Gruppo Banca Leonardo
June 23 2009
Benetton Group UNDERWEIGHT A fancy color diamond Target price €5.4 (from previous TP €5.0) Benetton Group is one of the main global players in the apparel business, present Current price €6.3* in 120 countries with over 6,200 stores and five brands. In 2008 the business was *Price as of June 18 2009 re-focused on four strategic priorities: 1) accelerating expansion in five key emerging countries; 2) pursuing growth in consolidated markets; 3) developing Outstanding shares (m) new commercial initiatives; 4) evolving the culture of the organization. Starting 183 from 2008 the company has also adopted a new approach focused on the final Mkt. Cap.(€m) consumer, leveraging on the wholesale business model with a sell-out approach. 1,156 Due to the changed economic environment the company also adopted in 2009 a Avg. daily volumes (30 days) reorganization plan focused on boosting the commercial business, on optimizing 251,600 shares the supply chain and costs, and on cash generation, aimed at motivating the Main shareholders network and re-thinking the supply chain processes to create a lower cost base. Edizione 67.1% Even if we appreciate the reorganization plan and the new company approach to Reuters / Bloomberg the market, we remain cautious given the low visibility on future consumer trends. BEN.MI / BEN IM UNDERWEIGHT with a €5.4 target price. Last 12 months Catalysts High: €8.3 Low: €4.4 1) Unfavourable macroeconomic conditions; 2) pressure on sales and margins; 3) business proposition "quality at an accessible price"; 4) new sell-out approach; 5) reorganization plan; 6) potential new consumers from trading-down trend; 7) new commercial initiatives (i.e. menswear, baby and childrenwear, accessories). Earnings trend 12-month share performance Benetton Group We estimate a -0.6% CAGR 2008-11e for revenues, -5% for EBIT and -8% for 8.50 FTSE Italy All Share net profit. The reorganization plan should bring in structural savings of ca. €50- 8.00 MSCI Europe 70m on a 12-month base (therefore partly also in FY09) to be reinvested in the 7.50 7.00
commercial business and partially balancing the reorganization costs. 6.50
6.00
Valuation 5.50 Our DCF model, based on a perpetual growth rate of +2% (unchanged) and a 5.00 10.4% WACC (from 10.7%), returned a target price of €5.4 (implicit P/E09e 4.50 4.00
of 9.9x). 3.50
3.00 Risks JJASONDJFMAMJ 1) Aggressive competition driven by price policies by competitors; 2) worse- June 19 2009 Source: DATASTREAM ning of the macroeconomic scenario; 3) lower-than-expected benefits from the reorganization plan; 4) lower-than-expected growth in emerging markets; 5) financially distressed clients; 6) increasing debt. 2007 2008 2009e 2010e 2011e Performance 1M 3M 12M EPS € 0.80 0.85 0.54 0.60 0.66 Absolute (%) 2 22 -22 YoY growth % 15.8 6.6 -35.9 9.8 9.9 Dividend € 0.40 0.28 0.18 0.20 0.22 To FTSE Italy All Share (%) 4 -11 14 P/E × 15.6 7.5 11.6 10.6 9.6 Dividend Yield % 3.2 4.4 2.8 3.1 0.0 To MSCI Europe (%) 2 2 12 PEG × 1.2 EV/sales × 1.3 0.9 0.9 0.9 0.9 EV/EBITDA × 8.1 5.4 6.1 5.7 5.3 Source: Datastream EV/EBIT × 11.2 7.5 9.8 8.9 8.2 EV/capital employed × 1.4 0.9 0.9 0.8 0.8 ROE % 10.5 11.3 6.8 7.1 7.4 ROCE % 13.1 12.5 9.6 10.0 10.2 Debt/Equity × 0.3 0.5 0.5 0.4 0.4 Paola Pecciarini FCF Yield % -1.3 -4.2 2.6 3.9 3.5 Tel. +39.02.72206.604 [email protected] Source: Company data, GBL estimates NOT FOR DISTRIBUTION IN CANADA, AUSTRALIA OR JAPAN Italian Luxury & Consumer Goods June 23 2009
SWOT Analysis
Chart 1 - BENETTON GROUP: SWOT Analysis
Strengths Weaknesses