Ticker: IP-IT / IP.MI Industry: Industrial Machinery
Interpump Group SpA World leader in high-pressure plunger pumps
Milan, 28th February 2019 CFA Research Institute Challenge| JIT – Financial Advisors BUY Target Price: € 33.49 Upside potential: 18% Share price (Feb.27): € 28.44 Profitability M&A Management Attracting Top • One of the strongest • Strong M&A growth • Experience International among peers • Successful • Competence Investors • Special products and transaction • Talented engineers • Fidelity (5.5%) special components • Soft integration • Vanguard (2%) • Potential policy • Templeton (1.4%) profitability growth • Significant synergies • …
Source: Company Data, Team assessement Business Description Financial Analysis 3 Industry Overview Valuation
Fulvio MONTIPÒ Paolo MARINSEK Giovanni TAMBURI Chairman & Co-Chief Executive Vice Chairman & Co-Chief Executive Director of Interpump and Chairman Officer Officer IPG Holding srl Founder of Interpump Tenure IPG: 14 y Previous Experience: Further BOD seats: Tenure: 41y Fiat, Maserati, 15y Moncler, Ferrari, Amplifon, FCA
Source: FactSet, Company Data Business Description Financial Analysis 4 Industry Overview Valuation 2004 IPO 1997- 1999- Disvestiture 2001 of cleaning 2005 1996 1998 sector
2007
2013- 2010 2008- 2011- Disvestiture 2014 of the 2009 2012 electric motors 2015
2016 2017 2018 2019
Source: FactSet, Company Data €325.6m €68.7m €35.9m Revenues EBITDA Net Income IPG FTSE MIB EU-DS Market Index FTSE STAR Peers +21.6% +21.1% -1.8% Vs. Q4-17 Vs. Q4-17 Vs. Q4-17 25,00% 4Q-18
20,00% €289m €173.2m EBITDA Net Income €1,279 m 15 %
Revenue 22.6% 13.5% ROCE 15,00% Margin Margin
FY2018
10,00%
[CATEGORY NAME] 5,00% [PERCENT AGE] [CATEGORY 0,00% NAME] [PERCENT AGE] -5,00% 3Y CAGR 5Y CAGR 10Y CAGR
Business Description Financial Analysis Source: Company data 6 Industry Overview Valuation *As a percentage of FY2017 Revenues Hydraulics 64%*
Rigid Pipes & Pipping Power take-offs Cylinders Oil Tanks Valves Rubber-hoses Metallic flexible hoses 24/7 Service & Repairs system Water-Jetting 36%* High-pressure plunger pumps Flow Handling Components
Production and rental of High-pressure pumps (up to Homogenizers for food, Pumps, mixers, components Plunger pumps high flow/ Specialized solutions for Mixers and agitators Magna- high-pressure pumps and 1,500 HP – 4500 bar/65K cosmetics, and for food, cosmetics and high pressure (1~450 HP) steel and mining industry Safe® magnetic transmission complete systems PSI) pharmaceutical industry pharma
Business Description Financial Analysis Source: Company Data 7 Industry Overview Valuation
North America
3.86% CAGR 14.73% CAGR
Italy
36% 21.43% CAGR 35% 8% 13.91% CAGR 33% 10% 24% Rest of Europe 10% 22% 12.09% CAGR 22.61% CAGR
Far East & Oceania
7.62% CAGR 13% 31.76% CAGR 9% Rest of the World
12.00% CAGR 6.57% CAGR Source: Company Data (FY 2017) Business Description Financial Analysis 8 Industry Overview Valuation Source: FactSet, Company Data, apnews.com, hydraulicspneumatics.com, businesswire.com Industry 5Y CAGR End Markets
Automotive 7% Construction 8% Food/Pharma & Cosmetics HPP +3% 21%
Flow Handling: Food, Other +10% 29% Cosmetics and Pharma Cleaning 20%
Contractors PTOs +5% 15% Truck Manufacturers 8% Other 9% Valves +4.14% Industry 9%
Construction Truck Outfitters Cylinders +4.39% 9% 28%
Lifting 10% Hoses Agriculture Earth moving +4.8% 11% 16%
Business Description Financial Analysis 9 Industry Overview Valuation Water-Jetting Hydraulics
Mkt size: €1bn Niche market Premium pricing Mkt size: €40bn A fast-growing global player
12% 25%
10% 20%
8% 15%
6%
10%
4% CAGR
CAGR 5%
- -
2%
5Y 5Y 0% 0% -10% -5% 0% 5% 10% 15% 20% 0% 3% 5% 8% 10% 13% 15% 18% 20% 23% 25% -5% -2%
-4% -10%
-6% -15% EBITDA margin EBITDA margin
Source: FactSet, Company Data and Team estimates Business Description Financial Analysis 10 Industry Overview Valuation ROIC Sales growth EBITDA margin Net income margin
IPG Hydraulics peers Water-Jetting peers 40,00% 30,00% 14,00% 12,83% 12,00% 12,37% 12,59% 33,17% 10,09% 35,00% 25,00% 12,00% 10,00% 25,00% 23,00% 10,17% 30,00% 21,96% 20,63% 10,00% 7,58% 8,00% 25,00% 20,00% 8,00% 17,74% 6,00% 20,00% 17,02% 15,00% 6,00% 15,00% 4,00% 10,00% 8,00% 10,00% 4,00% 2,00% 5,00% 3,12% 2,00% 5,00% 0,00% 0,00% 0,00% -5,00% 0,00% -2,00% -2,00% -10,00% -4,00%
-15,00%
PEERS
Source: FactSet, Company Data and Team assessment
Business Description Financial Analysis 11 Industry Overview Valuation Track record of profitable growth
Increased focus on R&D
Tailor-made products for complex customer needs
Growth opportunities in emerging markets
Strong diversification of the business
Valuable brand reputation
Expansion into sectors with low cyclicality
Source: Company Data and Team assessment Business Description Financial Analysis 12 Industry Overview Valuation €€ in in M M 1.647 1.647 1.615 1.615 1.600 1.537 1.537 HISTORICALLY: 1.424 1.424 - Intensive M&A 1.400 1.271 1.271 - Broader range of
1.200 products 1.086 1.086 1.000 923 895895 923
800 FORECAST: 672 672 - Double-digit growth in 600 528 556 600 528 2017
400 - Decreasing growth 2018-2023 down to 200 200 industry average
0 0 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E Source: Company data and team estimates 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E
Business Description Financial Analysis 13 Industry Overview Valuation Historical Forecast Cost Bridge FY2017 100% 18.04% (avg. 2012-2017) (2018-2022) 100,00% 90,00% 4.30% 0.73% 80,00% 24.85%
COGS 37.9% 70,00%
60,00% 16.56% 50,00% Service Costs 17.7% 40,00% 35.32%
30,00% Personnel 24.8% 20,00% Costs 10,00%
0,00% D&A 5.9% Sales Costs of Services costs Personnel Other D&A Ebit Revenue goods sold costs Operating income Source: Company data and team estimates EBIT 15.9%
Business Description Financial Analysis 14 Industry Overview Valuation [CATEGOR Y NAME] [PERCENT AGE] OPERATING WORKING CAPITAL [CATEGOR Y NAME] CCC 291 days [PERCENT AGE] Breakdown 2017 Forecast
CAPITAL EXPENDITURE DIO - 273 days • 5% of Revenues DSO - 80 days
DPO - 62 days DEBT
• 40% of Capital Employed
Source: Company data and team estimates Business Description Financial Analysis 15 Industry Overview Valuation DCFF €33.49
Multiple €33.51
Sensitivity €28 - €41
Source: Company data and team estimates Business Description Financial Analysis
Industry Overview Valuation (€ 000) 2018E 2019E 2020E 2021E 2022E Terminal Value FCFF 49,322 116,248 138,703 159,008 177,164 4,202,492 DCFF 49,322 109,358 122,749 132,379 138,753 3,291,348
Risk-Free rate 2.50% Enterprise Value 3,843,909,000 Cost of Debt 3.25% MV of Debt (2018) 287,300,000 Adjusted BETA 0.8243 MV of Equity 3,556,609,000 Cost of Equity 8.32% Shares Outstanding (2018) 106,200,000 WACC 6.30% Target Price €33.49 Growth Rate (TV) 2.00%
Source: FactSet, Company Data and Team assessment Business Description Financial Analysis 17 Industry Overview Valuation PEERS P/E P/EG Interpump Group SpA EATON 16.99 1.91 EPS & EG 1.47 17 SPX 37.44 4.13 Target Price 34.63 32.39 PH 17.24 1.86 AVERAGE €33.51 GEA 30.54 2.59
Alfa Laval 27.33 1.70
Sulzer 23.18 n.s.
Bucher 23.56 n.s.
median 23.56 1.91
PEERS
Source: FactSet, Company Data and Team assessment Business Description Financial Analysis 18 Industry Overview Valuation WACC 5.70% 5.90% 6.10% 6.30% 6.50% 6.70% 6.90% 1.40% € 34.08 € 32.43 € 30.92 € 29.53 € 28.26 € 27.08 € 25.98 1.60% € 35.68 € 33.88 € 32.24 € 30.74 € 29.36 € 28.09 € 26.92 1.80% € 37.45 € 35.48 € 33.69 € 32.05 € 30.56 € 29.19 € 27.93 2.00% € 39.41 € 37.23 € 35.27 € 33.49 € 31.87 € 30.38 € 29.02 2.20% € 41.59 € 39.18 € 37.02 € 35.06 € 33.29 € 31.68 € 30.21
Terminal Growth 2.40% € 44.04 € 41.35 € 38.95 € 36.80 € 34.86 € 33.10 € 31.50 2.60% € 46.80 € 43.78 € 41.11 € 38.73 € 36.59 € 34.66 € 32.90
Source: Team assessment Business Description Financial Analysis 19 Industry Overview Valuation
High
Medium
Low
Low Medium High
Source: Company data and team estimates Business Description Financial Analysis 20 Industry Overview Valuation 32,50 €
27,50 €
22,50 €
17,50 €
12,50 €
7,50 € 02/2014 10/2014 06/2015 02/2016 10/2016 06/2017 02/2018 10/2018
Source: FactSet, Company data, Team assessment
M&A Innovation Cost Advantage Diversification
Targeted Acquisitions Strong focus on R&D Reduction COGS Product range Talented Engineering Capitalization of Raw Competitive Position Customer base Team Materials Investment in Emerging Application set of its Significant synergies Production flexibility Markets products
Business Description Financial Analysis 21 Industry Overview Valuation