 8.00 in DPS 11.1 10.0 9.1 16.7 14.3
Asset under management Ratios, margins and returns (In CHF bn) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E AuM Cost/income 35.6 43.3 40.3 38.5 36.6 Total 26.8 30.2 35.3 40.6 46.1 Pre-tax margin 84.3 63.8 67.6 67.0 68.5 Private equity 19.0 21.5 24.7 29.0 33.5 ROE 57.6 35.4 43.4 41.6 40.8 Cash ROE 59.1 38.2 46.0 43.9 42.5
Made in Switzerland + | Helvea 185
Phoenix Mecano Price: CHF447.- NEUTRAL Target: CHF550.- M&S
Reto Amstalden ([email protected]) – Tel. +41 (0)43 388 9261
Phoenix Mecano is a manufacturer of components for the mechanical and electrical engineering industries. Its product range includes enclosures, machine control panels, coding switches, inductive components, toroidal transformers, linear drive systems (used primarily in the furniture industry) and industrial clamps. Phoenix Mecano is a low-cost manufacturer and leverages its skills in operating a mix of automated and manual production facilities in countries such as Hungary, Tunisia, China and India. Europe is the largest market for the company, accounting for 80% of sales (Germany 40%). CEO: B. Goldkamp; CFO: R. Schäffeler; Website: www.phoenix-mecano.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF848 Major shareholders Planalto AG 33.7%, Tweedy, Browne Co. LLC 4.5%, 765 Oppenheimer Funds 9.0%, Sarasin Investmentfonds 682 6.4%, Others 46.4% 599 Shares outstanding (m) 0.97 EV/EBITDA (X) 516 Market cap. (EUR m) 360 2011 5.4 433 Free float 66% 2012E 5.6 350 EBITDA/CAGR 2011-2014E 1.4% 2013E 5.4 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Phoenix Mecano 12-mth tgt Absolute -19% -7% -35% Bloomberg PM SW Buy Acc. Neut. Red. N.R. Rel. to local -17% -12% -28% Reuters PM.S
News flow
■ December 2011: new logistics concept for Dewert/Okin (annual cost savings: EUR2.5m from 2013 onwards) ■ February 2012: full-year 2011 preliminary results in line with expectations ■ April 2012: flattish y-o-y sales trend (EUR139m) in Q1 2012 ahead of expectations, but upside on the EBIT line fully offset by harsher business conditions ■ Forthcoming event: 10 August 2012 – H1 2012 results ■ Guidance & consensus: guidance is for sales in 2012 to be at around 2011 levels (EUR530m) and EBIT of EUR43m to EUR53m; consensus EBIT estimates: EUR48.7m for 2012; EUR52.8m for 2013
Investment case
The Enclosures division focuses on small and medium-sized production runs and benefits from its capillary distribution network and vast client base, as well as a flexible organisation that is well placed to chase growth markets on an opportunistic basis. This enables Phoenix Mecano to earn high margins and cash flow across the cycle, and pursue an opportunistic bolt-on acquisition strategy. The integration of OKIN’s activities has helped to lift the profitability of Mechanical Components significantly although this will remain a competitive market. Phoenix Mecano may see demand from industrial markets (in the EU) drop in the next few quarters, but it has a proven track record in being able to weather downturns. Overall, we think the stock is fairly valued: NEUTRAL.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
70% Sales EBIT Sales EBIT 60 31.1% 50 34.3% 41.9% 40 n.a.
30 62.2%
20 3.6% 27.0% 10
0 Enclosures ELCOM/EMS Mechanical components Enclosures ELCOM/EMS Mechanical components
186 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Enclosures: to come under pressure with PMI in EU below 50 ■ Solid cash flow generation – historical average FCF/sales ratio ■ Mech. Comp.: linear drive sales to hold up well in 2012 thanks ~6% – driven by highly profitable Enclosures division to continued good demand in the US and Asian markets ■ FCF to rise in 2012 on tighter A/R and inventory management ■ ELCOM/EMS: to remain under pressure due to solar business ■ Capital spending set to rise to approx.EUR26m (expansion in ■ Bolt-on acquisitions should add a few millions to top line in 2012 Hungary & China) before returning to maintenance level in 2013
MARGINS INVESTED CAPITAL AND RETURNS
■ Enclosures: margins to remain in high teens ■ ROIC set to remain stable at around 13% to 14% ■ Dewert/OKIN: reversal in the negative margin trend in 2013 ■ The latest acquisitions have performed well in general, with the thanks to restructuring benefits exception of the latest on in the solar segment ■ ELCOM//EMS: continued pressure from declining solar ■ Additional bolt-on acquisitions already executed in 2012 business and weaker demand in the EU industrial markets
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading market shares in enclosures and linear drives ■ Outsourcing trend driven by greater complexity of components, ■ Cost leadership in key areas with flexible production base sub-systems and cost considerations ■ Product breadth, knowledge of standards and certification ■ Enclosures: bolt-on acquisitions; oil & gas; wind turbine industry ■ Enclosures: capillary distribution allows opportunistic strategy ■ ELCOM/EMS: bolt-on acquisitions in power quality ■ Solid balance sheet and above-average FCF generation ■ Mech. Comp: still room to optimise Dewert/OKIN activities
WEAKNESSES THREATS
■ Lack of critical mass in parts of ELCOM/EMS’ product range ■ Solar business (Datatel) still dependent on a single major client ■ Strong reliance on industrial markets in Germany (>40% of ■ Emerging competition in linear drives markets group sales) ■ Some end-markets (furniture) still shifting East ■ Sustainable recovery of ELCOM/EMS’ margins to high single digits to be a question mark
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 5.5 5.4 5.6 5.4 5.2 Current assets 239 250 261 279 319 EV/EBIT 7.4 7.5 8.0 7.7 7.2 Net fixed assets 98.6 101 112 113 115 EV/Inv. Capital 1.4 1.4 1.3 1.3 1.3 Goodwill 22.1 18.5 18.9 19.3 19.7 P/E 8.3 15.3 9.9 9.4 8.8 Total assets 381 390 409 429 470 Cash P/E 8.3 15.3 9.9 9.4 8.8 Sharehold. equit. 236 248 274 303 344 P/CF 12.3 8.1 5.8 6.1 5.8 Working capital 134 145 141 143 147 P/BV 1.5 1.5 1.3 1.2 1.1 Net debt 24.9 17.3 -2.5 -27.2 -64.3
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 502 530 522 529 540 in sales 26.4 5.6 -1.5 1.3 2.1 EBITDA 70.4 72.1 69.4 72.2 75.1 in EBITDA n.m. 2.4 -3.8 4.2 4.0 EBIT 52.6 52.0 48.6 50.8 53.9 in EBIT n.m. -1.1 -6.6 4.5 6.2 Net profits 43.6 23.6 36.5 38.6 41.3 in cash EPS n.m. -46.0 54.5 5.5 7.1 Cash EPS (EUR) 45.0 24.3 37.5 39.6 42.4 Net debt/equity 10.5 7.0 -0.9 -9.0 -18.7 Reported EPS (EUR) 45.0 24.3 37.5 39.6 42.4 FCF/net fin. results 5.9 5.7 30.9 58.5 157 DPS (CHF) 13.0 13.0 13.0 13.0 13.0 Current ratio (X) 2.5 3.0 3.7 3.9 4.4
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 52.6 52.0 48.6 50.8 53.9 Gross margin 49.0 52.4 51.8 52.1 52.3 Taxes -7.2 -13.3 -11.2 -11.7 -12.4 EBITDA margin 14.0 13.6 13.3 13.7 13.9 NOPLAT 45.4 38.7 37.4 39.1 41.5 EBIT margin 10.5 9.8 9.3 9.6 10.0 Depreciation 17.8 20.1 20.8 21.5 22.2 ROIC 18.8 13.8 13.0 13.4 14.0 CAPEX -18.3 -19.3 -25.8 -17.3 -17.6 Inv. cap. (EUR m) 277 285 289 293 299 in WC -31.3 -12.0 3.1 -2.0 -1.5 Free cash flow 10.9 25.1 34.7 40.0 42.8
Made in Switzerland + | Helvea 187
PubliGroupe Price: CHF143.- BUY Target: CHF180.- M&S
Chris Burger, CFA ([email protected]) – Tel. +41 (0)43 388 9259
PubliGroupe is a leading Swiss-based provider of marketing and media sales services. It offers a wide range of services to its clients and is organised into three business segments: Media Sales (which offers advertising solutions for media owners and advertisers), Search & Find (which produces and sells media for the search in local markets) and Digital & Marketing Services (which consists of a portfolio of international marketing and technology service companies). The company generated sales of around CHF1.3bn and employed 2,173 people in 2011. CEO: Hans-Peter Rohner; CFO: Andreas Schmidt; Website: www.publigroupe.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Media/Switzerland CHF196 Major shareholders Bestinver 12.5%, Gerstenhauer-Grolimund foundation 180 11.5%, Borter heirs association 10.6%, Tweedy Browne 164 10.3%, Marathon 6.2% 148 Shares outstanding (m) 2.36 EV/EBITDA (X) 132 Market cap. (CHF m) 337 2011 2.3 116 Free float 78% 2012E 1.3 100 EBITDA/CAGR 2011-2014E -2.1% 2013E 3.1 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols PubliGroupe 12-mth tgt Absolute 5% -1% -7% Bloomberg PUBN SW Buy Acc. Neut. Red. N.R. Rel. to local 8% -7% 3% Reuters PUBN.S
News flow
■ March 2012: full-year 2011 results (revenues: CHF1,304.0m; operating profits: CHF30.5m), introduction of ‘one share, one vote’ planned, moving (slowly) in the right direction ■ April 2012: online marketing expert to become new CEO, end of double mandate ■ May 2012: PubliGroupe moves from Main Standard to Domestic Standard of SIX Swiss Exchange ■ Forthcoming event: 27 August 2012 – H1 2012 results ■ Guidance & consensus: no specific guidance; consensus EBIT estimates of CHF65m for 2012 and CHF35m for 2013
Investment case
There is a lot of substantive value within the company, but this is not completely visible in the operating figures as the bulk of this value lies in real estate and associates. Net cash and real estate assets now account for almost three quarters of PubliGroupe’s share price. If we add the investments in associates (i.e. local.ch, Swisscom Directories, Zanox.de and FPH) and the ‘operating’ businesses of the three divisions, our sum-of-the- parts valuation yields a figure much higher than the current share price. The company intends to unlock this value partly by selling some real-estate assets and to give most of the proceeds back to shareholders.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
120% Sales EBIT Sales EBIT 100 0.8% 0.0% 9.6% 1.5% 10.6% 7% 19.3% 80 Switzerland 15% 60 40 5.2% Europe (except 20 54.7% Switzerland) 0 20.8% -20 Other areas 78% -40 77.5% -60 Search & Find Media Sales DigitalSearch & & Find Marketing Media Services Sales Digital & MarketingCorporateCorporate and and othersElimination Elimination Services others
188 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Media Sales expected to continue suffering in 2012 ■ Previous NOPLAT distorted by one-offs ■ Low-single-digit growth in the main profit-contributing division, ■ Capital spending in 2012 to include sale of real-estate assets Search & Find, in 2012 ■ Free cash flow constantly higher than operating cash flow due to ■ Stable revenues in Digital & Marketing Services in 2012 the sale of non-strategic assets ■ Online as the medium- and long-term growth driver
MARGINS INVESTED CAPITAL AND RETURNS
■ High gains from real-estate sale in 2012 (CHF51m pre-tax) ■ Invested capital projected to continue to decrease due to ■ Despite cost savings, ongoing loss in Media Sales in 2012 divestments expected (incl. restructuring costs) ■ ROIC hurt by Media Sales division, but gradual improvement ■ Slightly higher profit contribution from Search & Find and expected; 2012 positively distorted by real-estate gains Digital & Marketing Services in 2012 ■ Generally low capital intensity due to asset-light business model
SWOT analysis STRENGTHS OPPORTUNITIES
■ Clear market-leading position in print advertising in Switzerland ■ Moving to faster-growing electronic media ■ Strong position in directories business with a strong partner ■ Directories business platform can be extended into new areas of (Swisscom) opportunity ■ Increasing exposure to online media ■ Acquisition opportunities ■ Strong balance sheet
WEAKNESSES THREATS
■ High exposure to the saturated domestic print market ■ Slowdown in the Swiss advertising market ■ Limited synergy potential between divisions ■ Unique Swiss business model could diminish in future ■ Still less profitable non-operating assets ■ Increasing competition in Search & Find (Google) ■ Poor acquisition track record ■ Migration to multimedia could be unsuccessful ■ Voting right limitations ■ Acquisition risks
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 2.0 2.3 1.3 3.1 2.5 Current assets 417 429 401 408 418 EV/EBIT 2.7 2.9 1.2 2.5 2.0 Net fixed assets 89.6 45.7 28.0 10.0 -8.0 EV/Inv. Capital 0.6 0.7 0.9 0.9 0.9 Goodwill 58.9 45.6 59.6 73.6 87.6 P/E 7.9 22.9 5.5 13.8 10.7 Total assets 861 780 760 775 794 Cash P/E 7.5 15.8 5.5 13.8 10.7 Sharehold. equit. 411 409 406 423 444 P/CF 6.2 6.9 9.3 6.4 5.7 Working capital 0.9 41.2 14.6 13.8 12.7 P/BV 0.8 0.8 0.8 0.7 0.7 Net debt -21.3 -71.3 -82.8 -89.0 -97.3
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 1,474 1,304 1,243 1,252 1,262 in sales -8.4 -11.5 -4.7 0.8 0.8 EBITDA 44.8 37.4 68.4 28.8 35.1 in EBITDA 75.0 -16.5 82.9 -57.9 22.0 EBIT 32.6 30.5 73.8 35.7 43.8 in EBIT n.m. -6.4 n.m. -51.7 22.7 Net profits 42.6 14.6 56.6 21.8 28.3 in cash EPS n.m. -52.2 n.m. -60.3 29.5 Cash EPS (CHF) 18.9 9.02 26.0 10.3 13.3 Net debt/equity -5.2 -17.4 -20.4 -21.0 -21.9 Reported EPS (CHF) 18.0 6.21 26.0 10.3 13.3 FCF/net fin. results n.m. 39.8 n.m. n.m. n.m. DPS (CHF) 6.00 6.00 2.00 3.50 4.50 Current ratio (X) 1.4 1.6 1.6 1.6 1.6
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 32.6 30.5 22.8 35.7 43.8 Gross margin 23.4 24.2 24.7 24.8 25.0 Taxes -4.2 -5.3 -9.6 -6.4 -7.9 EBITDA margin 3.0 2.9 5.5 2.3 2.8 NOPLAT 28.4 25.2 13.2 29.2 35.9 EBIT margin 2.2 2.3 5.9 2.8 3.5 Depreciation 26.1 23.6 23.0 23.0 23.0 ROIC 16.1 19.6 12.2 31.0 38.4 CAPEX 20.5 11.9 76.0 -5.0 -5.0 Inv. cap. (CHF m) 136 121 94.8 94.0 92.9 in WC -68.8 40.3 -26.6 -0.8 -1.1 Free cash flow 83.3 139 71.6 32.4 38.8
Made in Switzerland + | Helvea 189
Richemont Price: CHF55.3 NEUTRAL Target: CHF66.0 Large Caps
Michael Heider ([email protected]) – Tel. +41 (0)43 388 9255
Richemont is a premium player in the ‘hard’ luxury goods industry. It is the No.1 group in the jewellery market thanks to the Cartier ‘megabrand’ and Van Cleef & Arpels. It is also the leading player in luxury watches, owning a stable of top brand names including Vacheron Constantin, Jaeger-LeCoultre, IWC, Piaget, Lange & Söhne, Panerai, Roger Dubuis and Baume & Mercier, and in luxury writing instruments with Montblanc. The company also owns some ‘soft’ luxury brands including Alfred Dunhill, Lancel and Chloé as well as online retailer, Net-A-Porter. CEO: Johann Rupert; CFO: Gary Saage; Website: http://www.richemont.com (FY to end-March)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Cyclical G. & S./Switzerland CHF70 Major shareholders Comp. Financière Rupert (50% of votes) 9.1% 65 60 55 50 Shares outstanding (m) 547 EV/EBITDA (X) 45 Market cap. 25,217 11/12A 9.1 (EUR m) 40 Free float 91% 12/13E 8.3 35 EBITDA/CAGR 11/12A-14E/15E 6.7% 13E/14E 7.9 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Richemont 12-mth tgt Absolute 0% 12% 0% Bloomberg CFR VX Buy Acc. Neut. Red. N.R. Rel. to local 2% 6% 10% Reuters CFR.VX
News flow
■ November 2011: H1 2011/12 currency-neutral sales growth of 36% to EUR4.2bn; EBIT margin up 220bp y-o-y ■ January 2012: solid sales growth in Q3 2010/11 (+24% in constant currencies); Montblanc received record watch orders at the SIHH trade fair in Geneva ■ May 2012: H2 2011/12 results surprised positively, with 28% sales growth to EUR4.65bn and record EBIT margin of 20.7%, a y-o-y rise of 430bp; sales rose by 20% (constant currencies) in April 2012 ■ Forthcoming events: 5 September 2012 – AGM; 9 November 2012 – H1 2012/13 results ■ Guidance & consensus: no specific guidance; consensus EBIT est.: EUR2.273bn (’12/13); EUR2.460bn (’13/14)
Investment case
Richemont has an unmatched stable of brands in the ‘hard’ luxury goods industry that should enable it to continue growing faster than most of its peers and offer superior returns in the long term. Cartier retains an unassailable position in the fine jewellery market. Its watch brands have gained market share overall and will continue to benefit from Richemont’s powerful distribution network. We expect to see a considerable improvement from Baume & Mercier on the back of recent restructuring and repositioning. The watch activities (and, to some degree, jewellery as well) will be affected by capacity constraints, and the necessary investments in production facilities are likely to put some pressure on free cash flow ratios. The ‘soft’ luxury activities are lacking critical size, in our view.
Divisional breakdown (2011/12) Regional breakdown – Sales (2011/12)
80% Sales EBIT Sales EBIT 0.0% 70 1.5%4.1% 13.9% 5.2% 14% 60
508.2% 35% 40 23.5% 51.8% 30 Europe Asia Americas
20 65.8% 26.2% 10 51% 0 -10 Jewellery Maisons Specialist Watchmakers JewelleryMontblanc Maisons Maison Specialist Montblanc MaisonOther Other Unallocated Unallocated corporateWatchmakers costs corporate costs
190 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Demand for luxury watches to remain strong, outstripping ■ Cash flow generation has been excellent in recent years, supply; growth to be complemented by price increases including through the downturn ■ Cartier well positioned for continued rapid sales growth ■ FCF set to remain strong despite continued high capex ■ Luxury industry increasingly dependent on Greater China, with ■ Capital spending to be channelled into accelerated DOS indications of slowing growth in high-end watches openings and expansion of production capacity
MARGINS INVESTED CAPITAL AND RETURNS
■ Exchange rates (strong CHF) remain a headache ■ Business model remains working-capital-intensive (inventories) ■ Price increases at most of the 'hard’ luxury brands should ■ DOS expansion expensive; pace set to moderate protect gross margin ■ Watch brands: ‘verticalisation’ will mean higher invested capital ■ However, room to improve margins is becoming more cramped ■ Luxury industry becoming increasingly capital-intensive ■ Scope for significant improvement at Baume & Mercier ■ Returns from ‘soft’ luxury set to improve
SWOT analysis STRENGTHS OPPORTUNITIES
■ Cartier – unmatched brand in high-end jewellery ■ Substantial potential for penetration of emerging markets ■ Watches – strength in depth at the high end ■ Tying up high-end watch market with Swatch Group; few others ■ Montblanc with no sizeable competitor in its field ■ Expanding Van Cleef & Arpels globally ■ Excellent distribution networks ■ Considerable potential for Baume & Mercier ■ Strong support from HQ, central functions, global footprint ■ Good potential to develop Alfred Dunhill in growth markets
WEAKNESSES THREATS
■ Lancel – still a minor player in leather goods ■ Capacity constraints in the watch industry in good years ■ Alfred Dunhill – heterogeneous brand perception ■ Increasing dependence on China ■ Insufficiently aggressive on underperforming brands in the past ■ Capital-intensity of the luxury industry continues to rise ■ Still significant reliance on Swatch Group, though declining ■ Profitability of ‘soft’ luxury business set to remain volatile ■ Baume & Mercier, Roger Dubuis, PRL still underperforming
Valuation ratios Balance sheet (X) 10/11 11/12 12/13E 13/14E 14/15E (In EUR m) 10/11 11/12 12/13E 13/14E 14/15E EV/EBITDA 13.1 9.1 8.3 7.9 7.5 Current assets 7,245 8,843 10,104 11,405 12,806 EV/EBIT 16.0 10.6 9.7 9.5 9.1 Net fixed assets 1,267 1,529 1,986 2,408 2,736 EV/Inv. Capital 4.6 3.7 3.2 2.9 2.7 Goodwill 441 479 479 479 479 P/E 23.3 16.4 13.9 13.6 13.1 Total assets 9,693 11,753 13,431 15,118 16,824 Cash P/E 23.3 16.4 13.9 13.6 13.1 Sharehold. equit. 6,980 8,609 9,954 11,488 13,065 P/CF 17.7 12.2 11.4 10.9 10.3 Working capital 2,561 3,468 3,920 4,264 4,573 P/BV 3.6 2.9 2.5 2.2 1.9 Net debt -2,589 -3,184 -3,709 -4,553 -5,547
Income statement Growth rates & balance-sheet ratios (In EUR m) 10/11 11/12 12/13E 13/14E 14/15E (In %) 10/11 11/12 12/13E 13/14E 14/15E Sales 6,892 8,867 9,842 10,482 11,006 in sales 33.2 28.7 11.0 6.5 5.0 EBITDA 1,646 2,374 2,603 2,732 2,880 in EBITDA 54.0 44.2 9.6 5.0 5.4 EBIT 1,355 2,040 2,227 2,285 2,366 in EBIT 63.3 50.6 9.2 2.6 3.6 Net profits 1,090 1,544 1,820 1,860 1,921 in cash EPS 81.6 42.4 17.9 2.2 3.3 Cash EPS (EUR) 1.98 2.82 3.32 3.39 3.50 Net debt/equity -37.1 -37.0 -37.3 -39.6 -42.5 Reported EPS (EUR) 1.98 2.82 3.32 3.39 3.50 FCF/net fin. results 0.1 1.6 23.1 28.1 33.2 DPS (EUR) 0.34 0.45 0.54 0.58 0.62 Current ratio (X) 3.2 3.2 3.4 3.7 4.0
Cash flow statement Ratios, margins and returns (In EUR m) 10/11 11/12 12/13E 13/14E 14/15E (In %) 10/11 11/12 12/13E 13/14E 14/15E EBITA 1,433 2,125 2,322 2,368 2,438 Gross margin 63.8 63.7 62.5 62.3 62.0 Taxes -220 -311 -392 -410 -429 EBITDA margin 23.9 26.8 26.4 26.1 26.2 NOPLAT 1,213 1,814 1,930 1,958 2,009 EBIT margin 19.7 23.0 22.6 21.8 21.5 Depreciation 213 249 281 365 442 ROIC 27.9 34.6 30.9 27.7 26.0 CAPEX -1,111 -779 -792 -833 -820 Inv. cap. (EUR m) 4,704 5,788 6,697 7,416 8,023 in WC -64.0 -907 -452 -344 -309 Free cash flow 4.7 377 967 1,145 1,322
Made in Switzerland + | Helvea 191
Rieter Price: CHF138.- BUY Target: CHF230.- M&S
Volkan Göçmen ([email protected]) – Tel. +41 (0)22 354 9157
After spinning off its automotive division, which has been listed separately under the name of Autoneum (May 2011), Rieter is now entirely focused on spinning machinery. In this market, the company is not only a technology leader, with more than 200 years of history and a first-class reputation, but also the only one that can offer all four existing spinning techniques (e.g. both conventional and compact ring-spinning, rotor-spinning and air-jet spinning). Furthermore, Rieter is the only company capable of supplying both spinning preparation and end-spinning from in-house sources. CEO: Erwin Stoller (Chairman/CEO); CFO: Joris Gröflin; Website: www.rieter.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF400 Major shareholders Artemis 11.5%, PCS Holding 19.1%, Others 69.4% 350 300 250 Shares outstanding (m) 4.67 EV/EBITDA (X) 200 Market cap. (CHF m) 645 2011 3.4 150 Free float 100% 2012E 6.5 100 EBITDA/CAGR 2011-2014E 11.0% 2013E 3.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Rieter 12-mth tgt Absolute -26% -23% -44% Bloomberg RIEN SW Buy Acc. Neut. Red. N.R. Rel. to local -24% -27% -38% Reuters RIEN.S
News flow
■ March 2012: full-year 2011 results in line with our expectations, but announcement of large-scale investment programmes in both plants and processes, totalling roughly CHF140m, for 2012 and 2013, together with the (short-term) impact of these on the bottom line, put the share price under pressure ■ Forthcoming event: 25 July 2012 – H1 2012 results ■ Guidance & consensus: management expects sales to record a ‘high-single-digit percentage sales decline’, with the whole investment programme slicing some 300bp off the EBIT margin; consensus EBIT estimates currently stand at CHF64m for 2012 and at CHF73m for 2013
Investment case
Rieter’s launch of investment programmes has not, in our view, been properly understood by the market that has tended to focus on short-termist aspects instead of realising they open a fresh chapter in Rieter’s long-term development. We believe the move into the mid-range (not to be confused with ‘cheap’ machines) makes a lot of sense for Rieter – there is plenty of low-hanging fruit to be harvested in this (higher-volume) market segment. From a short-to-medium-term perspective, we expect the spinning industry to embark on a new capital-spending cycle, with the first very positive signals coming from a key market like Turkey. Shares at current depressed levels offer an interesting risk/reward trade-off (EV/sustainable FCF of ca.9X). We firmly reiterate this contrarian call: BUY.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
90% Sales EBIT Sales EBIT 80 12% 18.8% 70 25% 30.2% Europe America 60 12%
50 India China 40 17% 30 69.8% 20% Turkey RoW 20 81.2% 14% 10
0 Spun Yarn Systems (SYS) Premium Textile Components (PTC) Spun Yarn Systems (SYS) Premium Textile Components (PTC)
192 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Lower order backlog to lead to declining sales in machinery- ■ Declining NOPLAT in 2012 owing to sales and margin declines related business ■ Huge capital-spending programme will also depress free cash ■ We expect higher sales in the components & consumables flow in 2012 and 2013, but FCF is still expected overall to stay in business at PTC, but not enough to compensate for declines in positive territory machinery business in 2012
MARGINS INVESTED CAPITAL AND RETURNS
■ Declining margins due to falling volume in machinery business, ■ Major investments to result in rising invested capital in 2013 and not fully offset by higher-margin growth achieved in PTC’s 2014 consumables & components business ■ ROIC to be depressed in 2012 by volume- and investments- ■ Roughly 300bp to be sliced off margins in 2012 and 2013 on induced margin declines, but it should still match capital costs account of investment programmes in China and India and pick up sharply again from 2013
SWOT analysis STRENGTHS OPPORTUNITIES
■ Innovation power ■ Gaining further market share in mid-range segment of the market ■ Cost management over the cycle in both spinning preparation and end-spinning ■ Excellent quality and reliability image providing high pricing ■ Air-jet spinning machinery to open up further potential power ■ M&A possibilities in both machinery and components/consumables segments
WEAKNESSES THREATS
■ Lack of winding-machinery business ■ Constant copy-cat activity by Asian competitors ■ No foothold in equipment for producing synthetic fibres
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 4.3 3.4 6.5 3.2 2.5 Current assets 1,167 789 742 962 1,085 EV/EBIT 6.5 4.4 12.6 4.3 3.0 Net fixed assets 606 228 271 313 304 EV/Inv. Capital 0.5 1.3 1.3 1.1 1.1 Goodwill 15.2 9.5 9.5 9.5 9.5 P/E 9.5 5.6 35.8 9.2 6.3 Total assets 1,969 1,111 1,298 1,622 1,738 Cash P/E 9.5 5.6 35.8 9.2 6.3 Sharehold. equit. 557 379 390 463 538 P/CF 6.0 5.1 9.6 5.4 4.3 Working capital 283 143 102 132 135 P/BV 1.2 1.7 1.7 1.4 1.2 Net debt 3.5 -159 -148 -269 -382
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 870 1,061 991 1,280 1,305 in sales 66.6 21.9 -6.6 29.2 2.0 EBITDA 116 146 75.2 154 200 in EBITDA n.m. 26.6 -48.6 n.m. 29.9 EBIT 75.7 113 39.0 116 162 in EBIT n.m. 48.7 -65.4 n.m. 39.7 Net profits 67.8 116 18.0 69.8 102 in cash EPS n.a. 71.4 -84.5 n.m. 45.8 Cash EPS (CHF) 14.5 24.9 3.85 14.9 21.8 Net debt/equity 0.6 -41.9 -37.9 -58.2 -71.1 Reported EPS (CHF) 14.5 24.9 3.85 14.9 21.8 FCF/net fin. results n.m. 8.2 2.5 1.1 19.7 DPS (CHF) 0.00 6.00 2.00 4.48 6.54 Current ratio (X) 1.5 2.4 1.7 1.5 1.2
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 75.7 113 39.0 116 162 Gross margin 27.3 28.0 23.8 26.8 27.6 Taxes -7.5 -19.0 -8.0 -34.0 -50.0 EBITDA margin 13.3 13.8 7.6 12.0 15.3 NOPLAT 68.2 93.6 31.0 81.8 112 EBIT margin 8.7 10.6 3.9 9.0 12.4 Depreciation 39.9 33.7 36.2 38.2 38.2 ROIC n.a. 14.6 8.1 19.5 24.8 CAPEX -25.8 -57.1 -80.0 -80.0 -29.0 Inv. cap. (CHF m) 905 380 383 455 448 in WC 24.2 141 40.5 -29.8 -2.6 Free cash flow 107 211 27.7 10.2 118
Made in Switzerland + | Helvea 193
Roche Price: CHF152.- NEUTRAL Target: CHF140.- Large Caps
Karl-Heinz Koch ([email protected]) – Tel. +41 (0)43 388 9258
Thanks to its acquisition of full ownership in Genentech, Roche is the undisputed global leader in the premium-priced speciality market of oncology. Roche had operated Genentech at arm’s length since its initial investment in 1990, but, in early 2009, assumed full control. It also raised its majority stake in Chugai (Japan) to 61.5% in H1 2008. Roche aims to lessen its dependence on oncology by developing an asset base in growth segments of the prescription pharmaceutical (Rx) market such as immunology, diabetes/CV, virology and CNS. Roche is also the global No.1 in diagnostics (Dx). CEO: Severin Schwan; CFO: Alain Hippe; Website: www.roche.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Switzerland CHF170 Major shareholders Hoffmann fam. (Bearer - 50.1% of votes) 10.1%, 160 Novartis (Bearer - 33.3% of votes) 6.3% 150 140 Shares outstanding (m) 858 EV/EBITDA (X) 130 Market cap. (CHF m) 130,073 2011 10.0 120 Free float 84% 2012E 9.2 110 EBITDA/CAGR 2011-2014E 6.4% 2013E 8.6 05.11 07.11 09.11 11.11 01.12 03.12 05.12 Share perform. 3m 6m 12m Symbols Roche 12-mth tgt Absolute -4% 5% 1% Bloomberg ROG VX Buy Acc. Neut. Red. N.R. Rel. to local -1% -2% 12% Reuters ROG.VX
News flow
■ April 2012: Q1 2012 Pharmaceuticals sales outperformed thanks to big franchises in cancer, hepatitis C (Pegasys) and macular degeneration (Lucentis); Diabetes weak ahead of new diabetes-care product launches ■ Pipeline news: dalcetrapib failed in atherosclerosis, removing the largest non-oncology asset from the pipeline; consensus sales estimate of CHF1bn for Zelboraf (melanoma) looks overly optimistic ■ Forthcoming events: 26 July 2012 – H1 2012 results; H2 2012 – HERA (2-year) study on Herceptin in adjuv. BC ■ Guidance & consensus: for 2012, low/mid-single-digit sales growth in local currencies and high-single-digit growth in core EPS (l.c.) vs. consensus of 5% sales growth and 11% core EPS growth (in CHF)
Investment case
Roche is the market leader in oncology (market share >25%) thanks to its strong antibody technology platform. Roche is developing a number of follow-on projects to mitigate the medium-term threat from follow-on biologics (FOB) and counteract intensifying competition from small-molecule drugs, which should enable Roche to defend its market position. However, the incremental equity value will need to come from the non-oncology pipeline which lacks significant clinical validation, and the recent failure of dalcetrapib (atherosclerosis) raises concerns over prospects for remaining pipeline assets. Roche may need to streamline its R&D process and extend cost savings to accelerate deleveraging. Diagnostics should continue to grow at a mid-single-digit rate, and it remains acquisitive.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
100% Sales EBIT Sales EBIT 0.0% 2.7% 1% 80 13.6% 22.9% 19% Switzerland
60 34% Europe 7% ROW 40 North America
20 Latin America 77.1% 4% 83.7% 0 35% Asia
-20 Pharmaceuticals Diagnostics Corporate Expense Pharmaceuticals Diagnostics Corporate Expense
194 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Existing Pharmaceuticals portfolio expected to generate low- ■ Roche seeking to boost cash flow generation through continued single-digit growth beyond sales erosion of Avastin in breast growth of legendary cancer franchises enhanced by new drugs in cancer and potential decline in Lucentis sales (rival Eylea) addition to cost-saving programme ■ Medium-term non-cancer pipeline drugs may enhance growth ■ High cash-flow generation required to reduce Genentech-related ■ Diagnostics expected to grow at mid-to-high single-digit rate net debt (>CHF20bn) so as to regain strategic flexibility
MARGINS INVESTED CAPITAL AND RETURNS
■ Avastin sales recovery and swift uptake of new cancer drugs in ■ Cash flow returns improving thanks to continued growth of cancer addition to cost savings should support margin improvement franchises thanks to new drugs launches ■ Roche may lower its cost base further following the dalcetrapib ■ Dividend payout ratio expected to remain above 50%, as failure to extend cost savings beyond the CHF2.4bn target previously announced, despite acquisition of Genentech ■ Margins at Diagnostics expected to increase on cost savings minorities and recent product/pipeline setbacks
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong antibody technology platform in Pharmaceuticals ■ Next-generation drugs and conjugates of existing drugs offer life- ■ First-mover advantage in cancer indications erecting high entry cycle strategies for established franchises barriers to which other drugs will have to measure up ■ Mid-term upside from emerging, yet risky, non-oncology projects ■ Limited near-term patent exposure of existing portfolio ■ Broad and deep early-to-mid-stage new-drugs pipeline ■ Leading market position in in-vitro diagnostics ■ Increasing synergies between Pharmaceuticals and Diagnostics
WEAKNESSES THREATS
■ Lack of significant small-molecule oncology expertise/pipeline ■ Follow-on biologic (FOB) agents are likely to reach key markets ■ Lack of expertise in emerging non-oncology therapeutic areas and put downward pressure on mid-to-long-term sales forecasts and absence of sufficient clinical validation for late-stage drugs ■ Pricing pressure for premium-priced cancer drugs, diminishing ■ Historically low research output of Roche Pharma (excl. G’tech) pricing power for emerging cancer franchises (e.g. T-DM1) ■ Novartis blocking minority complicates capital-market financing ■ Competing continuous glucose-monitoring systems (Diagnostics)
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 9.9 10.0 9.2 8.6 8.3 Current assets 27,612 28,232 33,359 39,491 45,661 EV/EBIT 12.3 12.3 11.2 10.4 10.0 Net fixed assets 16,729 16,201 17,188 18,117 18,967 EV/Inv. Capital 5.9 5.8 5.6 5.5 5.4 Goodwill 12,855 12,969 12,098 11,227 10,356 P/E 15.0 13.9 12.3 10.9 10.2 Total assets 61,020 61,576 66,820 73,010 79,158 Cash P/E 10.9 10.5 9.4 8.6 8.1 Sharehold. equit. 11,662 14,482 19,351 24,986 30,829 P/CF 9.5 9.5 8.8 8.2 7.9 Working capital 11,422 12,202 12,090 12,118 11,882 P/BV 11.2 9.0 6.8 5.2 4.2 Net debt 19,157 15,566 10,387 4,371 -1,986
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 47,473 42,531 44,383 46,252 47,277 in sales -3.2 -10.4 4.4 4.2 2.2 EBITDA 16,766 16,550 17,910 19,222 19,909 in EBITDA 7.2 -1.3 8.2 7.3 3.6 EBIT 13,487 13,454 14,729 15,955 16,584 in EBIT 9.8 -0.2 9.5 8.3 3.9 Net profits 8,667 9,343 10,603 11,881 12,690 in cash EPS 7.2 4.1 10.8 9.9 5.7 CORE EPS (CHF) 12.8 12.3 13.4 14.7 15.6 Net debt/equity 164 107 53.7 17.5 -6.4 Reported EPS (CHF) 10.1 10.9 12.4 13.9 14.8 FCF/net fin. results 4.3 6.9 10.1 15.5 28.0 DPS (CHF) 6.60 6.80 7.40 8.11 8.63 Current ratio (X) 1.8 1.7 2.0 2.3 2.6
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 14,835 14,802 16,077 17,303 17,932 Gross margin 72.0 71.9 72.8 73.2 73.5 Taxes -2,320 -2,341 -2,640 -2,937 -3,117 EBITDA margin 35.3 38.9 40.4 41.6 42.1 NOPLAT 11,765 11,887 12,926 13,929 14,454 EBIT margin 28.4 31.6 33.2 34.5 35.1 Depreciation 1,931 1,747 1,833 1,919 1,977 ROIC 40.2 42.0 44.8 46.8 47.3 CAPEX -2,671 -1,959 -2,441 -2,498 -2,506 Inv. cap. (CHF m) 28,151 28,403 29,279 30,235 30,848 in WC -1,266 -1,166 427 439 492 Free cash flow 9,871 10,858 12,745 13,790 14,418
Made in Switzerland + | Helvea 195
Sanofi Price: EUR55.0 ACCUMULATE Target: EUR64.0 Large Caps
Karl-Heinz Koch ([email protected]) – Tel. +41 (0)43 388 9258
Since its inception in 2004, Sanofi has had to face up to daunting challenges, with the largest-selling drugs in its drugs portfolio being challenged by generics manufacturers and a large slice of its pipeline failing in late-stage clinical development. The new CEO, Chris Viehbacher, has implemented substantive changes to the company’s strategy since his arrival in late 2008, diversifying its business portfolio (generics, OTC, animal health), implementing cost-cutting measures and, more recently, acquiring Genzyme to overcome patent losses and reboot the R&D process. CEO: Chris Viehbacher; CFO: Jérôme Contamine; Website: www.sanofi.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/France EUR63 Major shareholders Total 11.3%, L'Oreal 9.0%, Others 79.7% 60 57 54 Shares outstanding (m) 1,307 EV/EBITDA (X) 51 48 Market cap. (EUR m) 71,858 2011 6.3 45 Free float 71% 2012E 6.9 42 EBITDA/CAGR 2011-2014E 1.2% 2013E 6.5 05.11 07.11 09.11 11.11 01.12 03.12 05.12 Share perform. 3m 6m 12m Symbols Sanofi 12-mth tgt Absolute -1% 6% 0% Bloomberg SAN FP Buy Acc. Neut. Red. N.R. Rel. to local 13% 10% 33% Reuters SASY.PA
News flow
■ April 2012: Q1 2012 operating profits, net profits and business EPS came in 10%, 10% and 13% ahead of consensus estimates on sales growth 1% above estimates; Q1 – last quarter of Genzyme consolidation ■ Forthcoming events: 26 July 2012 – Q2 2012 results; H1 2012 – regulatory approval of Lyxumia (diabetes), Aubagio (oral MS), Zaltrap (2nd-line colorectal cancer); Visamerin/Mulsevo (anti-thrombotic); Kynamro (FH) ■ Guidance & consensus: for 2012, guiding for business EPS 12%-15% lower than in 2011 (loc. curr.) due to JV profit wash-out; targeting group sales growth of at least 5% (l.c.) and more in ‘business’ EPS over 2012-15, driven by emerging markets, enlarged Genzyme, Vaccines, Consumer Health, Diabetes Care and Animal Health
Investment case
The net portfolio ‘add-on’ potential (pipeline potential less generic risk exposure) continues to improve on the back of lower remaining generic risk exposure and improving pipeline prospects even though the incremental potential of the base portfolio remains limited. Together with an increasing share of more stable growth businesses, such as OTC, generics, animal health and vaccines, this means that Sanofi’s overall sales growth profile is improving. Sanofi should also continue to benefit from growth in emerging markets. Management will need to continue improving the quality of its pipeline. The addition of the speciality-care provider Genzyme offers stability and substantial potential to drive cost savings, which is thus likely to provide upside momentum to earnings estimates.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
6% 5%0.3% 8% 10% 35% 35%
Europe
USA
84% 87% 30% RoW Pharmaceuticals Vaccines Animal Health Other
196 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Generic erosion in pharmaceuticals largely behind Sanofi, with ■ Downward pressure on cash flow margins from generic losses, new drug launches stabilising divisional sales particularly from the US JV for Plavix and Avapro (with BMS) ■ Share of non-branded prescription pharmaceutical businesses ■ EUR2bn cost savings thanks to Genzyme-related restructuring, increasing, thereby supporting the company’s overall growth with streamlining efforts underway in Sanofi-originated R&D ■ Genzyme provides extra stability to revenue growth ■ Limited scope for optimising the tax rate
MARGINS INVESTED CAPITAL AND RETURNS
■ Management implemented far-reaching cost-streamlining to ■ Investment in expansion of vaccine-manufacturing capacity for stem margin pressure from remaining generic erosion rate new products (e.g. dengue fever) ■ Despite launch of several new drugs in 2012, SG&A ratio is not ■ Returns improving beyond the remaining generic declines of set to rise as infrastructure investments are already in place Plavix and Avapro after 2012 ■ Increasing focus on translational medicine lowering R&D ratio ■ Dividend payout ratio stable; no share buy-backs expected
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong management team ■ Dengue fever vaccine now in Phase III in Asia has blockbuster ■ Market leadership position in vaccines potential, with manufacturing capacity good for EUR1.5bn ■ Leadership positions in speciality drugs (Genzyme), diabetes ■ Approval of Framlington site to drive Genzyme speciality-care ■ Strong position in emerging markets franchises back to normal capacity, with important margin effects ■ Strong leadership position in animal health ■ Strong position to benefit from growth in emerging markets
WEAKNESSES THREATS
■ Remaining generic JV erosion in 2012 preventing substantial ■ Lantus (basal insulin) likely to face headwinds from launch of recovery in operating profitability (no longer affects sales) competing degludec and degludecPlus (Novo Nordisk) in 2012 ■ Quality of near-term new-product launches sub-optimal, with ■ Price pressure on legendary tail-end portfolio products exposed limited potential to drive substantial sales to emerging growth markets ■ Few life-cycle programmes to cushion impact of generic loss ■ Approval delays of new drugs and superior profile of rival drugs
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 6.0 6.3 6.9 6.5 6.1 Current assets 20,043 20,791 25,066 29,438 29,488 EV/EBIT 6.5 6.9 7.7 7.2 6.7 Net fixed assets 8,155 10,750 11,245 11,761 12,303 EV/Inv. Capital 1.4 1.0 1.0 1.0 1.0 Goodwill 44,411 61,718 61,718 61,718 61,718 P/E 7.8 8.3 9.4 8.9 8.3 Total assets 85,264 100,165 104,935 109,823 110,415 Cash P/E 6.9 7.3 8.1 7.8 7.2 Sharehold. equit. 53,288 56,389 60,745 65,173 65,173 P/CF 6.9 7.4 8.0 7.5 7.0 Working capital 6,919 7,805 8,392 8,903 9,562 P/BV 1.3 1.3 1.2 1.1 1.1 Net debt 1,795 11,315 7,736 3,997 4,762
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 32,368 33,386 35,183 36,645 38,508 in sales 10.4 3.1 5.4 4.2 5.1 EBITDA 14,098 13,239 12,087 12,855 13,728 in EBITDA 6.7 -6.1 -8.7 6.4 6.8 EBIT 12,864 12,142 10,931 11,651 12,462 in EBIT 7.0 -5.6 -10.0 6.6 7.0 Net profits 9,216 8,793 7,766 8,150 8,777 in cash EPS 6.5 -6.5 -9.8 4.8 7.4 Cash EPS (EUR) 8.01 7.48 6.75 7.08 7.60 Net debt/equity 3.4 20.1 12.7 6.1 7.3 Reported EPS (EUR) 7.06 6.65 5.88 6.17 6.64 FCF/net fin. results 19.4 17.5 23.3 33.1 64.7 DPS (EUR) 2.50 2.65 2.75 2.85 3.50 Current ratio (X) 2.0 1.5 1.8 2.0 2.0
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 13,214 12,492 11,281 12,001 12,812 Gross margin 76.4 73.8 69.4 68.4 68.2 Taxes -3,286 -2,937 -2,858 -3,269 -3,558 EBITDA margin 43.6 39.7 34.4 35.1 35.7 NOPLAT 9,514 9,019 8,167 8,713 9,327 EBIT margin 39.7 36.4 31.1 31.8 32.4 Depreciation 884 747 806 854 916 ROIC 16.4 12.9 10.1 10.6 11.2 CAPEX -1,573 -1,567 -1,651 -1,720 -1,808 Inv. cap. (EUR m) 59,485 80,273 81,355 82,382 83,583 in WC -277 -987 -156 -173 -223 Free cash flow 7,020 7,212 7,167 7,674 8,213
Made in Switzerland + | Helvea 197
Sarasin Price: CHF26.0 NEUTRAL Target: CHF29.5 M&S
Tim Dawson ([email protected]) – Tel. +41 (0)22 354 9169
Sarasin is mainly active in private banking, institutional asset management and investment funds. In March 2002, Rabobank took a 28% stake in Sarasin (with the option of acquiring the majority over the next 7 years) and, in exchange, contributed its private banking activities. At the end of 2006, Rabobank exercised its call option to own 46.06% of Sarasin’s equity capital and 68.63% of the voting rights. It now proposes to sell this stake to Safra Group, which apparently will keep Sarasin’s listing on the Swiss stock exchange and not interfere in its business. CEO: Joachim Straehle; CFO: Thomas Mueller; Website: www.sarasin.ch (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Banks/Switzerland CHF50 Major shareholders Rabobank 46.0% 45 40 35 Shares outstanding (m) 62.70 Cash P/E (X) 30 Market cap. (CHF m) 1,627 2011 14.7 25 Free float 54% 2012E 14.3 20 Op. profits/CAGR 2011A-2014E 22.0% 2013E 11.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Sarasin 12-mth tgt Absolute -7% -9% -35% Bloomberg BSAN SW Buy Acc. Neut. Red. N.R. Rel. to local -5% -14% -28% Reuters BSAN.S
News flow
■ November 2011: Safra Group announced that, subject to regulatory approval, it would acquire Rabobank’s 46% stake (68% voting rights) – Safra will pay CHF36 per B share and must make an offer to minority shareholders of at least CHF27 per share ■ February 2012: full-year 2011 results hurt by several one-off factors ■ Forthcoming event: 30 July 2012 – H1 2012 results ■ Guidance & consensus: no company guidance; consensus estimates for net profits stand at CHF129m for 2012 and at CHF165m for 2013
Investment case
Sarasin has been rejuvenated under the leadership of its new CEO, Joachim Straehle, and the excellent net new money (NNM) results offer proof that his expansionist plans are working. Its new dynamic strategy is appreciated by investors whilst the fact that it has been underpinned by the AAA-rated Rabobank, its major shareholder, also found support among risk-averse investors and, indeed, clients, but, with Safra Group now owning the stake, such support might not now be so forthcoming. Until the deal is completed (expected in Q2 2012), Sarasin shares remain effectively underwritten at CHF27 per share. However, a more positive assessment will inevitably depend on first obtaining some clarity regarding Safra’s intentions for its new acquisition. We maintain our NEUTRAL recommendation.
Divisional breakdown (2011) Breakdown of AuM (2011)
60% Operating income OperatingOperating profit income Operating profit 4.2% 3.0%2.6% 50 7.8%
40
30 31.8% 44% 24.3% 50.8% 53.2% Private banking Other 20 56%
10
0 10.5% 11.8%
-10 Private banking Trading & Family Office AssetPrivate Mgmt,banking Products Trading & &Family Sales Asset Mgmt,Bank zweiplusBank zweiplus Corporate centre Corporate centre Office Products & Sales
198 Helvea SA | Made in Switzerland +
Value drivers PROFITS BALANCE SHEET AND AUM
■ We forecast revenue growth of 3.5% for 2012, with gross ■ Average AuM should rise by about 9% in 2012 and by a further margins rising a touch and average AuM growth driven by 10% in 2013, driven mainly by NNM growth. NNM; for 2013, we anticipate more of the same, with 11% ■ Tier 1 ratio at the end of December 2011 was a healthy 15.7% revenue growth ■ There is operational leverage at Sarasin as a result of its high cost/income ratio, so the cost/income ratio should fall from 80% in 2011 to 73% by 2014
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong brand name ■ Wealth management market is growing and Sarasin has a very ■ Innovative products, notably in investment funds small market share ■ Presence in Asia ■ Asian wealth creation and rejuvenated Asian operations to boost ■ Presence in the charities sector in the UK opportunities to increase client inflows ■ No exposure to either investment banking or retail banking ■ Acquisitions possible with good capital base and support from new shareholder
WEAKNESSES THREATS
■ Operational risks on the back of very strong expansion in ■ Clients prefer big ‘safe’ banks recent years ■ Loss of ‘Swiss private bank’ status following the Safra Group ■ Focus on expansion over short-term profit performance may takeover lead to poor cost control and excessive cost base ■ Lack of clarity on strategic plans for the group until after the Safra takeover
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E Cap/AuM (%) 1.6 1.7 1.6 1.4 1.3 Total assets (bn) 17.505 17.495 18.370 19.288 20.253 SOTP/share (CHF) 29.5 Sharehold. equ. 1,229 1,230 1,277 1,332 1,410 P/SOTP (%) 87.9 Intangibles 146 131 145 145 145 P/E 13.6 14.7 14.3 11.5 8.9 Tangible equity 1,083 1,099 1,132 1,187 1,265 Cash P/E (ful. diluted) 13.6 14.7 14.3 11.5 8.9 Tier 1 ratio (%) 15.3 15.7 15.5 15.5 15.7 P/BV 1.3 1.3 1.3 1.2 1.1 BV/share (CHF) 19.6 19.8 20.5 21.4 22.7 Dividend yield (%) 3.5 3.5 3.5 3.5 7.3 Tang. BV/s. (CHF) 17.3 17.7 18.2 19.1 20.3
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Revenues 691 686 710 775 859 in revenues 2.5 -0.6 3.5 9.0 10.9 Expenses -525 -546 -558 -590 -626 in expenses 4.2 4.0 2.2 5.7 6.0 LLP -11.3 -11.8 -1.0 -1.0 -1.0 in LLP -85.4 4.1 -91.5 0.0 0.0 Net profits 108 83.9 103 130 171 in net profits 185 -22.2 22.7 26.1 32.1 Reported EPS (CHF) 1.91 1.77 1.82 2.25 2.90 in cash EPS 119 -7.5 2.6 23.8 29.1 Cash EPS (CHF/ f.d.) 1.91 1.77 1.82 2.25 2.90 in report. EPS 119 -7.5 2.6 23.8 29.1 DPS (CHF) 0.90 0.90 0.90 0.90 1.90 in DPS 0.0 0.0 0.0 0.0 111
Asset under management Ratios, margins and returns (In CHF bn) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E AuM NII/total revenue 21.3 21.7 24.6 24.5 22.1 Total 103 96.5 104 115 128 Cost/income 76.1 79.6 78.6 76.2 72.8 Private banking 46.5 42.9 46.2 51.6 57.1 Pre-tax margin 22.3 18.7 21.3 23.7 27.1 NNM PB gr. marg. (bp) n.a. n.a. n.a. n.a. n.a. Total 13.4 1.5 4.6 7.6 9.6 IB comp. ratio n.a. n.a. n.a. n.a. n.a. Private banking 7.1 1.4 2.6 4.6 5.6 ROE 8.7 6.8 8.2 9.9 12.5 PB NNM growth 13.9% 3.0% 6.1% 10.0% 10.9% Cash ROE 9.6 9.0 9.0 10.7 13.2
Made in Switzerland + | Helvea 199
Schaffner Price: CHF223.- NEUTRAL Target: CHF250.- M&S
Michael Heider ([email protected]) – Tel. +41 (0)43 388 9255
Schaffner is a leading worldwide supplier of components in the field of electromagnetic compatibility (EMC) and power quality (PQ). Such components (i.e. filters) protect electrical devices against interference frequencies and, as such, help to lengthen the lifetimes of devices, lower power consumption, increase the stability of electrical power networks and ensure compliance with regulations. Schaffner operates globally, with its main production facilities in China and Thailand. Schaffner serves a broad client-base in a wide variety of industries such as motor drives, alternative energy and traction. CEO: Alexander Hagemann; CFO: Kurt Ledermann; Website: www.schaffner.com (FY to end-September)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF450 Major shareholders Alpine Select 20.7%, Sarasinselect 9.7%, Buru Holding 400 8.0%, UBS 4.8%, Others 61.6% 350 300 Shares outstanding (m) 0.64 EV/EBITDA (X) 250 Market cap. (CHF m) 142 10/11A 8.1 200 Free float 62% 11/12E 10.1 150 EBITDA/CAGR 10/11A-13E/14E 15.1% 12E/13E 6.4 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Schaffner 12-mth tgt Absolute -16% -10% -36% Bloomberg SAHN SW Buy Acc. Neut. Red. N.R. Rel. to local -14% -15% -29% Reuters SAHN.S
News flow
■ September 2011: acquisition of US transformer producer MTC giving Schaffner a global set-up ■ December 2011: full-year 2010/11 results slightly below revised guidance – sales of CHF183.7m (–3% y-o-y) and EBIT of CHF12.8m (–15% y-o-y); H2 2010/11 order intake was down 30.5% y-o-y to CHF76m ■ May 2012: H1 2011/12 revenues decline 18% to CHF81m and EBIT fall to CHF1.4m; orders rise 17.5% h-o-h ■ Forthcoming event: 6 December 2012 – full-year 2011/12 results ■ Guidance & consensus: management guides for full-year sales of CHF170-180m with an EBIT margin of 4%- 6%; consensus EBIT estimates stand at CHF8.5m for 2011/12 and at CHF15.9m for 2012/13
Investment case
Schaffner’s most recent results showed a significant annual slowdown in H1 2011/12, with sales down 18% h-o-h. Weak demand in many of Schaffner’s end-user markets (e.g. photovoltaic and traction), together with currency headwinds, more than cancelled out the benefits of the structural improvements Schaffner has successfully implemented over the last three years. As a result, the EBIT margin dropped to an unsatisfactory 1.7% in H1 2011/12. Although the orders trend turned positive in H1 2011/12 (+17.5% h-o-h), we think it is too early to buy the shares as Schaffner is still far away from its target of reaching sustainable operating margins above 10%.
Divisional breakdown (2010/11) Regional breakdown – Sales (2010/11)
200% Sales EBIT Sales EBIT 9.6% 0.0% 150 24.7%
100 38%
50 1.5% Europe Asia 33.5% 56.9% 3.7% 0 62% 70.2% -50
-100 ElectromagneticElectromagnetic CompatibilityPower QualityPower Quality AutomotiveAutomotive CorporateCorporate Compatibility
200 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Weak H1 2011/12 results suggest no organic growth in 2011/12 ■ Generally moderate needs for capital spending (3%-4% of sales) ■ However, long-term structural growth in renewable energies to bolster sustainable FCF generation (solar and wind) and energy efficiency (motor drives) looks set ■ MTC acquisition for USD14m (approx.CHF11m) dented FCF in to continue 2010/11 ■ MTC acquisition to add some 8% to top line as of 2011/12 ■ Normalising NWC in 2011/12 to dent FCF
MARGINS INVESTED CAPITAL AND RETURNS
■ Structural cost-cutting (e.g. relocation of workforce to low-cost ■ ROIC unlikely to rise this year as tax payments and NWC needs countries) has increased margin leverage, making double-digit normalise, and rising invested capital through bolt-on acquisition EBIT margins achievable by 2013/14 in the USA ■ 10% cost base in Switzerland weighs heavily, however, against ■ Asset-light business model allows for attractive returns depreciated revenues in foreign currencies, keeping margin low throughout the business cycle
SWOT analysis STRENGTHS OPPORTUNITIES
■ World leadership in complete product range for ensuring ■ Joint offering of EMC and power-quality components electromagnetic compatibility (market share: about 24%) ■ Fast-rising demand for recovery and conversion of electricity in ■ First global supplier offering EMC in conjunction with power order to optimise efficiency of networks and electronic motors quality, backed up by a global sales and engineering network ■ Further acquisitions in fragmented, local power-quality markets to ■ Technology and cost leadership in EMC components be the leader in globalising power quality business
WEAKNESSES THREATS
■ Less than 10% market share in globally fragmented power- ■ Investment cycle to remain at depressed levels in traction, solar, quality market electronic devices, machine tool and telecom industries, which ■ Limited negotiating power in EMC in dealings with large-scale account for the bulk of group sales customers (e.g. ABB, Ericsson, Bombardier, Siemens) ■ Intensification of pricing pressure in low-end EMC components due to Asian competitors and large OEM customers
Valuation ratios Balance sheet (X) 09/10 10/11 11/12E 12/13E 13/14E (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E EV/EBITDA 7.2 8.1 10.1 6.4 5.3 Current assets 82.6 80.1 70.5 83.4 98.4 EV/EBIT 10.0 11.7 18.8 9.2 7.0 Net fixed assets 14.9 18.2 19.2 20.4 22.0 EV/Inv. Capital 1.7 1.6 1.7 1.6 1.5 Goodwill 4.8 9.0 12.0 12.0 12.0 P/E 11.8 13.9 26.7 11.8 8.8 Total assets 127 137 126 139 154 Cash P/E 10.5 13.2 23.0 11.0 8.3 Sharehold. equit. 56.0 56.9 59.5 69.0 81.1 P/CF 6.8 8.1 10.6 7.3 6.0 Working capital 49.2 41.9 41.1 45.8 50.2 P/BV 2.5 2.5 2.4 2.0 1.7 Net debt 11.8 20.8 16.7 9.9 0.9
Income statement Growth rates & balance-sheet ratios (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E (In %) 09/10 10/11 11/12E 12/13E 13/14E Sales 189 184 172 190 207 in sales 41.7 -2.8 -6.6 10.5 9.4 EBITDA 21.0 18.6 15.0 23.4 28.5 in EBITDA n.m. -11.3 -19.8 56.2 21.9 EBIT 15.0 12.8 8.0 16.3 21.4 in EBIT n.m. -14.6 -37.5 n.m. 31.6 Net profits 12.0 10.2 5.3 12.0 16.1 in cash EPS n.m. -20.6 -42.6 n.m. 32.1 Cash EPS (CHF) 21.3 16.9 9.72 20.3 26.8 Net debt/equity 21.1 36.5 28.0 14.3 1.1 Reported EPS (CHF) 18.9 16.0 8.38 18.9 25.4 FCF/net fin. results 0.7 3.2 4.6 6.4 9.6 DPS (CHF) 4.50 4.50 2.10 4.73 8.90 Current ratio (X) 2.7 1.3 1.4 1.6 1.9
Cash flow statement Ratios, margins and returns (In CHF m) 09/10 10/11 11/12E 12/13E 13/14E (In %) 09/10 10/11 11/12E 12/13E 13/14E EBITA 17.5 15.3 10.8 18.9 23.8 Gross margin 31.4 31.3 29.9 32.0 32.0 Taxes 0.0 -1.0 -1.6 -3.8 -4.8 EBITDA margin 11.1 10.2 8.7 12.3 13.7 NOPLAT 17.5 14.3 9.115.219.0 EBIT margin 7.9 7.0 4.7 8.6 10.3 Depreciation 3.5 3.4 4.2 4.4 4.7 ROIC 21.7 16.0 10.0 16.4 19.6 CAPEX -6.0 -8.2 -6.0 -6.6 -7.3 Inv. cap. (CHF m) 86.6 92.2 90.5 94.8 99.4 in WC -12.7 7.2 0.8-4.7-4.3 Free cash flow 2.2 6.1 8.1 8.2 12.1
Made in Switzerland + | Helvea 201
Schindler Price: CHF107.- NEUTRAL Target: CHF99.0 M&S
Volkan Göçmen ([email protected]) – Tel. +41 (0)22 354 9157
The world’s No.2 elevator & escalator company, Schindler is one of the very few players to have a truly global presence. It is majority-owned by the Schindler & Bonnard families. Its Elevators & Escalators business is currently implementing the LEAP programme (Leading in Execution & Accelerating Performance), which involves investment in strategic growth markets (China and India) and restructuring geared towards efficiency gains in both back-office & support and service businesses. After merging its ALSO subsidiary with Actebis, Schindler is today a pure-play elevators & escalators group. CEO: J. Tinggren; CFO: Erich Ammann; Website: www.schindler.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
CHF Sector/Country Industrial G. & S./Switzerland 117 Major shareholders Schindler & Bonnard families 35.0%, Others 65.0% 110 103 96 Shares outstanding (m) 120 EV/EBITDA (X) 89 Market cap. (CHF m) 12,929 2011 11.7 82 Free float 65% 2012E 9.6 75 EBITDA/CAGR 2011-2014E 13.4% 2013E 8.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Schindler 12-mth tgt Absolute -4% -2% 0% Bloomberg SCHP SW Buy Acc. Neut. Red. N.R. Rel. to local -1% -8% 10% Reuters SCHP.S
News flow
■ February 2012: full-year 2011 results showed new orders down 6% (+4.8% in local currencies) and EBIT of CHF828m (–15.5%; margin of 10.5%), but profits were dented by CHF135m in costs and expenses for the LEAP programme, of which CHF15m were impairment charges ■ April 2012: strong Q1 2012 results – orders +5.4% (+9.5% in local currencies) and further margin gains (y-o-y) ■ Forthcoming event: 14 August 2012 – H1 2012 results/conference call ■ Guidance & consensus: management expects ‘..., excluding any unforeseeable events, net profits 2012 to be significantly higher’; consensus EBIT estimates stand at CHF1.003bn for 2012 and at CHF1.103bn for 2013
Investment case
Schindler is on the right track with regard to both its operational developments and its product/regional strategy. The financial community seems to us to be taking too narrow-minded and isolated a focus on margins, overlooking the fact that Schindler ultimately needs to sell fairly considerable numbers of units of equipment merely to keep the size of its service portfolio constant. As a result, we would tend to advocate appraising the group from the perspective of both margins AND top-line trends. The lifts industry as a sector already looks to be ‘priced to deliver’, and we cannot see any short-to-medium-term catalyst to boost share prices – incidentally, this proviso applies not just to Schindler, but to Kone as well. We, therefore, maintain our NEUTRAL ratings on both stocks.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
120% Sales EBIT Sales EBIT 0.0% 4.4% 100 22% 80 Europe Americas
60 50% 40 Asia Pacific 20 28%
0 100.0% 95.6%
-20 Elevators & escalators Corporate & others Elevators & escalators Corporate & others
202 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We estimate top-line growth at roughly 4% for 2012, mainly on ■ Relatively ‘depressed’ FCF development in 2011-2013 period in account of the high order backlog for supplying new equipment, historical terms owing to restructuring charges, which are mostly but also thanks to further rises in the service/maintenance cash-relevant, and increased capital spending on strategic growth portfolio markets as part of the LEAP programme ■ Overall markets are heterogeneous, particularly in Europe
MARGINS INVESTED CAPITAL AND RETURNS
■ Absence of major restructuring charges in 2012 as costs ■ Increase in invested capital for 2012 and 2013 attributable to associated with the LEAP programme have already been programme of capital spending in strategic growth markets booked in the 2011 accounts ■ Rising NOPLAT should offset this increase and deliver a stable ■ On an underlying basis, we project the margin improvement at ROIC in 2012 roughly 20-30bp for 2012
SWOT analysis STRENGTHS OPPORTUNITIES
■ Excellent balance sheet ■ Deepening inroads into high-rise market with promising products ■ Highly innovative and growth stimuli from relatively new low-/mid-rise products ■ Truly global footprint ■ Further margin gains on the back of new products that are only at ■ Long-term-committed entrepreneurial major shareholders the beginning of their life-cycles ■ Balance sheet enables active role in consolidation process
WEAKNESSES THREATS
■ Blank and/or weak spots in some cities ■ Possible link-up of a Western competitor with Japanese player ■ Still weak presence in Japan would significantly intensify competition in Asia ■ Catch-up needs at lower end of Chinese residential building ■ Local companies intensifying pricing competition in the service segment business
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 9.8 11.7 9.6 8.5 8.0 Current assets 5,402 5,089 5,511 5,994 6,649 EV/EBIT 11.2 13.4 10.9 9.6 8.9 Net fixed assets 456 483 628 748 781 EV/Inv. Capital 7.8 5.5 5.3 5.2 5.2 Goodwill 768 842 802 760 717 P/E 20.0 23.5 19.2 16.6 15.5 Total assets 7,299 7,494 8,017 8,578 9,248 Cash P/E 18.7 22.0 18.1 15.8 14.7 Sharehold. equit. 2,715 2,782 3,198 3,619 4,103 P/CF 15.7 18.6 15.6 13.9 13.1 Working capital -568 -505 -524 -547 -572 P/BV 4.8 4.6 4.0 3.6 3.2 Net debt -2,487 -2,506 -2,841 -3,219 -3,768
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 8,187 7,854 8,150 8,500 8,900 in sales -1.1 -4.1 3.8 4.3 4.7 EBITDA 1,082 909 1,100 1,242 1,325 in EBITDA 2.7 -16.0 21.0 12.9 6.7 EBIT 950 790 970 1,110 1,190 in EBIT 1.7 -16.8 22.8 14.4 7.2 Net profits 645 551 674 777 835 in cash EPS 8.0 -15.3 21.6 14.7 7.2 Cash EPS (CHF) 5.76 4.88 5.93 6.80 7.29 Net debt/equity -91.6 -90.1 -88.8 -88.9 -91.9 Reported EPS (CHF) 5.36 4.58 5.60 6.45 6.94 FCF/net fin. results 91.3 n.m. n.m. n.m. n.m. DPS (CHF) 3.00 2.00 2.50 3.00 3.50 Current ratio (X) 1.5 1.5 1.6 1.7 1.8
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 998 826 1,010 1,152 1,233 Gross margin 33.3 32.6 33.5 34.4 34.7 Taxes -259 -214 -271 -310 -335 EBITDA margin 13.2 11.6 13.5 14.6 14.9 NOPLAT 739 612 739 842 898 EBIT margin 11.6 10.1 11.9 13.1 13.4 Depreciation 84.0 83.0 90.0 90.0 92.0 ROIC 47.6 37.2 37.6 41.4 43.7 CAPEX -147 -124 -235 -210 -125 Inv. cap. (CHF m) 1,368 1,922 2,004 2,059 2,049 in WC 419 -72.0 19.0 22.5 25.7 Free cash flow 1,095 499 613 745 891
Made in Switzerland + | Helvea 203
Schmolz+Bickenbach Price: CHF4.9 NEUTRAL Target: CHF6.3 M&S
Michael Heider ([email protected]) – Tel. +41 (0)43 388 9255
Schmolz+Bickenbach (S+B) is a producer, processor and distributor of long speciality steel products. The company’s addressed markets account for only around 3% of the global steel market, clearly making Schmolz+Bickenbach a niche player. The company focuses on advanced steels, such as engineering, stainless and tool steels, commanding leading positions in these segments with market shares reaching up to 20%. Its main customers are the automotive, engineering and energy industries in mature Western markets. The company runs six steel mills employing 10,000 people globally. CEO: Benedikt Niemeyer; CFO: Axel Euchner; Website: schmolz-bickenbach.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF12 Major shareholders Schmolz + Bickenbach KG 43.2%, Gebuka AG 6.0% 11 10 9 8 Shares outstanding (m) 118 EV/EBITDA (X) 7 Market cap. (EUR m) 486 2011 5.2 6 5 Free float 51% 2012E 5.2 4 EBITDA/CAGR 2011-2014E 3.6% 2013E 4.7 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Schmolz+Bickenbach 12-mth tgt Absolute -35% -15% -58% Bloomberg STLN SW Buy Acc. Neut. Red. N.R. Rel. to local -34% -20% -54% Reuters STLN.S
News flow
■ August 2011: H1 2011 confirmed strong business rebound (EBITDA: EUR199m; margin: 9.5%), but new orders fell 2% y-o-y to 1,132,000 tonnes ■ March 2012: full-year 2011 results and outlook for 2012 miss market expectations. For H2 2011, S+B reported a loss of EUR27m and the full-year 2011 EBITDA margin of 7.5% (EUR296m) missed the target range of 8%-12% ■ Forthcoming event: 22 August 2012 – H1 2012 results ■ Guidance & consensus: management guides for flat revenues and adjusted profits in 2012 versus 2011; consensus EBIT estimates stand at EUR194m for 2012 and at EUR222m for 2013
Investment case
As a steel producer and processor, Schmolz+Bickenbach runs a highly capital- and personnel-intensive business. This makes its financial flows vulnerable to shifts in demand, as seen during the financial crisis when sales plummeted by some 50% in 2009, followed by a 52% jump in 2010. As a result, the company needed several recapitalisation packages, raising some EUR300m in fresh money. Nevertheless, gearing is still high (103% in 2011) so, with the first signs of a demand slowdown, debt remains a threat. We believe that, with order intakes down about 20% y-o-y in H2 2011 and with continued economic uncertainties worldwide, revenues will decline in 2012. However, consensus estimates are still looking for growth, which looks too optimistic in our view.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
100% Sales EBIT Sales EBIT 3% 13.4% 8.2% 2% 80 11% 6.7% Switzerland 60 6.3%
40 Other Europe, Africa & ME 51.3% 26.3% 20 USA & Canada
0 78.8% Asia Pacific 9.0% -20 84%
-40 Production Processing Distribution Others & Eliminations Production Processing Distribution Others & Eliminations
204 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ 2012 sales decline of 2% to EUR3.864bn expected, driven by ■ Very high working-capital needs dent free cash flow generation in sluggish demand from all end industries an upswing and boost cash generation in a downturn ■ Falling order intake in H2 2011 (–20%E y-o-y) and cooling ■ Substantial free cash flow generation can be expected in 2012, global economy point towards a stronger sales decline in H1 as the business is unlikely to see wild swings 2012, but H2 2012 has potential for a stabilisation
MARGINS INVESTED CAPITAL AND RETURNS
■ High capital- and personnel-intensive business makes ■ Substantial capital requirements as steel producers keep capital profitability vulnerable to sales swings spending and debt at high levels ■ With indications pointing to a sales decline in 2012, a significant ■ Returns are vulnerable to swings in sales and profits improvement in profitability seems unlikely in 2012 ■ In five of the last nine years, the company did not earn its cost of capital
SWOT analysis STRENGTHS OPPORTUNITIES
■ Market leader in attractive long speciality steel markets ■ Schmolz+Bickenbach’s new US steel mill doubles its production ■ Long-standing and close customer relationships capacity in the USA at lower costs: this suggests margin potential ■ Broad customised product range with a globally consistent should the company successfully acquire additional volumes product quality ■ Business expansion into Asian markets
WEAKNESSES THREATS
■ High financial gearing runs the risk of renewed need for ■ Owing to the high capital intensity of the business, coupled with additional capital relatively volatile demand, Schmolz+Bickenbach’s sales, profits, ■ Low exposure to fast-growing Asian markets, but fully-fledged cash flows and returns are prone to wild swings entry would require additional capital that the company might ■ Chinese speciality steel competitors entering the European not be in a position to afford market
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 6.6 5.2 5.2 4.7 4.7 Current assets 1,502 1,680 1,685 1,781 1,856 EV/EBIT 12.6 8.6 8.5 7.2 7.3 Net fixed assets 883 901 910 923 937 EV/Inv. Capital 0.7 0.7 0.7 0.7 0.7 Goodwill 5.7 5.8 5.8 5.8 5.8 P/E 6.5 12.3 6.9 5.3 5.4 Total assets 2,558 2,731 2,743 2,851 2,940 Cash P/E 6.5 7.8 6.9 5.3 5.4 Sharehold. equit. 792 839 892 963 1,033 P/CF 1.9 2.1 2.0 1.8 1.8 Working capital 1,028 1,065 1,102 1,174 1,198 P/BV 0.5 0.6 0.5 0.5 0.5 Net debt 927 860 849 847 807
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 3,119 3,943 3,864 4,019 4,099 in sales 52.0 26.4 -2.0 4.0 2.0 EBITDA 233 296 298 331 330 in EBITDA n.m. 27.2 0.4 11.3 -0.5 EBIT 122 180 182 215 212 in EBIT n.m. 47.3 1.3 18.1 -1.3 Net profits 26.0 38.0 69.9 91.6 89.7 in cash EPS n.m. -16.8 12.5 30.9 -2.0 Cash EPS (EUR) 0.63 0.53 0.59 0.78 0.76 Net debt/equity 117 103 95.3 87.9 78.1 Reported EPS (EUR) 0.63 0.33 0.59 0.78 0.76 FCF/net fin. results n.m. 0.8 1.0 0.8 1.3 DPS (CHF) 0.00 0.10 0.14 0.19 0.18 Current ratio (X) 2.6 2.2 2.4 2.5 2.5
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 131 189 191 224 221 Gross margin 28.5 30.3 30.4 31.7 31.5 Taxes 20.8 -69.5 -57.4 -67.1 -66.2 EBITDA margin 7.5 7.5 7.7 8.2 8.0 NOPLAT 152 119 134 157 154 EBIT margin 3.9 4.6 4.7 5.3 5.2 Depreciation 102 107 106 107 109 ROIC 7.7 5.6 6.1 7.0 6.7 CAPEX -88.0 -114 -124 -129 -131 Inv. cap. (EUR m) 2,137 2,155 2,208 2,296 2,335 in WC -253 -24.7 -36.7 -72.6 -23.5 Free cash flow -87.1 87.7 79.8 62.8 109
Made in Switzerland + | Helvea 205
SCOR Price: EUR17.5 ACCUMULATE Target: EUR23.0 Large Caps
Daniel Bischof, CFA ([email protected]) – Tel. +41 (0)43 388 9263
SCOR is the leading French reinsurer. It has grown rapidly in recent years through acquisitions and now ranks as one of the world’s largest life and non-life reinsurance groups. SCOR has a strong European focus (64% of 2011 revenues), but is expanding its presence in other regions, helped by its enlarged size and capacity, coupled with the recent acquisition of Transamerica Re. SCOR is listed on the French and Swiss stock exchanges.
CEO: Denis Kessler; CFO: Paolo de Martin; Website: www.scor.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Insurance/France EUR25 Major shareholders Patinex 7.5%, Alecta 5.7%, Blackrock 5.0%, Natixis 23 4.3% 21 19 Shares outstanding (m) 179 P/E (X) 17 Market cap. (EUR m) 3,135 2011 9.7 15 Free float 86% 2012E 7.5 13 Op. profits/CAGR 2011A-2014E 36.1% 2013E 6.4 05.11 07.11 09.11 11.11 01.12 03.12 05.12 Share perform. 3m 6m 12m Symbols SCOR 12-mth tgt Absolute -12% -1% -9% Bloomberg SCR FP Buy Acc. Neut. Red. N.R. Rel. to local 1% 4% 21% Reuters SCR.PA
News flow
■ March 2012: strong Q4 2011 results on the back of reserves released in non-life, a low tax rate and a gain on Transamerica Re ■ April/May 2012: Moody’s, Fitch and A.M. Best upgraded their credit ratings on SCOR ■ May 2012: Q1 2012 results below expectations on lower than expected investment income ■ Forthcoming event: 27 July 2012 – H1 2012 results ■ Guidance & consensus: no guidance disclosed for 2012 – ROE target of 1,000bp above risk-free rate over the cycle; consensus net profit estimates stand at EUR495m for 2012 and EUR556m for 2013
Investment case
SCOR has shown itself to be solid and defensive. Looking ahead, we see little downside. The Transamerica Re acquisition has propelled SCOR into a Top 5 position in life reinsurance, a business with relatively stable margins and solid growth prospects. An improvement in the reinsurance cycle or interest rates should also help the shares. The expected S&P credit-rating upgrades and further milestones in its Strong Momentum plan being reached should lead to a sustained positive news flow. As things stand, we believe the shares look attractive within the sub- sector – hence our ACCUMULATE rating.
Divisional breakdown (2011) Regional breakdown – Premiums (2011)
Premiums Operating profits
9% Europe
26% 49% 47% 51% Americas 53%
65% Asia/Rest of the World
Life/health reinsurance Property/casualty reinsurance
206 Helvea SA | Made in Switzerland +
Value drivers PROFITS AND MARGINS BALANCE SHEET
■ Better margins in non-life in 2012 following price increases ■ The group is least exposed to GIIPS countries, but has a slightly ■ Group sufficiently capitalised to grow its book higher than average exposure to equities (5% of investments) ■ Transamerica Re acquisition to boost business volumes in life ■ Duration remains short because SCOR expects rates to rise reinsurance in 2012 ■ Solid position in reserves ■ Investment income under pressure due to significant cash ■ Unrealised losses on equities amounting to 3% of equity position and largely de-risked investment portfolio ■ Transamerica Re acquisition comfortably financed from existing capital resources
SWOT analysis STRENGTHS OPPORTUNITIES
■ Well regarded niche areas of expertise from both SCOR and ■ Increase share on attractive treaties in non-life Converium portfolios ■ Grow its US property/casualty business ■ Now an attractive partner for large insurers looking for capital- ■ Expand life business based on enlarged platform after relief deals Transamerica Re acquisition ■ Stable business from French mutual insurers ■ Establish position as a leading alternative to the top companies in ■ Leading position in life reinsurance property/casualty reinsurance market ■ Diversification benefit from life operations ■ Increased returns from higher risk appetite
WEAKNESSES THREATS
■ Position in North America remains relatively modest ■ ‘Hub’ strategy could lead to internal-control weaknesses ■ Operating margin of Transamerica Re portfolio below-average ■ Significant further equity-market losses ■ Less geographical property/casualty diversification than some ■ Higher risk appetite could lead to poor decisions regarding either reinsurers insurance or investment risk ■ De-risked assets side leads to lower investment income ■ Increasing cost of equity due to its French domicile
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E P/NAV 1.0 1.2 1.1 1.0 0.9 Non-life reserves 10,700 11,252 12,360 13,156 13,623 P/EV 0.8 0.8 0.8 0.7 0.7 Life reserves 10,143 11,315 11,765 12,115 12,465 P/E 7.6 9.7 7.5 6.4 6.0 Total AuM (bn) 20.956 21.513 23.311 24.754 25.879 SOTP (EUR) 25.2 3rd-p. AuM (bn) 0.000 0.000 0.001 0.002 0.002 Mkt cap/reserves (%) 15.0 13.9 13.0 12.4 12.0 Sharehold. equ. 4,345 4,403 4,642 4,939 5,247 Mkt cap/premiums (%) 46.8 41.2 34.1 31.7 29.9 Net asset value 3,036 2,814 3,053 3,351 3,659 Dividend yield (%) 6.3 6.3 6.8 7.4 8.0 Embedded value 4,074 3,863 4,148 4,481 4,825
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Gross premiums 6,694 7,602 9,188 9,877 10,474 in premiums 4.9 13.6 20.9 7.5 6.0 Net invest. income 705 533 533 612 650 in op. profits 31.7 -34.1 107 15.2 5.6 Operating profits 490 323 669 771 814 in pre-tax profits 40.0 -27.5 74.2 17.1 5.8 Pre-tax profits 455 330 575 673 712 investments 4.6 2.7 8.4 6.2 4.5 Net profits 418 330 443 518 548 NAV/min. solvency 117 96.7 94.6 95.5 99.4 Reported EPS (EUR) 2.32 1.80 2.35 2.75 2.91 NL Res./premium 295 285 285 280 272 DPS (EUR) 1.10 1.10 1.20 1.30 1.40 NL Res./claims 401 373 421 405 397
Investments Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Total investments 20,956 21,513 23,310 24,752 25,877 Retention rate NL 89.9 86.5 87.2 88.8 88.8 Equities 961 700 1,632 1,733 1,811 Claims ratio NL 71.2 76.5 66.6 67.3 67.5 Fixed income 10,222 8,384 10,084 11,708 12,240 Combined ratio 99.1 104 94.6 95.2 95.3 Real estate 442 647 679 713 749 Expense ratio life 21.5 20.8 20.6 20.5 20.5 Loans/mortgages 7,640 0.0 0.0 0.0 0.0 Pre-tax margin 6.8 4.3 6.3 6.8 6.8 Net invest. yield 3.4% 2.5% 2.3% 2.5% 2.5% ROE 10.1 7.5 9.5 10.5 10.4 Cap. gains/total 0.7% 0.6% 0.3% 0.2% 0.1% Return/techn. res. 2.0 1.5 1.8 2.1 2.1
Made in Switzerland + | Helvea 207
SGS Price: CHF1,751.- ACCUMULATE Target: CHF1,880.- Large Caps
Chris Burger, CFA ([email protected]) – Tel. +41 (0)43 388 9259
SGS is the world’s leading inspection, verification, testing and certification company. With more than 70,000 employees, SGS operates a network of over 1,350 offices and laboratories around the world. SGS inspects and verifies the quantity, weight and quality of traded goods; it also tests product quality and performance against various health, safety and regulatory standards, and certifies that systems or services meet the requirements of standards laid down by governments, standardisation bodies or SGS’s own customers. CEO: Chris Kirk; CFO: Geraldine Matchett; Website: www.sgs.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland 1,896CHF Major shareholders EXOR 15.0%, August von Finck 15.0%, Others 70.0% 1,780 1,664 1,548 Shares outstanding (m) 7.55 EV/EBITDA (X) 1,432 Market cap. (CHF m) 13,214 2011 13.9 1,316 Free float 70% 2012E 11.9 1,200 EBITDA/CAGR 2011-2014E 14.6% 2013E 10.4 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols SGS 12-mth tgt Absolute 3% 14% 4% Bloomberg SGSN VX Buy Acc. Neut. Red. N.R. Rel. to local 6% 7% 14% Reuters SGSN.VX
News flow
■ March 2012: acquisition in Colombia ■ April 2012: tiny acquisition in South Africa ■ April 2012: bolt-on acquisition in the Brazilian Environmental Services business ■ April 2012: another bolt-on acquisition in Environmental Services ■ Forthcoming event: 17 July 2012 – H1 2012 results ■ Guidance & consensus: in 2012, SGS expects strong top-line growth and adjusted operating profits in excess of the previous year’s level; consensus EBIT estimates stand at CHF929m for 2012 and at CHF1.066bn for 2013
Investment case
We consider the testing, inspection & certification (TIC) industry to be a very interesting sector. We expect it to benefit from powerful structural and long-term growth trends (new regulations; increasing awareness; growth in global trade; relocation of manufacturing to less developed markets; outsourcing; privatisation; quickening speed of innovation). In our view, SGS, a market leader with a strong management team, still ranks as the benchmark in this industry. It has the most attractive exposure to what are currently the fastest-growing businesses. In addition, it has become slightly more aggressive regarding acquisitions, and it generates the highest operating margins. We thus consider a premium to the market – enjoyed in the past, but which has diminished since – would still be justified.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT 7% 6% 19% 19% 14% 16% 28% Europe/Africa/middle East
10% 51% Americas 16% 19% 15% 8% Asia/Pacific 8% 21% 17% 26% Agriculture Minerals Oil, Gas & Chemicals Consumer Testing Systems & Services Certification Industrial Other
208 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ High-single-digit organic growth in 2012 expected ■ Strong and relative steadily increasing cash flow generation ■ Acquisitions and currencies to have a positive impact ■ Relatively high capital spending as a result of ongoing growth ■ Strong structural growth drivers such as new regulations, opportunities increasing awareness, global trade, globalisation, outsourcing, ■ Free cash flow for 2010 to 2012 distorted by acquisitions, but no privatisation and increasing speed of innovation potential future acquisitions included
MARGINS INVESTED CAPITAL AND RETURNS
■ 2012 margins continuing to be hurt by ongoing growth ■ Invested capital to increase further owing to ongoing growth investments opportunities ■ Economies of scale from increased capacity utilisation ■ Return on invested capital expected to rise slightly from its ■ In addition, margins to benefit from moving to more added- current already high level value, higher-margin services
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong brand recognition and reputation ■ Globalisation and outsourcing ■ Largest laboratories/office network in the world ■ Increasing regulations and safety standards ■ Highly diversified portfolio of testing and verification services ■ Industry consolidation dampening the volatility of group revenues ■ Strong balance sheet to undertake add-on acquisitions at ■ Healthy balance sheet reasonable prices
WEAKNESSES THREATS
■ Cautious approach to acquisitions in recent years ■ Economic slowdown, especially slowing growth in the all- ■ Complex management structure important Asian market ■ Traditional market for pre-shipment inspection (PSI) contracts ■ Reputation risk shrinking ■ Acquisition risk
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 13.3 13.9 11.9 10.4 9.2 Current assets 2,006 2,580 2,561 2,752 3,082 EV/EBIT 16.7 17.4 15.1 13.2 11.7 Net fixed assets 756 888 965 1,014 1,034 EV/Inv. Capital 7.7 6.6 5.8 5.4 5.2 Goodwill 982 1,044 1,190 1,220 1,247 P/E 22.5 24.8 21.5 18.6 16.3 Total assets 3,981 4,760 4,964 5,234 5,610 Cash P/E 22.1 23.8 20.7 18.0 15.9 Sharehold. equit. 2,069 1,997 2,130 2,362 2,692 P/CF 15.7 16.4 14.0 12.2 10.8 Working capital 191 293 353 399 448 P/BV 6.4 6.6 6.2 5.6 4.9 Net debt -259 95.0 275 198 -6.8
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 4,757 4,797 5,512 6,056 6,629 in sales 1.0 0.8 14.9 9.9 9.5 EBITDA 1,065 1,024 1,192 1,366 1,540 in EBITDA 2.2 -3.8 16.4 14.6 12.7 EBIT 848 815 939 1,074 1,212 in EBIT 3.2 -3.9 15.2 14.4 12.8 Net profits 588 534 616 714 811 in cash EPS 0.7 -7.2 15.4 14.9 13.2 Cash EPS (CHF) 79.2 73.5 84.8 97.4 110.3 Net debt/equity -12.5 4.8 12.9 8.4 -0.3 Reported EPS (CHF) 77.7 70.5 81.4 94.4 107.2 FCF/net fin. results 37.3 10.3 12.1 21.6 27.8 DPS (CHF) 65.0 65.0 65.0 65.0 65.0 Current ratio (X) 2.0 2.4 2.1 2.1 2.1
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 844 806 936 1,074 1,212 Gross margin n.a. n.a. n.a. n.a. n.a. Taxes -217 -210 -243 -280 -316 EBITDA margin 22.4 21.3 21.6 22.6 23.2 NOPLAT 627 596 693 795 896 EBIT margin 17.8 17.0 17.0 17.7 18.3 Depreciation 217 209 253 292 328 ROIC 36.0 29.9 30.2 31.4 33.6 CAPEX -250 -341 -386 -394 -398 Inv. cap. (CHF m) 1,847 2,138 2,452 2,606 2,731 in WC -33.0 -84.0 -60.4 -45.9 -48.4 Free cash flow 261 268 387 647 778
Made in Switzerland + | Helvea 209
Sika Price: CHF1,755.- NEUTRAL Target: CHF1,900.- M&S
Patrick Appenzeller ([email protected]) – Tel. +41 (0)43 388 9267
Sika is a globally integrated company supplying speciality chemicals markets. It is a leader in processing materials used in sealing, bonding, damping, reinforcing and protecting load-bearing structures in construction and industry (automotive, transportation, marine and appliances & components). Sika’s core competences lie in polyurethane, epoxies and silicone technologies, including refinement of base petrochemical derivatives by means of the synthesis of intermediate products and the formulation of finished products with filling materials, additives and softeners. CEO: Ernst Bärtschi; CFO: Ronald Trächsel; Website: www.sika.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Chemicals/Switzerland 2,498CHF Major shareholders Burkard-Schenker Family (53.9% of votes) 15.3%, 2,315 Others 84.7% 2,132 1,949 Shares outstanding (m) 2.54 EV/EBITDA (X) 1,766 Market cap. (CHF m) 4,453 2011 9.8 1,583 Free float 85% 2012E 8.1 1,400 EBITDA/CAGR 2011-2014E 13.3% 2013E 7.3 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Sika 12-mth tgt Absolute -11% 3% -19% Bloomberg SIK SW Buy Acc. Neut. Red. N.R. Rel. to local -9% -3% -11% Reuters SIK.S
News flow
■ November 2011: Q3 results below expectations (EBIT: CHF104m); margins to remain weak at least in Q4 2011 ■ January 2012: full-year 2011 sales (organic growth of 11.7%) in line with consensus estimates ■ March 2012: Q4 2011 results missed our expectations, are medium-term targets achievable in 2012? ■ April 2012: Q1 2012 organic sales growth (+3.8%) broadly in line with our estimate ■ Forthcoming events: 26 July 2012 – H1 2012 results ■ Guidance & consensus: Sika’s medium-term local currency growth target is 8% to 10% p.a. and an EBITDA margin of 12%-14%; consensus EBIT estimates stand at CHF477m for 2011 and at CHF533m for 2012
Investment case
Sika’s growth momentum should improve again in Q2 2012 and a (sequential) margin recovery seems to be under way. Yet it remains to be seen how and when the recent re-strengthening of the prices for Sika’s major raw materials will impact the margin recovery in H2 2012 and whether the current projection of an EBITDA margin expansion of almost 200bp in 2012 is still realistic. In any case, consensus estimates still look rather high (on net profit, consensus according to Bloomberg is still 10% above our – also not unambitious – estimate). We confirm our NEUTRAL recommendation.
Regional breakdown (2011) Regional breakdown – Sales (2011)
40% Sales EBIT Sales EBIT 30 5.4% 5% 20.5% Europe North 20 21.2% 17.1% 29.3% 17% 30% Europe South 10 North America 0 5.8% 6% Latin America -10 15.9% 14.1% -20 IMEA 11.1% 11% -30 17.8% Asia/Pacific 4.2% 8.5% 18% -40 13.5% 15.7% 13% Not segmented -50Europe North Europe South North America Latin America Europe North Europe South North Latin America IMEA Asia/Pacific Not IMEA Asia/PacificAmerica Not segmented segmented
210 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Construction chemicals market expected to grow by 5% p.a. in ■ Free cash flow expected to recover in 2012 the long run, helped by emerging markets ■ Investment can be scaled down relatively quickly, if necessary ■ Subdued outlook for public construction in Europe (austerity) ■ Some of the free cash flow will be used continuously for small-to- ■ Sika to continue to gain market shares thanks to deeper market medium-sized acquisitions penetration, substitution, innovation, energy-saving trend
MARGINS INVESTED CAPITAL AND RETURNS
■ Gross margins should recover slightly in 2012 from low levels ■ ROIC likely to recover in 2012 and beyond from rather low levels as raw material prices should at least not rise any further achieved in 2011 ■ We expect EBITDA margins to recover somewhat in 2012 and ■ Sika has a long-term target range of 12%-14% for the EBITDA 2013, mainly helped by better price/costs dynamics margin, but missed it in 2011 for the first time in 8 years nor do ■ Gross margin level in 2009 looks unachievable any time soon we expect it to move back into this range before 2013
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading global supplier in industrial flooring, roofing and ■ Ongoing market share gains, aided by ‘solution provider’ concept waterproofing; world No.1 in construction chemicals ■ High growth in emerging markets: 37% of group sales in 2011 ■ Successful growth-oriented strategy ■ Strong growth with new applications and substitution of old ■ Roof to Floor business strategy technologies, particularly by bonding technologies ■ Lean and low-cost production ■ Further acquisitions could accelerate sales growth
WEAKNESSES THREATS
■ Dual shareholder structure, with majority of voting shares in ■ Weak outlook for public construction in many mature markets; fixed hands adversely affected by austerity measures ■ Dependence on cyclical construction markets and, to a lesser ■ It might remain hard to pass higher raw material prices on to degree, on automotive markets as well customers in a timely manner ■ Negative operating leverage if organic growth misses the target
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 8.1 9.8 8.1 7.3 6.8 Current assets 2,351 2,052 2,303 2,516 2,738 EV/EBIT 10.7 13.5 10.8 9.6 8.8 Net fixed assets 817 861 899 933 964 EV/Inv. Capital 2.5 2.2 2.1 2.1 2.0 Goodwill 311 416 416 416 416 P/E 14.3 20.9 15.8 13.7 12.4 Total assets 3,932 3,830 4,130 4,385 4,648 Cash P/E 13.0 18.3 13.9 12.2 11.1 Sharehold. equit. 1,752 1,839 2,068 2,256 2,435 P/CF 9.5 11.6 9.7 8.7 8.1 Working capital 742 824 879 907 933 P/BV 2.5 2.4 2.2 2.0 1.8 Net debt 131 260 111 -37.4 -186
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 4,416 4,556 4,961 5,257 5,589 in sales 6.3 3.2 8.9 6.0 6.3 EBITDA 577 477 579 643 695 in EBITDA 6.9 -17.3 21.2 11.2 8.0 EBIT 440 347 437 491 533 in EBIT 9.7 -21.0 25.8 12.4 8.6 Net profits 311 213 282 326 361 in cash EPS 33.3 -29.1 31.5 14.2 10.1 Cash EPS (CHF) 135.3 95.9 126.1 144.0 158.6 Net debt/equity 7.5 14.1 5.4 -1.7 -7.6 Reported EPS (CHF) 122.4 84.0 111.0 128.2 142.0 FCF/net fin. results 7.3 0.7 8.4 14.3 24.0 DPS (CHF) 53.4 45.0 45.0 48.0 54.0 Current ratio (X) 2.5 3.0 3.1 3.2 3.3
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 474 379 477 533 577 Gross margin 54.0 50.6 51.4 51.9 52.0 Taxes -109 -94.7 -119 -133 -144 EBITDA margin 13.1 10.5 11.7 12.2 12.4 NOPLAT 365 284 358 400 433 EBIT margin 10.0 7.6 8.8 9.3 9.5 Depreciation 103 98.6 102 110 117 ROIC 19.6 14.3 16.7 18.0 19.0 CAPEX -92.6 -127 -140 -144 -149 Inv. cap. (CHF m) 1,869 2,100 2,194 2,256 2,313 in WC -27.0 -81.9 -55.0 -28.4 -25.9 Free cash flow 260 23.6 264 338 376
Made in Switzerland + | Helvea 211
Sonova Price: CHF91.0 NEUTRAL Target: CHF81.4 M&S
Simon Goetschmann ([email protected]) – Tel. +41 (0)43 388 9264
Under the Phonak, Lyric and Unitron brands, Sonova is the joint leader in the hearing instrument market. Together with William Demant, it commands an estimated 22% market share in the wholesale market for hearing aids with some 25% of hearing aids sold over its own retail distribution. In 2009, the company entered the market of cochlear implants with the acquisition of Advanced Bionics. In the last ten years, Sonova has continuously outpaced the 4%-5% underlying growth in the hearing instruments industry. In late 2011, Lukas Braunschweiler appointed new CEO of Sonova. CEO: Lukas Braunschweiler; CFO: Hartwig Grevener; Website: www.sonova.com (FY to end-March)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Switzerland CHF103 Major shareholders Beda Diethlem 10.0%, Andy Rihs 8.5%, Hans-Ueli Rihs 95 5.7%, MFS Investment 5.2%, Capital Group 5.0% 87 79 Shares outstanding (m) 66.48 EV/EBITDA (X) 71 Market cap. (CHF m) 6,050 11/12A 16.4 63 Free float 75% 12/13E 13.9 55 EBITDA/CAGR 11/12A-14E/15E 15.3% 13E/14E 12.1 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Sonova 12-mth tgt Absolute -10% -5% 1% Bloomberg SOON SW Buy Acc. Neut. Red. N.R. Rel. to local -8% -10% 12% Reuters SOON.S
News flow
■ November 2011: Lukas Braunschweiler joins Sonova as new CEO ■ May 2012: full-year 2011/12 results: 6.7% organic growth in l.c., reported EBITA margin of 19.5% (CER 22%), miss on consensus estimates ■ Forthcoming events: November 2012 – H1 2012/13 results ■ Guidance and consensus: full-year 2012/13 sales to grow 7%-9% in l.c. (consensus: 9%) including 1%-2% acquisition growth. EBITA margin 15%-20% (consensus: 22.1%). The company strives for an EBITA margin of 25% within 5 years’ time. Sonova’s guidance is based on FX USD/CHF0.88 and EUR/CHF1.21
Investment case
Favourable demographics, the growing prevalence of hearing loss and still shallow penetration rates are likely to continue supporting revenue growth of 3%-4% p.a. in the hearing aid market. Sonova is likely to outgrow the market based on its innovation leadership, broad product range, fast-growing hearing implant business, well- established distribution network and new innovative products like the second generation of Lyric invisible hearing aid. Capitalising on these growth prospects, Sonova’s EBIT margin may expand towards 25% again. However, looking at valuation, promising fundamentals appear to have already been factored in: NEUTRAL.
Divisional breakdown (2011/12) Regional breakdown – Sales (2011/12)
Sales EBIT
6% 10% 2% 14% Switzerland EMEA 13%
39% 4% n.a. USA Americas
76% Asia/Pacific 36%
Hearing Instruments Communication Miscellaneous Hearing implants
212 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ The market for hearing aids proved resilience in the economic ■ Historically, Sonova has generated solid positive cash flows, downturn with unit growth of 3%-4%, ASP set to decline comfortably covering its cost of capital ■ Sonova to exceed market growth by 2pp on strong product ■ Working capital in % of sales likely to increase again portfolio and hearing implants to generate CHF130m in 2012 ■ FX tailwind
MARGINS INVESTED CAPITAL AND RETURNS
■ Targeted EBITA margin expansion towards 25% due to ■ ROIC expected to stabilise in 2011/12 after years of deterioration operating leverage and Advanced Bionics, which should reach mainly attributable to rising invested capital due to acquisitions break-even ■ Some CHF200m free cash generation likely to be used in ■ R&D and marketing spending in hearing implants look rather acquisitions and/or share buy-back programme low in comparison with its competitor Cochlear
SWOT analysis STRENGTHS OPPORTUNITIES
■ Complete product portfolio in all segments, strong and ■ New growth platforms: Advanced Bionics (hearing implants) and innovative No.1 player in the hearing instruments market Lyric (invisible hearing aids for mild- to -moderate hearing loss) ■ Tight cost management and net working capital management ■ Penetrating new accounts further or enlarging existing ones ■ Highly cash generative ■ Expansion into BRIC markets
WEAKNESSES THREATS
■ Transitional phase of new management team (CEO, CFO, sales ■ Increased retail consolidation and re-emerging competitors in the teams) field could cause some margin pressure ■ Footprint in emerging markets ■ Slowing GDP momentum could have a negative impact on the ■ Limited access to mass channels product and margin mix with shift towards lower-priced products ■ Regulatory risks, especially changes in reimbursement schemes
Valuation ratios Balance sheet (X) 10/11 11/12 12/13E 13/14E 14/15E (In CHF m) 10/11 11/12 12/13E 13/14E 14/15E EV/EBITDA 16.1 16.4 13.9 12.1 10.7 Current assets 737 768 735 1,035 1,366 EV/EBIT 21.7 20.4 16.8 14.3 12.5 Net fixed assets 232 242 257 273 288 EV/Inv. Capital 3.7 3.5 3.4 3.3 3.3 Goodwill 1,059 1,121 1,100 1,092 1,084 P/E 26.2 24.6 20.3 17.3 15.3 Total assets 2,172 2,287 2,255 2,580 2,927 Cash P/E 21.1 22.1 18.5 15.9 14.2 Sharehold. equit. 1,339 1,490 1,690 1,956 2,258 P/CF 19.1 19.3 16.5 14.5 11.1 Working capital 141 158 222 227 232 P/BV 4.5 4.1 3.6 3.1 2.7 Net debt 94.4 59.1 -103 -351 -645
Income statement Growth rates & balance-sheet ratios (In CHF m) 10/11 11/12 12/13E 13/14E 14/15E (In %) 10/11 11/12 12/13E 13/14E 14/15E Sales 1,617 1,620 1,816 1,969 2,095 in sales 7.8 0.2 12.1 8.4 6.4 EBITDA 365 357 422 483 547 in EBITDA -19.4 -2.3 18.1 14.6 13.3 EBIT 271 288 349 409 470 in EBIT 7.7 6.2 21.3 17.2 15.0 Net profits 231 247 298 350 396 in cash EPS -26.2 -4.5 19.7 15.8 11.8 Cash EPS (CHF) 4.31 4.12 4.93 5.71 6.39 Net debt/equity 7.0 4.0 -6.1 -18.0 -28.5 Reported EPS (CHF) 3.47 3.71 4.47 5.26 5.95 FCF/net fin. results 3.4 16.0 83.6 n.m. 192 DPS (CHF) 1.20 1.20 1.25 1.40 1.60 Current ratio (X) 1.6 1.8 1.8 2.3 2.9
Cash flow statement Ratios, margins and returns (In CHF m) 10/11 11/12 12/13E 13/14E 14/15E (In %) 10/11 11/12 12/13E 13/14E 14/15E EBITA 327 315 380 439 499 Gross margin 69.2 68.3 68.4 69.0 69.2 Taxes -29.0 -35.4 -49.6 -61.2 -72.6 EBITDA margin 22.6 22.0 23.2 24.5 26.1 NOPLAT 277 272 325 374 499 EBIT margin 16.8 17.8 19.2 20.8 22.4 Depreciation 38.7 41.8 42.0 44.0 48.0 ROIC 17.6 16.7 19.0 21.3 28.0 CAPEX -76.5 -53.3 -57.0 -60.0 -63.0 Inv. cap. (CHF m) 1,575 1,677 1,742 1,772 1,793 in WC -53.4 -82.7 -63.1 -1.0 -4.7 Free cash flow 36.3 94.7 167 257 384
Made in Switzerland + | Helvea 213
Stada Arzneimittel Price: EUR23.0 ACCUMULATE Target: EUR29.0 M&S
Odile Rundquist, PhD ([email protected]) – Tel. +41 (0)22 354 9159
Stada Arzneimittel develops and markets products with off-patent active pharmaceutical ingredients through its Generics division (68% of group sales) and OTC drugs through its Branded Products division (31% of group sales). The group operates mainly in Europe, with Germany still the biggest national market for the group (28% of sales) although the company has intensified its efforts to become more international by acquiring companies and majority stakes, especially in Eastern Europe (Russia now contributes 16% of total sales). CEO: Hartmut Retzlaff; CFO: Helmut Kraft; Website: www.stada.de (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Germany EUR 30 Major shareholders Deutsche Bank 6.7%, Societe Generale 5.8%, Skagen 27 Funds 4.4%, Gryphon 3.2%, Others 80.0% 24 21 Shares outstanding (m) 58.83 EV/EBITDA (X) 18 Market cap. (EUR m) 1,353 2011 10.9 15 Free float 91% 2012E 6.8 12 EBITDA/CAGR 2011-2014E 24.5% 2013E 6.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Stada Arzneimittel 12-mth tgt Absolute 0% 11% -22% Bloomberg SAZ GR Buy Acc. Neut. Red. N.R. Rel. to local 10% 11% -8% Reuters STAGn.DE
News flow
■ Q1 2012 sales were up 6% (2% when adjusted for currencies and acquisitions). Russia, Belgium, Spain and Italy performed strongly while Serbia posted a sharp drop of 31% (due to a change in the distribution model). ■ Forthcoming events: 8 August 2011 – Q2 2012 results ■ Management’s guidance is for a clear increase in group sales (helped by the Grünenthal and Spirig acquisitions) as well as an increase in adjusted EBITDA at a high single-digit rate. For 2014, the targets are sales of at least EUR2.15bn, adjusted EBITDA of EUR430m and net profits of EUR215m. Consensus for adjusted EBITDA of EUR378m (vs. Helvea of EUR392m) for 2012 and of EUR423m (vs. Helvea of EUR423m) for 2013
Investment case
Stada's dependence on the German market has been significantly lowered thanks to internalisation through acquisitions (recently enhanced by the Grünenthal and Spirig acquisitions) and a strong performance in Eastern Europe. Russia, mainly an out-of -pocket market, Spain, Italy and Belgium will continue to perform strongly while a recovery in Serbia following a change in the distribution model to avoid liquidity risk going forward is expected in 2012-2013. A rebound in Germany is also expected during this year, as Stada has been very successful in the last tenders, having transferred its production facilities to low-cost countries like Serbia and Russia, thereby allowing for better capacity utilisation at a cost advantage.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
100% Sales EBIT Sales EBIT 80 1.9%1.3% 23.1% 60 28% Germany Russia 27.5% 37.2% 33% 40 0.6% 20 Serbia Italy
0 69.3% -20 8% 16% Belgium Others 39.1% 9% -40 6%
-60Generics Branded Products Commercial Business Group holding / other Generics Branded Products Commercial Business Group holding / other
214 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Growth expected on the back of major patent expiries, product ■ Gross margin to increase slightly thanks to a better product and launches and significant growth in Russia country mix together with good cost control ■ Sales in Germany will stabilise/slightly increase as Stada will ■ FCF in 2012 impacted by the acquisitions and the purchase of benefit from its good results at the last AOK tenders Grünenthal’s branded portfolio ■ Sales in Serbia will recover as of Q212 (new distribution model)
MARGINS INVESTED CAPITAL AND RETURNS
■ The operating margin will improve significantly in 2012 thanks ■ ROIC to increase significantly as of 2012 thanks to earnings- the low 2011 numbers (impacted by liquidity issues in Serbia), enhancing acquisitions and higher sales and profits but more importantly thanks to a better product and country mix ■ Cost-cutting project (Stada – build the future) to improve the ■ Grünenthal’s branded portfolio is also expected to improve return on invested capital margins
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong market position, especially in growth markets like ■ Cost savings and acquisition synergies could provide upside Eastern Europe (No.3 in Germany and No.6 globally) ■ Grünenthal will increase group margins ■ 2020 agenda in Russia will benefit local producers like Stada ■ Shift from contract manufacturing to own low-cost production ■ Production facilities in low-cost countries like Serbia and Russia allowing better capacity utilisation at a cost advantage
WEAKNESSES THREATS
■ Continuing price pressure in generic markets ■ More price pressure in other countries that could follow the ■ Exposure to Germany remains high (affected by discount German model (discount contracts) contract arrangements) ■ Generic penetration dependent on regulatory measures adopted ■ Generic drugs are not protected by any patents and are subject by individual countries across Europe to intense competition
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 9.0 10.9 6.8 6.2 5.6 Current assets 1,125 1,267 1,159 1,296 1,437 EV/EBIT 14.9 20.0 10.4 8.9 7.8 Net fixed assets 298 299 478 523 573 EV/Inv. Capital 1.4 1.4 1.2 1.2 1.2 Goodwill 986 1,147 1,155 1,106 1,060 P/E 19.8 61.4 10.9 8.7 7.0 Total assets 2,507 2,800 3,053 3,187 3,331 Cash P/E 9.1 13.5 6.5 5.6 4.9 Sharehold. equit. 868 864 966 1,096 1,261 P/CF 7.6 15.4 5.3 4.7 4.2 Working capital 479 362 290 315 340 P/BV 1.6 1.6 1.4 1.2 1.1 Net debt 864 900 1,087 980 842
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 1,627 1,715 1,889 2,053 2,213 in sales 3.7 5.4 10.1 8.6 7.8 EBITDA 269 223 354 391 431 in EBITDA -4.0 -17.0 58.5 10.6 10.1 EBIT 162 121 234 271 311 in EBIT -15.8 -25.2 92.9 16.1 14.5 Net profits 68.4 22.0 124 156 195 in cash EPS -6.5 -32.2 n.m. 15.0 16.1 Cash EPS (EUR) 2.52 1.71 3.54 4.08 4.73 Net debt/equity 99.5 104 113 89.4 66.8 Reported EPS (EUR) 1.16 0.37 2.11 2.65 3.31 FCF/net fin. results 1.8 2.0 0.4 2.8 4.2 DPS (EUR) 0.37 0.37 0.45 0.50 0.60 Current ratio (X) 1.5 1.9 1.5 1.6 1.8
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 242 200 318 355 394 Gross margin 47.0 48.2 50.2 50.3 50.5 Taxes 90.0 135 96.2 102 109 EBITDA margin 16.5 13.0 18.7 19.1 19.5 NOPLAT 152 64.2 222 253 285 EBIT margin 10.0 7.1 12.4 13.2 14.0 Depreciation -27.1 -23.7 -36.0 -36.4 -36.6 ROIC 8.7 3.7 11.6 12.3 13.6 CAPEX -86.2 -103 -306 -117 -123 Inv. cap. (EUR m) 1,733 1,764 2,054 2,076 2,103 in WC 0.9 118 71.5 -25.1 -24.6 Free cash flow 93.5 102 23.2 147 174
Made in Switzerland + | Helvea 215
Straumann Price: CHF149.- NEUTRAL Target: CHF160.- M&S
Simon Goetschmann ([email protected]) – Tel. +41 (0)43 388 9264
Straumann has steadily gained market share over the past 20 years and now claims as market leader about 18% of the implant market. The company is the clear No.1 in tissue-level implants (25% of market) and has now moved into the bone-level-implant market (75% of market), which should allow for further market share gains. In addition, Straumann was early in positioning itself in regeneratives and has now opportunistically added a foothold in CAD/CAM prosthetics.
CEO: Beat Spalinger; CFO: Thomas Dressendörfer; Website: www.straumann.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Switzerland CHF240 Major shareholders Dr h.c. Thomas Straumann 27.6%, Dr h.c. Rudolf Maag 220 12.2%, Simone Maag de Moura Cunha 6.0%, Baillie 200 Gifford 5.1%, Gabriella Straumann 4.0% 180 Shares outstanding (m) 15.68 EV/EBITDA (X) 160 Market cap. (CHF m) 2,336 2011 12.4 140 Free float 54% 2012E 11.5 120 EBITDA/CAGR 2011-2014E 9.0% 2013E 10.0 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Straumann 12-mth tgt Absolute 4% -7% -36% Bloomberg STMN SW Buy Acc. Neut. Red. N.R. Rel. to local 6% -12% -30% Reuters STMN.S
News flow
■ February 2012: full-year 2011 sales of CHF693.6m, EBIT of CHF79.9m, trimmed outlook for 2012 disappoints ■ April 2012: Q1 2012 revenues up 1.6% at CER to CHF185.1m, driven by a strong performance in North America (+14.0% CER) and an increase in digital solution sales. Successful launch of open CAD/CAM CARES 7.0 ■ May 2012: Straumann pays CHF260m for a 49% stake in the Brazilian company Neodent ■ Forthcoming event: 21 August 2012 – H1 2012 results ■ Guidance & consensus: low-to -mid single digit percentage range sales growth (consensus: +4.3%). Gross and EBIT margins at least in line with the pre-exceptional levels of CHF119.9m in 2011 (consensus: CHF128.1m)
Investment case
The market for dental restoration is projected to grow faster than GDP on the back of an ageing population, patient awareness and dentist education. Still, we expect industry growth to slow from historical 15%+ rates to 5%-7% on gradually deepening penetration rates in developed markets, a slowing innovation rate and increased competition, which will additionally cause some margin pressure. Straumann should continue to outpace the underlying market thanks to its strong product line-up (SLActive, Roxolid, regeneratives), underpinned by its strong clinical and industrial reputation. The acquisition of Neodent gives Straumann access to the LATAM market, where so far it has had difficulties with its premium prices. Short-term momentum is being hampered by dull European markets.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT 3% 4% 5% 15% Europe
North America n.a.
58% 22% Asia Pacific
Rest of World 93%
Dental implants CADCAM Prothetics & Equipment Regeneratives
216 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ 2012 growth to return to mid-single digits on lower forex ■ Main drivers are top-line growth and operating leverage impact, further deepening of bone-level implant market ■ Operational cash flow is likely to decline on the back of increasing penetration and new products (SLActive/Roxolid implants, working capital need (working capital in relation to sales at a five- CARES 7.0 software and iTero intra-oral scanner, MembraGel) year low) before exceeding CHF150m annually again ■ Contribution from Neodent acquisition after consolidation
MARGINS INVESTED CAPITAL AND RETURNS
■ Assuming further top line recovery, gross margin and EBIT ■ Capital spending is below historical rates and is likely to increase margin erosion of the last five years should stabilise at around again, negatively affecting otherwise solid FCF generation 77%, earnings accretion from Neodent as of 2013/14 ■ Share buy-back is put on hold, the estimated CHF550m ■ Margin expansion is however limited owing to competition, acquisition of Neodent is to eat up the cash generation for the adverse product mix shift and increasing marketing expenses next three years
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading market position globally (complete product offering, ■ Bone-level implant market (representing 75% of overall implant large marketing organisation & direct distribution in all regions) market) and digital dentistry ■ Strong balance sheet and cash generation ■ Sizeable potential from increased market penetration in the USA ■ Experienced management and strong backing from owners ■ Leading positions in China and in Brazil with Neodent with long-term industrial vision
WEAKNESSES THREATS
■ Short history in prosthetics and bone-level implants (fewer ■ Impact of economic cycle on discretionary consumer spending clinical data and customer relationships) ■ Digital dentistry ■ Relatively large exposure to dull European markets ■ Increasing cost from regulatory changes ■ Poor currency hedge with a predominantly Swiss production ■ Discount players attacking the value segment where the ageing, but still well accepted SLA product range is now positioned
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 9.2 12.4 11.5 10.0 9.6 Current assets 538 555 337 406 472 EV/EBIT 11.9 24.5 14.9 12.5 11.8 Net fixed assets 131 118 111 112 114 EV/Inv. Capital 4.8 5.7 3.2 3.2 3.2 Goodwill 152 101 86.2 73.2 61.2 P/E 17.8 32.9 20.3 15.8 14.7 Total assets 853 810 824 880 936 Cash P/E 15.4 19.0 18.0 14.6 13.6 Sharehold. equit. 695 670 706 763 823 P/CF 12.7 15.5 15.9 13.9 13.4 Working capital 93.7 87.3 123 139 150 P/BV 3.4 3.5 3.3 3.0 2.8 Net debt -353 -376 -143 -196 -256
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 738 694 728 763 802 in sales 0.2 -6.0 5.0 4.7 5.2 EBITDA 212 157 170 195 204 in EBITDA -2.9 -25.7 7.7 15.3 4.5 EBIT 164 79.9 131 156 166 in EBIT -0.6 -51.4 63.9 19.4 6.2 Net profits 131 71.0 115 145 157 in cash EPS -10.3 -19.0 5.5 23.7 7.1 Cash EPS (CHF) 9.68 7.84 8.27 10.2 11.0 Net debt/equity -50.8 -56.2 -20.2 -25.7 -31.1 Reported EPS (CHF) 8.36 4.53 7.35 9.42 10.2 FCF/net fin. results 34.8 62.0 n.m. n.m. n.m. DPS (CHF) 3.75 3.75 4.00 4.25 4.50 Current ratio (X) 4.8 5.0 3.8 4.6 5.6
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 185 132 146 169 178 Gross margin 79.6 76.2 77.4 77.7 77.8 Taxes -28.6 -6.7 -22.4 -27.8 -29.8 EBITDA margin 28.7 22.7 23.3 25.6 25.4 NOPLAT 156 125 123 142 148 EBIT margin 22.3 11.5 18.0 20.5 20.7 Depreciation 27.0 25.5 24.0 26.0 26.0 ROIC 36.1 33.3 25.9 23.2 24.2 CAPEX -17.8 -13.8 -17.0 -26.5 -28.0 Inv. cap. (CHF m) 409 343 609 613 614 in WC -5.1 6.5 -35.5 -16.1 -10.8 Free cash flow 160 143 94.5 125 136
Made in Switzerland + | Helvea 217
Sulzer Price: CHF116.- NEUTRAL Target: CHF113.- M&S
Volkan Göçmen ([email protected]) – Tel. +41 (0)22 354 9157
Sulzer is one of Switzerland’s largest engineering groups, active in the areas of industrial pumps, coating equipment & services (Metco), turbomachinery services and special components for chemical plants (Chemtech). Today’s group structure is the result of an aggressive divestment programme which has seen Sulzer transformed from a pure conglomerate into, from an end-user standpoint, a much more focused engineering group. After regaining its operational strength, Sulzer has started to become more active on the M&A front, reflected in the recent Cardo Flow Solutions deal. CEO: Klaus Stahlmann; CFO: Jürgen Brandt; Website: www.sulzer.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland CHF190 Major shareholders Renova 34.0%, Others 66.0% 170 150 130 Shares outstanding (m) 33.64 EV/EBITDA (X) 110 Market cap. (CHF m) 3,896 2011 8.9 90 Free float 100% 2012E 7.5 70 EBITDA/CAGR 2011-2014E 11.2% 2013E 6.9 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Sulzer 12-mth tgt Absolute -11% 14% -25% Bloomberg SUN SW Buy Acc. Neut. Red. N.R. Rel. to local -9% 8% -17% Reuters SUN.S
News flow
■ February 2012: announcement of new CEO, Mr Klaus Stahlmann, to join Sulzer from MAN Turbo ■ February 2012: full-year 2011 results slightly beat our market estimates on the bottom line ■ April 2012: strong Q1 2012 order intake reported (+9.1% to CHF1bn; +0.8% in an adjusted basis) and management increased its full-year guidance moderately; order intake was fully in line with our forecasts ■ Forthcoming event: 20 July 2012 – H1 2012 results ■ Guidance & consensus: for 2012, Sulzer expects ‘high single-digit growth in order intake’; consensus EBIT estimates stand at CHF450m for 2012 and at CHF486m for 2013
Investment case
Sulzer made a solid start to 2012, with its order intake topping the CHF1bn-mark in a quarter for the very first time, reflecting the fact the trading environment in most of the group’s end-user industries is in quite a healthy shape. However, with limited scope to improve margins substantially from current (healthy) levels, potential for positive surprises is limited as well. From that point of view, we believe the recovery has already been broadly priced in. This does not mean the stock is lacking in interest as Sulzer has a new CEO, so the whole M&A process could now be resumed. In this respect, the next catalyst for the share price, in our view, might be either tangible deals or at least clear communication about strategic direction. For the moment though, we prefer to remain on the sidelines.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
3% 4% 19% 17% Europe
28% 36% North America 46% 48% 14% Central & South America 15% Asia, MEA, Australia 9% 19% 19% Africa 23% Sulzer PUMPS Sulzer METCO Sulzer TURBO SERVICES Sulzer CHEMTECH Others & consolidation
218 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Sales growth in 2011 driven mainly by consolidation effects, a ■ Rising NOPLAT in 2012 courtesy of higher sales and margin factor that will also be at work in 2012 improvements ■ Ongoing moderate growth in early-cyclical activities (Metco) ■ On the back of hardly any increase in working capital, the rising ■ Strong order backlog in late-cyclical activities (Chemtech, NOPLAT should lead to sharply improving free cash flow Pumps)
MARGINS INVESTED CAPITAL AND RETURNS
■ Continuing margin recovery in 2012 and not impacted by ■ Decline in ROIC in 2012 due to higher (average) invested capital currencies ■ Relatively moderate ROIC expansion on the cards for coming ■ Dip in margins in 2011 at group level, compared to 2010 and years given limited scope for margin improvements 2012, due to non-recurrence of (book) gains from sale of real estate
SWOT analysis STRENGTHS OPPORTUNITIES
■ All divisions have strong market positions and restored ■ Develop service businesses further in the existing portfolio operating excellence, making them capable of integrating new ■ Interesting market opportunities for thermal-coating technology in companies again areas such as the automotive industry ■ Innovation power ■ Leverage Cardo Flow Solutions within the Sulzer organisation ■ Cash-generation capability and balance sheet
WEAKNESSES THREATS
■ Sulzer Metco needs to be put on a more global basis, and ■ Sulzer Turbo Services to face – in the long term – increasingly complemented with further coating technologies stiff competition from OEMs ■ Dependence on commodity prices (particularly oil)
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 8.4 8.9 7.5 6.9 6.4 Current assets 2,196 2,337 2,569 2,838 3,078 EV/EBIT 10.5 11.7 9.9 9.1 8.4 Net fixed assets 532 620 665 698 732 EV/Inv. Capital 2.3 1.4 1.4 1.4 1.3 Goodwill 629 1,435 1,383 1,330 1,277 P/E 13.0 14.0 13.0 11.9 10.9 Total assets 3,492 4,540 4,765 5,014 5,235 Cash P/E 12.0 12.2 11.1 10.3 9.5 Sharehold. equit. 1,895 2,098 2,278 2,476 2,696 P/CF 9.4 9.9 8.5 7.8 7.4 Working capital 689 1,038 1,045 1,089 1,173 P/BV 2.1 1.9 1.7 1.6 1.5 Net debt -553 337 135 -49.5 -214
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 3,184 3,578 3,948 4,115 4,303 in sales -5.0 12.4 10.3 4.2 4.6 EBITDA 511 483 571 623 664 in EBITDA 6.6 -5.5 18.2 9.2 6.6 EBIT 406 364 434 471 510 in EBIT 10.4 -10.4 19.1 8.6 8.3 Net profits 300 280 301 328 358 in cash EPS 19.9 -1.7 10.3 7.8 7.9 Cash EPS (CHF) 9.64 9.48 10.5 11.3 12.2 Net debt/equity -29.2 16.1 5.9 -2.0 -7.9 Reported EPS (CHF) 8.91 8.29 8.90 9.70 10.6 FCF/net fin. results 74.2 12.9 21.2 23.0 28.1 DPS (CHF) 3.00 3.00 3.67 3.96 4.27 Current ratio (X) 1.8 1.5 1.6 1.8 2.0
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 431 404 486 524 563 Gross margin 31.4 30.6 30.9 31.2 31.3 Taxes -97.7 -89.4 -115 -125 -136 EBITDA margin 16.1 13.5 14.5 15.1 15.4 NOPLAT 333 315 371 399 427 EBIT margin 12.8 10.2 11.0 11.4 11.9 Depreciation 80.0 78.5 84.4 99.0 101 ROIC 18.3 12.7 12.0 12.9 13.6 CAPEX -118 -113 -130 -132 -135 Inv. cap. (CHF m) 1,850 3,092 3,093 3,117 3,182 in WC 31.2 -349 -7.3 -44.2 -84.3 Free cash flow 326 -68.3 318 322 309
Made in Switzerland + | Helvea 219
Swiss Life Holding Price: CHF77.8 BUY Target: CHF130.- M&S
Daniel Bischof, CFA ([email protected]) – Tel. +41 (0)43 388 9263
Swiss Life is Switzerland’s leading life insurer (along with AXA-Winterthur) in both individual and group life. In 2007, Swiss Life bought AWD, the German network of independent financial advisers (IFA). Swiss Life is active in Switzerland, France, Germany, Belgium and cross-border ‘PPLI’ business. In 2009, the group announced a major restructuring and cost-cutting programme, targeting a 10%-12% ROE by 2012.
CEO: Bruno Pfister; CFO: Thomas Buess; Website: www.swisslife.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Insurance/Switzerland CHF198 Major shareholders Talanx AG 9.3%, Dodge & Cox 4.9%, Blackrock 3.0% 175 152 129 Shares outstanding (m) 31.37 P/E (X) 106 Market cap. (CHF m) 2,442 2011 4.1 83 Free float 86% 2012E 4.5 60 Op. profits/CAGR 2011A-2014E 10.9% 2013E 4.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Swiss Life Holding 12-mth tgt Absolute -25% -18% -45% Bloomberg SLHN VX Buy Acc. Neut. Red. N.R. Rel. to local -24% -23% -40% Reuters SLHN.VX
News flow
■ November 2011: Q3 2011 interim statement confirmed that MILESTONE targets have been reached ■ February 2012: Swiss Life reported solid full-year 2011 results, a touch below expectations; however, results were dented by certain one-offs, mostly arising from the foray into German financial services (AWD) ■ May 2012: Q1 2012 interim statement with modestly declining premium volume, but solid solvency ■ Forthcoming event: 17 August 2012 – H1 2012 results ■ Guidance & consensus: target set by the company of 10%-12% ROE by 2012; consensus net profit estimates of CHF566m for 2012 and CHF598m in 2013
Investment case
The company announced a large-scale restructuring plan in 2009, with the target of saving CHF350-400m by 2012. We see significant upside for the stock going forward when investors recognise that Swiss Life has been successfully reducing its interest rate sensitivity. Recent results have shown the impact of these measures working through. Results delivered in 2011 have shown that the group is achieving its cost-saving targets, fully meets Swiss Solvency Test requirements and can comfortably meet guarantees even if interest rates remain low. The share price has been moving in lockstep with Swiss bond yields and is now down to a level we consider highly attractive; continued profit performance well above the implied consensus should help to crystallise that value.
Divisional breakdown (2011) Regional breakdown – Premiums (2011)
Premiums Operating profits
3% 0.4% 17% 14%
Switzerland France
22%
64% Germany Others
83% 97%
Life/health Asset Mgmt
220 Helvea SA | Made in Switzerland +
Value drivers PROFITS AND MARGINS BALANCE SHEET
■ New business in 2012 will not have an adverse baseline effect, ■ Swiss Life has significantly de-risked its balance sheet and has meaning that the group should return to overall revenue growth low exposure to equities and hedge funds ■ Adverse impact of low interest rates and balance-sheet de- ■ Limited exposure to peripheral eurozone economies risking should be offset by cost savings in 2012 ■ Asset/liabilities management: group has closed its duration gap ■ Profit improvements at AWD in 2012 should drop straight and should comfortably meet Swiss Solvency Test requirements through to net profits ■ Shift away from traditional products may reduce expansion in balance sheet, but ROA should improve
SWOT analysis STRENGTHS OPPORTUNITIES
■ Top-line diversification ■ Leveraging of AWD’s network ■ Well positioned in corporate pensions in Europe ■ Profit improvement programme should help underlying ■ Market leader in life assurance in Switzerland and good brand profitability of sizeable back book recognition in France, Liechtenstein & Germany ■ Improve profitability of new business through changes in product ■ AWD well positioned in its target market mix and cost savings ■ Experience in turnaround situations and in delivering on ■ New strategic plan to follow on from the success of MILESTONE promises
WEAKNESSES THREATS
■ Political nature of Swiss group life business ■ Low interest rates could have an impact on profitability and ■ Unimpressive track record in making acquisitions policyholders’ appetite for life and pension products ■ Capital position dependent on interest rates ■ AWD losing its ‘independent status’ as a result of Swiss Life’s ■ Management lost considerable credibility in calling a halt to the control buy-back programme and buying the MLP stake ■ Weak euro reduces profit contributions from international ■ SST position likely to be weaker than for composite insurers businesses
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E P/NAV 0.5 0.3 0.3 0.3 0.3 Non-life reserves 0.0 0.0 0.0 0.0 0.0 P/EV 0.3 0.3 0.3 0.2 0.2 Life reserves 90,331 92,542 94,033 96,917 100,074 P/E 4.4 4.1 4.5 4.2 4.0 Total AuM (bn) 121.97 134.26 138.29 142.44 146.71 SOTP (CHF) 147 3rd-p. AuM (bn) 9.747 15.995 17.909 18.649 19.051 Mkt cap/reserves (%) 2.7 2.6 2.6 2.5 2.4 Sharehold. equ. 7,437 9,162 9,565 9,883 10,290 Mkt cap/premiums (%) 11.9 14.0 13.1 12.6 12.1 Net asset value 5,455 7,222 7,625 7,943 8,350 Dividend yield (%) 5.8 5.8 6.4 7.1 7.7 Embedded value 6,501 8,241 8,552 8,772 9,076
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Gross premiums 20,531 17,490 18,591 19,318 20,216 in premiums -2.3 -14.8 6.3 3.9 4.6 Net invest. income 4,368 4,459 4,284 4,327 4,399 in op. profits 23.5 0.7 22.6 6.1 4.8 Operating profits 694 699 857 909 953 in pre-tax profits 56.4 -1.8 27.0 7.1 5.5 Pre-tax profits 596 585 743 795 839 investments -0.3 5.4 1.8 2.8 3.1 Net profits 560 606 557 597 629 NAV/min. solvency 155 182 185 185 186 Reported EPS (CHF) 17.7 18.9 17.4 18.6 19.6 NL Res./premium 464 550 535 529 521 DPS (CHF) 4.50 4.50 5.00 5.50 6.00 NL Res./claims 711 734 756 760 763
Investments Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Total investments 112,224 118,269 120,383 123,792 127,663 Retention rate NL n.a. n.a. n.a. n.a. n.a. Equities 4,265 2,602 2,648 2,723 2,809 Claims ratio NL n.a. n.a. n.a. n.a. n.a. Fixed income 74,741 83,025 84,509 86,902 89,619 Combined ratio n.a. n.a. n.a. n.a. n.a. Real estate 14,140 15,493 16,071 16,526 17,043 Expense ratio life 15.7 15.2 16.5 16.4 16.3 Loans/mortgages 15,375 15,848 15,951 16,402 16,915 Pre-tax margin 2.9 3.3 4.0 4.1 4.2 Net invest. yield 3.9% 3.8% 3.6% 3.5% 3.4% ROE 7.5 6.6 5.8 6.0 6.1 Cap. gains/total 0.1% 0.2% 0.2% 0.2% 0.2% Return/techn. res. 0.6 0.7 0.6 0.6 0.6
Made in Switzerland + | Helvea 221
Swiss Re Price: CHF56.0 NEUTRAL Target: CHF64.0 Large Caps
Daniel Bischof, CFA ([email protected]) – Tel. +41 (0)43 388 9263
Swiss Re remains one of the world’s top reinsurance groups. The group is still a leader in life reinsurance and a leading non-life operator as well. The group has also been one of the leading players in developing alternative risk transfer (ART) and securitisation markets, having seen this as a tool that can deliver a combination of reduced earnings volatility and enhanced ROEs over the longer term. The current strategy, however, is targeting more a ‘back-to-basics’ focus on traditional reinsurance and growth in primary commercial non-life insurance. CEO: Michel M. Liès; CFO: George Quinn; Website: www.swissre.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Insurance/Switzerland CHF65 Major shareholders Franklin Rescources 5.0%, Dodge & Cox 3.4%, MFS 60 Investment 3.1%, National Indemnity 3.0%, Others 55 85.5% 50 45 Shares outstanding (m) 344 P/E (X) 40 Market cap. 19,247 2011 8.2 (CHF m) 35 Free float 100% 2012E 12.5 30 Op. profits/CAGR 2011A-2014E 7.5% 2013E 8.5 05.11 07.11 09.11 11.11 01.12 03.12 05.12 Share perform. 3m 6m 12m Symbols Swiss Re 12-mth tgt Absolute 4% 17% 10% Bloomberg SREN VX Buy Acc. Neut. Red. N.R. Rel. to local 7% 10% 22% Reuters SRENH.VX
News flow
■ November 2011: strong Q3 2011 results on the back of higher than expected realised gains and a low tax rate ■ February 2012: better than expected full-year 2011 results on reserve releases; renewals outcome strong ■ April 2012: Investors’ Day with focus on new divisional structure ■ April 2012: excellent Q1 2012 results thanks to benign catastrophe activity ■ Forthcoming event: 9 August 2012 – H1 2012 results ■ Guidance & consensus: no 2012 guidance disclosed, but ROE target of 5-year US Treasury bond yield +700bp across the cycle; consensus estimates for net profits stand at USD2.378bn for 2012 and USD2.526bn for 2013
Investment case
Swiss Re has USD7bn above the ‘AA’ capital level. The group sees opportunities in non-life primary and reinsurance so it is retaining capital for now. We see scope for growth in the property & casualty business (increased volumes on the back of better pricing and ending of the quota-share agreement next year). However, even including the additional capital requirements, Swiss Re is becoming capital-heavy, so we would expect an announcement about a special dividend in late 2012. We have a NEUTRAL recommendation on Swiss Re shares.
Divisional breakdown (2011) Regional breakdown – Premiums (2011)
Premiums Operating profits
7% 13% Europe 29%
45% 40% 19% North America 55% Asia Pacific 53% Others 39% Life/health Life/health reinsurance
Property/casualty reinsurance Financial Services
222 Helvea SA | Made in Switzerland +
Value drivers PROFITS AND MARGINS BALANCE SHEET
■ Growth in primary non-life insurance on top of growth from ■ Strong excess capital opens up possibility of special dividends if 2012 renewals and the quota-share expiry in reinsurance business opportunities do not present themselves ■ Traditional primary life market may pick up gradually as the ■ Legacy problems essentially over economy recovers, but cession rates are declining ■ Relatively long duration makes Swiss Re vulnerable to rate rises ■ We expect 2012 to see continuing effects of a lower-risk ■ Smallest buffer of excess reserves among reinsurers covered investment strategy and declining interest rates ■ Organic capital generation enabled early repayment of the convertible in 2010
SWOT analysis STRENGTHS OPPORTUNITIES
■ Market leader in non-life and life ■ Support insurers in fast-growing regions and look for Solvency II- ■ High technical expertise driven business from 2012 ■ Leader in insurance securitisation ■ Expand Corporate Solutions business ■ Clear focus on core insurance operations and separation of ■ Transactions to transfer longevity risk legacy problems ■ Expand Admin Re franchise into Continental European markets ■ Backing of Berkshire Hathaway through quota share, life reinsurance deal and ADC cover
WEAKNESSES THREATS
■ Admin Re business has become considerably more ■ Reinsurance remains a cyclical industry competitive in the UK ■ Strong focus on growth could lead to mispricing ■ Admin Re generates only low-single-digit ROE ■ Accident years of 2008 and 2009 have shown initial signs of ■ Life reinsurance heavily dependent on the US and UK markets weakness and could lead to reserves being strengthened in 2013 ■ Low investment risk will mean lower returns ■ Impact of low interest rates on life reinsurance
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In USD m) 2010 2011 2012E 2013E 2014E P/NAV 1.2 1.0 0.9 0.9 0.8 Non-life reserves 64,881 62,114 63,911 67,948 69,002 P/EV 0.8 0.7 0.7 0.7 0.6 Life reserves 80,454 85,510 77,524 77,701 78,119 P/E 21.2 8.2 12.5 8.5 8.1 Total AuM (bn) n.a. n.a. n.a. n.a. n.a. SOTP (CHF) 74.4 3rd-p. AuM (bn) n.a. n.a. n.a. n.a. n.a. Mkt cap/reserves (%) 13.6 13.4 14.0 13.6 13.5 Sharehold. equ. 25,342 29,590 30,263 30,893 31,623 Mkt cap/premiums (%) 79.9 69.0 61.8 60.1 57.5 Net asset value 16,694 21,313 22,601 23,846 25,191 Dividend yield (%) 4.9 5.4 5.8 6.3 6.4 Embedded value 24,659 29,439 30,612 31,742 32,472
Income statement Growth rates & balance-sheet ratios (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Gross premiums 24,778 28,693 32,071 32,976 34,417 in premiums -6.3 15.8 11.8 2.8 4.4 Net invest. income 5,422 5,469 5,117 4,786 4,854 in op. profits 204 7.5 -19.6 48.0 4.5 Operating profits 2,675 2,875 2,313 3,423 3,577 in pre-tax profits 204 7.5 -19.6 48.0 4.5 Pre-tax profits 2,675 2,875 2,313 3,423 3,577 investments -0.3 -3.1 1.8 4.0 3.7 Net profits 863 2,626 1,670 2,472 2,582 NAV/min. solvency 147 178 185 163 165 Reported EPS (CHF) 2.64 6.79 4.48 6.62 6.91 NL Res./premium 438 411 368 286 284 DPS (CHF) 2.75 3.00 3.25 3.50 3.60 NL Res./claims 662 562 578 433 427
Investments Ratios, margins and returns (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Total investments 179,151 173,631 176,763 183,752 190,488 Retention rate NL 78.9 70.1 70.0 90.0 90.5 Equities 554 1,960 2,107 2,265 2,435 Claims ratio NL 66.2 73.2 63.7 66.0 66.6 Fixed income 98,744 101,318 103,146 107,224 111,155 Combined ratio 94.2 102 92.7 94.5 94.9 Real estate 2,052 1,983 1,983 2,072 2,165 Expense ratio life 30.2 32.7 31.4 31.3 31.1 Loans/mortgages 5,606 5,640 5,640 5,809 5,983 Pre-tax margin 10.8 10.0 7.2 10.4 10.4 Net invest. yield 3.0% 3.1% 2.9% 2.6% 2.5% ROE 3.4 8.9 5.5 8.0 8.2 Cap. gains/total 1.6% 0.2% 1.5% 0.8% 0.7% Return/techn. res. 1.5 1.9 1.2 1.8 1.8
Made in Switzerland + | Helvea 223
Symrise AG Price: EUR22.7 NEUTRAL Target: EUR23.0 M&S
Andreas von Arx ([email protected]) – Tel. +41 (0)43 388 9257
With a market share of about 9%, Symrise is the No.4 in the global CHF20bn flavour and fragrance (F&F) industry, which is relatively highly consolidated (top 4: 55% market share). Symrise’s main attractiveness is its healthy exposure to emerging markets (46% of sales). The main pillars of its strategy are: 1) global reach – expand into emerging markets and global accounts; 2) efficiency – backward integration, optimisation and cost discipline; 3) portfolio – focus on faster-growing segments plus Life Essentials and Consumer Health. Listed in 2006, is based in Holzminden with some 5,500 employees. CEO: Dr. Heinz-Jürgen Bertram; CFO: Bernd Hirsch; Website: www.symrise.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Chemicals/Germany EUR24 23 Major shareholders M&G Investment Management 15.0%, Massachusetts 22 Finanical Services 5.0%, Mondrian Investment Partners 21 Ltd 3.2%, Standard Life Investments 3.1% 20 19 Shares outstanding (m) 118 EV/EBITDA (X) 18 Market cap. (EUR m) 2,684 2011 10.7 17 16 Free float 94% 2012E 10.0 15 EBITDA/CAGR 2011-2014E 5.8% 2013E 9.4 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Symrise AG 12-mth tgt Absolute 4% 14% 5% Bloomberg SY1 GR Buy Acc. Neut. Red. N.R. Rel. to local 13% 11% 22% Reuters SY1G.DE
News flow
■ May 2012: Q1 2012 results in line with expectations – 2.0% local currency growth vs. Helvea and consensus 2.1%; EBITDA of EUR87.0m vs. Helvea EUR84.7m and consensus EUR85.0m; local currency growth guidance for 2012 increased from 2%-4% to 3%-5% ■ Forthcoming event: 9 August 2012 – Q2 2012 results ■ Guidance & consensus: guiding for local currency growth of 3%-5% for 2012 (Helvea 3.9%) and an EBITDA margin of ‘about 20%’ (Helvea 20.0%, consensus 19.7%); consensus EBITDA for 2012 are at EUR334m and at EUR357m for 2013 (Source: Vara Research)
Investment case
Trading on 10X forward EV/EBITDA, we think Symrise looks fairly valued even vs. some larger, branded fast- moving-consumer-goods peers (i.e. Danone at 9.8X). There is still a discount to the fragrances & flavours market leader Givaudan, but recent results showed a clear lead for the Swiss rival (Q1 2012 8.4%). Yet the gap might narrow in coming quarters on sales acceleration from Symrise’s new menthol plant (which is to go live this summer) and Givaudan returning to local currency growth closer to its medium-term target of 4.5%-5.5% (as expected for 2013). Therefore, we see momentum potentially improving at Symrise in the coming months, but given the uncertain economic macro outlook and valuation vs. branded rivals deemed more defensive, upside seems limited.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
15% EAME
51% 49% 51% 49% North America 22% 63%
Latin America
Scent , care Flavour , Nutrition
224 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We forecast growth in local currencies of 3.9% for 2012, 4.5% ■ On higher NOPLAT and a more favourable input cost for 2013 and 4.3% for 2014 (2.0% in 2011) environment, we project an increase in FCF in 2012 ■ H2 2012 to benefit from new menthol plant going live ■ Amortisation higher than capex on (acquisition-related) ■ The major medium-term growth driver is emerging markets, amortisation of intangible write-downs with limited useful lives (i.e leading to projected market growth of 2% to 3% recipes)
MARGINS INVESTED CAPITAL AND RETURNS
■ After an EBITDA margin decline of 110bp in 2011, we forecast ■ The increase in NOPLAT should lead to higher ROIC 2012-14E flat margins in 2012 as F&F players will gradually turn positive ■ Capex>depreciation leads to flattish invested capital on their gross margins again ■ Medium term, we forecast slight margin increases on volume growth, but with limited upside potential
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leader in an industry with economies of scale (e.g. regulation ■ Emerging markets to account for healthy market and company requirements and superior R&D) and high barriers to entry growth rates medium term ■ Expansion into no-pure F&F areas (like UV filters) ■ The brief/bidding process with target prices from FMCG clients ■ F&F ingredients perceived as crucial in buying decisions, but leads to stable margins as long as there is market growth the products represent only 3%-5% of the end product price
WEAKNESSES THREATS
■ Difficulties to (immediately) pass on higher raw material costs ■ Customers and/or regulators might question the oligopolistic ■ As a supplier and B2B player, Symrise does not have direct industry structure access to the consumer nor does it have brand recognition ■ Pressure from less sophisticated competitors with cheap offerings ■ There are limits as to what FMCG companies are willing to for more commodity-oriented products accept in terms of F&F profitability
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 10.2 10.7 10.0 9.4 9.0 Current assets 723 780 902 1,021 1,147 EV/EBIT 13.8 14.4 13.3 12.3 11.6 Net fixed assets 821 777 753 731 713 EV/Inv. Capital 2.5 2.4 2.4 2.4 2.4 Goodwill 462 489 489 489 489 P/E 20.1 18.3 16.5 15.1 14.1 Total assets 2,059 2,098 2,196 2,293 2,400 Cash P/E 15.4 14.5 10.9 10.3 9.8 Sharehold. equit. 842 914 1,003 1,099 1,201 P/CF 9.9 10.4 9.8 9.3 8.9 Working capital 490 543 579 588 613 P/BV 3.2 2.9 2.7 2.4 2.2 Net debt 521 482 404 295 199
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 1,572 1,584 1,688 1,764 1,839 in sales n.a. 0.7 6.6 4.5 4.3 EBITDA 331 316 337 357 374 in EBITDA n.a. -4.6 6.7 5.8 4.8 EBIT 244 234 254 273 290 in EBIT n.a. -4.1 8.3 7.7 6.2 Net profits 134 147 163 178 190 in cash EPS n.a. 6.5 32.9 6.0 4.9 Cash EPS (EUR) 1.47 1.57 2.08 2.21 2.31 Net debt/equity 61.9 52.7 40.3 26.8 16.6 Reported EPS (EUR) 1.13 1.24 1.38 1.50 1.61 FCF/net fin. results 2.0 3.5 4.9 5.9 5.8 DPS (EUR) 0.60 0.62 0.69 0.75 0.80 Current ratio (X) 2.4 3.0 3.4 3.8 4.2
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 244 234 254 273 290 Gross margin 43.4 41.3 41.3 41.6 41.6 Taxes -60.6 -59.1 -63.5 -68.4 -72.6 EBITDA margin 21.1 20.0 20.0 20.2 20.3 NOPLAT 184 175 190 205 218 EBIT margin 15.5 14.8 15.0 15.5 15.8 Depreciation 86.7 81.5 83.2 83.2 83.2 ROIC n.a. 12.7 13.6 14.6 15.6 CAPEX -94.1 -67.3 -59.1 -61.8 -64.4 Inv. cap. (EUR m) 1,363 1,395 1,407 1,394 1,400 in WC -42.7 -53.6 -36.0 -8.4 -25.0 Free cash flow 134 136 179 218 212
Made in Switzerland + | Helvea 225
tamedia Price: CHF102.- NEUTRAL Target: CHF130.- M&S
Chris Burger, CFA ([email protected]) – Tel. +41 (0)43 388 9259
Tamedia is a Swiss media company based in Zurich. Tamedia's daily and weekly newspapers, magazines, online platforms, together with its newspaper printing facility make it one of Switzerland's leading media enterprises. The company was established in 1893 and has been listed on the Swiss stock exchange since 2000. With its recent acquisitions of Espace Media (2007) and Edipresse’s Swiss operations (2010), tamedia has also achieved a strong position in the Berne region and in French-speaking Switzerland, respectively. CEO: Martin Kall; CFO: Sandro Macciacchini; Website: www.tamedia.ch (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Media/Switzerland CHF149 Major shareholders Coninx family 71.8% 140 131 122 Shares outstanding (m) 10.44 EV/EBITDA (X) 113 Market cap. (CHF m) 1,060 2011 5.9 104 Free float 20% 2012E 5.8 95 EBITDA/CAGR 2011-2014E 3.8% 2013E 5.4 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols tamedia 12-mth tgt Absolute -11% -8% -22% Bloomberg TAMN SW Buy Acc. Neut. Red. N.R. Rel. to local -9% -14% -14% Reuters TAMN.S
News flow
■ December 2011: Zürichsee Medien acquires Capital FM ■ March 2012: BT Holding takes over Radio 24, Espace Media acquires Langenthaler Tagblatt ■ April 2012: full-year 2011 sales, EBITDA and EBIT below expectations, financial result saves net income (turnover: CHF1,105.1m, EBIT: CHF168.8m) ■ Forthcoming event: 30 August 2012 – H1 2012 results ■ Guidance & consensus: no specific guidance; consensus EBIT estimates stand at CHF178m for 2012 and at CHF189m for 2013
Investment case
The transformation process (with the latest large acquisitions of Edipresse Suisse and Zürcher Landzeitungen, but also the 21 – smaller – divestments in 2011) has been almost fully completed. In our view, tamedia remains the most profitable as well as the best managed company in the Swiss media sector. Considering its strong position, we believe tamedia will emerge as the winner from the process of consolidation in the Swiss media market. The valuation looks attractive, but we see no trigger for a revaluation especially considering that tamedia has to contend with a tough environment.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
70% Sales EBIT Sales EBIT 60 11.4% 0.6%
50 35.4% 40 48.1% 30 Switzerland
2040.5% 63.9%
10
0 100%
-10 Print Regional Print National Digital Print Regional Print National Digital
226 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Growth in print advertising in Switzerland slowing down again, ■ Normalisation after full-time consolidation of Edipresse in 2011 Print Regional expected to suffer most in 2012 ■ Capital spending includes investment in real estate in 2011 and ■ Print National better positioned 2012, but also asset sales in 2011 ■ Digital as a growth driver in 2012 and in the medium term ■ FCF seriously dented in 2010, 2012 and 2013 by payments for Edipresse
MARGINS INVESTED CAPITAL AND RETURNS
■ Targeted synergies of CHF23m from the ongoing integration of ■ Invested capital jumped in 2011 on the back of the acquisition of Edipresse’s Swiss operations in the years to come Edipresse’s Swiss operations ■ Ongoing strict cost management ■ Stabilisation of invested capital as from 2012 ■ Expected to reach medium-term EBIT margin target range of ■ ROIC projected at approx.20% 15%-20% in 2012
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading position in Zurich, Berne and Western Switzerland ■ Economic recovery in commercial and job advertising ■ Strong position in job advertising ■ Consolidation of national and regional press market ■ Strong media brands ■ Integration of Edipresse ■ Strong balance sheet ■ Economies of scale ■ Strong management with a good track record
WEAKNESSES THREATS
■ Dependent on the Swiss advertising market, especially job ■ Economic risk, especially slowdown in job advertising advertising ■ Increasing competition from the Internet ■ Low geographical diversification (only Switzerland) ■ Ageing population ■ Very low free float ■ Acquisition risk
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 9.1 5.9 5.8 5.4 5.2 Current assets 244 410 369 414 559 EV/EBIT 11.7 7.8 7.6 7.0 6.7 Net fixed assets 319 374 394 395 391 EV/Inv. Capital 2.3 1.4 1.5 1.5 1.6 Goodwill 431 849 824 797 771 P/E 9.6 6.0 6.8 7.0 6.6 Total assets 1,234 1,741 1,709 1,728 1,843 Cash P/E 8.8 5.2 5.9 5.9 5.7 Sharehold. equit. 839 940 1,036 1,166 1,272 P/CF 7.2 4.4 4.6 4.3 4.2 Working capital -136 -143 -142 -145 -148 P/BV 1.3 1.1 1.0 0.9 0.8 Net debt -30.7 118 -43.1 -202 -343
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 745 1,105 1,106 1,133 1,159 in sales -0.6 48.3 0.1 2.4 2.3 EBITDA 146 226 228 244 252 in EBITDA 61.6 54.8 1.0 7.1 3.4 EBIT 113 169 175 190 197 in EBIT n.m. 48.9 3.8 8.6 3.7 Net profits 110 178 157 154 162 in cash EPS n.m. 69.0 -11.7 -1.1 4.4 Cash EPS (CHF) 11.6 19.5 17.2 17.1 17.8 Net debt/equity -3.7 12.6 -4.2 -17.4 -27.0 Reported EPS (CHF) 10.6 16.8 14.8 14.6 15.3 FCF/net fin. results 8.1 n.m. n.m. n.m. n.m. DPS (CHF) 4.00 5.75 5.25 5.25 5.25 Current ratio (X) 0.8 0.8 0.8 1.2 1.5
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 146 229 228 244 252 Gross margin 81.9 84.0 84.2 84.4 84.5 Taxes -30.6 -41.0 -49.9 -53.5 -55.3 EBITDA margin 19.6 20.4 20.6 21.6 21.8 NOPLAT 115 188 178 191 197 EBIT margin 15.2 15.3 15.8 16.8 17.0 Depreciation 32.4 53.6 52.8 54.1 55.3 ROIC 19.7 24.3 19.1 21.8 23.3 CAPEX -6.2 -36.4 -48.0 -28.0 -25.0 Inv. cap. (CHF m) 579 970 891 862 829 in WC 29.7 6.8 -0.6 2.6 3.0 Free cash flow -66.2 228 204 100 230
Made in Switzerland + | Helvea 227
Tecan Price: CHF63.2 BUY Target: CHF86.5 M&S
Simon Goetschmann ([email protected]) – Tel. +41 (0)43 388 9264
Since its foundation more than 30 years ago, Tecan has successfully positioned itself as the global No.1 in the consolidating market for liquid handling, robotics and other automation solutions for laboratory applications throughout the life science and diagnostic space with a market share of 10%. In the transition from a small size to a larger company, Tecan streamlined its organisation focusing on end-customers (Life Science Business) and OEM clients. In February 2012, David Martyr, ex-Danaher executive, was appointed new CEO. He will take over the CEO role in October at latest. CEO: Gérard Vaillant (ad-interim); CFO: Dr. Rudolf Eugster; Website: www.tecan.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Switzerland CHF93 Major shareholders Chase Nominees 13.5%, ING 9.2%, TIAA-CREF 85 Investment Management 8.0%, UBS Fund Management 77 5.1%, Pictet Funds 5.0% 69 Shares outstanding (m) 10.76 EV/EBITDA (X) 61 Market cap. (CHF m) 680 2011 9.0 53 Free float 95% 2012E 8.7 45 EBITDA/CAGR 2011-2014E 12.2% 2013E 7.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Tecan 12-mth tgt Absolute -14% 9% -9% Bloomberg TECN SW Buy Acc. Neut. Red. N.R. Rel. to local -12% 2% 1% Reuters TECN.S
News flow
■ March 2012: full-year 2011 results exceed expectations with double-digit sales growth in l.c. to CHF377m and an operating profit margin of 13.6%. Tecan shares however slide after the company reports a delay in the launch of the new Myrius liquid handling platform, higher related costs and a reduced sales guidance ■ May 2012: Frederic Vanderhaegen, Head Life Science Business, is to leave the company by end of November ■ Forthcoming event: August 2012 – H1 2012 results ■ Guidance & consensus: low- to -mid single-digit sales growth in l.c. (cons.: +5.6%) and an EBIT margin between 12.2% and 13.2% (cons.: 12.9%) based on average FX rates of EUR/CHF1.20 and USD/CHF0.90
Investment case
After years of rather sluggish growth, Tecan has won significant OEM contracts. The increased order book has however challenged the organisation and project delays have occurred. Having streamlined its organisation into more customer centric divisions with adjustments to the process management, Tecan should capitalise on excellent growth opportunities. The ever increasing need for higher lab efficiency as a result of tighter healthcare budgets, an improved footprint in China or the expansion into consumables and new applications bode well for the company. In view of an accelerated earnings momentum as of 2013 and expected more timely project execution under the new CEO, we regard current valuation multiples as attractive and Tecan as an imminent takeover candidate.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
80% Sales EBIT Sales EBIT 3% 70 0.0% 12.1% 3% 60 12% Other Europe 50 35.2% 4038.4% North America 44% 30 Asia Pacific 20 61.6% 10 Rest of World 0 52.7% 38% -10 Switzerland -20 -30Life Sciences Business Partnering Business Coporate/Consolidation Life Sciences Business Partnering Business Coporate/Consolidation
228 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Robust market growth of 5%-7% due to rising demand for ■ Positive net working capital effect in 2012/13 as a result of higher lab efficiency on grounds of tighter healthcare budgets reversed pre-financing effects of OEM customer projects ■ Tecan should continue to outgrow the market. From 2013, the ■ Despite higher cost base attributable to R&D efforts and project substantial OEM project pipeline, regional and product-related delays, free cash flow generation should increase growth initiatives to translate into accelerated sales momentum
MARGINS INVESTED CAPITAL AND RETURNS
■ A growing share of the OEM business should have a dilutive ■ Above industry asset turnover of 1.1-1.3X, attributable to the effect on the gross margin, but positively impact the operating company’s relatively asset-light business model margin together with higher share of consumables and services ■ Solid margin expansion towards 15% and the high efficiency of ■ R&D costs will increase to 13.5% of sales in 2012 and to 12% Tecan’s use of its assets to continue to generate high returns on in 2013 and 2014, before falling back to 10% capital employed of above 20%
SWOT analysis STRENGTHS OPPORTUNITIES
■ Market leadership in liquid handling and robotics; high ■ New applications e.g. sample preparation for mass spectrometry innovation rates, best-in-class products, strong brand (FEMS) or air displacement technology ■ Extensive direct contact with customers and distribution network ■ Distribution agreements with HP and Attana ■ Solid, debt-free balance sheet ■ Growing consumables and service business ■ Long-term relationship with OEMs and distribution partners ■ Geographical expansion, especially in China
WEAKNESSES THREATS
■ Limited resources due to size ■ Technology rapidly becomes outdated ■ Project execution ■ Potential healthcare budget cuts could reduce the number of ■ Management team in transitional phase governmental R&D projects ■ Net currency exposure of more than CHF50m subject to ■ Pricing pressure exerted by large pharmaceutical companies changes in USD and EUR ■ Large competitors with deep pockets for R&D
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 8.4 9.0 8.7 7.5 6.4 Current assets 275 323 351 397 599 EV/EBIT 9.7 10.6 10.3 8.7 7.4 Net fixed assets 13.7 17.0 14.4 15.8 21.2 EV/Inv. Capital 5.6 4.9 5.2 5.5 5.3 Goodwill 37.3 38.6 36.2 33.6 24.0 P/E 14.0 15.1 14.6 12.2 10.3 Total assets 339 390 411 458 662 Cash P/E 13.4 14.4 13.9 11.7 9.9 Sharehold. equit. 228 269 293 329 491 P/CF 12.7 13.2 13.1 11.2 9.6 Working capital 42.1 54.5 52.8 48.7 56.9 P/BV 2.9 2.5 2.3 2.1 1.4 Net debt -137 -162 -194 -235 -394
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 371 377 400 439 498 in sales 4.0 1.7 6.1 9.6 13.6 EBITDA 64.7 60.2 62.1 72.8 85.0 in EBITDA -5.7 -7.0 3.1 17.2 16.8 EBIT 56.0 51.3 52.6 62.4 73.2 in EBIT -6.0 -8.4 2.6 18.6 17.3 Net profits 46.9 44.9 46.6 55.6 65.8 in cash EPS -0.2 -7.1 3.8 18.9 18.1 Cash EPS (CHF) 4.72 4.38 4.55 5.41 6.39 Net debt/equity -60.1 -60.1 -66.4 -71.5 -80.3 Reported EPS (CHF) 4.50 4.18 4.33 5.17 6.12 FCF/net fin. results n.m. n.m. n.m. n.m. n.m. DPS (CHF) 1.00 1.25 1.30 1.35 4.35 Current ratio (X) 2.8 3.0 3.3 3.4 3.9
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 58.3 53.5 55.0 65.0 76.2 Gross margin 50.2 50.9 50.7 49.9 48.8 Taxes -11.1 -8.6 -10.0 -12.2 -14.4 EBITDA margin 17.5 16.0 15.5 16.6 17.1 NOPLAT 47.1 44.9 45.0 52.8 61.7 EBIT margin 15.1 13.6 13.2 14.2 14.7 Depreciation 6.5 6.7 7.1 7.8 8.8 ROIC 41.8 43.3 41.8 51.9 61.1 CAPEX -8.2 -9.4 -8.0 -8.8 -11.8 Inv. cap. (CHF m) 96.3 111 104 99.0 103 in WC 9.4 -12.7 2.1 4.8 -2.7 Free cash flow 54.8 29.4 46.2 56.7 56.1
Made in Switzerland + | Helvea 229
Temenos Price: CHF15.6 BUY Target: CHF22.0 M&S
Stefan Gächter, CFA ([email protected]) – Tel. +41 (0)43 388 9262
Temenos develops core banking software for retail, private, universal and wholesale banks and is a global leader in the packaged-core banking software vendor market. The company’s flagship product is Temenos 24 (T24), mostly used by universal banks. In addition, Temenos also offers a front-office solution and products in the area of data warehousing that are closely integrated with T24, provides business intelligence software, etc. Recently, Temenos also entered the private banking/wealth management software market with the acquisition of Odyssey. CEO: Guy Dubois; CFO: David Arnott; Website: www.temenos.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Technology/Switzerland CHF32 Major shareholders 28 24 20 Shares outstanding (m) 72.72 EV/EBITDA (X) 16 Market cap. (USD m) 1,167 2011 27.1 12 Free float 100% 2012E 9.9 8 EBITDA/CAGR 2011-2014E 58.7% 2013E 8.1 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Temenos 12-mth tgt Absolute -12% 3% -48% Bloomberg TEMN SW Buy Acc. Neut. Red. N.R. Rel. to local -10% -3% -43% Reuters TEMN.S
News flow
■ December 2011: new medium-term targets: 10%-15% annual licence growth; adjusted EBIT margin +100-150bp p.a. ■ March 2012: Merger discussions with Misys terminated ■ April 2012: Q1 2012 results show signs of stabilisation, thus indicating in our opinion that earnings have troughed ■ Forthcoming event: 25 July 2012 – Q2 2012 results ■ Guidance & consensus: guidance for full-year 2012 calls for revenue growth of –5% to +6% and an adjusted EBIT margin of 19%-22%, consensus estimates available for EBIT are not meaningful and are notoriously unreliable as it is unclear whether brokers contribute reported or adjusted numbers
Investment case
Despite its full exposure to financials, Temenos continues to offer an attractive longer-term growth story as banks remain under pressure to reduce cost-income ratios and additional drivers like regulation will not allow banks to delay IT investments forever. While investors will most likely need more patience with Temenos, we think that earnings have troughed and that things can only get better from the perspective of momentum. Investors should also bear in mind that comparables will start to become more favourable especially during the second half of 2012. Lastly, Temenos remains a takeover target itself. On the back of this, we recently upgraded Temenos to BUY. Our price target of CHF22 is based on approximately 8X EV/maintenance sales for 2013.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
8%
27% 31% Europe MEA 42% n.a. 30%
APAC Americas
42% 20%
Software licensing Maintenance Services
230 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Expecting only flattish organic licence growth in 2012 as banks ■ NOPLAT to rise in 2012 thanks to fewer one-off restructuring continue to suffer from cyclical and structural headwinds costs versus 2011; however, NOPLAT will, to some degree, be ■ Partnerships (e.g. CapGemini) provide potential for further growth dented from 2012 onwards by the expected increase or ■ T24 ‘componentisation’ re-architecture could help to make normalisation of the tax rate deeper inroads into larger Tier-1/2 banks going forward ■ FCF positive again in 2012 if no large acquisitions are made
MARGINS INVESTED CAPITAL AND RETURNS
■ As the profitable maintenance business is growing as a ■ ROIC to climb in 2012 mainly on the assumption of higher percentage of group sales, EBIT margins are set to rise in the operating margins medium term ■ Invested capital expected to remain more or less stable in 2012, but it may rise further if additional bolt-on acquisitions are made in the medium- to -longer term
SWOT analysis STRENGTHS OPPORTUNITIES
■ Temenos is acknowledged as one of the two most important ■ The need to replace back-end banking systems that were third-party core-banking software vendors worldwide developed in-house is being driven mostly by cost, but also ■ Up-to-date products thanks to ongoing investments in R&D regulations and flexibility in new products ■ Large and expanding installed base for maintenance revenues ■ Consolidation in the banking-software industry; Temenos could ■ Financially strong, so Temenos can be trusted going forward act as a consolidator
WEAKNESSES THREATS
■ Market position in North America still weak, but strategic ■ Postponement of banks’ IT investments on account of continued agreements (e.g. with Cognizant for T24) could help geopolitical/economic/government debt/regulatory uncertainties ■ Relatively aggressive accounting/executive compensation ■ More aggressive entry of powerhouses like SAP and Oracle programmes ■ Integration of acquired businesses and changes in Services’ business model may continue to weigh on margins
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In USD m) 2010 2011 2012E 2013E 2014E EV/EBITDA 10.7 27.1 9.9 8.1 6.8 Current assets 491 455 534 679 841 EV/EBIT 16.4 n.m. 14.8 11.1 8.6 Net fixed assets 14.8 13.2 11.2 9.9 9.1 EV/Inv. Capital 1.7 1.8 1.7 1.7 1.7 Goodwill 298 298 298 298 298 P/E 16.4 n.m. 19.914.611.3 Total assets 984 955 996 1,103 1,228 Cash P/E 10.4 82.4 12.2 10.1 8.5 Sharehold. equit. 492 348 407 489 596 P/CF 6.7 10.0 13.9 8.1 6.7 Working capital 90.6 18.8 57.3 62.1 65.6 P/BV 2.3 3.3 2.9 2.5 2.1 Net debt 22.3 98.8 39.2 -78.5 -221
Income statement Growth rates & balance-sheet ratios (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 448 473 477 518 547 in sales 21.0 5.7 0.8 8.4 5.6 EBITDA 114 44.7 122 149 179 in EBITDA 2.9 -60.6 n.m. 21.8 19.9 EBIT 73.7 -2.0 81.6 109 140 in EBIT -8.2 n.m. n.m. 33.9 28.3 Net profits 61.6 -28.3 58.8 81.6 107 in cash EPS -4.4 -87.4 n.m. 21.0 18.6 Cash EPS (USD) 1.55 0.19 1.32 1.59 1.89 Net debt/equity 4.5 28.4 9.6 -16.1 -37.1 Reported EPS (USD) 0.98 -0.39 0.81 1.10 1.42 FCF/net fin. results n.m. 5.1 7.1 12.8 15.9 DPS (CHF) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 1.3 1.3 1.6 1.9 2.3
Cash flow statement Ratios, margins and returns (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 110 40.2 118 146 176 Gross margin 49.5 42.6 51.1 53.5 57.7 Taxes -0.4 -12.2 -12.9 -17.9 -23.5 EBITDA margin 25.4 9.4 25.6 28.8 32.7 NOPLAT 102 26.4 106 128 153 EBIT margin 16.5 -0.4 17.1 21.1 25.6 Depreciation 4.0 4.5 4.0 3.3 3.0 ROIC 15.8 3.8 15.0 17.6 20.9 CAPEX -2.1 -1.0 -1.9 -2.1 -2.2 Inv. cap. (USD m) 706 688 724 728 730 in WC 59.7 71.7 -38.4 -4.8 -3.5 Free cash flow -22.5 44.3 69.7 124 150
Made in Switzerland + | Helvea 231
The Swatch Group Price: CHF374.- ACCUMULATE Target: CHF480.- Large Caps
Michael Heider ([email protected]) – Tel. +41 (0)43 388 9255
Swatch Group is the world’s largest fully integrated watch and watch components manufacturer. Its group structure comprises three main divisions: Watches & Jewelry; Production (mechanical and quartz components and movements, and jewellery); Electronic Systems (mainly low-power ICs and low-frequency crystals). The range of finished watches encompasses 18 brands, covering the whole spectrum from prestige watches (Breguet or Blancpain), to the upper- (Omega), mid-range- (Rado, Longines), lower- (Tissot) and, finally, basic-priced watches (Swatch). CEO: Nick Hayek; CFO: Dr. Thierry Kenel; Website: www.swatchgroup.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Cyclical G. & S./Switzerland CHF478 Major shareholders Hayek Pool (41.6% of votes) 23.1%, Esther Grether 445 Group (7.2% of votes) 4.0% 412 379 Shares outstanding (m) 54.01 EV/EBITDA (X) 346 Market cap. (CHF m) 20,175 2011 9.2 313 Free float 73% 2012E 8.1 280 EBITDA/CAGR 2011-2014E 9.9% 2013E 7.3 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols The Swatch Group 12-mth tgt Absolute -9% 6% -12% Bloomberg UHR VX Buy Acc. Neut. Red. N.R. Rel. to local -7% -1% -3% Reuters UHR.VX
News flow
■ January 2012: gross sales for 2011 above CHF7bn, +22% y-o-y on constant-currency basis ■ February 2012: operating profits of CHF1.6bn (23.9% margin) for 2011 slightly short of market expectations ■ March 2012: CEO Nick Hayek commented at Baselworld that growth to end-February 2012 had been over 10% ■ April 2012: Swiss watch exports rose 17% in Q1 2012, showing ongoing strong demand for watches ■ Forthcoming event: 14 August 2012 – H1 2012 results ■ Guidance & consensus: group targeting 2012 sales close to CHF8bn although this is dependent on currencies; CHF10bn sales target in the medium term; consensus EBIT forecasts: CHF1.814bn (2012); CHF2.056bn (2013)
Investment case
Swatch Group has solid long-term growth potential thanks to its strong brand portfolio. Breguet has established itself as a prime brand in the prestige segment while Omega, the group’s main value driver, continues to make strong progress within its own (more accessibly priced) segment. The strength of both its brands and its distribution network (particularly in emerging markets, including China) is enabling Swatch Group to gain market share steadily. Management is working hard to lessen the impact of capacity constraints through continued investment in the production base. It will gradually stop supplying third parties over the next few years. Given its strong production set-up, we see the group as a winner in the luxury goods industry. The shares still look fairly moderately valued.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
100% Sales EBIT Sales EBIT 0.7%4.1%0.0% 80 15.4% 13% Switzerland 0.1% 18.3% 603.4%
40 Other Europe, Africa & ME 24% 55% 2020.2% 60.9% USA & Canada
0 76.8% 8% Asia Pacific -20 Watches & Jewelry Production Electronic Systems -40 CorporateWatches & Jewelry ProductionElimination Electronic Systems Corporate Elimination
232 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ 2012 set to be another record year, with double-digit growth ■ Track record for solid and stable generation of free cash flow achievable; all major markets growing ■ Capital spending/sales ratio to normalise after an increase in ■ Swiss franc and capacity constraints curbing growth 2011 to fund expansion of DOS network and production ■ Strength in China, strong push in USA – Omega store openings ■ Net working capital to rise on the back of DOS openings, higher ■ Strong performance expected for the Production division raw material prices; dented in 2011 by pre-buying of diamonds
MARGINS INVESTED CAPITAL AND RETURNS
■ Higher in-house use of movements provides margin potential ■ Investments in own distribution will continue, with Swatch Group ■ Continued opening of DOSs to contribute to higher margins looking to continue tapping into strong demand in Asia and ■ Strong Swiss franc putting some pressure on margins strengthening position in the USA ■ Production margins set to benefit from high utilisation rate ■ Attractive returns look sustainable, but have little room for improvement
SWOT analysis STRENGTHS OPPORTUNITIES
■ Global leader in watch industry: well balanced brand portfolio ■ Continued repositioning of Omega & Longines in brand hierarchy endowing it with powerful position in distribution channels ■ Ongoing build-up of sales base in China/other emerging markets ■ World’s largest manufacturer of mechanical watch ■ Breguet can still double production before hitting exclusivity limits movements/parts, with a near-monopoly in some segments ■ Possibility to strengthen position in the USA and Japan ■ Tight control over fixed costs ■ Potential to add brands at high end
WEAKNESSES THREATS
■ Weaker than Richemont in high-end segment ■ Strength of the Swiss franc an increasing headache ■ Marketing for some of the brands requires strengthening ■ Competition in mechanical movements market maturing ■ Below-average market share in the USA and Japan ■ Declining potential to raise prices? ■ Room to improve jewellery-watch segment ■ Electronic Systems division overly diversified
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 10.2 9.2 8.1 7.3 6.9 Current assets 6,235 7,096 8,023 9,223 10,434 EV/EBIT 11.8 10.5 9.2 8.2 7.9 Net fixed assets 1,488 1,665 1,843 1,992 2,141 EV/Inv. Capital 3.4 2.8 2.6 2.5 2.4 Goodwill 207 208 208 208 208 P/E 18.4 15.9 14.0 12.5 12.0 Total assets 8,614 9,805 10,923 12,285 13,655 Cash P/E 18.4 15.9 14.0 12.5 12.0 Sharehold. equit. 7,087 8,054 9,057 10,297 11,595 P/CF 15.2 13.4 12.0 10.7 10.2 Working capital 3,294 4,165 4,358 4,651 4,883 P/BV 2.8 2.5 2.2 2.0 1.7 Net debt -2,261 -2,078 -2,836 -3,677 -4,615
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 6,108 6,764 7,522 8,199 8,608 in sales 18.8 10.7 11.2 9.0 5.0 EBITDA 1,658 1,843 2,086 2,332 2,443 in EBITDA 47.6 11.2 13.2 11.8 4.7 EBIT 1,436 1,614 1,833 2,053 2,141 in EBIT 59.0 12.4 13.6 12.0 4.3 Net profits 1,074 1,269 1,438 1,609 1,677 in cash EPS 40.1 15.8 13.3 11.9 4.2 Cash EPS (CHF) 20.3 23.5 26.6 29.8 31.0 Net debt/equity -31.9 -25.8 -31.3 -35.7 -39.8 Reported EPS (CHF) 20.3 23.5 26.6 29.8 31.0 FCF/net fin. results 24.6 29.1 n.m. n.m. n.m. DPS (CHF) 5.00 5.75 6.00 6.60 7.00 Current ratio (X) 6.5 6.4 6.7 7.1 7.7
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 1,452 1,633 1,850 2,072 2,161 Gross margin 79.1 79.0 77.0 76.9 76.9 Taxes -330 -340 -398 -445 -465 EBITDA margin 27.1 27.2 27.7 28.4 28.4 NOPLAT 1,122 1,293 1,452 1,626 1,697 EBIT margin 23.5 23.9 24.4 25.0 24.9 Depreciation 206 210 236 261 282 ROIC 22.6 23.3 23.2 24.6 24.3 CAPEX -325 -530 -444 -441 -462 Inv. cap. (CHF m) 4,966 6,119 6,394 6,808 7,177 in WC -63.0 -855 -193 -292 -233 Free cash flow 936 87.4 1,051 1,154 1,284
Made in Switzerland + | Helvea 233
UBS Price: CHF11.0 NEUTRAL Target: CHF13.5 Large Caps
Tim Dawson ([email protected]) – Tel. +41 (0)22 354 9169
UBS still has the world’s largest wealth-management business as well as considerable strength in asset management and investment banking. After a series of difficulties in its Investment Banking and Wealth Management divisions, the bank’s then new CEO Sergio Ermotti unveiled at the 2011 Investor Day a new updated strategy aimed at reducing risk, enhancing capital ratios and improving profitability.
CEO: Sergio Ermotti; CFO: Tom Naratil; Website: www.ubs.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Banks/Switzerland CHF22 Major shareholders GIC 10.0%, Capital 4.4% 20 18 16 14 Shares outstanding (m) 3,793 Cash P/E (X) 12 Market cap. 41,537 2011 9.5 (CHF m) 10 Free float 100% 2012E 7.9 8 Op. profits/CAGR 2011A-2014E 15.2% 2013E 6.8 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols UBS 12-mth tgt Absolute -13% -2% -33% Bloomberg UBSN VX Buy Acc. Neut. Red. N.R. Rel. to local -11% -8% -26% Reuters UBSN.VX
News flow
■ November 2011: Investor Day at which management outlined new targets for reduction in risk-weighted assets, capital adequacy and profitability; UBS reaffirmed its commitment to the integrated bank model ■ February 2012: solid full-year 2011 figures, but a cautious outlook because of uncertain economic conditions ■ May 2012: Q1 2012 results showed underlying programme on track although headline performance was distorted by own-credit effects ■ Forthcoming events: 31 July 2011 – Q2/H1 2012 results ■ Guidance & consensus: no guidance; consensus net profit estimates: CHF5.0bn for 2012; CHF5.97bn for 2013
Investment case
Although these are still relatively early days, the early signs are encouraging that the UBS restructuring programme, initiated by Sergio Ermotti, is beginning to deliver results in terms of reduction in risk-weighted assets, the building of capital ratios and improvements in operating profitability. Over time, the lowered risk profile of the Investment Bank should help to remove excessive volatility, but the group’s profits will nevertheless always be subject to the vagaries of economic market conditions. We believe the group remains committed to the integrated bank model. Our valuation assumes that UBS will broadly achieve its targets (as we expect), and we see significant upside on a longer-term view. In the near term though, market movements will dominate.
Divisional breakdown (2011) Breakdown of AuM (2011)
60% Total income OperatingTotal Profits income 0.3% 6.1%Operating Profits 50 18.7% 8.1% 27.2% 40 4.9% 35% 30 43.1% 6.9% 20 Private banking Other
10 14.5% 65% 32.8% 0 30.9% 6.4% -10 Wealth Mgmt & Swiss Bank Business banking Switzerl. Wealth Mgmt & Business Global Asset Investment Bank Wealth Mgmt Corporate SwissGlobal Bank Asset Mgmtbanking Mgmt InvestmentAmericas Bank Center Wealth Mgmt Switzerl.Americas Corporate Center
234 Helvea SA | Made in Switzerland +
Value drivers PROFITS BALANCE SHEET AND AUM
■ 2012 results distorted by own-credit effects, but we expect solid ■ Basel III risk-weighted assets declined by CHF30bn in Q1 2012 progress in underlying results and are on track to better the CHF340bn year-end target ■ We do not expect the legacy portfolio to deliver unpleasant ■ Basel III common equity Tier 1 (CET1) ratio 11.8% (7.5% on a surprises to earnings or capital fully applied basis); group’s target remains 13% ■ Market conditions nevertheless remain challenging – a dramatic take-off in underlying profits, therefore, looks to be something for further in the future
SWOT analysis STRENGTHS OPPORTUNITIES
■ Well established global platform in wealth management ■ Return to strong net new money in wealth management through ■ Leading market share in Swiss retail banking winning back the confidence of clients by returning to robust ■ Investment bank has leading positions in equities and in profitability over a period advisory & underwriting businesses ■ Transform the investment bank to reduce risk-weighted assets and potential volatility in future years
WEAKNESSES THREATS
■ Sub-prime crisis damaged UBS’s reputation for competence ■ Turmoil with investment-bank management and prudence ■ The strong equities franchise may suffer from downsizing in its ■ Fixed-income franchise in investment bank is weak compared fixed-income business to competitors ■ UBS may be unable to win back confidence of clients after the ■ The handing-over of 4,500 names to settle the US tax case sub-prime crisis and the US tax case has damaged UBS’s reputation for taking care of its customers
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E Cap/AuM (%) 1.9 1.9 1.8 1.7 1.6 Total assets (bn) 1,422.77 1,372.77 1,322.77 1,272.77 1,222.77 SOTP/share (CHF) 16.0 Sharehold. equ. 46,820 53,551 58,323 61,456 64,836 P/SOTP (%) 68.6 Intangibles 9,822 9,695 9,695 9,695 9,695 P/E 5.5 9.8 8.0 6.9 6.7 Tangible equity 36,998 43,856 48,628 51,761 55,141 Cash P/E (ful. diluted) 5.5 9.6 8.0 6.9 6.6 Tier 1 ratio (%) 17.8 19.7 17.9 19.2 20.6 P/BV 0.9 0.8 0.7 0.7 0.6 BV/share (CHF) 12.3 14.3 15.6 16.4 17.3 Dividend yield (%) 0.0 0.9 0.9 6.8 6.8 Tang. BV/s. (CHF) 9.8 11.7 13.0 13.8 14.7
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Revenues 32,061 27,976 28,713 30,031 31,261 in revenues 31.2 -12.7 2.6 4.6 4.1 Expenses -24,542 -22,440 -21,472 -21,638 -22,250 in expenses -2.5 -8.6 -4.3 0.8 2.8 LLP -67.0 -84.0 -275 -375 -675 in LLP -96.3 25.4 227 36.4 80.0 Net profits 7,529 4,232 5,149 5,964 6,210 in net profits n.m. -43.8 21.7 15.8 4.1 Reported EPS (CHF) 1.98 1.12 1.36 1.58 1.65 in cash EPS n.m. -42.8 20.7 15.5 4.1 Cash EPS (CHF/ f.d.) 1.99 1.14 1.37 1.58 1.65 in report. EPS n.m. -43.5 21.7 15.8 4.1 DPS (CHF) 0.00 0.10 0.10 0.75 0.75 in DPS n.a. n.m. 0.0 650 0.0
Asset under management Ratios, margins and returns (In CHF bn) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E AuM NII/total revenue 19.4 24.4 24.3 23.7 23.2 Total 2,152 2,167 2,296 2,438 2,585 Cost/income 76.5 80.2 74.8 72.1 71.2 Private banking 768 750 798 853 910 Pre-tax margin 23.2 19.5 24.3 26.7 26.7 NNM PB gr. marg. (bp) 92.7 101 95.3 97.7 97.7 Total -14.4 44.3 61.0 70.0 70.0 IB comp. ratio 53.7 76.0 50.0 49.7 48.9 Private banking -12.2 23.5 22.0 28.0 28.0 ROE 17.1 8.4 9.2 10.0 9.8 PB NNM growth -1.5% 3.1% 2.9% 3.5% 3.3% Cash ROE 17.4 8.7 9.4 10.1 10.0
Made in Switzerland + | Helvea 235
Unilever Price: EUR25.4 ACCUMULATE Target: EUR29.0 Large Caps
Andreas von Arx ([email protected]) – Tel. +41 (0)43 388 9257
The Dutch/UK dual-listed group is Europe’s third largest FMCG company, active in both food and home/personal care. Since Paul Polman’s arrival in 2009, Unilever’s strategy has seen a shift from mainly a profitability/restructuring orientation towards top-line growth with slight margin gains, helped by focusing mainly on its (faster-growing) Personal Care categories and its high emerging-market exposure (now 56% of sales). Its main brands are: Dove, Axe, Rexona, Sunsilk, Lux, Omo/Dirt is Good, Lipton, Heartbrand Ice Cream, Knorr, Hellmann’s, Becel and Blue Band. CEO: Paul Polman; CFO: Jean-Marc Huet; Website: www.unilever.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Food and Beverage/Netherlands EUR30 29 Major shareholders Foundation Unilever 74.0%, Treasury shares 8.3%, 28 Others 17.7% 27 26 25 24 Shares outstanding (m) 2,908 EV/EBITDA (X) 23 Market cap. (EUR m) 73,997 2011 11.9 22 21 Free float 18% 2012E 10.1 20 EBITDA/CAGR 2011-2014E 10.0% 2013E 9.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Unilever 12-mth tgt Absolute 2% 1% 12% Bloomberg UNA NA Buy Acc. Neut. Red. N.R. Rel. to local 14% 4% 35% Reuters Unc.AS
News flow
■ April 2012: Q1 2012 results ahead of expectations, with 8.4% organic growth (Helvea/consensus expectations: 6.4%), ahead of Danone (6.9%) and Nestlé (7.2%); business outlook reiterated ■ Forthcoming event: 26 July 2012 – Q2/H1 2012 results ■ Guidance & consensus: for 2012, Unilever pointed to expected market growth of 4%-5% and intends to beat this number (organic growth estimates: Helvea 5.8%; consensus 5.1%); management is guiding for only a ‘moderate’ increase in core operating profits (margin – Helvea: +20bp; consensus +30bp); consensus estimates for core operating profits stand at EUR6.94bn for 2012 (Helvea’s at EUR6.92bn)
Investment case
With 56% of sales in emerging markets, Unilever is the best option to play the most important growth driver in the fast-moving consumer goods (FMCG) sector. In our opinion, Unilever still has further medium-term transformation potential (more high-growth/high-margin Personal Care; ‘clearer choices’ on where to invest in categories, roll out into new geographies and sharper, larger innovations) that could (temporarily) boost figures more than at peer Nestlé. Looking at Q1 2012 figures, Unilever seems to be enjoying the best earnings momentum, as shown by its leading quarterly organic growth; driven by its strong management team, it seems increasingly able to (at least) keep on a par with Nestlé. Its relative valuation is roughly in line with peers Nestlé and P&G.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT 2% 18% 7% 30% 29% Europe 41% 38%
Americas 39%
33% 19% Asia/AMET/RUB 11% 33% Savoury, dressings and spreads Ice cream and beverages Personal care Home care and other Other operating income/expenses
236 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ We forecast organic growth of 5.8% for 2012, 5.3% for 2013 ■ Unilever has negative net working capital as percentage of sales and 5.3% for 2014 (+6.5% in 2011) (unlike Nestlé), helped by longer shelf-lives of its personal-care ■ We forecast acceleration in volume growth in quarters during products 2012 on phasing-out of price increase effects (driven by higher ■ Given acceleration in emerging markets, Unilever has a input costs) comparatively high(er) capital-spending level
MARGINS INVESTED CAPITAL AND RETURNS
■ Given continued input-cost impact in H1 2012, we only expect ■ FCF dented in 2010 and 2011 by acquisition costs of EUR3.9bn a slight increase in underlying trading profit margin of 10bp to and EUR3.5bn, respectively 15.0% for full-year 2012 ■ We are looking for an increase in ROIC on the back of volume ■ EBIT margin to be down 20bp, mainly on less positive one-off growth, operating leverage and higher NOPLAT items
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong diversified brand portfolio with No.1/No.2 leadership ■ Chance to close gap on leaders in personal care positions in most categories ■ Expansion into further emerging markets, leveraging existing ■ Highest emerging-market exposure: 56% of sales strong positions (adding new categories) ■ Excellent management team with strong communication skills ■ Ice cream franchise and chilled tea drinks leading in their categories – upside from additional push at Lipton
WEAKNESSES THREATS
■ Food (savoury, dressings and spreads) and Home Care (i.e. ■ Existing strong market-share positions to be challenged by laundry) seen as low-growth categories, leading to lower- competitors entering markets (like India and laundry) weighted category potential than peers ■ Food businesses rather ‘unhealthy’ and could come under ■ Most brands positioned in mass segment and, relative to pressure from society with regard to health issues such as Nestlé, lacks growth potential from ‘premiumisation’ in Europe obesity
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 12.4 11.9 10.1 9.5 9.0 Current assets 10,765 12,598 15,108 17,244 19,616 EV/EBIT 13.7 13.5 12.7 11.6 10.9 Net fixed assets 12,944 15,791 16,860 17,870 18,954 EV/Inv. Capital 3.9 3.5 3.4 3.3 3.2 Goodwill 13,143 14,896 14,896 14,896 14,896 P/E 16.9 16.9 15.9 14.4 13.4 Total assets 41,172 47,512 50,613 53,760 57,214 Cash P/E 13.7 13.8 12.8 11.7 11.0 Sharehold. equit. 14,485 14,293 16,415 18,934 21,729 P/CF 13.6 13.1 10.7 10.2 9.6 Working capital -1,790 -1,857 -2,023 -2,129 -2,241 P/BV 4.9 5.0 4.4 3.8 3.3 Net debt 7,218 10,234 8,537 6,922 5,099
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 44,262 46,467 50,568 53,223 56,017 in sales 11.1 5.0 8.8 5.3 5.3 EBITDA 7,024 7,318 8,666 9,182 9,728 in EBITDA 16.7 4.2 18.4 6.0 6.0 EBIT 6,339 6,433 6,870 7,496 7,973 in EBIT 26.3 1.5 6.8 9.1 6.4 Net profits 4,244 4,252 4,515 4,984 5,329 in cash EPS 13.7 -0.3 7.6 8.9 6.3 Cash EPS (EUR) 1.86 1.85 1.99 2.17 2.30 Net debt/equity 49.8 71.6 52.0 36.6 23.5 Reported EPS (EUR) 1.51 1.51 1.60 1.77 1.89 FCF/net fin. results 5.0 2.6 11.0 11.7 12.4 DPS (EUR) 0.83 0.85 0.88 0.90 0.90 Current ratio (X) 0.9 0.7 0.8 0.9 1.0
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 6,031 6,289 7,586 8,064 8,571 Gross margin 41.5 39.9 48.5 48.5 48.5 Taxes -1,586 -1,671 -1,752 -1,911 -2,033 EBITDA margin 15.9 15.7 17.1 17.3 17.4 NOPLAT 4,445 4,618 5,834 6,152 6,538 EBIT margin 14.3 13.8 13.6 14.1 14.2 Depreciation 993 1,029 1,080 1,118 1,157 ROIC 21.1 19.5 23.0 23.6 24.2 CAPEX -1,701 -1,974 -2,149 -2,129 -2,241 Inv. cap. (EUR m) 22,296 25,155 25,580 26,484 27,456 in WC 384 67.0 166 106 112 Free cash flow 2,059 1,154 4,931 5,248 5,566
Made in Switzerland + | Helvea 237
Valora Price: CHF169.- NEUTRAL Target: CHF235.- M&S
Michael Heider ([email protected]) – Tel. +41 (0)43 388 9255
Valora is a retailing and trading company. Valora Retail, specialising in small formats in highly frequented locations, runs the dominant chain of kiosks in Germany, Luxembourg and Switzerland as well as a chain of convenience stores in Switzerland. The key product lines are tobacco, press, food, non-food & services. Valora Services is a press wholesaling business mainly serving the group’s own retail outlets. Valora Trade acts as distributor of branded food and non-food products in the fast-moving consumer goods sector mainly in northern and eastern European countries. CEO: Rolando Benedick; CFO: Dr. Lorenzo Trezzini; Website: www.valora.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Retail/Switzerland CHF400 Major shareholders UBS FM 5.2%, PICTET AM 5.1%, CS AM 5.0% 350 300 250 Shares outstanding (m) 2.80 EV/EBITDA (X) 200 Market cap. (CHF m) 473 2011 5.2 150 Free float 100% 2012E 5.0 100 EBITDA/CAGR 2011-2014E 4.1% 2013E 4.7 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Valora 12-mth tgt Absolute -28% -2% -40% Bloomberg VALN SW Buy Acc. Neut. Red. N.R. Rel. to local -26% -8% -34% Reuters VALN.S
News flow
■ November 2011: profit warning issued – now guiding for 14% lower EBIT of approx. CHF70m for full-year 2011 ■ January 2012: acquisition of leading German kiosk business making it Europe’s number two in proximity retail ■ March 2012: full-year 2011 results in line with November guidance but the guidance for 2012 is below expectations ■ Forthcoming event: 23 August 2012 – H1 2012 results ■ Guidance & consensus: management guiding for 2012 EBIT above 2011 levels; EBIT guidance for 2015 has been reduced to CHF110-130 (from CHF160-180m); consensus EBIT estimates stand at CHF77m for 2012 and at CHF83m for 2013
Investment case
Historically, Valora has failed to create value for investors. For a long time, the company pursued a diversification strategy that resulted in an unfocused business approach and unsustainable returns. This has changed with the introduction of a new top management team and the divestment of its last own production facilities in 2008. Today, Valora is a pure retailing and trading company, with a very light asset base and leading market positions. However, the recent profit warning dented management’s credibility and the targets for 2012 have been slashed; and even worse, the CEO has left the company. On the positive side, the stock no longer looks overly priced and the dividend policy has been reiterated. Still, some very challenging end markets leave few catalysts for the stock. Divisional breakdown (2011) Regional breakdown – Sales (2011)
70% Sales EBIT Sales EBIT 60 4.5% 8.8% 50 24.0% 40 19.1% 34% Switzerland
30 48.8% 52.1% 20
10 66% Other Europe, Africa & ME 0 19.4% 23.3%
-10
-20 Retail Services Trade Other & Eliminations Retail Services Trade Other & Eliminations
238 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Very limited organic growth potential as the company is active ■ Valora targets annual free cash flow after dividend of CHF40- in highly saturated or even declining markets 50m, with an annual dividend payment of CHF20-30m ■ At group level, we expect no organic growth ■ Although this target is unlikely to be reached, FCF generation ■ Acquisitions are set to add CHF1bn in external sales by 2015; remains high enough to support dividend payments first large acquisitions secured in 2012 ■ Little potential for NOPLAT going forward
MARGINS INVESTED CAPITAL AND RETURNS
■ The recent profit warning and lowered long-term EBIT targets ■ Invested capital was streamlined by divestments of are setbacks, very little organic margin potential underperforming businesses – today, Valora has industry-leading ■ Margin potential to come from cost measures (e.g. capital efficiency with turns over 4X outsourcing), attraction of new businesses to its logistics ■ ROIC to remain around 10% platform and consolidation of higher-margin businesses
SWOT analysis STRENGTHS OPPORTUNITIES
■ Dominant position in the Swiss, German and Luxembourg kiosk ■ Active consolidation of fragmented European kiosk markets with retailing & press distribution markets a strong focus on Germany where the company has just bought ■ Excellent locations with high levels of consumer traffic the leading kiosk chain (some 1,300 points of sale) ■ European leader in trading of fast-moving consumer goods ■ Active consolidation of fragmented food-broker niche markets ■ Low capex needs and high cash flow in the kiosks business ■ Roll-out of agency model in kiosks business to lift profitability
WEAKNESSES THREATS
■ Saturated markets only allow for limited organic growth ■ Main product categories of newspapers, magazines and ■ ‘Sandwich’ position in trade business limits profitability cigarettes are all declining structurally ■ High dependence of profits on single categories such as lottery ■ Advertisement ban for tobacco could hit profitability ■ Overall low level of profitability makes business susceptible to ■ Business model dependent on acquisitions and hence also on specific hiccoughs in operations or demand external decision-makers and market opportunities
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 4.9 5.2 5.0 4.7 4.6 Current assets 636 605 581 605 635 EV/EBIT 7.5 8.7 8.5 7.9 7.7 Net fixed assets 218 219 249 258 266 EV/Inv. Capital 0.9 0.9 0.7 0.8 0.8 Goodwill 125 154 214 214 214 P/E 7.3 8.3 8.8 8.2 8.0 Total assets 1,096 1,103 1,187 1,209 1,238 Cash P/E 7.6 8.3 8.8 8.2 8.0 Sharehold. equit. 474 458 481 508 536 P/CF 4.3 4.6 4.5 4.1 4.1 Working capital 125 117 134 132 133 P/BV 1.0 1.0 1.0 0.9 0.9 Net debt 20.2 36.0 135 105 76.5
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 2,878 2,818 2,882 2,849 2,858 in sales -0.7 -2.1 2.3 -1.1 0.3 EBITDA 125 117 121 131 132 in EBITDA 14.1 -6.6 3.6 7.9 1.0 EBIT 81.3 70.5 71.8 77.2 79.6 in EBIT 19.3 -13.3 1.9 7.4 3.1 Net profits 63.4 56.3 53.9 57.4 59.4 in cash EPS 18.0 -9.4 -4.8 6.3 3.5 Cash EPS (CHF) 22.3 20.2 19.3 20.5 21.2 Net debt/equity 4.3 7.9 28.1 20.8 14.3 Reported EPS (CHF) 23.0 20.4 19.3 20.5 21.2 FCF/net fin. results 1.1 19.1 n.m. 9.4 9.3 DPS (CHF) 11.5 11.5 11.5 11.5 11.5 Current ratio (X) 2.4 1.4 2.0 2.1 2.2
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 96.6 88.6 91.6 97.3 97.3 Gross margin 30.4 31.1 30.8 31.2 31.2 Taxes -16.2 -13.2 -15.6 -16.5 -16.5 EBITDA margin 4.4 4.2 4.2 4.6 4.6 NOPLAT 80.3 75.4 76.1 80.7 80.8 EBIT margin 2.8 2.5 2.5 2.7 2.8 Depreciation 28.8 28.4 29.6 33.6 34.8 ROIC 12.1 11.0 10.1 9.9 9.9 CAPEX -57.5 -55.1 -60.5 -51.3 -51.5 Inv. cap. (CHF m) 686 686 818 813 813 in WC -31.1 8.1 -16.6 1.5 -0.4 Free cash flow 7.8 66.4 -68.5 64.5 63.7
Made in Switzerland + | Helvea 239
Vetropack Price: CHF1,690.- BUY Target: CHF2,100.- M&S
Reto Amstalden ([email protected]) – Tel. +41 (0)43 388 9261
Vetropack is a leading player in the European glass packaging industry. The company’s main activity is to design tailor- made glass and manufacture glass containers for the food & beverages industry. Vetropack runs seven production hubs in Switzerland, Austria (two), the Czech Republic, Croatia, Slovakia and Ukraine. The decentralised set-up of the business structure reflects Vetropack’s clear-cut strategy geared towards expanding in Eastern Europe and pushing through an acquisition every four years or so (last acquisition in Ukraine in 2006). CEO: Claude R. Cornaz; CFO: David Zak; Website: www.vetropack.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Industrial G. & S./Switzerland 2,398CHF Major shareholders Cornaz family (79% of votes) 46.0% 2,215 2,032 1,849 Shares outstanding (m) 0.41 EV/EBITDA (X) 1,666 Market cap. (CHF m) 697 2011 5.0 1,483 Free float 54% 2012E 4.9 1,300 EBITDA/CAGR 2011-2014E 4.4% 2013E 4.5 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Vetropack 12-mth tgt Absolute -7% 5% -7% Bloomberg VET SW Buy Acc. Neut. Red. N.R. Rel. to local -5% -1% 3% Reuters VET.S
News flow
■ December 2011: Vetropack/Emhart Glass announce the commercialisation of process technology for tempering glass containers by late 2012; this revolutionary process allows the weight of glass bottles to be reduced ■ January 2012: raises its net income guidance for 2011 on FX impact less severe than initially projected ■ March 2012: H2 2011 results in line with expectations with outlook statement pointing to a flattish trend in 2012 ■ Forthcoming event: 29 August 2012 – H1 2012 results ■ Guidance & consensus: management guides for a slight sales increase and for continued high investments to weigh on margins; consensus EBIT estimates stand at CHF81.8m for 2012 and at CHF88.8m for 2013
Investment case
The outlook is positive due to ongoing contract negotiations, suggesting an increase in contract pricing and stable volume demand, leading to full capacity utilisation. However, we forecast only a flattish margin trend in 2012 as a result of Vetropack’s overhaul of two furnaces (versus one in 2011). The boost in manufacturing productivity should become fully visible thereafter, resulting in margin gains in 2013 and a significant jump in the FCF yield to 10%. A potential acquisition step in Central and Eastern Europe – which is overdue according to the company’s strategy – would come on top of that and would be an additional catalyst. To sum up, the stock has an attractive reward/risk profile and looks attractive to us: BUY.
Regional breakdown (2011) Regional breakdown – Sales (2011)
50% Sales EBIT Sales EBIT 2.1% 2.2% 15.4% 12.3% 2% 40 13.0% 13% 15% Switzerland Austria 30 14.9% Czech Republic 42.4% 18.3%20 18% Slovakia 32.0% 10 32% Croatia 14.7% Ukraine 6.5% 7% 0 Other 12.6% 4.8% 8.8% 13% -10 SwitzerlandSwitzerlandAustria AustriaCzech Czech RepublicSlovakiaSlovakia CroatiaCroatia UkraineUkraine OtherOther Republic
240 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Business conditions look robust despite cooling economy in ■ Capital spending to clearly exceed depreciation levels again in the EU, leading to full capacity utilisation in 2012 2012 given the investments for overhaul of the two furnaces ■ Contract pricing to be raised by 2% on input cost inflation and ■ We expect capital spending to fall back to maintenance level and demand for beer to be equal to depreciation in 2013, so FCF should jump towards ■ Another bolt-on acquisition in Eastern Europe overdue CHF70m (yield 10%)
MARGINS INVESTED CAPITAL AND RETURNS
■ Flattish EBIT margin trend in 2012 as a result of the overhaul of ■ Margin uptrend to drive ROIC expansion, with ROIC clearly 2 furnaces (versus 1 in 2011) exceeding the cost of capital ■ Boost in manufacturing productivity to become fully visible in ■ More efficient use of invested capital (e.g. through new forming 2013, reaching more than 15% (as % of net sales) machines and furnaces) to become fully visible in 2013
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong expertise in glass container production ■ Trend towards more promotional, non-reusable glass containers ■ Glass having lowest carbon footprint over the entire life-cycle ■ An acquisition in Eastern Europe would drive significant market compared to carbonated packaging types like PET and cans share gains in local market and synergies on the production front ■ Competitive locations of its seven production sites excellent ■ Commercialisation of tempered glass bottles (much lighter) in ■ High flexibility in production to meet customers’ needs 2013, potentially substituting PET in convenience markets
WEAKNESSES THREATS
■ Unsatisfactory profitability level at the Swiss plant to become a ■ Political risk in Eastern European countries: for instance, natural long-term issue given the strength of the Swiss franc gas sourcing in Ukraine and Croatia ■ Dependence on natural gas and oil price as well as on energy- ■ A country in Eastern Europe going bankrupt as a sovereign state intensive raw material ‘soda ash’ (e.g. Hungary) ■ High sensitivity of profits to under-utilisation of capacity ■ Capacity increases in the sector via ‘greenfield route’
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E EV/EBITDA 4.7 5.0 4.9 4.5 4.4 Current assets 315 345 362 424 481 EV/EBIT 7.6 8.0 7.7 7.1 6.9 Net fixed assets 378 384 412 415 425 EV/Inv. Capital 1.2 1.1 1.1 1.0 1.0 Goodwill 6.5 21.5 28.4 24.0 19.4 P/E 18.5 11.7 10.7 9.8 9.5 Total assets 715 766 818 879 941 Cash P/E 18.3 11.6 10.2 9.1 8.8 Sharehold. equit. 545 566 615 671 729 P/CF 5.7 6.2 6.2 5.7 5.6 Working capital 140 146 150 153 156 P/BV 1.3 1.2 1.1 1.0 1.0 Net debt -40.7 -33.9 -46.3 -102 -154
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 605 549 568 585 596 in sales -3.7 -9.2 3.4 3.0 2.0 EBITDA 138 129 132 143 146 in EBITDA -12.4 -6.8 2.8 7.8 2.7 EBIT 84.2 80.9 83.2 90.7 93.7 in EBIT -16.6 -3.9 2.8 9.0 3.3 Net profits 38.7 59.0 64.9 70.6 72.9 in cash EPS -50.3 57.3 14.0 11.9 3.1 Cash EPS (CHF) 92.4 145.4 165.8 185.7 191.4 Net debt/equity -7.5 -6.0 -7.5 -15.1 -21.1 Reported EPS (CHF) 91.2 144.0 158.3 172.4 177.8 FCF/net fin. results n.m. n.m. 15.5 25.1 24.3 DPS (CHF) 45.0 35.0 38.0 36.2 37.3 Current ratio (X) 3.0 2.5 2.6 2.9 3.3
Cash flow statement Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 84.7 81.5 86.3 96.1 99.3 Gross margin 81.0 84.5 82.5 82.5 82.5 Taxes -16.4 -16.5 -19.6 -21.2 -21.9 EBITDA margin 22.8 23.4 23.3 24.4 24.6 NOPLAT 68.3 65.0 66.7 74.9 77.4 EBIT margin 13.9 14.7 14.7 15.5 15.7 Depreciation 53.3 47.1 45.9 46.4 47.1 ROIC 11.7 11.7 11.3 12.2 12.4 CAPEX -52.6 -85.1 -83.8 -50.7 -57.7 Inv. cap. (CHF m) 541 569 611 619 632 in WC 22.2 -5.7 -3.7 -3.4 -2.6 Free cash flow 61.5 37.0 26.4 69.8 69.0
Made in Switzerland + | Helvea 241
Vontobel Price: CHF19.9 NEUTRAL Target: CHF23.5 M&S
Tim Dawson ([email protected]) – Tel. +41 (0)22 354 9169
Vontobel is a Zurich-based, partly family-owned private bank with significant investment banking operations based on its Swiss equity warrants business. The bank struck a co-operation deal with the Swiss Raiffeisen banking group under the terms of which it will undertake various securities operations for the group in return for being able to distribute Vontobel funds through its branches.
CEO: Zeno Staub; CFO: Martin Sieg Castagnola; Website: www.vontobel.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Banks/Switzerland CHF36 Major shareholders Shareholder pool 40.0%, Unlocked shares of 33 shareholder pool 14.8%, Raiffeisen Group 12.5% 30 27 Shares outstanding (m) 59.90 Cash P/E (X) 24 Market cap. (CHF m) 1,192 2011 11.1 21 Free float 33% 2012E 9.4 18 Op. profits/CAGR 2011A-2014E 12.6% 2013E 8.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Vontobel 12-mth tgt Absolute -14% -16% -40% Bloomberg VONN SW Buy Acc. Neut. Red. N.R. Rel. to local -12% -21% -33% Reuters VONN.S
News flow
■ February 2012: full-year 2011 results below expectations, dragged down by a weak performance at the Investment Banking division ■ March 2012: appointment of Georg Schubiger as new head of the Private Banking division ■ Forthcoming event: 27 July 2012 – H1 2012 results ■ Guidance & consensus: no guidance; consensus net profit estimates of CHF138m for 2012 and CHF165m for 2013
Investment case
Vontobel has enjoyed great success in its equity derivatives business in Switzerland, and investment banking now accounts for the bulk of the bank’s profits. In the longer term, we are concerned about increasing regulation of this business and the capital required to support it. As a consequence, the bank is trying to expand in different areas, but this could prove expensive, as the explosion in the cost/income ratio of its private banking business is showing. We maintain our NEUTRAL recommendation on the shares.
Divisional breakdown (2011) Breakdown of AuM (2011)
80% Operating income Pre-taxOperating profit income Pre-tax profit 70 5.4% 8.1% 14.9% 60 30.9% 50 16.6% 26.4% 35% 40 30 Private banking Other 20 65% 10
0 37.3% 60.4% -10 -20Private banking Investment banking Asset management Corporate centre Private banking Investment banking Asset management Corporate centre
242 Helvea SA | Made in Switzerland +
Value drivers PROFITS BALANCE SHEET AND AUM
■ We expect a continuation of the tough climate for private ■ Average AuM likely, despite acceptable forecast NNM of around banking due to client risk aversion and low interest rates, CHF4bn a year, to be up by only 7% in 2012, but to rise by over leading to low revenue growth in 2012; we assume some 8% in 2013 if better market performance materialises normalisation of market conditions in 2013 ■ Tier 1 ratio of 22% at end-December 2011 is strong, but the bank ■ We estimate that, despite the bank’s best efforts to diversify, is still small, with just CHF1.5bn in shareholders’ equity, so it investment banking will still account for almost 75% of group needs a high Tier 1 ratio given that it uses its balance sheet in its profits in 2012 and 2013 equity warrants business
SWOT analysis STRENGTHS OPPORTUNITIES
■ Strong franchises in Switzerland ■ Wealth management market is growing and the bank is being ■ Very high proportion of discretionary business more aggressive about expansion ■ Leading position in Swiss equity warrants ■ Further expand funds via distribution agreements ■ Small size of investment bank makes it very responsive and ■ Co-operation with Raiffeisen banking group flexible to changing investor requirements ■ Structured products in Germany ■ Raiffeisen as a large shareholder is a potential supporter of its ■ Bolt-on private banking acquisitions balance sheet
WEAKNESSES THREATS
■ Does not, perhaps, have the requisite critical mass as regards ■ Permanent, as opposed to cyclical, decline in Swiss equity balance-sheet strength if the bank were to run into difficulties warrants business ■ Highly exposed to Swiss equity warrants business and threat ■ Increased standardisation and transparency of equity warrants of larger banks competing more aggressively in this market business ■ Private banking business may be too small to have a ■ Higher capital required for its warrants business significant onshore presence in Europe
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E Cap/AuM (%) 1.5 1.5 1.3 1.2 1.2 Total assets (bn) 18.301 18.692 19.627 20.608 21.638 SOTP/share (CHF) 25.9 Sharehold. equ. 1,504 1,497 1,552 1,627 1,715 P/SOTP (%) 76.9 Intangibles 150 141 141 141 141 P/E 8.6 11.1 9.4 8.2 7.5 Tangible equity 1,354 1,356 1,411 1,486 1,575 Cash P/E (ful. diluted) 8.6 11.1 9.4 8.2 7.5 Tier 1 ratio (%) 21.8 21.8 21.7 21.8 22.1 P/BV 0.8 0.8 0.8 0.8 0.7 BV/share (CHF) 23.7 23.6 24.5 25.7 27.1 Dividend yield (%) 7.0 6.3 6.3 6.3 6.3 Tang. BV/s. (CHF) 21.3 21.4 22.3 23.4 24.8
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Revenues 830 766 799 859 896 in revenues 5.8 -7.8 4.3 7.6 4.3 Expenses -650 -612 -624 -659 -680 in expenses 4.8 -5.9 1.9 5.6 3.1 LLP -6.8 -6.6 -6.5 -6.5 -6.5 in LLP -45.6 -2.9 -1.5 0.0 0.0 Net profits 148 114 135 155 168 in net profits 6.9 -23.1 18.3 15.2 8.3 Reported EPS (CHF) 2.32 1.79 2.11 2.44 2.64 in cash EPS 6.9 -23.1 18.3 15.2 8.3 Cash EPS (CHF/ f.d.) 2.32 1.79 2.11 2.44 2.64 in report. EPS 6.9 -23.1 18.3 15.2 8.3 DPS (CHF) 1.40 1.25 1.25 1.25 1.25 in DPS 0.0 -10.7 0.0 0.0 0.0
Asset under management Ratios, margins and returns (In CHF bn) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E AuM NII/total revenue 6.4 7.9 7.5 7.0 6.7 Total 78.6 82.2 90.0 96.4 103 Cost/income 78.3 80.0 78.1 76.7 75.9 Private banking 29.6 28.5 30.4 32.3 34.2 Pre-tax margin 20.9 19.2 21.1 22.5 23.4 NNM PB gr. marg. (bp) 83.0 81.4 82.0 82.0 82.0 Total 5.4 7.7 4.0 4.0 4.0 IB comp. ratio n.a. n.a. n.a. n.a. n.a. Private banking 1.2 1.4 1.0 1.0 1.0 ROE 9.9 7.6 8.8 9.8 10.0 PB NNM growth 4.0% 4.7% 3.5% 3.3% 3.1% Cash ROE 9.9 7.6 8.8 9.8 10.0
Made in Switzerland + | Helvea 243
VZ Holding Price: CHF93.3 ACCUMULATE Target: CHF121.- M&S
Tim Dawson ([email protected]) – Tel. +41 (0)22 354 9169
Founded in 1993, VZ Holding was floated on the market on 23 March 2007. The company is an independent Swiss financial services provider specialising primarily in the fields of retirement consultancy, integrated wealth management for its consulting clients, as well as corporate insurance and pension fund management solutions. The company offers its retirement consulting and wealth management services to clients in Switzerland and Germany.
CEO: Matthias Reinhart; CFO: Philipp Marti; Website: www.vermoegenszentrum.ch (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
CHF Sector/Country Banks/Switzerland 146 Major shareholders M Reinhart 60.9%, Fidelity 5.1%, VZ Management and 135 employees 6.8%, Migros 4.2% 124 113 Shares outstanding (m) 8.00 Cash P/E (X) 102 Market cap. (CHF m) 746 2011 14.4 91 Free float 33% 2012E 13.9 80 Op. profits/CAGR 2011A-2014E 15.7% 2013E 11.3 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols VZ Holding 12-mth tgt Absolute -6% -1% -29% Bloomberg VZN SW Buy Acc. Neut. Red. N.R. Rel. to local -4% -7% -22% Reuters VZN.S
News flow
■ March 2012: full-year 2011 results held up relatively well in the face of very unfavourable market conditions. Cautiously optimistic outlook for 2012 ■ Forthcoming event: 6 March 2012 – full-year 2012 results ■ Guidance & consensus: 2012 guidance only for operating expenses +10% at this stage, H1 revenue growth expected to be ‘relatively modest’; consensus forecasts for net profits stand at CHF55m for 2012 and at CHF66m for 2013
Investment case
VZ Holding’s business model is based on offering retirement consultancy to homeowners in the 55-65 age bracket. The objective is that consulting clients ultimately move their assets to VZ Holding. Consultancy services (15% of revenues) act as the ‘feeder’ for the wealth management business (85% of the revenues). VZ Holding has a very strong brand in Switzerland, and the group is now building up a business in Germany based on the same business model. Although the current market environment is generating a setback in near-term profit growth, we saw in 2009-2010 how quickly this can rebound. Liquidity in the shares can be low, so investors should take a long-term view. We continue to recommend long-term investors to ACCUMULATE positions in this stock.
Divisional breakdown (2011) Breakdown of AuM (2011)
Operating income EBITDA
9% 4% 3%
Asset Management - private client
Insurance prem. vol. - corp. client 91% 96% 97%
Private Client Corporate Client
244 Helvea SA | Made in Switzerland +
Value drivers PROFITS BALANCE SHEET AND AUM
■ The uncertain economic and market environment is causing ■ Growth in AuM will depend on how markets fare: in 2010, we saw clients to delay making major financial decisions how a market recovery can rapidly generate a significant inflow of ■ Our 2012 estimates assume some normalisation of markets assets as previously consulted clients act on proposals and hence a return to growth; if markets recover, there could ■ Our 2012 estimates assume some normalisation of the be more substantial growth as a result of ‘catch-up’ environment, but no dramatic recovery ■ We expect tight expense control to support or even widen profit margins in 2012
SWOT analysis STRENGTHS OPPORTUNITIES
■ Unique business model as retirement specialist in Switzerland ■ Replication of business model in other countries ■ Strongly increasing brand awareness ■ Increasing demand for retirement consultancy services on the ■ Unique generation of growth in wealth management inflows via back of favourable population trends and rising pension assets of consulting services those coming up to retirement ■ Attractive cost structure in wealth management ■ Financial commitment of founder and main shareholder
WEAKNESSES THREATS
■ Small free float ■ Higher growth in costs than in revenues if new clients become ■ Growth limited by the ability to recruit, train and retain high- harder to attract calibre consultants ■ Claimed independence on product choice could be questioned ■ Business development sensitive to financial market with the launch of VZ Depotbank developments ■ Replication of model based on retirement consulting in different cultural settings could prove problematic ■ Competition from new market entrants copying model
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In CHF m) 2010 2011 2012E 2013E 2014E Cap/AuM (%) 9.3 8.6 7.7 6.7 5.9 Total assets (bn) 0.840 1.059 1.143 1.234 1.334 SOTP/share (CHF) 121 Sharehold. equ. 168 201 235 278 328 P/SOTP (%) 77.3 Intangibles 1.5 2.1 2.2 2.3 2.4 P/E 14.9 14.4 13.9 11.3 9.4 Tangible equity 166 199 233 275 326 Cash P/E (ful. diluted) 14.9 14.4 13.9 11.3 9.4 BV/share (CHF) 21.2 25.4 29.8 35.2 41.6 P/BV 4.4 3.7 3.1 2.7 2.2 Tang. BV/s. (CHF) 21.1 25.2 29.5 34.9 41.3 Dividend yield (%) 2.5 2.5 3.0 3.6 4.7
Income statement Growth rates & balance-sheet ratios (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Revenues (bn) 0.133 0.143 0.154 0.177 0.202 in revenues 20.7 8.0 7.2 15.0 14.0 Expenses -71.5 -80.4 -87.4 -95.3 -104 in expenses 12.4 12.4 8.8 9.0 9.1 Net profits 49.3 51.0 52.9 65.1 78.0 in net profits 31.2 3.4 3.7 23.1 19.8 Reported EPS (CHF) 6.25 6.46 6.70 8.25 9.88 in cash EPS 31.2 3.4 3.7 23.1 19.8 Cash EPS (CHF/ f.d.) 6.25 6.46 6.70 8.25 9.88 in report. EPS 31.2 3.4 3.7 23.1 19.8 DPS (CHF) 2.30 2.30 2.80 3.40 4.40 in DPS 35.3 0.0 21.7 21.4 29.4
Asset under management Ratios, margins and returns (In CHF m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E AuM NII/total revenue n.a. n.a. n.a. n.a. n.a. Private Client 7,758 8,432 9,382 10,830 12,446 Cost/income 52.0 54.0 54.9 52.1 50.0 Corporate Client 266 276 290 290 290 Pre-tax margin n.a. n.a. n.a. n.a. n.a. PB gr. marg. (bp) 0.0 0.0 0.0 0.0 0.0 ROE 32.8 27.7 24.3 25.4 25.7 Cash ROE 32.8 27.7 24.3 25.4 25.7
Made in Switzerland + | Helvea 245
William Demant Price: DKK528.- NEUTRAL Target: DKK474.- M&S
Simon Goetschmann ([email protected]) – Tel. +41 (0)43 388 9264
Founded in 1904 by Hans Demant whose wife suffered from hearing loss, Oticon became the first hearing-instrument agent and manufacturer in the world. 108 years later, the William Demant Holding Group is still the leading developer, manufacturer and distributor of products and equipment for better hearing. The group focuses on three business activities: Hearing Devices, its ‘core’ business division; Diagnostic Instruments; Personal Communication. Today, we regard William Demant’s competitive positioning as probably the strongest in the industry. CEO: Niels Jacobsen; CFO: Stefan Ingildsen; Website: www.demant.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Healthcare/Denmark DKK558 Major shareholders Oticon Foundation 59.0%, Fideility 10.0%, Marathon AM 525 5.0% 492 459 Shares outstanding (m) 57.11 EV/EBITDA (X) 426 Market cap. (DKK m) 30,154 2011 17.0 393 Free float 40% 2012E 15.1 360 EBITDA/CAGR 2011-2014E 9.4% 2013E 14.0 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols William Demant 12-mth tgt Absolute 2% 15% 8% Bloomberg WDH DC Buy Acc. Neut. Red. N.R. Rel. to local 12% 19% 21% Reuters WDH.CO
News flow
■ February 2012: full-year 2011 consolidated revenues totalled DKK8.041bn, an increase of 17%, with organic growth accounting for 9% (8% in Hearing Devices); EBIT reached DKK1.709bn (21.4% EBIT margin) ■ May 2012: strong growth and market share gains in Q1 2012; full-year guidance reiterated ■ Forthcoming events: 16 August 2012 – H1 2012 results; 7 November 2012: Q3 2012 update ■ Guidance & consensus: guiding for consolidated sales to grow by 5%-9% in 2012 (consensus: +9.1%), with acquisitions estimated to account for 1-3%pts and a slight positive currency effect – EBIT to rise by much the same as in 2011; consensus EBIT estimates: DKK1.959bn for 2012 (22.3%) and DKK2.189bn for 2013 (23.0%)
Investment case
Favourable demographics, the growing prevalence of hearing loss and still shallow penetration rates are likely to continue supporting revenue growth of 3%-4% p.a. in the hearing-aid market. William Demant is likely to outgrow the market, based on its successful multibrand/multichannel strategy, fast-growing bone-anchored hearing systems and innovative products (e.g. Oticon Rise 2 portfolio, with successful mini-behind-the-ear devices and Intiga family). Moreover, we expect the well-run company to seize cross-selling opportunities resulting from its Diagnostic Instruments division. Capitalising on these growth prospects, the EBIT margin could bounce back towards 23%. However, William Demant’s valuation already appears to be handsomely factoring in a blue-sky scenario.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
3% 4% 9% 7% Europe 10% North America 41% n.a. Pacific Rim
Asia
88% 38% Other countries
Hearing Devices Diagnostic Instruments Personal Communication
246 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Market for hearing aids proved resilient in the economic ■ Sales and margin gains in 2012 to lift NOPLAT significantly downturn: 3%-4% unit growth projected, but ASPs set to fall ■ Operating cash flow to record stable growth, but adversely ■ William Demant to exceed market growth by 3%pts organically influenced by expected increase in net working capital thanks to strong product portfolio and Oticon Medical ■ FCF to grow by >30% on the back of limited capital-spending ■ Currency tailwinds needs and no larger planned acquisitions
MARGINS INVESTED CAPITAL AND RETURNS
■ EBIT margin to expand towards 23% on the back of operating ■ ROIC comfortably above 24% leverage and Oticon Medical, underpinned by currency impact ■ Ongoing share buy-back programme, estimated at ■ R&D and marketing spend on hearing implants looks quite low DKK600m/year, equal to a payout ratio of >40% compared to competitor Cochlear’s expenditure
SWOT analysis STRENGTHS OPPORTUNITIES
■ Joint No.1 together with Sonova in hearing-aid market and No.1 ■ Bone-anchored hearing system and Oticon RISE 2 portfolio in diagnostic instruments ■ Bernafon mid-to-low-range offering ■ Successful multibrand/multichannel strategy, with innovative ■ Cross-selling potential between diagnostic instruments, hearing and broad product portfolio implants and traditional hearing aids ■ Management’s long and proven track record ■ New product/platform launches
WEAKNESSES THREATS
■ Declining demand for assistive listening devices ■ Increased retail consolidation and re-emerging competitors in the ■ Footprint in emerging markets field could cause some margin pressure ■ Limited free float due to 55%-60% stake owned by Oticon ■ Slowing GDP momentum could have a negative impact on Foundation product and margin mix, with shift towards lower-priced products ■ Regulatory risks, particularly changes in reimbursement schemes
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In DKK m) 2010 2011 2012E 2013E 2014E EV/EBITDA 19.6 17.0 15.114.013.0 Current assets 3,069 3,362 3,731 4,250 4,962 EV/EBIT 22.7 19.0 16.615.314.2 Net fixed assets 1,110 1,276 1,443 1,611 1,809 EV/Inv. Capital 6.3 5.6 5.2 5.0 4.7 Goodwill 1,754 2,055 2,040 2,025 2,010 P/E 31.2 25.6 21.519.317.6 Total assets 6,794 7,646 8,184 8,881 9,803 Cash P/E 30.7 25.3 21.219.217.4 Sharehold. equit. 2,451 3,300 3,873 4,500 5,352 P/CF 22.7 20.0 17.916.615.5 Working capital 1,407 1,542 1,758 1,897 2,054 P/BV 12.6 9.3 7.8 6.6 5.4 Net debt 2,496 2,341 2,183 1,850 1,340
Income statement Growth rates & balance-sheet ratios (In DKK m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 6,892 8,041 8,822 9,448 10,065 in sales 20.9 16.7 9.7 7.1 6.5 EBITDA 1,654 1,911 2,156 2,324 2,503 in EBITDA 23.3 15.5 12.8 7.8 7.7 EBIT 1,430 1,709 1,958 2,117 2,286 in EBIT 24.4 19.5 14.6 8.1 8.0 Net profits 989 1,199 1,405 1,528 1,655 in cash EPS 25.0 21.2 19.3 10.9 10.1 Cash EPS (DKK) 17.2 20.8 24.9 27.6 30.3 Net debt/equity 102 70.9 56.4 41.1 25.0 Reported EPS (DKK) 16.9 20.6 24.6 27.3 30.1 FCF/net fin. results n.m. 7.1 10.3 13.3 14.3 DPS (DKK) 0.00 0.00 0.00 0.00 0.00 Current ratio (X) 1.1 1.2 1.3 1.5 1.7
Cash flow statement Ratios, margins and returns (In DKK m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 1,445 1,724 1,973 2,132 2,301 Gross margin 72.0 71.8 72.3 72.2 71.9 Taxes -326 -407 -468 -509 -552 EBITDA margin 24.0 23.8 24.4 24.6 24.9 NOPLAT 1,119 1,317 1,505 1,623 1,750 EBIT margin 20.7 21.3 22.2 22.4 22.7 Depreciation 209 187 183 192 202 ROIC 26.3 24.0 25.0 25.5 26.1 CAPEX -251 -377 -350 -360 -400 Inv. cap. (DKK m) 5,132 5,826 6,211 6,528 6,895 in WC -429 -68.0 -216 -139 -157 Free cash flow -158 729 872 1,066 1,145
Made in Switzerland + | Helvea 247
Zehnder Price: CHF62.8 BUY Target: CHF80.0 M&S
Patrick Appenzeller ([email protected]) – Tel. +41 (0)43 388 9267
Zehnder manufactures a variety of radiators, producing made-to-measure radiators in the premium segment, such as standardised designer bathroom radiators, custom-made steel radiators and electric radiators for indoor heating, as well as radiant heating and cooling. In the wake of a string of recent acquisitions, Zehnder is also the leading supplier of controlled ventilation systems and supplies ventilation components. Zehnder is mainly active in Europe, but it does have operations in the USA and China. CEO: Hans-Peter Zehnder; CFO: Dominik Berchtold; Website: www.zehndergroup.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Construction/Switzerland CHF 76 Major shareholders Zehnder families and affiliates 16.9%, Alecta 6.2%, 70 Bestinver 6.0%, Blackrock 5.0%, Others 66.0% 64 58 Shares outstanding (m) 11.74 EV/EBITDA (X) 52 Market cap. (EUR m) 614 2011 8.5 46 Free float 66% 2012E 7.4 40 EBITDA/CAGR 2011-2014E 16.1% 2013E 6.2 05/11 07/11 09/11 11/11 01/12 03/12 05/12 Share perform. 3m 6m 12m Symbols Zehnder 12-mth tgt Absolute 4% 26% -6% Bloomberg ZEH SW Buy Acc. Neut. Red. N.R. Rel. to local 6% 18% 4% Reuters ZEH.S
News flow
■ August 2011: H1 2011 results were slightly above our expectations whereas net profits were lower ■ December 2011: all minority interests (49%) in Turkish radiator manufacturer acquired (51% stake already held) ■ March 2012: new record profits, high capex, cautiously optimistic for 2012, huge potential by 2020 ■ Forthcoming event: 17 August 2012 – H1 2012 results ■ Guidance & consensus: Zehnder expects slightly higher sales in the radiator segment and strong growth in sales in the ventilation business with both segments projected to capture further gains in market share; consensus EBIT estimates stand at EUR59m for 2012 and at EUR70m for 2013
Investment case
We remain positive on Zehnder’s prospects and believe the company’s growth and margin potential remains high, supported by a positive outlook in Zehnder’s key markets, especially in new residential construction in Germany, by stricter regulations in Europe to make buildings more efficient as well as by some of Zehnder’s recent promising innovations. At the same time, we reckon that the company’s growth potential is still not fully reflected in Zehnder’s share price despite the strong performance seen over the past two years. Within our coverage of construction suppliers, we believe Zehnder is the company with the highest growth potential as well as some of the highest margin upside potential in the coming 5 to 10 years. Still Zehnder’s valuation is at the low end of the sector.
Divisional breakdown (2011) Regional breakdown – Sales (2011)
Sales EBIT
5% 5%
32%
n.a. Europe USA China
68%
90%
Radiators Ventilation
248 Helvea SA | Made in Switzerland +
Value drivers TOP LINE CASH FLOWS/NOPLAT
■ Mixed outlook for new residential construction in Europe for ■ Free cash flow should rise despite ongoing capital spending in 2012-13; forecasts for Switzerland & Germany remain positive 2012 and 2013 to capture growth potential at both divisions ■ Revival of Radiator also thanks to innovative new products ■ Net cash position should expand further ■ For Comfort Ventilation, we expect medium-term growth of ■ Ongoing good free cash flow allows scope for medium-sized 12% p.a. acquisitions and high dividend pay-out ratio
MARGINS INVESTED CAPITAL AND RETURNS
■ Zehnder’s long-term target is an EBIT margin above 10% ■ Still above-average returns for a radiator manufacturer ■ If the initiatives implemented recently are successful, we would ■ ROIC should continue to rise in 2012 and 2013 on the back of not rule out the EBIT margin significantly topping the 10%- increased margins mark within a few years; we would even not exclude EBIT ■ Ongoing investment in expansion, especially for Comfort margins of around 15% by 2015 Ventilation and modernisation
SWOT analysis STRENGTHS OPPORTUNITIES
■ Leading manufacturer of premium radiators (made-to-measure) ■ Above-average growth for bathroom radiators and radiant heaters ■ Focus on radiator manufacturing and economies of scale ■ Potential rebound in radiators lifted by better insulated houses ■ Strong position in growing Comfort Ventilation business ■ Double-digit growth for Comfort Ventilation, supported by low- ■ Lean production and low-cost production in Poland (mass) energy concepts such as Minergie in Switzerland ■ Own distribution network lessens dependence on wholesalers ■ Particularly high potential for Comfort Ventilation in France
WEAKNESSES THREATS
■ Still high exposure to radiators in Western Europe, especially to ■ Double dip in European residential construction markets the French and German construction markets ■ Renovation activities affected by high unemployment, low ■ Production facilities in France where flexibility for adjusting the consumer confidence and reluctance to fund major projects size of the workforce is poor ■ Deepening penetration for underfloor heating; ongoing price ■ Dual shareholder structure and low share liquidity competition; higher steel prices and supply shortages
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In EUR m) 2010 2011 2012E 2013E 2014E EV/EBITDA 8.6 8.5 7.4 6.2 5.5 Current assets 237 246 249 278 325 EV/EBIT 11.7 11.5 9.8 8.1 7.2 Net fixed assets 134 152 187 205 212 EV/Inv. Capital 2.0 1.8 1.6 1.5 1.4 Goodwill 0.0 0.0 0.0 0.0 0.0 P/E 16.4 15.3 13.5 11.1 9.7 Total assets 379 406 444 491 544 Cash P/E 16.4 15.3 13.5 11.1 9.7 Sharehold. equit. 217 240 267 302 343 P/CF 10.8 10.6 9.2 7.8 6.8 Working capital 76.0 84.9 92.1 99.8 108 P/BV 2.8 2.6 2.3 2.0 1.8 Net debt -42.9 -31.9 -20.1 -33.5 -62.3
Income statement Growth rates & balance-sheet ratios (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Sales 476 515 561 610 663 in sales 9.0 8.3 8.9 8.8 8.7 EBITDA 68.0 68.9 80.0 95.0 108 in EBITDA 10.6 1.3 16.1 18.8 13.4 EBIT 50.4 51.1 60.1 72.2 82.3 in EBIT 17.2 1.4 17.6 20.1 14.0 Net profits 37.4 40.0 45.6 55.1 63.1 in cash EPS 14.0 7.0 13.8 21.0 14.5 Cash EPS (EUR) 3.19 3.41 3.88 4.70 5.38 Net debt/equity -19.7 -13.3 -7.5 -11.1 -18.2 Reported EPS (EUR) 3.19 3.41 3.88 4.70 5.38 FCF/net fin. results n.m. n.m. 5.0 52.6 162 DPS (CHF) 1.88 1.40 1.60 1.80 2.00 Current ratio (X) 2.7 2.5 2.4 2.4 2.6
Cash flow statement Ratios, margins and returns (In EUR m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E EBITA 50.4 51.1 60.1 72.2 82.3 Gross margin 65.4 64.9 65.1 65.2 65.2 Taxes -11.1 -11.2 -13.2 -15.9 -18.1 EBITDA margin 14.3 13.4 14.3 15.6 16.2 NOPLAT 39.3 39.9 46.9 56.3 64.2 EBIT margin 10.6 9.9 10.7 11.8 12.4 Depreciation 17.6 17.8 19.9 22.9 25.5 ROIC 13.9 13.1 13.8 15.0 16.1 CAPEX -20.0 -34.9 -55.0 -40.0 -33.0 Inv. cap. (EUR m) 289 318 363 390 408 in WC 0.2 -8.9 -7.2 -7.6 -8.1 Free cash flow 37.1 13.9 4.5 31.5 48.6
Made in Switzerland + | Helvea 249
Zurich Insurance Group Price: CHF199.- ACCUMULATE Target: CHF236.- Large Caps
Daniel Bischof, CFA ([email protected]) – Tel. +41 (0)43 388 9263
Zurich Insurance Group is a leading insurance group with major operations in Switzerland, Germany, the UK and the USA, accompanied by an increasing presence in emerging markets. In addition to its traditional life and non-life insurance businesses, Zurich Insurance Group owns the Farmers’ management company that receives fees for managing the USA’s third largest personal-lines carrier.
CEO: Martin Senn; CFO: Pierre Wauthier; Website: www.zurich.com (FY to end-December)
Company data as of 31 May 2012 Share price and ratings
Sector/Country Insurance/Switzerland CHF276 Major shareholders Norges Bank 3.0%, Others 97.0% 250 224 198 Shares outstanding (m) 147 P/E (X) 172 Market cap. (CHF m) 29,274 2011 8.7 146 Free float 100% 2012E 7.6 120 Op. profits/CAGR 2011A-2014E 13.0% 2013E 7.2 05.11 07.11 09.11 11.11 01.12 03.12 05.12 Share perform. 3m 6m 12m Symbols Zurich Insurance Group 12-mth tgt Absolute -13% -1% -13% Bloomberg ZURN VX Buy Acc. Neut. Red. N.R. Rel. to local -11% -7% -4% Reuters ZURN.VX
News flow
■ September 2011: Pierre Wauthier appointed as new CFO ■ February 2012: full-year 2011 results in line; dividend unchanged at CHF17; solvency solid ■ May 2012: Q1 2012 results mixed – disappointing life results offset by better than expected non-life performance ■ Forthcoming event: 16 August 2012 – H1 2012 results ■ Guidance & consensus: group has over-the-cycle target for ROE of 16% based on business operating profits (BOP); consensus estimates for net profits stand at USD4.247bn for 2012 and USD4.573bn for 2013
Investment case
Zurich Insurance Group’s profitability has improved substantially in recent years as it has benefited from the external environment and internal restructuring. The group’s risk profile has been lowered and capital requirements reduced. In addition, Zurich Insurance Group’s structural growth profile improved significantly following a number of acquisitions in Latin America and Asia. The shares are still trading at a discount to our sum-of-the-parts value. Conventional valuation measures, such as P/E multiples, also highlight how inexpensive Zurich Insurance Group’s shares are. The group should also enjoy gradually improving conditions for its non-life business, and we see sustained double-digit ROEs in the coming years. Divisional breakdown (2011) Regional breakdown – Premiums (2011)
Premiums Operating profits
2% 7% Europe, Africa & Middle 5% 27% East NAFTA 37%
Latin America
29% 57% Asia Pacific 63% 73% Others
Life/health Property/casualty
250 Helvea SA | Made in Switzerland +
Value drivers PROFITS AND MARGINS BALANCE SHEET
■ Pricing environment improving, albeit at a slow pace ■ Limited scope for future capital gains ■ Non-life operations have been well supported by releases from ■ Strong balance sheet restored reserves ■ 85% of investment portfolio invested in fixed income, with the rest ■ Low interest rates have exerted pressure on returns although in real estate (5.9%), equities (3.4%), cash (4.9%) and this effect will become less significant as time passes alternatives (1.0%) ■ USD500m cost-cutting programme by 2013, with the bulk of the ■ GIIPS exposure limited to USD11.6bn gross (of which Italy reductions being achieved in non-life accounts for the majority)
SWOT analysis STRENGTHS OPPORTUNITIES
■ Defensive business mix geared to non-life ■ Enhanced profit-improvement measures ■ Leading market positions in the USA, the UK, Germany and ■ Continued focus on growth markets Switzerland ■ Maintain higher level of non-life profitability ■ Strong technical expertise in non-life business ■ Maintain market share gains in life ■ Low-risk ‘fee-type’ earnings from Farmers operation ■ More demanding growth targets ■ Growing operations in life
WEAKNESSES THREATS
■ Dependent on non-life profits to support earnings ■ Non-life insurance remains a cyclical business and releases from ■ Long-term track record of nasty surprises under previous reserves might slow down management ■ Possible regulatory pressure on life margins ■ Life business under pressure due to low interest rates ■ Earnings recovery could lead to discipline being relaxed ■ Exposure to economy given the USD200bn investment portfolio (excluding unit-linked)
Valuation ratios Balance sheet (X) 2010 2011 2012E 2013E 2014E (In USD m) 2010 2011 2012E 2013E 2014E P/NAV 1.2 1.3 1.2 1.1 1.0 Non-life reserves 80,170 67,021 74,043 76,635 79,317 P/EV 0.9 1.0 0.9 0.9 0.8 Life reserves 189,447 191,414 215,773 228,371 241,869 P/E 8.1 8.7 7.6 7.2 6.7 Total AuM (bn) 303.85 298.99 345.20 357.18 369.63 SOTP (CHF) 258 3rd-p. AuM (bn) 0.000 0.000 0.000 0.000 0.000 Mkt cap/reserves (%) 11.2 11.7 10.4 9.9 9.4 Sharehold. equ. 31,984 31,636 34,110 35,971 38,157 Mkt cap/premiums (%) 60.3 60.0 55.3 53.3 51.3 Net asset value 23,715 23,425 25,131 26,918 29,017 Dividend yield (%) 8.6 8.6 8.6 8.6 8.6 Embedded value 33,264 32,036 34,172 36,411 38,985
Income statement Growth rates & balance-sheet ratios (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Gross premiums (bn) 49.964 50.200 54.440 56.543 58.719 in premiums -7.2 0.5 8.4 3.9 3.8 Net invest. income 7,989 9,366 6,823 7,006 7,298 in op. profits -12.9 -12.6 31.2 3.5 6.3 Operating profits 4,874 4,262 5,591 5,788 6,153 in pre-tax profits 7.4 -2.3 12.5 5.3 7.5 Pre-tax profits 4,867 4,757 5,354 5,637 6,059 investments 2.9 -1.6 15.5 3.5 3.5 Net profits 3,433 3,766 4,148 4,366 4,692 NAV/min. solvency 222 213 217 225 251 Reported EPS (CHF) 24.6 22.8 26.1 27.4 29.5 NL Res./premium 280 229 240 240 240 DPS (CHF) 17.0 17.0 17.0 17.0 17.0 NL Res./claims 405 320 355 356 355
Investments Ratios, margins and returns (In USD m) 2010 2011 2012E 2013E 2014E (In %) 2010 2011 2012E 2013E 2014E Total investments 303,845 298,988 345,199 357,184 369,633 Retention rate NL 88.6 87.0 87.1 87.2 87.3 Equities 15,852 11,226 12,961 13,411 13,878 Claims ratio NL 71.1 71.9 68.0 67.9 68.0 Fixed income 139,212 142,861 164,941 170,668 176,616 Combined ratio 97.9 98.8 95.0 94.9 94.9 Real estate 8,146 8,468 9,777 10,116 10,469 Expense ratio life 29.4 40.7 37.5 37.3 37.1 Loans/mortgages n.a. n.a. n.a. n.a. n.a. Pre-tax margin 9.7 9.5 9.8 10.0 10.3 Net invest. yield 2.6% 3.1% 2.0% 2.0% 2.0% ROE 10.7 11.9 12.2 12.1 12.3 Cap. gains/total 0.3% 0.7% 0.0% 0.0% 0.0% Return/techn. res. 1.3 1.5 1.4 1.4 1.5
Made in Switzerland + | Helvea 251
Valuation data
VALUATION – HELVEA UNIVERSE
(In local currencies) Share EV/EBITDA EBITDA growth P/E Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
Biotechnology & Chemicals 7.4X 8.3X n.m. n.m. n.m. n.m. Ablynx 2.7 n.m. 5.7X n.m. n.m. n.m. 11.4X BUY 10.0 265% Actelion 36.7 8.9X 8.9X 220% 0.0% 19.0X 18.3X BUY 72.0 96.3% Addex 8.5 n.m. 0.9X n.m. n.m. n.m. 2.7X BUY 18.0 112% Bachem 36.0 12.1X 10.3X 39.8% 17.9% 23.5X 18.2X NEUTRAL 37.0 2.8% Basilea 41.3 n.m. n.m. n.m. n.m. n.m. n.m. BUY 105 155% BioInvent 13.7 3.4X n.m. n.m. n.m. 3.7X n.m. BUY 29.0 112% Elan 11.6 n.m. 42.9X n.m. n.m. n.m. n.m. REDUCE 6.8 -41.3% Fresenius Med. Care 53.7 9.1X 8.3X 12.3% 9.7% 15.9X 15.9X BUY 66.0 22.9% Galenica 582 10.5X 8.2X 4.8% 28.0% 16.0X 11.1X BUY 720 23.8% Genmab 42.0 n.m. 7.0X n.m. n.m. n.m. 19.3X NEUTRAL 44.0 4.8% Lonza Group 34.5 7.2X 6.5X 14.4% 10.0% 13.1X 9.6X NEUTRAL 40.0 15.9% MorphoSys 17.0 4.2X 17.2X 224% -75.5% 10.4X n.m. BUY 32.0 87.7% Newron 4.8 n.m. 9.4X n.m. n.m. n.m. n.m. BUY 21.0 336%
Construction & Building Mat. 7.4X 6.7X 6.1% 9.9% 13.5X 11.4X Arbonia Forster 17.0 3.7X 3.2X 22.3% 12.5% 12.0X 7.2X BUY 28.0 65.2% Belimo 1,740 11.1X 9.9X 10.3% 12.1% 17.5X 15.6X NEUTRAL 1,700 -2.3% Forbo 628 5.8X 5.7X -3.7% 2.0% 13.0X 12.5X NEUTRAL 640 2.0% Geberit 188 12.8X 12.0X 5.9% 7.1% 17.4X 16.2X NEUTRAL 200 6.4% HeidelbergCement 35.1 7.0X 6.4X 6.7% 9.6% 10.9X 8.3X NEUTRAL 42.0 19.7% Holcim 51.6 7.5X 6.5X 9.3% 14.5% 13.4X 10.2X BUY 72.0 39.5% Implenia 29.5 3.3X 3.2X -5.1% 5.1% 8.5X 7.7X BUY 42.0 42.1% Kaba 332 7.7X 7.3X 3.7% 4.9% 14.7X 13.7X NEUTRAL 390 17.6% Lafarge 29.7 6.8X 6.4X 4.6% 6.6% 11.5X 9.6X NEUTRAL 30.0 0.9% Sika 1,755 8.1X 7.3X 21.2% 11.2% 15.8X 13.7X NEUTRAL 1,900 8.3% Zehnder 62.8 7.4X 6.2X 16.1% 18.8% 13.5X 11.1X BUY 80.0 27.3%
Consumer Discretionary 6.1X 5.9X 20.3% 4.6% 11.3X 11.1X Calida Group 27.0 5.6X 5.3X -1.0% 6.5% 10.8X 10.2X NEUTRAL 32.0 18.7% Dufry 110 8.6X 7.5X 35.1% 14.4% 17.0X 12.6X BUY 140 27.3% Goldbach Group 21.0 7.0X 6.4X 0.3% 8.8% 10.8X 9.3X NEUTRAL 25.0 19.3% Kuoni 282 4.6X 4.2X 14.5% 9.3% 12.1X 10.1X ACCUMULATE 400 41.8% PubliGroupe 143 1.3X 3.1X 82.9% -57.9% 5.5X 13.8X BUY 180 26.3% Richemont 55.3 8.3X 7.9X 9.6% 5.0% 13.9X 13.6X NEUTRAL 66.0 19.2% tamedia 102 5.8X 5.4X 1.0% 7.1% 6.8X 7.0X NEUTRAL 130 28.1% The Swatch Group 374 8.5X 8.0X 8.4% 5.6% 14.7X 14.0X ACCUMULATE 480 28.5% Valora 169 5.0X 4.7X 3.6% 7.9% 8.8X 8.2X NEUTRAL 235 39.2%
Food & Beverage 9.7X 9.1X 11.2% 7.4% 16.7X 15.0X Aryzta 43.8 9.7X 8.7X -1.9% 11.4% 18.4X 15.2X ACCUMULATE 56.0 27.9% Barry Callebaut 860 11.8X 11.1X 0.3% 6.2% 20.7X 16.2X NEUTRAL 900 4.7% Danone 51.9 9.8X 9.2X 9.4% 6.6% 16.3X 14.9X ACCUMULATE 60.0 15.6% Emmi 181 5.6X 5.5X 7.8% 3.2% 10.6X 11.3X ACCUMULATE 230 27.1% Givaudan 901 10.9X 10.3X 14.4% 5.3% 20.0X 18.7X NEUTRAL 900 -0.1% Lindt & Sprüngli 2,821 12.5X 11.6X 9.1% 8.3% 22.1X 20.1X NEUTRAL 2,600 -7.8% Nestlé 55.0 10.7X 9.8X 10.6% 8.9% 17.1X 15.7X NEUTRAL 56.0 1.7% Orior 48.0 6.2X 6.0X 5.7% 3.5% 9.3X 8.8X NEUTRAL 51.0 6.3% Symrise AG 22.7 10.0X 9.4X 6.7% 5.8% 16.4X 15.1X NEUTRAL 23.0 1.3% Unilever 25.4 10.1X 9.5X 18.4% 6.0% 15.8X 14.4X ACCUMULATE 29.0 14.0%
Information Technology 7.2X 6.3X 6.4% 24.5% n.m. 12.8X austriamicrosystems 68.0 7.7X 7.3X 50.8% 5.8% 11.7X 11.7X NEUTRAL 68.0 0.0% Kudelski 7.5 5.5X 5.2X 5.2% 5.4% n.m. 12.1X ACCUMULATE 9.0 20.8% Logitech 9.9 5.0X 4.5X 50.0% 11.3% 20.0X 12.4X NEUTRAL 9.0 -8.9% Temenos 15.6 9.9X 8.1X 174% 21.8% 19.9X 14.6X BUY 22.0 41.0%
Medical Technology 11.8X 10.4X 3.6% 13.9% 19.4X 16.1X Nobel Biocare 10.2 10.3X 8.8X 0.3% 16.9% 21.0X 16.5X NEUTRAL 11.2 9.6% Sonova 91.0 13.9X 12.1X 18.1% 14.6% 20.3X 17.3X NEUTRAL 81.4 -10.5% Straumann 149 11.5X 10.0X 7.7% 15.3% 20.3X 15.8X NEUTRAL 160 7.4% Tecan 63.2 8.7X 7.5X 3.1% 17.2% 14.6X 12.2X BUY 86.5 36.8% William Demant 528 15.1X 14.0X 12.8% 7.8% 21.4X 19.4X NEUTRAL 474 -10.2%
252 Helvea | Made in Switzerland+
Valuation data
VALUATION – HELVEA UNIVERSE
(In local currencies) Share EV/EBITDA EBITDA growth P/E Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
Machinery/Engineering 7.7X 6.0X 6.4% 18.1% 13.1X 12.6X ABB 15.2 6.7X 5.7X 4.5% 18.5% 11.2X 9.0X BUY 23.0 51.2% Bobst 25.0 8.3X 6.1X 19.0% 35.4% 18.8X 9.2X BUY 35.0 39.7% Bucher Industries 161 5.4X 5.0X 16.1% 7.8% 11.7X 10.4X ACCUMULATE 215 33.5% Burckhardt Comp. 221 9.6X 8.9X -1.7% 8.1% 16.5X 14.7X NEUTRAL 225 1.8% Georg Fischer 340 4.7X 4.5X 3.8% 4.7% 8.8X 8.3X NEUTRAL 370 8.8% Komax 78.6 6.3X 4.5X -30.8% 40.8% 12.0X 7.8X BUY 110 39.9% Kone 45.1 12.3X 11.4X 11.6% 7.8% 19.0X 17.0X NEUTRAL 44.0 -2.5% Meyer Burger 15.3 10.5X 4.0X -82.1% 160% n.m. 29.7X NEUTRAL 15.0 -2.0% OC Oerlikon 8.1 5.4X 5.1X -0.5% 4.8% 7.6X 9.3X ACCUMULATE 10.6 30.7% Rieter 138 6.5X 3.2X -48.6% 105% 35.8X 9.2X BUY 230 66.5% Schindler 107 9.6X 8.5X 21.0% 12.9% 19.2X 16.6X NEUTRAL 99.0 -7.8% Sulzer 116 7.5X 6.9X 18.2% 9.2% 13.0X 11.9X NEUTRAL 113 -2.4%
Miscellaneous Industrials 6.5X 5.7X 2.9% 9.0% 14.2X 11.0X Ascom 8.3 4.7X 4.2X 6.2% 13.7% 7.4X 7.8X NEUTRAL 11.0 32.4% Autoneum 42.5 3.2X 2.9X 18.0% 11.4% 24.8X 11.0X NEUTRAL 55.0 29.4% Bossard 120 6.6X 6.3X -2.6% 5.0% 8.6X 8.6X NEUTRAL 135 12.5% Comet Holding AG 203 6.4X 5.8X 4.8% 10.6% 13.5X 11.6X BUY 260 28.1% Daetwyler 70.0 4.7X 4.7X 17.9% 1.2% 9.9X 9.9X NEUTRAL 85.0 21.4% Gurit 451 5.2X 5.5X 15.1% -4.7% 8.3X 8.9X BUY 620 37.5% Huber+Suhner 37.6 7.2X 5.7X -4.1% 26.5% 24.5X 16.7X NEUTRAL 40.0 6.4% Inficon 189 6.5X 6.1X -6.6% 6.5% 11.3X 10.7X NEUTRAL 220 16.3% Interroll 310 6.6X 5.8X 8.3% 12.4% 13.8X 11.9X NEUTRAL 380 22.5% LEM 470 13.2X 10.9X -34.9% 20.3% 21.0X 17.4X NEUTRAL 450 -4.3% Metall Zug 3,700 9.1X 8.6X 10.3% 5.0% 19.9X 18.8X NEUTRAL 4,100 10.8% Phoenix Mecano 447 5.6X 5.4X -3.8% 4.2% 9.9X 9.4X NEUTRAL 550 23.1% Schaffner 223 10.1X 6.4X -19.8% 56.2% 26.7X 11.8X NEUTRAL 250 12.0% Schmolz+Bickenbach 4.9 5.2X 4.7X 0.4% 11.3% 6.9X 5.3X NEUTRAL 6.3 27.5% Vetropack 1,700 4.9X 4.5X 2.8% 7.8% 10.7X 9.9X BUY 2,100 23.5%
Pharmaceuticals 8.8X 7.9X 0.5% 9.9% 13.3X 11.2X Acino 111 8.7X 7.2X 94.9% 21.8% 13.0X 10.8X BUY 142 28.3% AstraZeneca 2,618 5.2X 4.7X -32.1% 11.0% 8.3X 7.2X NEUTRAL 2,860 9.2% Bayer 51.1 8.2X 7.4X 14.2% 10.0% 9.6X 8.8X ACCUMULATE 60.0 17.3% GlaxoSmithKline 1,438 8.0X 7.3X 6.0% 9.1% 12.9X 11.1X ACCUMULATE 1,620 12.7% Merck KGaA 74.8 8.0X 7.1X -6.7% 13.3% 21.2X 14.8X NEUTRAL 73.0 -2.4% Novartis 50.5 9.6X 8.8X 11.3% 8.2% 11.9X 10.7X BUY 68.0 34.8% Novo Nordisk 800 16.3X 14.6X 15.3% 12.0% 22.3X 19.6X NEUTRAL 820 2.6% Roche 152 9.2X 8.6X 8.2% 7.3% 12.3X 10.9X NEUTRAL 140 -7.7% Sanofi 55.0 6.9X 6.5X -8.7% 6.4% 9.3X 8.9X ACCUMULATE 64.0 16.4% Stada Arzneimittel 23.0 6.8X 6.2X 58.5% 10.6% 10.9X 8.7X ACCUMULATE 29.0 26.1%
Services/Transportation 10.0X 8.5X 5.3% 15.4% 20.1X 15.3X Adecco 37.7 7.5X 6.1X 0.8% 23.2% 12.8X 9.6X NEUTRAL 47.0 24.7% Bureau Veritas 69.6 12.6X 11.5X 17.1% 10.0% 20.5X 18.1X NEUTRAL 72.0 3.4% DKSH 48.5 10.7X 9.5X 10.0% 12.3% 19.0X 16.7X NEUTRAL 50.0 3.1% Flughafen Zürich AG 324 5.8X 5.6X 5.3% 3.0% 11.1X 10.2X NEUTRAL 400 23.4% gategroup 24.4 4.3X 3.9X 5.3% 9.0% 11.3X 9.3X ACCUMULATE 40.0 64.3% Intertek 2,645 12.4X 11.3X 16.4% 10.1% 24.0X 20.6X NEUTRAL 2,600 -1.7% Kuehne + Nagel 103 12.7X 10.8X -5.9% 17.2% 22.4X 18.0X NEUTRAL 113 9.5% Panalpina 92.3 12.2X 7.5X -35.3% 62.8% 38.5X 16.3X NEUTRAL 101 9.4% SGS 1,751 11.9X 10.4X 16.4% 14.6% 21.5X 18.6X ACCUMULATE 1,880 7.4%
Source: Helvea; FactSet
Made in Switzerland + | Helvea 253
Valuation data
VALUATION – HELVEA UNIVERSE
As of 31 May 2012 ShareP/E EPS growth P/Embv P/SOTP Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2012E
Insurance 7.6X 6.8X n.m. 14.3% 0.7X 0.7X Bâloise 59.9 6.5X 6.2X n.m. 4.0% 0.6X 0.7X ACCUMULATE 76.0 26.9% Hannover Re 43.3 7.6X 7.5X 13.2% 1.1% 0.8X 0.9X NEUTRAL 44.0 1.7% Helvetia 271 7.3X 6.9X 14.1% 5.5% 0.6X 0.6X ACCUMULATE 380 40.4% Munich Re 100 7.1X 6.8X n.m. 3.5% 0.7X 0.8X NEUTRAL 110 9.7% Nationale Suisse 33.0 8.0X 7.6X -45.4% 5.3% 0.8X NEUTRAL 39.0 18.2% SCOR 17.5 7.5X 6.4X 30.3% 17.1% 0.8X 0.7X ACCUMULATE 23.0 31.1% Swiss Life Holding 77.8 4.5X 4.2X -8.1% 7.1% 0.3X 0.5X BUY 130 67.0% Swiss Re 56.0 12.5X 8.5X -34.0% 47.6% 0.7X 0.7X NEUTRAL 64.0 14.3% Zurich Insurance 199 7.6X 7.2X 14.3% 5.3% 0.9X 0.8X ACCUMULATE 236 18.8%
As of 31 May 2012 ShareP/E Net profit growth P/BV Rating Target Potential price 2012E 2013E 2012E 2013E 2012E 2013E
Banks 12.2X 9.8X 20.7% 25.3% 1.7X 1.5X Credit Suisse 18.4 7.9X 5.5X 17.4% 45.3% 0.6X 0.6X NEUTRAL 22.5 22.2% EFG International 6.9 11.6X 8.2X n.m. 42.5% 0.9X 0.8X NEUTRAL 8.5 24.1% GAM Holding 10.2 11.1X 9.5X n.m. 11.5% 0.9X 0.8X NEUTRAL 12.7 24.5% Julius Baer Group 30.5 18.2X 14.5X 27.8% 25.7% 1.3X 1.2X NEUTRAL 31.5 3.4% Partners Group 161 14.9X 12.7X 35.8% 17.4% 5.9X 4.8X ACCUMULATE 200 24.2% Sarasin 26.0 14.3X 11.5X 22.7% 26.1% 1.3X 1.2X NEUTRAL 29.5 13.8% UBS 11.0 8.0X 6.9X 21.7% 15.8% 0.7X 0.7X NEUTRAL 13.5 23.3% Vontobel 19.9 9.4X 8.2X 18.3% 15.2% 0.8X 0.8X NEUTRAL 23.5 18.1% VZ Holding 93.3 13.9X 11.3X 3.7% 23.1% 3.1X 2.7X ACCUMULATE 121 29.7%
Source: Helvea; FactSet
254 Helvea | Made in Switzerland+
Changes in ratings in the last 5 months
RATING CHANGES – HELVEA UNIVERSE
Company Date Price Old New (in local currency) CHF Rating PT Rating PT REASONS FOR CHANGE
ABB Ltd. 03.04.2012 18.7 N.R. – BUY 23 Re-initiation of coverage Adecco 02.03.2012 49.18 ACC. 42 NEUT. 52 Limited upside, rather subdued short-term outlook Ascom 16.03.2012 9.1 BUY 17 NEUT. 11 Risk/reward profile deteriorated on 'new' problems at Network Testing Bayer 29.02.2012 55.8 BUY 66 ACC. 60 Valuation; slower sales uptake of new drugs Bâloise 09.05.2012 64.5 NEUT. 78 ACC. 76 Sentiment too negative, defensive business mix and very low valuation BioInvent 09.02.2012 19.2 NEUT. 26 BUY 29 Company likely to report positive Phase II outcomes Bobst 29.03.2012 209 ACC. 30 BUY 35 Faster-than-expected op. progress Bobst 16.03.2012 24.3 N.R. – ACC. 30 Re-initiation of coverage Bureau Veritas 15.03.2012 64.6 ACC. 67 NEUT. 69 Limited upside potential Comet Holding AG 02.04.2012 203 ACC. 220 BUY 260 TetraPak presented next-gen filling machine with Comet's e-beam tech DKSH 13.04.2012 48.2 N.R. – NEUT. 50 Initiation of coverage Dufry 23.01.2012 101 NEUT. 91 BUY 130 Strong business momentum expected Elan 18.05.2012 10.3 NEUT. 8 RED. 6.8 Company likely to report negative Ph.III data on bapineuzumab Flughafen Zürich 22.03.2012 350 BUY 475 NEUT. 400 Weakening growth momentum expected Fresenius Med. Care 24.02.2012 53.1 NEUT. 57 BUY 66 Business ready to grow above market gategroup 26.03.2012 32 NEUT. 34 ACC. 42 New mid-term targets & adj. strategy Gurit 27.01.2012 460 NEUT. 470 BUY 600 Re-initiation of coverage Helvetia 10.04.2012 328 NEUT. 360 ACC. 380 Solid underwriting track record, strong capital position Kaba 27.02.2012 366 N.R. – NEUT. 390 Re-initiation of coverage Komax 21.05.2012 75.9 N.R. – BUY 105 Re-initiation of coverage Kudelski 25.05.2012 6.9 NEUT. 9 ACC. 9.0 Upgrade as investors concerns are overdone Lafarge 07.05.2012 29.3 RED. 26 NEUT. 30 Recovery in Middle East/Africa quicker than anticipated Lafarge 08.02.2012 32 NEUT. 27 RED. 26 Downside of 20%, turbulences in various African countries Novo Nordisk 01.03.2012 783 ACC. 700 NEUT. 820 Valuation; upcoming newsflow from rival drugs Richemont 04.04.2012 58.5 N.R. – NEUT. 60 Re-initiation of coverage SGS 16.03.2012 1,707 NEUT. 1,800 ACC. 1,880 Powerful growth drivers, historical premium diminished Sonova 23.05.2012 84.1 RED. 86 NEUT. 81.4 Valuation gap to our price target has been closed Sonova 25.01.2012 96 N.R. – RED. 86.4 Reinititation of coverage Stada Arzneimittel 02.04.2012 24.6 NEUT. 23 ACC. 29 Country-like risk lowered as better visibility in Serbia and reassurance of continuing solid growth in Russia Swiss Re 19.03.2012 60.63 ACC. 60 NEUT. 62 Catalysts have played out, valuation only modestly attractive Tecan 24.02.2012 69.9 N.R. BUY 92 Re-initiation of coverage Temenos 24.01.2012 15.6 NEUT. 16 BUY 21.5 Upgrade to BUY on valuation The Swatch Group 04.04.2012 426 N.R. – ACC. 480 Re-initiation of coverage Valora 28.03.2012 224 ACC. 245 NEUT. 235 Disappointing business outlook William Demant 31.05.2012 528 N.R. – NEUT. 474 Re-initiation of coverage
Source: Helvea
Made in Switzerland + | Helvea 255
Consensus watch
CONSENSUS – HELVEA UNIVERSE
As of 31 May 2012 EBIT EBIT Y-o-y Helvea EBIT Y-o-y Helvea 3M revision Share in reporting currencies 2011 2012E change vs. 2013E change vs. cons. EBIT perf. cons. cons. 2012E* -3M
Biotechnology/Chemicals Ablynx -45.5 -28.3 n.m. -29.7% -38.0 n.m. n.m. Ê Ì Actelion 12.2 320 n.m. 1.9% 347 8.3% -6.0% Ì Ê Addex -31.0 -17.0 n.m. -34.8% -15.1 n.m. n.m. ÊÊ Bachem 14.9 19.2 28.9% 36.7% 25.0 30.2% 33.6% Ì Æ Basilea -57.3 -77.0 n.m. -11.5% -65.9 n.m. -32.7% ÌÌ BioInvent -71.8 -130 n.m. n.m. -66.3 n.m. 15.0% ÌÌ Elan 145 138 -4.5% 21.3% 191 38.0% -0.2% ÊÊ Fresenius Med. Care 2,075 2,375 14.5% 1.2% 2,592 9.1% 1.9% Ê Æ Galenica 327 340 3.9% 2.9% 342 0.7% 35.2% Ê Æ Genmab -249 -209 n.m. 31.3% -139 n.m. n.m. Ì Æ Lonza Group 279 356 27.8% -8.1% 404 13.5% -3.9% ÌÌ MorphoSys 12.2 4.0 -67.1% n.m. 8.3 107.3% -8.2% ÌÌ Newron -6.1 1.0 n.m. -20.9% 0.6 -50.0% -25.1% Ì Ê
Construction/Building Mat. Arbonia Forster -18.2 57.4 n.m. -0.1% 70.6 22.9% 7.8% Ê Ì Belimo 67.8 76.3 12.6% -2.4% 83.3 9.1% 0.0% Ì Æ Forbo 149 151 1.3% -4.5% 159 5.3% -7.3% Ê Æ Geberit 449 476 5.9% 0.8% 515 8.3% -0.4% Ì Æ HeidelbergCement 1,466 1,588 8.3% 2.9% 1,851 16.6% 0.8% Ê Ì Holcim 1,933 2,517 30.2% 9.3% 2,933 16.5% 14.4% Ê Ì Implenia 93.7 96.2 2.7% 1.1% 102 6.0% 2.6% ÊÊ Kaba 104 122 16.9% -1.2% 133 9.0% -4.5% ÌÌ Lafarge 2,179 2,301 5.6% 0.0% 2,582 12.2% -3.4% Ê Ì Sika 348 470 35.1% -7.1% 533 13.3% -7.8% Ê Ì Zehnder 51.0 59.0 15.2% 2.1% 70.0 19.0% 3.0% Ì Æ
Consumer Discretionary Calida Group 25.4 24.8 -2.4% -4.2% 25.5 2.8% -1.1% Ê Ì Dufry 224 330 47.3% -2.0% 396 20.1% -1.4% Ê Æ Goldbach Group 30.0 34.0 13.3% 0.2% 37.3 9.7% -0.1% Ê Ì Kuoni 130 181 39.1% 4.2% 201 10.8% 5.4% Ê Æ PubliGroupe 18.9 65.0 n.m. 13.5% 35.5 -45.5% 0.6% ÊÊ Richemont 2,040 2,280 11.8% -2.3% 2,487 9.1% -8.1% Ê Æ tamedia 183 178 -2.7% -1.8% 189 6.2% 0.4% ÌÌ The Swatch Group 1,614 1,831 13.4% 0.1% 2,053 12.1% 0.0% Ê Ì Valora 70.5 79.0 12.1% -9.1% 83.3 5.5% -7.4% ÌÌ
Food & Beverage Aryzta 383 400 4.4% -5.8% 448 12.0% -1.8% Ì Æ Barry Callebaut 361 360 -0.2% -0.4% 398 10.4% -3.1% Ì Æ Danone 2,843 3,070 8.0% -0.4% 3,323 8.2% 0.0% Ê Æ Emmi 130 135 4.1% -0.1% 142 5.2% -0.3% ÌÌ Givaudan 624 639 2.5% -1.3% 728 13.9% -8.7% Ì Ê Lindt & Sprüngli 329 360 9.4% 1.4% 396 10.1% 1.0% Ê Æ Nestlé 12,538 13,906 10.9% -0.1% 15,200 9.3% 0.3% Ì Æ Orior 40.6 43.4 6.9% -3.4% 45.3 4.4% -3.2% ÆÆ Symrise AG 234 254 8.4% 0.0% 279 10.0% -2.1% Ì Æ Unilever 6,433 6,979 8.5% -1.6% 7,651 9.6% -2.0% Ì Æ
Information Technology austriamicrosystems 52.3 92.0 75.8% 5.1% 109 18.9% -6.5% ÊÊ Kudelski 35.1 36.9 5.0% 16.6% 52.0 40.8% -8.2% ÊÊ Logitech 72.0 138 91.7% 6.5% 176 27.5% -2.6% ÊÊ Temenos 70.0 89.0 27.1% -8.4% 105 18.0% 4.0% ÌÌ
256 Helvea | Made in Switzerland+
Consensus watch
CONSENSUS – HELVEA UNIVERSE
As of 31 May 2012 EBIT EBIT Y-o-y Helvea EBIT Y-o-y Helvea 3M revision Share in reporting currencies 2011 2012E change vs. 2013E change vs. cons. EBIT perf. cons. cons. 2012E* -3M Machinery/Engineering ABB 4,667 4,953 6.1% -3.3% 5,588 12.8% 3.5% Ê Ì Bobst 27.5 45.3 64.8% -2.9% 69.0 52.2% 1.4% Ê Æ Bucher Industries 190 222 16.9% -2.3% 219 -1.5% 6.3% Ê Ì Burckhardt Comp. 57.6 65.7 14.1% -8.0% 70.8 7.8% -7.3% Ê Ì Georg Fischer 235 259 10.0% -1.0% 286 10.4% -4.7% ÌÌ Komax 47.5 33.3 -30.0% -11.2% 38.8 16.5% 16.7% Ê Ì Kone 725 801 10.4% -2.6% 895 11.7% -1.4% Ê Æ Meyer Burger 117 -44.0 n.m. 15.5% 37.0 n.m. -22.0% Ì Æ OC Oerlikon 425 446 5.0% -1.8% 459 2.8% 0.1% ÊÊ Rieter 113 63.8 -43.5% -38.8% 72.7 14.0% 59.3% ÌÌ Schindler 925 1,003 8.4% -3.3% 1,110 10.7% 0.0% Ì Æ Sulzer 375 450 20.0% -3.6% 486 8.1% -3.1% Ê Ì
Medical Technology Nobel Biocare 72.0 76.0 5.6% -0.1% 88.0 15.8% 6.8% Ê Æ Sonova 307 372 21.2% -6.3% 439 17.9% -6.8% ÌÌ Straumann 118 127 8.0% 3.1% 149 17.3% 4.9% Ì Æ Tecan 51.3 52.1 1.6% 0.9% 61.1 17.2% 2.1% ÌÌ William Demant 1,709 1,955 14.4% 0.4% 2,187 11.8% 0.7% Ê Æ
Miscellaneous Industrials Ascom 40.0 42.3 5.9% 2.5% 49.7 17.4% 3.3% ÌÌ Autoneum 35.0 51.5 47.4% -2.9% 67.1 30.4% -4.7% Ê Ì Bossard 50.3 48.2 -4.2% -1.0% 52.0 7.9% -7.8% Ê Æ Comet Holding AG 14.7 15.6 5.8% 3.0% 18.5 18.6% 3.4% Ì Ê Daetwyler 127 145 14.2% -0.1% 152 4.8% -3.8% Ê Æ Gurit 28.1 34.0 21.0% -0.1% 33.9 -0.3% -6.7% Ê Ì Huber+Suhner 66.1 42.2 -36.1% -10.4% 52.7 24.9% 7.0% ÌÌ Inficon 56.0 50.0 -10.7% 3.8% 54.0 8.5% 1.5% Ê Æ Interroll 20.4 25.0 22.5% -7.4% 29.0 16.0% -7.7% ÌÌ LEM 32.7 40.0 22.3% 2.4% 47.0 17.5% 11.7% Ê Æ Metall Zug 96.7 105 8.6% 0.9% 112 6.2% 1.5% Ê Æ Phoenix Mecano 52.0 49.0 -5.8% -0.8% 54.0 10.2% -5.6% ÌÌ Schaffner 12.8 9.1 -28.7% -12.3% 16.2 77.9% 0.2% ÌÌ Schmolz+Bickenbach 180 189 5.0% -3.8% 216 14.3% -0.5% ÌÌ Vetropack 77.3 81.2 5.0% 2.5% 88.7 9.3% 2.2% ÌÌ
Pharmaceuticals Acino 7.0 30.0 n.m. 1.3% 38.0 25.1% 38.4% Ê Æ AstraZeneca 12,916 9,644 -25.3% -15.5% 9,392 -2.6% -1.1% ÌÌ Bayer 4,844 5,236 8.1% -1.6% 5,863 12.0% 0.4% Ê Ì GlaxoSmithKline 8,590 8,980 4.5% -6.8% 9,285 3.4% 0.0% Ì Æ Merck KGaA 1,137 1,417 24.6% -12.5% 1,606 13.3% -0.4% Ì Æ Novartis 15,857 14,862 -6.3% -15.9% 15,167 2.1% -9.9% Ê Æ Novo Nordisk 22,374 26,250 17.3% -0.8% 29,350 11.8% -0.3% Ê Æ Roche 15,149 15,813 4.4% -6.9% 16,869 6.7% -5.4% Ê Æ Sanofi 12,134 10,931 -9.9% 0.0% 11,496 5.2% 1.4% ÆÆ Stada Arzneimittel 121 264 117.7% -11.4% 300 13.6% -9.5% Ì Æ
Services/Transportation Adecco 814 847 4.1% -11.4% 995 17.5% -3.5% Ê Ì Bureau Veritas 508 609 19.9% 2.3% 669 9.9% 2.7% ÊÊ DKSH 238 264 11.1% -1.4% 302 14.5% -2.3% ÊÊ Flughafen Zürich AG 284 296 4.3% 0.2% 310 4.6% 0.2% Ê Ì gategroup 123 134 9.2% -6.8% 148 10.8% -4.0% Ê Ì Intertek 281 327 16.3% 2.8% 365 11.6% 2.0% ÊÊ Kuehne + Nagel 750 733 -2.3% -4.0% 913 24.6% -6.5% ÌÌ Panalpina 174 137 -21.5% -28.9% 199 45.6% -8.8% ÌÌ SGS 815 928 13.8% 1.2% 1,067 15.0% 0.7% Ê Æ
Made in Switzerland + | Helvea 257
Consensus watch
CONSENSUS – HELVEA UNIVERSE
As of 31 May 2012 Net Net Y-o-y Helvea Net Y-o-y Helvea 3M revision Share in reporting currencies profits profits change vs. profits change vs. cons. net perf. 2011 2012E cons. 2013E cons. profits 2012E* -3M
Banks Credit Suisse 1,953 2,504 28.2% 14.8% 4,285 71.1% -2.5% ÌÌ EFG International -311 86.4 n.m. 0.0% 120 39.2% 2.3% ÌÌ GAM Holding 166 165 -0.4% -11.3% 184 11.5% -11.3% ÌÌ Julius Baer Group 310 379 22.1% -12.8% 507 34.0% -18.2% ÌÌ Partners Group 202 266 31.7% 3.1% 317 19.2% 1.6% Ì Æ Sarasin 99.0 107 8.4% -4.1% 133 24.2% -2.6% ÌÌ UBS 4,233 4,672 10.4% 10.2% 5,807 24.3% 2.7% ÌÌ Vontobel 114 135 18.4% -0.4% 161 19.3% -3.7% ÌÌ VZ Holding 51.0 55.0 7.8% -3.8% 65.1 18.4% 0.0% ÌÌ
As of 31 May 2012 Net Net Y-o-y Helvea Net Y-o-y Helvea 3M revision Share in reporting currencies profits profits change vs. profits change vs. cons. net perf. 2011 2012E cons. 2013E cons. profits 2012E* -3M
Insurance Bâloise 61.0 450 n.m. -3.8% 477 5.9% -5.5% Ê Ì Hannover Re 606 740 22.1% -7.3% 753 1.8% -8.0% Ê Æ Helvetia 287 346 20.6% -5.6% 370 6.8% -6.9% Ê Ì Munich Re 702 2,636 n.m. -6.6% 2,704 2.6% -5.8% Ê Ì Nationale Suisse 167 96.7 -42.2% -5.8% 99.8 3.2% -3.8% Ê Æ SCOR 330 484 46.7% -8.6% 543 12.1% -4.5% ÌÌ Swiss Life Holding 605 561 -7.4% -0.6% 598 6.7% -0.2% ÌÌ Swiss Re 2,626 2,309 -8.6% -27.7% 2,481 7.4% -0.4% ÊÊ Zurich Insurance Group 3,766 4,203 16.0% -1.3% 4,474 6.5% -2.4% Ê Ì
Sources: Helvea; FactSet Consensus Æ unchanged (zero ±5%); Ê +5% or better; Ì –5% or worse * Up/downgrade in consensus EBIT (net profits for Banks/Insurers) estimates for 2012 over the last 3 months
258 Helvea | Made in Switzerland+
Performance statistics
SHORT & MEDIUM-TERM PERFORMANCE
As of 05 June 2012 Share Curr.YTD Absolute Analyst/ price High Low YTD -3M -6M -12M ext. %%%%
Banks Credit Suisse 18.4 CHF 27.2 18.4 -17% -24% -16% -50% TDA/9169 EFG International 6.9 CHF 8.9 6.7 -4% -19% 5% -39% TDA/9169 GAM Holding 10.2 CHF 13.7 10.0 0% -15% -4% -37% TDA/9169 Julius Baer Group 30.5 CHF 39.3 30.5 -17% -14% -6% -18% TDA/9169 Partners Group 161 CHF 176 158 -2% -4% -5% -4% TDA/9169 Sarasin 26.0 CHF 29.0 25.8 -5% -7% -9% -35% TDA/9169 UBS 11.0 CHF 13.5 10.7 -2% -13% -2% -33% TDA/9169 Vontobel 19.9 CHF 27.5 19.9 -5%-14%-16%-40%TDA/9169 VZ Holding 93.3 CHF 110 87.5 -3% -6% -1% -29% TDA/9169
Biotechnology/Chemicals Ablynx 2.7 EUR 3.7 2.4 -20% -10% 10% -69% OZI/9167 Actelion 36.7 CHF 40.3 32.2 14% 8% 15% -21% OZI/9167 Addex 8.5 CHF 11.9 5.6 53% 25% 55% -19% OZI/9167 Bachem 36.0 CHF 39.0 32.5 11% -5% -6% -25% OZI/9167 Basilea 41.3 CHF 52.3 35.7 16% -14% 31% -42% OZI/9167 BioInvent 13.7 SEK 20.5 13.7 -15% -14% -16% -43% OZI/9167 Elan 11.6 EUR 11.7 9.1 8% 24% 41% 69% OZI/9167 Fresenius Med. Care 53.7 EUR 57.0 50.8 2% 2% 6% 7% OZI/9167 Galenica 582 CHF 620 535 6% 5% 10% 0% OZI/9167 Genmab 42.0 DKK 49.4 34.8 12% -3% 54% -12% OZI/9167 Lonza Group 34.5 CHF 61.7 34.5 -38% -27% -38% -53% OZI/9167 MorphoSys 17.0 EUR 21.5 17.0 -3% -8% -1% -17% OZI/9167 Newron 4.8 CHF 5.5 2.2 119% 93% 141% -21% OZI/9167
Construction/Building Mat. Arbonia Forster 17.0 CHF 23.2 16.4 -4%-25%-11%-49%PAP/9267 Belimo 1,740 CHF 1,870 1,680 3% -3% 13% -10% PAP/9267 Forbo 628 CHF 670 493 27% 4% 57% -10% PAP/9267 Geberit 188 CHF 199 179 4% -3% 8% -9% PAP/9267 HeidelbergCement 35.1 EUR 46.3 32.8 7% -13% 12% -27% PAP/9267 Holcim 51.6 CHF 63.0 49.6 3% -13% 1% -24% PAP/9267 Implenia 29.5 CHF 31.3 23.3 25% 7% 30% -2% PAP/9267 Kaba 332 CHF 371 328 1% -10% 3% -11% PAP/9267 Lafarge 29.7 EUR 36.8 26.2 9% -15% 10% -38% PAP/9267 Sika 1,755 CHF 2,018 1,755 -1% -11% 3% -19% PAP/9267 Zehnder 62.8 CHF 67.0 51.3 22% 4% 26% -6% PAP/9267
Consumer Discretionary Calida Group 27.0 CHF 30.0 25.0 -4% -7% 3% -9% MHE/9255 Dufry 110 CHF 125 86.4 27% 1% 21% -1% MHE/9255 Goldbach Group 21.0 CHF 26.3 20.0 3% -16% -7% -44% CBU/9259 Kuoni 282 CHF 340 219 25% -2% 11% -20% CBU/9259 PubliGroupe 143 CHF 149 128 11% 5% -1% -7% CBU/9259 Richemont 55.3 CHF 59.5 47.5 17% 0% 12% 0% MHE/9255 tamedia 102 CHF 117 100 -13% -11% -8% -22% CBU/9259 The Swatch Group 374 CHF 437 352 6% -9% 6% -12% MHE/9255 Valora 169 CHF 239 169 -14% -28% -2% -40% MHE/9255
Food & Beverage Aryzta 43.8 CHF 46.4 40.5 -4% -2% 0% -8% AVA/9257 Barry Callebaut 860 CHF 940 838 -7% -3% 3% 3% AVA/9257 Danone 51.9 EUR 54.7 46.3 7% 2% 6% 2% AVA/9257 Emmi 181 CHF 206 179 -7% -11% 7% -14% AVA/9257 Givaudan 901 CHF 914 834 1% 5% 6% -4% AVA/9257 Lindt & Sprüngli 2,821 CHF 3,000 2,651 1% 2% 1% 6% AVA/9257 Nestlé 55.0 CHF 57.2 52.8 2% 0% 8% 1% AVA/9257 Orior 48.0 CHF 50.2 46.2 -1% -2% 2% -13% AVA/9257 Symrise AG 22.7 EUR 23.7 20.6 10% 4% 14% 5% AVA/9257 Unilever 25.4 EUR 27.1 24.7 -4% 2% 1% 12% AVA/9257
Made in Switzerland + | Helvea 259
Performance statistics
SHORT & MEDIUM-TERM PERFORMANCE
As of 31 May 2012 Share Curr.YTD Absolute Analyst/ price High Low YTD -3M -6M -12M ext. %%%%
Information Technology austriamicrosystems 68.0 CHF 75.1 35.2 77% 35% 84% 51% RAM/9261 Kudelski 7.5 CHF 8.6 6.3 -12% 6% -28% -48% RAM/9261 Logitech 9.9 CHF 10.7 6.6 35% 28% 32% -6% SGA/9262 Temenos 15.6 CHF 19.9 13.7 1% -12% 3% -48% SGA/9262
Insurance Bâloise 59.9 CHF 76.3 59.9 -7% -16% -7% -33% DBI/9263 Hannover Re 43.3 EUR 46.9 37.4 13% 4% 12% 17% DBI/9263 Helvetia 271 CHF 343 271 -8% -15% -2% -28% DBI/9263 Munich Re 100 EUR 117 91.9 6% -8% 7% -6% DBI/9263 Nationale Suisse 33.0 CHF 36.3 31.7 2% -3% 7% -10% DBI/9263 SCOR 17.5 EUR 20.8 17.4 -3% -12% -1% -9% DBI/9263 Swiss Life Holding 77.8 CHF 115 77.8 -10% -25% -18% -45% DBI/9263 Swiss Re 56.0 CHF 59.2 47.8 17% 4% 17% 10% DBI/9263 Zurich Insurance Group 199 CHF 245 199 -7% -13% -1% -13% DBI/9263
Machinery/Engineering ABB 15.2 CHF 20.1 15.2 -14% -18% -12% -34% SGA/9262 Bobst 25.0 CHF 29.8 23.3 8% 4% 41% -32% VGO/9157 Bucher Industries 161 CHF 200 155 -2% -16% 4% -23% SGA/9262 Burckhardt Compression 221 CHF 262 221 -6% -10% 0% -21% VGO/9157 Georg Fischer 340 CHF 450 321 6% -21% 1% -36% VGO/9157 Komax 78.6 CHF 97.1 68.6 14% -9% 18% -26% SGA/9262 Kone 45.1 EUR 47.4 40.0 13%1%8%3%VGO/9157 Meyer Burger 15.3 CHF 19.0 13.5 4% -4% -13% -60% SGA/9262 OC Oerlikon 8.1 CHF 9.0 5.0 61% 18% 58% 15% RAM/9261 Rieter 138 CHF 198 136 -2%-26%-23%-44%VGO/9157 Schindler 107 CHF 118 106 -2% -4% -2% 0% VGO/9157 Sulzer 116 CHF 132 100 15% -11% 14% -25% VGO/9157
Medical Technology Nobel Biocare 10.2 CHF 13.5 9.8 -6% -4% -12% -45% SGO/9264 Sonova 91.0 CHF 104 84.0 -7% -10% -5% 1% SGO/9264 Straumann 149 CHF 176 141 -8% 4% -7% -36% SGO/9264 Tecan 63.2 CHF 74.5 62.7 0% -14% 9% -9% SGO/9264 William Demant 528 DKK 551 456 11% 2% 15% 8% SGO/9264
Miscellaneous Industrials Ascom 8.3 CHF 9.6 8.3 -1% -12% -3% -36% SGA/9262 Autoneum 42.5 CHF 56.8 41.8 -13% -19% -12% -58% VGO/9157 Bossard 120 CHF 146 102 18% -3% 15% -28% SGA/9262 Comet Holding AG 203 CHF 223 143 36% 15% 45% -2% RAM/9261 Daetwyler 70.0 CHF 80.0 55.0 26% -3% 27% -11% SGA/9262 Gurit 451 CHF 540 408 10% -8% 6% -30% RAM/9261 Huber+Suhner 37.6 CHF 48.8 35.8 -5%-19%-10%-42%RAM/9261 Inficon 189 CHF 222 154 23% -2% 35% -4% RAM/9261 Interroll 310 CHF 355 270 11% -7% 5% -23% RAM/9261 LEM 470 CHF 495 364 22% 4% 15% -21% MHE/9255 Metall Zug 3,700 CHF 3,850 3,520 0% -2% 9% -9% MHE/9255 Phoenix Mecano 447 CHF 576 447 -9% -19% -7% -35% RAM/9261 Schaffner 223 CHF 269 219 -2%-16%-10%-36%MHE/9255 Schmolz+Bickenbach 4.9 CHF 7.7 4.9 -8%-35%-15%-58%MHE/9255 Vetropack 1,700 CHF 1,865 1,640 4% -7% 5% -7% RAM/9261
260 Helvea | Made in Switzerland+
Performance statistics
SHORT & MEDIUM-TERM PERFORMANCE
As of 31 May 2012 Share Curr.YTD Absolute Analyst/ price High Low YTD -3M -6M -12M ext. %%%%
Pharmaceuticals Acino 111 CHF 123 100 10% 4% 20% 30% ORU/9159 AstraZeneca 2,618 GBP 3,112 2,591 -12% -7% -11% -18% ORU/9159 Bayer 51.1 EUR 57.3 50.5 4% -8% 5% -10% KHE/9258 GlaxoSmithKline 1,438 GBP 1,497 1,387 -2%4%2%9%ORU/9159 Merck KGaA 74.8 EUR 86.6 73.9 -3% -4% 1% -2% ORU/9159 Novartis 50.5 CHF 54.7 48.8 -6% 2% 3% -8% KHE/9258 Novo Nordisk 800 DKK 855 660 21% 2% 27% 23% KHE/9258 Roche 152 CHF 169 152 -5% -4% 5% 1% KHE/9258 Sanofi 55.0 EUR 59.3 53.8 -3% -1% 6% 0% KHE/9258 Stada Arzneimittel 23.0 EUR 26.1 19.3 19% 0% 11% -22% ORU/9159
Services/Transportation Adecco 37.7 CHF 49.2 37.7 -4% -17% -4% -35% CBU/9259 Bureau Veritas 69.6 EUR 69.8 55.5 24% 12% 27% 19% CBU/9259 DKSH 48.5 CHF 52.0 45.0 8% 8% 8% 8% CBU/9259 Flughafen Zürich AG 324 CHF 360 319 -1% -7% -3% -15% MHE/9255 gategroup 24.4 CHF 33.4 22.8 7% -20% 6% -42% AVA/9257 Intertek 2,645 GBP 2,652 2,035 30% 14% 37% 29% CBU/9259 Kuehne + Nagel 103 CHF 125 101 -2% -13% -7% -23% CBU/9259 Panalpina 92.3 CHF 110 86.0 -4% -16% 2% -23% CBU/9259 SGS 1,751 CHF 1,792 1,555 13% 3% 14% 4% CBU/9259
SPI 5,474 5,814 5,326 2% -4% 4% -4% DJ Euro Stoxx 600 291 327 281 -1% -9% 1% -10%
Source: FactSet
Made in Switzerland + | Helvea 261
Forthcoming events
CALENDAR OF CORPORATE EVENTS (3 MONTHS)
Date Company Sector Event Analyst
31 May 2012 MorphoSys Biotechnology/Chemicals AGM 2012 OZI 31 May 2012 Newron Biotechnology/Chemicals Full-year 2011 results OZI 05 June 2012 Aryzta Food & Beverage Q3 2012 trading update AVA 05 June 2012 Burckhardt Compression Machinery/Engineering Full-year 2011/12 results VGO 06 June 2012 LEM Miscellaneous Industrials Full-year 2011/12 results MHE 13 June 2012 Temenos Information Technology AGM 2012 SGA 22 June 2012 Metall Zug Miscellaneous Industrials AGM 2012 MHE 26 June 2012 Galenica Biotechnology/Chemicals Investor Day OZI 05 July 2012 Barry Callebaut Food & Beverage 9M 2011/12 key sales figures AVA 12 July 2012 Partners Group Banks H1 AuM 2012 TDA 13 July 2012 Bossard Miscellaneous Industrials H1 2012 first info SGA 16 July 2012 Kuehne + Nagel Services/Transportation H1 2012 results CBU 17 July 2012 Georg Fischer Machinery/Engineering H1 2012 results VGO 17 July 2012 SGS Services/Transportation H1 2012 results CBU 19 July 2012 Actelion Biotechnology/Chemicals H1 2012 results OZI 19 July 2012 BioInvent Biotechnology/Chemicals Q2 2012 results OZI 19 July 2012 Kone Machinery/Engineering H1 2012 results VGO 20 July 2012 Sulzer Machinery/Engineering H1 2012 results VGO 20 July 2012 Sulzer Machinery/Engineering H1 2012 results VGO 23 July 2012 austriamicrosystems Information Technology Q2 2012 results RAM 23 July 2012 Sarasin Banks H1 2012 results TDA 25 July 2012 EFG International Banks H1 2012 results TDA 25 July 2012 Lonza Group Biotechnology/Chemicals H1 2012 results OZI 25 July 2012 Rieter Machinery/Engineering H1 2012 results VGO 25 July 2012 Temenos Information Technology Q2 2012 results SGA 26 July 2012 ABB Machinery/Engineering Q2 2012 results SGA 26 July 2012 Autoneum Miscellaneous Industrials H1 2012 results VGO 26 July 2012 Credit Suisse Banks H1 2012 results TDA 26 July 2012 Intertek Services/Transportation H1 2012 results CBU 26 July 2012 Logitech Information Technology Q1 2012/13 results SGA 26 July 2012 Sika Construction/Building Mat. H1 2012 results PAP 26 July 2012 Unilever Food & Beverage Q2 2012 results AVA 27 July 2012 Calida Group Consumer Discretionary H1 2012 results MHE 27 July 2012 Danone Food & Beverage H1 2012 results AVA 27 July 2012 Lafarge Construction/Building Mat. H1 2012 results PAP 27 July 2012 SCOR Insurance H1 2012 results DBI 30 July 2012 Dufry Consumer Discretionary H1 2012 results MHE 30 July 2012 Dufry Consumer Discretionary H1 2012 results MHE 30 July 2012 Sarasin Banks H1 2012 results TDA 31 July 2012 Bayer Pharmaceuticals Q2 2012 results KHE 31 July 2012 HeidelbergCement Construction/Building Mat. H1 2012 results PAP 31 July 2012 Panalpina Services/Transportation H1 2012 results CBU 01 August 2012 Fresenius Medical Care Biotechnology/Chemicals Q2 2012 results OZI 02 August 2012 Acino Pharmaceuticals H1 2012 results ORU 02 August 2012 MorphoSys Biotechnology/Chemicals H1 2012 results OZI 03 August 2012 Galenica Biotechnology/Chemicals Injectafer's PDUFA date OZI 03 August 2012 Givaudan Food & Beverage H1 2012 results AVA 03 August 2012 OC Oerlikon Machinery/Engineering H1 2012 results RAM 06 August 2012 Belimo Construction/Building Mat. H1 2012 results PAP 07 August 2012 Arbonia Forster Construction/Building Mat. H1 2012 results PAP 07 August 2012 Munich Re Insurance H1 2012 results DBI
262 Helvea | Made in Switzerland+
Forthcoming events
CALENDAR OF CORPORATE EVENTS (3 MONTHS)
Date Company Sector Event Analyst 08 August 2012 DKSH Services/Transportation H1 2012 results CBU 09 August 2012 Adecco Services/Transportation Q2 2012 results CBU 09 August 2012 Bucher Industries Machinery/Engineering H1 2012 results SGA 09 August 2012 gategroup Services/Transportation H1 2012 results AVA 09 August 2012 Inficon Miscellaneous Industrials Q2 2012 results RAM 09 August 2012 Nestlé Food & Beverage H1 2012 results AVA 09 August 2012 Symrise AG Food & Beverage Q2/H1 2012 results AVA 10 August 2012 Hannover Re Insurance Q2 2012 results DBI 10 August 2012 Interroll Miscellaneous Industrials H1 2012 results RAM 10 August 2012 Phoenix Mecano Miscellaneous Industrials H1 2012 results RAM 10 August 2012 Vontobel Banks H1 2012 results TDA 14 August 2012 Forbo Construction/Building Mat. H1 2012 results PAP 14 August 2012 Galenica Biotechnology/Chemicals H1 2012 results OZI 14 August 2012 GAM Holding Banks H1 2012 results TDA 14 August 2012 Schindler Machinery/Engineering H1 2012 results VGO 14 August 2012 The Swatch Group Consumer Discretionary H1 2012 results MHE 15 August 2012 Genmab Biotechnology/Chemicals H1 2012 results OZI 15 August 2012 Holcim Construction/Building Mat. H1 2012 results PAP 16 August 2012 Basilea Biotechnology/Chemicals H1 2012 results OZI 16 August 2012 Geberit Construction/Building Mat. H1 2012 results PAP 16 August 2012 Meyer Burger Machinery/Engineering H1 2012 results SGA 16 August 2012 VZ Holding Banks H1 2012 results TDA 16 August 2012 William Demant Medical Technology H1 2012 results SGO 17 August 2012 Daetwyler Miscellaneous Industrials H1 2012 results SGA 17 August 2012 Zehnder Construction/Building Mat. Q3 2012 results PAP 21 August 2012 Flughafen Zürich AG Services/Transportation H1 2012 results MHE 21 August 2012 Goldbach Group Consumer Discretionary H1 2012 results CBU 21 August 2012 Kudelski Information Technology H1 2012 results RAM 21 August 2012 Lindt & Sprüngli Food & Beverage H1 2012 results & financial report AVA 21 August 2012 Nobel Biocare Medical Technology Q2 2012 results SGO 21 August 2012 Straumann Medical Technology H1 2012 results SGO 22 August 2012 Ablynx Biotechnology/Chemicals H1 2012 results OZI 22 August 2012 Ascom Miscellaneous Industrials H1 2012 results conference SGA 22 August 2012 Schmolz+Bickenbach Miscellaneous Industrials H1 2012 results MHE 23 August 2012 Comet Holding AG Miscellaneous Industrials H1 2012 results RAM 23 August 2012 Kuoni Consumer Discretionary H1 2012 results CBU 23 August 2012 Orior Food & Beverage H1 2012 results AVA 23 August 2012 Valora Consumer Discretionary H1 2012 results MHE 24 August 2012 Bachem Biotechnology/Chemicals H1 2012 results OZI 27 August 2012 Huber+Suhner Miscellaneous Industrials H1 2012 results RAM 27 August 2012 Metall Zug Miscellaneous Industrials H1 2012 results MHE 27 August 2012 PubliGroupe Consumer Discretionary H1 2012 results CBU 28 August 2012 Bobst Machinery/Engineering H1 2012 results VGO 28 August 2012 Bossard Miscellaneous Industrials H1 2012 results SGA 28 August 2012 Bureau Veritas Services/Transportation H1 2012 results CBU 29 August 2012 Vetropack Miscellaneous Industrials H1 2012 results RAM 30 August 2012 Emmi Food & Beverage H1 2012 results AVA 30 August 2012 Givaudan Food & Beverage H1 2012 Conference AVA 30 August 2012 Gurit Miscellaneous Industrials H1 2012 results RAM 30 August 2012 Implenia Construction/Building Mat. H1 2012 results PAP
Made in Switzerland + | Helvea 263
List of publications
LIST OF TOPICS COVERED UP FROM 2 JANUARY TO 1JUNE 2012
Company/Sector Document Date Analyst Ext.
TIC Industry NEW SECTOR FAVOURITE Sector Report 15.03.2012 CBU 9259
Insurance SWISS SMALL- AND MID-CAP INSURERS Sector Report 08.05.2012 DBI 9263
Pharmaceuticals VACCINES FOR HEALTHY GROWTH Sector Report 31.01.2012 ORU 9159
Luxury Goods RICHEMONT & SWATCH GROUP: REINITIATING COVERAGE Sector Report 04.04.2012 MHE 9255
Machinery TEXTILE MACHINERY - FEEDBACK FROM ITM 2012 (ISTANBUL) Sector Report 24.04.2012 VGO 9157
ABB DISAPPOINTING MARGINS, GOOD ORDERS Event Report 17.02.2012 SGA 9262 RE-INITIATING COVERAGE AT BUY AND CHF23 PRICE TARGET Short Report 03.04.2012 SGA 9262 Q1 2012 RESULTS REVIEW Event Report 26.04.2012 SGA 9262
Ablynx 2012 NEWSFLOW TO BE PROMINENT ON PARTNERING Event Report 05.04.2012 OZI 9167
Acino ON TRACK TO DELIVER CONSISTENT PERFORMANCE Event Report 12.03.2012 ORU 9159
Actelion EXPECTING A POSITIVE OUTCOME FOR MACITENTAN Event Report 15.02.2012 OZI 9167 MACITENTAN’S BETTER PH.II EFFICACY VS. TRACLEER Event Report 20.04.2012 OZI 9167 MACITENTAN’S QUANTUM LEAP A THREAT TO INDEPENDENCE? Short Report 02.05.2012 OZI 9167
Addex PHOENIX ADDEX RISES FROM THE ASHES – BUY Event Report 23.03.2012 OZI 9167
Adecco ENTERING DOWNTURN WITH CLEAR FOCUS ON PROFITABILITY Event Report 02.03.2012 CBU 9259 BUSINESS MIX AND PRICE DISCIPLINE HELP GROSS MARGIN Event Report 09.05.2012 CBU 9259
Arbonia Forster INVESTING IN AFG SHARES REQUIRES PATIENCE Event Report 07.03.2012 PAP 9267 FEEDBACK FROM COMPANY VISIT Event Report 05.06.2012 PAP 9267
Aryzta CONFIDENT TO DELIVER ON TRANSFORMATION Event Report 27.01.2012 AVA 9257 BAKERY BUSINESS ON THE RIGHT TRAJECTORY Event Report 13.03.2012 AVA 9257
Ascom TOO MANY UNCERTAINTIES, DOWNGRADE TO NEUTRAL Event Report 16.03.2012 SGA 9262
AstraZeneca FULL-YEAR 2011 RESULTS: PT LOWERED TO GBPP2,960 Event Report 06.02.2012 ORU 9159
austriamicrosystems UPBEAT GROWTH PROSPECTS, PT RAISED TO CHF58 Event Report 01.03.2012 RAM 9261
Autoneum FULL-YEAR 2011 RESULTS, ALMOST A PERFECT STORM Event Report 21.03.2012 VGO 9157
Bachem VISIBILITY ON DRUG APPROVALS LOW, NEUTRAL Event Report 20.03.2012 OZI 9167
Bâloise PT LIFTED TO CHF78, NEUTRAL STANCE CONFIRMED Event Report 14.02.2012 DBI 9263 PRICE TARGET AND NEUTRAL STANCE REAFFIRMED Event Report 23.03.2012 DBI 9263
264 Helvea | Made in Switzerland+
List of publications
LIST OF TOPICS COVERED UP FROM 2 JANUARY TO 1JUNE 2012
Company/Sector Document Date Analyst Ext.
Barry Callebaut VISIT TO ISM 2012, DISCUSSION WITH MR BALLI, CFO Event Report 02.02.2012 AVA 9257 H1 2011/12 SHOWS THE PRICE FOR THE HIGH GROWTH Event Report 03.04.2012 AVA 9257
Basilea POSITIVE CASH FLOW WITHIN REACH FOR 2013 – BUY Event Report 21.02.2012 OZI 9167
Bayer DOWNGRADE TO ACCUMULATE Event Report 29.02.2012 KHE 9258
Belimo READY FOR EXPANSION IN THE USA Event Report 12.03.2012 PAP 9267
BioInvent EVENTFUL 2012 – UPGRADE TO BUY, NEW PT OF SEK29 Event Report 09.02.2012 OZI 9167
Bobst LAYING NEW OPERATING FOUNDATIONS Company Report 15.03.2012 VGO 9157 FY 2011 RESULTS – FIRST VERY ENCOURAGING SIGNS! Event Report 29.03.2012 VGO 9157
Bossard STRONG RESULTS, BUT STILL SOME CYCLICAL RISKS Event Report 08.03.2012 SGA 9262
Bucher Industries FARMING MACHINERY EXPOSURE STILL ATTRACTIVE Event Report 20.03.2012 SGA 9262
Burckhardt Compression FEEDBACK FROM COMPANY VISIT Event Report 09.05.2012 VGO 9157
Bureau Veritas 2012 – A YEAR OF ACQUISITIONS Event Report 24.02.2012 CBU 9259 ACCELERATION IN ORGANIC GROWTH Event Report 04.05.2012 CBU 9259
Comet Holding AG ATTRACTIVE FCF PROSPECTS/ACCUMULATE Event Report 16.03.2012 RAM 9261 UPGRADE TO BUY, PT LIFTED TO CHF260 Event Report 02.04.2012 RAM 9261
Credit Suisse LITTLE CHANGE TO 2012 AND 2013 FORECASTS Event Report 10.02.2012 TDA 9169
Daetwyler SOLID FULL-YEAR 2011 RESULTS, PT SET AT CHF85 Event Report 21.03.2012 SGA 9262
Danone FROM A GOOD Q4/FULL-YEAR 2011 TO AN EASIER 2012? Event Report 15.02.2012 AVA 9257 STRONG Q1 2012; MOVING FROM GREEN TO BLUE Event Report 17.04.2012 AVA 9257
DKSH LEADING PAN-ASIAN CROSS-INDUSTRY MES PROVIDER Company Report 12.04.2012 CBU 9259
Dufry UPGRADE TO BUY ON INCREASED CONFIDENCE Event Report 24.01.2012 MHE 9255 HELVEA CONFIRMS BUY RATING POST 2011 RESULTS Event Report 15.03.2012 MHE 9255
Elan TIME TO TAKE PROFITS: BAPINEUZUMAB TO FAIL Short Report 18.05.2012 OZI 9167
Emmi BACK ON TRACK AFTER A CHALLENGING 2011 Event Report 30.03.2012 AVA 9257 ON TRACK TO DELIVER ON (INTERNATIONAL) TARGETS Event Report 22.05.2012 AVA 9257
Flughafen Zürich AG DOWNGRADE TO NEUTRAL WITH NEW PT OF CHF400 Event Report 22.03.2012 MHE 9255
Made in Switzerland + | Helvea 265
List of publications
LIST OF TOPICS COVERED UP FROM 2 JANUARY TO 1JUNE 2012
Company/Sector Document Date Analyst Ext.
Forbo HUGE CASH POSTION WAITING TO BE INVESTED Event Report 21.03.2012 PAP 9267
Fresenius Medical Care UPGRADE TO BUY (NEUTRAL) WITH NEW PT OF EUR66 Event Report 23.02.2012 OZI 9167
gategroup 2011 IN LINE, CAUTIOUS OUTLOOK & UNCERTAINTIES Event Report 29.02.2012 AVA 9257 ‘EVOLUTIONISED’ TARGETS AND GREATER CLARITY Event Report 26.03.2012 AVA 9257
Geberit STILL HIGH MARGINS IN 2011, Q1 2012 WILL BE TOUGH Event Report 08.03.2012 PAP 9267 FEEDBACK FROM COMPANY VISIT Event Report 30.05.2012 PAP 9267
Genmab TRANSITION PHASE TO CONTINUE IN 2012 – NEUTRAL Event Report 02.04.2012 OZI 9167
Georg Fischer 2011 RESULTS SOMEWHAT SHORT AT THE EBIT LEVEL Event Report 29.02.2012 VGO 9157
Givaudan OUTLOOK 2012 MODERATELY OPTIMISTIC Event Report 17.02.2012 AVA 9257 Q1 2012 - STRONG MOMENTUM, ELEVATED VALUATION Event Report 12.04.2012 AVA 9257
GlaxoSmithKline DISAPPOINTING RELOVAIR DATA BUT APPROVABLE Event Report 10.01.2012 ORU 9159 FULL-YEAR 2011 REVIEW: PT TRIMMED TO GBP1,620 Event Report 10.02.2012 ORU 9159
Goldbach Group TV REMAINS THE BIG CONTRIBUTOR Event Report 07.03.2012 CBU 9259
Gurit UPGRADE TO BUY Event Report 26.01.2012 RAM 9261 STRONG IMPROVEMENT IN OPERATING PROFITS Event Report 19.03.2012 RAM 9261
Hannover Re GOOD RESULTS, NEW PRICE TARGET OF EUR42 Event Report 19.03.2012 DBI 9263
HeidelbergCement HOW LONG WILL THE CYCLICAL RALLY LAST? Event Report 15.03.2012 PAP 9267
Helvetia NEW PRICE TARGET, NEUTRAL STANCE UNCHANGED Event Report 25.01.2012 DBI 9263 SOLID RESULTS; PRICE TARGET LIFTED TO CHF360 Event Report 13.03.2012 DBI 9263 UPGRADE FROM NEUTRAL TO ACCUMULATE Event Report 10.04.2012 DBI 9263
Holcim FIRST SIGNS OF MARGIN IMPROVEMENTS Event Report 01.03.2012 PAP 9267 POSITIVE INDICATIONS AHEAD OF Q1 2012 RESULTS Event Report 05.04.2012 PAP 9267 HOLCIM LEADERSHIP JOURNEY 2012-2014 Event Report 15.05.2012 PAP 9267
Huber+Suhner PROFITABILITY REMAINS UNDER PRESSURE Event Report 23.03.2012 RAM 9261
Implenia IN A BETTER SHAPE THAN EVER; REVALUATION? Event Report 07.03.2012 PAP 9267
Inficon BETTER PROFITABILITY PUSHES OUR PT UP TO CHF200 Event Report 09.03.2012 RAM 9261
Interroll HEFTY STRATEGIC INVESTMENTS DENT MARGIN TREND Event Report 26.03.2012 RAM 9261
266 Helvea | Made in Switzerland+
List of publications
LIST OF TOPICS COVERED UP FROM 2 JANUARY TO 1JUNE 2012
Company/Sector Document Date Analyst Ext.
Intertek CONTINUING ITS GROWTH PATH Event Report 06.03.2012 CBU 9259
Julius Baer Group FULL-YEAR 2011 RESULTS IN LINE, NEW BUY-BACK Event Report 07.02.2012 TDA 9169
Kaba REINITIATION OF COVERAGE AT NEUTRAL Short Report 27.02.2012 PAP 9267
Komax RE-INITIATING COVERAGE AT BUY Event Report 21.05.2012 SGA 9262
Kone STRONG 2011 RESULTS; ‘LIGHT’ GUIDANCE FOR 2012 Event Report 27.01.2012 VGO 9157
Kudelski LOW VISIBLITY ON NEGATIVE SALES TREND REVERSAL Event Report 24.02.2012 RAM 9261 UPGRADE AS INVESTOR CONCERNS ARE OVERDONE Event Report 25.05.2012 RAM 9261
Kuehne + Nagel HOW FAST CAN SEAFREIGHT RATE INCREASES BE PASSED ON? Event Report 06.03.2012 CBU 9259 FOCUS SHIFTS TO COSTS AGAIN Event Report 17.04.2012 CBU 9259
Kuoni KUONI IS DIFFERENT FROM TUI TRAVEL AND THOMAS COOK Short Report 25.01.2012 CBU 9259 VISA BUSINESS GAINING IN IMPORTANCE Event Report 21.03.2012 CBU 9259 FEEDBACK FROM ANALYSTS’ DAY Event Report 01.06.2012 CBU 9259
Lafarge POLITICAL RISKS IN AFRICA AND EUROPE REMAIN Event Report 20.02.2012 PAP 9267
Lindt & Sprüngli 2011 WEAK BUT FAVOURABLE INPUT COSTS IN 2012 Event Report 16.01.2012 AVA 9257 EXPENSIVE PLUS LACKING (RELATIVE) ATTRACTION Event Report 02.03.2012 AVA 9257
Logitech RENEWED WARNING NOT BOLSTERING CONFIDENCE Event Report 27.01.2012 SGA 9262
Lonza Group VALUATION IN TROUGH – NEW PT OF CHF51, NEUTRAL Short Report 27.01.2012 OZI 9167
Merck KGaA 2011 RESULTS REVIEW: FOCUS ON CAPITAL MARKET DAY Event Report 09.03.2012 ORU 9159 FEEDBACK FROM CAPITAL MARKETS DAY Event Report 18.05.2012 ORU 9159
Metall Zug PRICE TARGET INCREASED, BUT KEPT AT NEUTRAL Event Report 13.04.2012 MHE 9255
Meyer Burger RISKS AGAIN BUILDING WITH REGARD TO 2013 Event Report 23.03.2012 SGA 9262
MorphoSys HELVEA EXPECTS FIVE POSITIVE PH.II TRIALS IN 2012 Event Report 29.03.2012 OZI 9167
Munich Re SOLID RESULTS, PT INCREASED TO EUR110 Event Report 15.03.2012 DBI 9263
Nationale Suisse 2011 RESULTS BOOSTED BY ONE-OFF ITEMS Event Report 29.03.2012 DBI 9263
Nestlé GOOD RESULTS MOMENTUM BUT NOT CHEAP Event Report 16.02.2012 AVA 9257 GOOD Q1 2012 MOMENTUM BUT REALLY A SURPRISE? Event Report 20.04.2012 AVA 9257 PFIZER NUTRITION GREAT STRATEGIC FIT BUT COSTLY Event Report 23.04.2012 AVA 9257
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List of publications
LIST OF TOPICS COVERED UP FROM 2 JANUARY TO 1JUNE 2012
Company/Sector Document Date Analyst Ext.
Nobel Biocare ESTIMATES, PRICE TARGET CUT ON WEAK OUTLOOK Event Report 10.02.2012 SGO 9264
Novartis NEW PRODUCT STORY REMAINS INTACT Event Report 27.01.2012 KHE 9258
Novo Nordisk FLYING HIGH – DOWNGRADE TO NEUTRAL Event Report 01.03.2012 KHE 9258
OC Oerlikon STRONG H2 RESULTS, NEW PRICE TARGET OF CHF10 Event Report 06.03.2012 RAM 9261 STRONG EXECUTION OF TURNAROUND CONTINUES Event Report 30.04.2012 RAM 9261
Orior RESULTS IN LINE BUT A LACK OF ATTRACTION POINTS Event Report 24.02.2012 AVA 9257
Panalpina ONLY LOW GROWTH EXPECTED IN 2012 Event Report 08.03.2012 CBU 9259 STRONG OCEAN AND WEAK AIR FREIGHT IN Q1 2012 Event Report 04.05.2012 CBU 9259
Partners Group RETURN TO PROFIT GROWTH AFTER A TOUGH YEAR Event Report 13.03.2012 TDA 9169
Phoenix Mecano SOLID Q1 2012 RESULTS, BUT MIXED BUSINESS TRENDS Event Report 27.04.2012 RAM 9261
PubliGroupe PUBLIGROUPE IS ON THE MOVE Event Report 12.03.2012 CBU 9259 HIGH NET CASH AND REAL ESTATE POSITION Short Report 19.04.2012 CBU 9259
Richemont VERY STRONG FULL-YEAR 2011/12 RESULTS Event Report 18.05.2012 MHE 9255
Rieter INVESTMENTS FOR A NEW ERA – STRONG BUY Event Report 23.03.2012 VGO 9157
Roche PT RAISED TO CHF140 ON LOWER NWC AND CAPEX Event Report 03.02.2012 KHE 9258
Sanofi SUSTAINABLE GROWTH WITHIN REACH Event Report 21.02.2012 KHE 9258
Schindler ON THE RIGHT TRACK, BUT STILL SOME TASKS TO DO Event Report 22.02.2012 VGO 9157
Schmolz+Bickenbach 2011 RESULTS & 2012 OUTLOOK MISS EXPECTATIONS Event Report 07.03.2012 MHE 9255
SCOR STRONG RESULTS; PRICE TARGET LIFTED TO EUR23 Event Report 09.03.2012 DBI 9263
SGS STRONG GROWTH EXPECTED BUT MARGIN TO SUFFER Event Report 19.01.2012 CBU 9259
Sika WEAK MARGINS IN 2011, MULTIPLE EXPANSION Event Report 02.03.2012 PAP 9267
Sonova REINITIATING COVERAGE: ALREADY PRICED TO DELIVER Short Report 25.01.2012 SGO 9264 MANAGEMENT MEETING AHEAD OF AUDIOLOGYNOW! 2012 Event Report 27.03.2012 SGO 9264 VALUATION GAP CLOSED – UPGRADE TO NEUTRAL Event Report 23.05.2012 SGO 9264
Stada Arzneimittel UPGRADE TO ACCUMULATE ON IMPROVED VISIBILITY Event Report 02.04.2012 ORU 9159
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List of publications
LIST OF TOPICS COVERED UP FROM 2 JANUARY TO 31 MAY 2012
Company/Sector Document Date Analyst Ext.
Straumann PT REDUCED ON SLOWER EARNINGS EXPANSION Event Report 23.02.2012 SGO 9264 ECONOMIC RECOVERY – STRUCTURAL ISSUES PERSIST Event Report 26.04.2012 SGO 9264
Straumann FEEDBACK FROM CAPITAL MARKETS DAY Event Report 21.05.2012 SGO 9264
Sulzer 2011 EBIT SLIGHTLY ABOVE EXPECTATIONS Event Report 24.02.2012 VGO 9157
Swiss Life Holding 2011 RESULTS SHOW RESILIENCE TO LOW YIELDS Event Report 01.03.2012 DBI 9263
Swiss Re SOLID FULL-YEAR RESULTS, PT INCREASED TO CHF60 Event Report 24.02.2012 DBI 9263 FEEDBACK FROM INVESTORS’ DAY Event Report 18.04.2012 DBI 9263
Symrise AG SOLID Q4 2011 RESULTS – GUIDANCE FOR 2012 IN LINE Event Report 15.03.2012 AVA 9257 ACCELERATING (MENTHOL-) MOMENTUM AHEAD? Event Report 09.05.2012 AVA 9257
tamedia CHALLENGING YEAR FOR PRINT ADVERTISING AHEAD Event Report 10.04.2012 CBU 9259
Tecan YES, TE CAN! Company Report 23.02.2012 SGO 9264 TE CAN? YES, IT STILL CAN – BUY REITERATED Event Report 09.03.2012 SGO 9264
Temenos BUY VALUE, SELL GROWTH Event Report 23.01.2012 SGA 9262 MISYS MERGER TALKS – OUR FIRST TAKE IS POSITIVE Event Report 03.02.2012 SGA 9262 WEAK NUMBERS AS EXPECTED, BUY INTO WEAKNESS Event Report 23.02.2012 SGA 9262 FEEDBACK FROM TEMENOS COMMUNITY FORUM (TCF) Event Report 25.05.2012 SGA 9262
UBS PRICE TARGET TRIMMED POST FULL-YEAR 2011 RESULTS Event Report 08.02.2012 TDA 9169
Unilever MARKET NOT APPRECIATING MIXED SET OF FIGURES Event Report 03.02.2012 AVA 9257 THE EMERGING MARKET PLAY DELIVERS (AGAIN) Event Report 26.04.2012 AVA 9257
Valora ACQUISITION LOOKS FAVOURABLE££PV££ PT INCREASED Event Report 31.01.2012 MHE 9255 DOWNGRADE TO NEUTRAL, PT LOWERED Event Report 28.03.2012 MHE 9255
Vetropack BENEFITS OF INVESTMENT TO BECOME VISIBLE IN 2013 Event Report 29.03.2012 RAM 9261
VZ Holding GOOD PROFITS DESPITE DIFFICULT MARKETS Event Report 08.03.2012 TDA 9169
William Demant SOUNDS GOOD, BUT LOOKS EXPENSIVE Company Report 01.06.2012 SGO 9264
Zehnder HUGE GROWTH POTENTIAL UNTIL AT LEAST 2020 Event Report 23.03.2012 PAP 9267
Zurich Insurance Group ATTRACTIVE RETURN FROM A DEFENSIVE STOCK Event Report 16.02.2012 DBI 9263 NEW PT OF CHF236, ACCUMULATE RATING REITERATED Event Report 11.05.2012 DBI 9263
Made in Switzerland + | Helvea 269
-Contacts
HELVEA
Patrick Rosenberg CEO [email protected] +41 (0)22 354 9055
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HELVEA RESEARCH
Helvea SA Geneva Head Office +41 (0)22 354 9150
Tim Dawson (TDA) Co-Head of Research +41 (0)22 354 9169 tdawson Banks, Specialty Finance
Michael Heider (MHE) Co-Head of Research, +41 (0)43 388 9255 mheider Industrials, Retail, Luxury
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Paul Zanotelli Equity Research Editor +41 (0)22 354 9181 pzanotelli
Tel. and e-mail address – @helvea.com
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Contacts
HELVEA OFFICES
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Made in Switzerland + | Helvea 271
IMPORTANT DISCLOSURES
DISCLOSURES TO BETTER UNDERSTAND SECURITIES ANALYST RECOMMENDATIONS: Either Helvea SA or Helvea Limited (hereinafter collectively referred to as “Helvea”) is the issuer of research related presentations, publications and/or communications (hereinafter collectively and/or singly referred to as “the Document(s)”). Helvea is not a member of FINRA. Therefore, Helvea, its employees and the research analysts of Helvea who prepared this Document are not subject to FINRA Rule 2711. Helvea Inc. (hereinafter “HI") is a member of FINRA and SIPC. Rule 2711 applies only to HI. HI accepts responsibility under applicable laws for the content of this Document when it distributes the Document in the United States. Additional information on this Document is available upon request. For the avoidance of doubt, research is considered ‘published’ when it is made available on the Helvea website at www.helvea.com The Analyst(s) who have contributed to this Document certify that: (1) the views expressed in this Document accurately reflect their own personal views about any or all of the subject securities referred to in this Document and (2) no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed in this Document. Neither Helvea nor HI allows analysts to own shares in companies on which they issue recommendations. Analysts, like other staff, may hold shares in other companies which Helvea covers. This is subject to strict compliance with the Helvea Group’s internal rules governing own-account trading by staff members. The Helvea Group is satisfied that its internal policy on share ownership does not compromise the objectivity of analysts in issuing recommendations. Neither Helvea nor HI is aware of any other actual, material conflict of interest at the time of distribution of this Document. Neither Helvea nor HI did, except if it is specifically stated, for any company mentioned in this Document: a) Beneficially own 1% or more of any class of common equity securities as of the end of the month immediately preceding its Documents b) Manage or co-manage a public offering in the past 12 months, receive any compensation for investment banking services in the past 12 months and does not expect to receive or intend to seek compensation for investment banking services in the next three months. c) Act as a market maker for any stock mentioned in this Document. From time to time, Helvea sales staff may express their own personal views which depart slightly from the research recommendation expressed in this Document. Such a view does not necessarily reflect the thoughts or opinions of Helvea, and may be based on factors and time frames which are different to what Helvea’s analysts base their research on. Moreover, these views are ordinarily provided to particular clients who may have different, specific and shorter-term investment needs and strategies
RATING CATEGORIES: The following is an explanation of the ratings, if any, included in this Document.
INTERPRETATION MATRIX PER CAPITALISATION SIZE FOR EACH RATING - Expected return based on 12-month price targets - Capitalisation Large-cap Mid-cap & Small-cap Rating BUY >20% >30% ACCUMULATE 10% to 20% 15% to 30% NEUTRAL –10% to 10% –15% to 15% REDUCE <–10% <–15%
RESEARCH RATINGS KEY: • There are four possible ratings: BUY, ACCUMULATE, NEUTRAL OR REDUCE. • For each rating there is a different price target appreciation, expressed as a percentage, according to the classification of the company in one of the two investment categories into which the universe of companies covered by Helvea is divided. • The Large-Cap (L) universe comprises the constituents of the Swiss SMI Index together with those non-Swiss companies covered by Helvea. • The Mid- and Small-Cap (M&S) universe is defined to be all other shares under coverage. EXAMPLES of certain ratings: • BUY/M&S: a company that belongs to the Mid-cap & Small-cap universe where Helvea expects the stock to appreciate more than 30% over the next 12 months. • ACCUMULATE/L: a company that is an SMI member or a part of Helvea’s non-Swiss coverage universe where Helvea expects the stock price to appreciate by between 10% and 20% over the next 12 months. DISTRIBUTION OF RESEARCH RATINGS
BUY ACCUMULATE NEUTRAL REDUCE 22.4% 19.0% 57.8% 0.9%
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