Initiation of coverage
ABITARE IN BUY Tailor -Made Growth Target Price: 60,0€
14 October 2020 Upside: +32%
Innovation Serving the Residential Sector Market Data Sector Real estate development Founded in 2015, AbitareIn is an Italian property developer operating Price (€) 45,4 solely in Milan's residential segment. A resolutely innovative player, Market cap (M€) 116,0 Market AIM Italia AbitareIn is one of the sector’s few players to have taken advantage of Bloomberg ABT-IM new technologies to completely industrialise and digitise the entire construction process. This major competitive advantage enables it to offer Shareholders Luigi Francesco Gozzini 23,2% its clients fully customisable properties while benefiting from significant Marco Claudio Grillo 18,0% economies of scale. Assuming its responsibilities to the environment, the Kairos Partners SGR 5,8% Gaudenzio Roveda 5,0% group positions itself exclusively on urban renewal projects, thereby Free float 48,0% significantly limiting the environmental impact. M€ (31/12) 2019 2020e 2021e 2022e Milan, an Ideal Playground for Real Estate Developers Sales (M€) 44,6 100,6 145,6 163,1 Change -9,1% 125,7% 44,7% 12,0% The Milan property market is extremely buoyant, marked by a structural EBIT 10,8 12,1 35,6 44,8 deficit between strong demand, constantly fed by dynamic demographic EBIT margin 25,4% 12,5% 24,8% 27,8% Net Income Group Share 6,4 6,1 21,0 26,9 growth, and a still largely insufficient offer, an imbalance which EPS 2,5 2,4 8,2 10,5 irremediably pushes prices upwards. This favourable dynamic is not likely Change in EPS 149% -12% 586% 229% Dividend (€) 0,0 0,0 0,0 0,0 to fuel a speculative bubble as confirmed by the UBS Global Real Estate Yield ns ns ns ns Bubble Index 2020. The important availability of land, inherited from its FCF -21,8 -8,1 -5,5 77,8 past as an industrial city, still offers great prospects for development. ROCE 10,7% 22,5% 47,8% 44,2% VE/CA (x) 1,6 1,1 0,5 Demand is such that even the health crisis is not likely to jeopardise this VE/ROC (x) 13,0 4,5 1,9 dynamic. PER (x) 19,1 5,5 4,3 Net Debt 32,1 40,2 45,7 -32,1 A Low-Risk, Extremely Profitable Model Gearing 67,7% 75,1% 61,3% -31,6% Midcap Partners estimates In addition to its complete control of the value chain, AbitareIn stands out for its ability to optimise land prices, particularly by positioning itself well Next event : 2020 Net results upstream with regard to sites. The projects it develops are therefore very Record of recommandations profitable, with margins of between 20 and 30% on each one. This level of Date Recommandation 10/14/2020 Buy profitability goes hand in hand with a well-controlled risk, with the group striving to maintain a simple philosophy: sell before building. The projects' quality, combined with an effective marketing approach, means that 100% Analyste: Florian CARIOU Email: [email protected] of the projects have been sold before the start of construction. This Tel: +33(0)178957165 security also enables it to optimise its financing, with a minimum mobilisation of equity for leverage, thereby enabling it to post very high ROI. A Significant Pipeline undervalued The group's prospects for the coming years are already secured by a solid pipeline of 17 projects, all positioned in the most dynamic areas of the Lombard capital. Over the next five years, this represents a potential turnover of at least €1.0bn and an EBIT close to €250m, enough to further consolidate its leadership position. Our conservative valuation resulting from the discounting of expected dividends for each project already marketed comes out at €60 per share. In this respect, we initiated the coverage of AbitareIn with a Buy rating.
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Table of Contents
I. OVERVIEW ...... 3
II. Key Indicators ...... 4
III. AbitareIn, the Innovative Milanese Developer ...... 5
A. In the heart of Milan’s transformation ...... 5 B. DNA for Innovation ...... 6 C. Controlled Risk for Maximum Profitability ...... 7 D. HOMIZY, the Future Growth Driver ...... 9
IV. Milan, an Important Growth Reserve ...... 11
A. An Extremely Buoyant Market ...... 11 B. Little Affected by the Health Context ...... 13
V. Development Assured by a Deep Pipeline ...... 15
A. Finished Projects ...... 15 B. A Significant Number of Projects Already Sold ...... 16 C. A Large Reservoir of Growth Already Assured ...... 19
VI. An Attractive Financial Outlook ...... 21
VII. A Largely Undervalued Pipeline ...... 23
VIII. Annexes...... 25
IX. Market Data ...... 26
X. Financial Data ...... 28
Disclaimer ...... 30
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I. OVERVIEW
Description Shareholders Founded in 2015, AbitareIn is an innovative Italian property developer focusing exclusively on residential construction projects in Milan. A player in urban renewal, the group is positioned exclusively on sites occupied by former warehouses and derelict industrial sites. Listed on the AIM Italia stock exchange since April 2016, the group is also classified as an "innovative SME".
The group' s legal structure Business trends for 2017-2020
SWOT Analysis
Strengths Weaknesses
Strong expertise in the Milanese market Innovative model allowing significant Project development time economies of scale The group's structure as an SPV leads to Use of new technologies (BIM) to offer a high volatility in consolidated results, which wide range of customisation possibilities to are determined by the progress of the customers various projects Low environmental impact Large, safe pipeline at attractive prices
Opportunities Threats
Rising land prices
Risk of delays on launches due to Favourable demographic trends in Milan administrative slowness High availability of land Construction cost pressures accentuated Increase in selling prices by COVID-19 Upcoming listing on the STAR segment Rising interest rates Sources: ABITAREIN, Midcap Partners Estimations
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II. Key Indicators
Graph 1: Evolution of the number of real estate transactions Milan Milan Region
412
310
59
046
56
521
707
53
24
978
23
542
261
21
164
43
920
035
40
39
37
900
18
140
645
15
15 14
2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018
Source: PwC Graph 2: Evolution of average sales prices per sqm in Milan since the end of 2016
+28% in 3 years
Source: Immobiliare.it
Graph 3: Still one of Europe's cheapest city - price per sqm
Source: Immobiliare.it
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III. AbitareIn, the Innovative Milanese Developer
Founded in 2015, AbitareIn is an Italian property developer operating exclusively in the residential segment in Milan. In an extremely buoyant market, highlighted by a structural supply deficit in the face of constantly rising demand, AbitareIn has quickly established itself as a major player in this niche market. In addition to its in-depth knowledge of the Milanese market, the group has been able to stand out through an innovative approach, rare in the sector, marked by the intensive use of new technologies to industrialise the construction process and offer its customers completely tailor-mades apartments.
A. In the heart of Milan’s transformation
As a responsible real estate developer, the group works to develop residential projects with a low environmental impact. In a sector that is generally little recognised for its virtuous nature, AbitareIn has chosen from the outset to position itself on urban regeneration projects, developing new-buildings only in areas occupied by old abandoned warehouses and factories in the Milan metropolitan area.
In addition to its obvious interest in optimising unused space to meet the substantial need for new housing, this positioning above all enables the group to benefit from a large reservoir of potential development. Indeed, although Milan remains significantly less densely populated than most major European cities, the question of land availability naturally remains an important issue. As a former industrial power, it should thus be noted that around 30% of the urbanised surface area of the Lombard capital is still occupied by disused industrial complexes, thus representing as many potentially constructible surfaces for AbitareIn. For example, the municipality of Milan has identified more than 180 derelict areas in the urban area with the obligation to intervene in the coming years, representing a surface area of almost 2.0 million sqm that is potentially constructible, i.e. more than 30,000 housing units, enough to largely feed AbitareIn's future pipeline.
Specialising in urban regeneration projects also enables it to benefit from much more attractive land prices. In fact, given that the development time for these projects is relatively longer due to the need for demolition and possibly the servicing of spaces before the construction phase, land prices are logically lower than for sites that are immediately constructible, with also much less competition. On average, land represents only 10% of the selling price of the projects developed by the group, compared with 20% to 25% on average in France. Controlling the land deal, a key factor in the developer’s success, enables it to offer affordable properties to first-time buyers, AbitareIn's core target group, while maximising its profitability.
Moreover, always mindful of limiting its environmental footprint as much as possible, each project developed by AbitareIn involves the creation of more green spaces than before, made possible by the densification of building surfaces. This means that, in the end, between the reuse of unused space for the creation of affordable housing and the contribution to the greening of the Milan metropolitan area, the group checks all the boxes to obtain an important local consensus, thus limiting quite significantly the risk linked to obtaining the necessary authorisations to launch its various projects.
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B. DNA for Innovation
In addition to being a responsible player, AbitareIn also stands out for its resolutely innovative character, especially regarding the processes. The group is indeed one of the rare actors in this sector to have appropriated new technologies for the digitalization and industrialisation of the entire construction process. This ambition started at the beginning with the group’s two founders, both coming from a background in information technologies. Labelled an "innovative company", AbitareIn devotes a significant part of its investments to R&D every year (more than €500k invested last year).
The group's main innovation concerns the development of a proprietary software PRODECTO; an ERP based on the integration of different technological platforms such as BIM (Building Information Modelling) and SalesForce. This software enables the group to internalise and digitalise all the resources required for the construction process. The possibilities offered by PRODECTO are in fact vast: from the architectural design of buildings to the complete management of the sales process, including the planning of the different stages of construction for an optimisation of deadlines, real-time control of costs and therefore of margins and above all the possibility of complete customisation of each flat by the clients. A major competitive advantage, this software enables AbitareIn to control the entire value chain. Adaptable to all types of real estate projects, PRODECTO is also a source of significant economies of scale.
The many possibilities offered by PRODECTO
Source: Company
One of the keys to the success of the AbitareIn model lies above all in the great personalisation possibilities offered to buyers, while remaining competitive in terms of selling prices. The degree of personalisation possible is high, with the group even entering into partnerships with furniture suppliers for the furnishing of flats, thus making it possible to offer truly tailor-made properties, a service generally only available for luxury real estate. The configuration of the flats is carried out online directly by the customers via its proprietary software. Of course, with a view to industrialising the processes and thus benefiting from economies of scale, personalisation works via defined options, rather like the methods used in the automotive industry. The flexibility of building design also allows customers to change their options even late in the process, even when construction has already begun. This ability to offer tailor-made goods reflects the group's desire to place the customer at the heart of its development strategy.
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The importance of customer care is also reflected in the group's marketing strategy, optimised thanks to SalesForce CRM in place since 2017, and directly connected to its ERP PRODECTO. This software enables the group to improve its customer knowledge, optimise the follow-up of each file from the initial configuration to delivery, ensure after-sales service and also significantly increase the effectiveness of its sales campaigns. The group reports that since the implementation of this CRM, the conversion rate has increased by 50% for each sales campaign.
The sales strategy implemented by the group is original and particularly effective. Indeed, AbitareIn organises relatively short sales campaigns, often during special events dedicated to each project. Each project developed by the group is the subject of its own marketing via a fully dedicated website and an active campaign on all social networks. The group's marketing strategy is therefore essentially digital but is also complemented by a showroom in Milan where potential buyers can visit the properties in virtual reality. The marketing budget allocated to each project is relatively high, representing on average up to 3% of the selling price, but is bearing fruit. All sales campaigns carried out by the group to date have been successful, with demand far exceeding the number of properties available for sale. This significant over-marketing of programmes also reduces the risk of potential cancellations by buyers.
The innovative dimension of the group's marketing approach has recently taken a further step forward with the launch of an online flat sales platform, rather like an e-commerce site, a practice that is certainly unique in the sector. The complete digitalization of the sales process therefore makes it possible to optimise, or at least to make its costs much more variable, since the structure operates without physical sales agencies and without any great need for a sales force either.
Finally, customer follow-up remains important for the group, even after the project has been delivered. This involves firstly active communication on social networks, but also the regular newsletter to its subscriber base, particularly with a view to encouraging word-of-mouth for future commercial events. The projects’ quality combined with its high level of customer service allows AbitareIn to reinforce its reputation in the market, a key factor of success for the real estate developers, even more so for the young players, notably with a view to facilitating future administrative procedures with the local authorities for the development of new projects.
C. Controlled Risk for Maximum Profitability
The group's legal organisation is quite original, designed to minimise operational risk. Indeed, each new project corresponds to the creation of a unique SPV, wholly owned by AbitareIn, with a lifespan directly modelled on that of the building programme being developed. These vehicles are completely autonomous financially, thereby avoiding the risk of interdependence between the group's various projects. Debt is therefore directly housed within the SPV and not at the level of the parent company. At the end of the project, a dividend is then paid to AbitareIn and the SPV is thus closed.
The Italian developer's business model is somewhat different from the ultra-secure model known in France with the VEFA. For the record, in the case of French developers, land purchases are made through options, exercised only if all the conditions to which the transfer is dependent, are met. These conditions include obtaining all the necessary authorisations and a minimum pre-marketing rate (generally at least 50%). The VEFA model then allows developers to draw on the purchasers' funds at each predefined stage of the project construction’s advancement. This corresponds to the gradual transfer of ownership, thereby significantly limiting capital requirements. In Italy, there is no equivalent to this type of contract. While it is possible to obtain a down payment from the buyers at the beginning
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of the project, full payment is only made once the final notary deed is signed, that is, on delivery. The activity is certainly much more demanding in terms of WCR and therefore capital-intensive, but it is therefore logically much more profitable. When an operating margin of 10% is considered normative for French real estate developers, it is a profitability of around 25% to 30% that is generated on average by AbitareIn on its projects.
Graph 4: The group’s legal structure
Source: Company
Developing urban regeneration projects involves a relatively long process from the project initiation to its delivery. On average, it takes the group an average of one year to obtain authorisations, sometimes much longer, before a phase of around 30 months for the demolition of existing facilities, the servicing of the land and the construction of the residential programme. This relatively long lead time therefore justifies significant margins per project.
As previously mentioned, the group's high profitability is explained firstly by its ability to position itself on land with high potential, all located in the most dynamic areas of Milan, at attractive prices (the price of the land corresponding to only 10% of the programme price). By being positioned on high- potential sites at a very early stage, the group is able to significantly optimise its margins, as the trend in selling prices in Milan is structurally upward. In addition to this optimization of land prices, the industrialisation of the construction process made possible by its internal PRODECTO platform also enables it to keep its costs and therefore its margins under control. If the personalisation offered to buyers initially implies slightly higher production costs than most of its competitors (around 5%), this difference is gradually made up for by an increased number of projects. As the group is still relatively young, it is still on a learning curve. The challenge for the next few years will be to find the right compromise between its customisation model and a reduction in construction costs, certainly by introducing a greater dose of standardisation in the modules.
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As the project’s developer, AbitareIn only subcontracts the construction to third parties. The group selects the builders through a rigorous call for tenders, always favouring the best players to guarantee the work’s quality, even if it means agreeing to slightly higher construction costs. The group thus selects general contractors with an appropriate size, those who generate minimum revenue of between €30.0m and €50.0m per year. Priority is given to companies preferably exercising the major part of their activity in residential construction with a significant share of their revenue generated in Milan and preferably with no presence in public works.
In addition to complete control of the entire value chain, enabling it to maximise its profitability, the group is also working to fully control its risk. Here, the group's philosophy is simple: sell before building. The personalisation possibilities offered to buyers also lend themselves perfectly to a sale based on plans. All of the projects developed by the group are thus marketed before the start of operations, sometimes even before buying the land, if the owner agrees. Although the prerequisite for starting construction is to obtain at least 70% of sales, in fact all the projects previously launched and/or completed have all been sold at 100% before the start of work, a further sign of the relevance of the group's positioning. Selling before the start of construction therefore makes it possible to avoid the risk of a sudden turnaround in the cycle, as the viability of the project is assured. Another not insignificant advantage is that this specific feature also makes it much easier to complete project financing: i/ firstly, because a fairly significant down payment is made by buyers at the time of booking (on average 30% of the total price) and secondly, ii/ because banks are more easily inclined to grant additional financing as the projects are secured. By minimising its equity contribution in favour of maximising its bank leverage, AbitareIn significantly optimises the ROI of each project developed.
D. HOMIZY, the Future Growth Driver
While property development remains AbitareIn's core business and will carry its prospects for the coming years, the group also intends to diversify and to develop new growth drivers. Thus, at the end of last year, the group announced the creation of a new structure, Homizi, designed to address the quite buoyant co-living market.
The business model of this new activity will be radically different from that of its core business since the group will move from a "sell before you build" model to a "build to rent" model. The group's idea is indeed to develop new residential real estate programmes specially designed for a co-living experience, notably by fitting out communal living spaces, benefiting from AbitareIn know how and technological platform. Homizy will therefore remain the owner of the buildings developed and will be remunerated by renting out the flats, in the same way as a residential property company. Although this activity will logically be much more capital-intensive than the development activity, it will have the advantage of being also much more recurrent. Unlike office rental, which is much more cyclical, residential rental is structurally much more stable over time.
Regarding this new activity, the group is basing its assumptions on a stock of 3,000 housing units, the threshold to reach a critical mass and guarantee a leading position in this nascent market. Meaning that with an all-inclusive monthly rent of between €550 and €900, the potential revenue of this business over time would therefore be between €20m and €32m per year. Homizi's target population is all students and young people aged between 18 and 35 years old, living outside their home region. In view of the structure of the Milanese population, which is relatively young, with an increasing number of students, we believe that the addressable market is quite large.
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To reach this size, the group estimates its financing requirements at about €175m, split between equity and bank financing. In view of the riskier profile of the operations that the group is currently developing, this activity should logically be a little more demanding on its resources than the activity of a pure developer. However, the risk will continue to be measured and absolutely not so as to impact the developments undertaken in its core business, since like all the group's projects, Homizy will remain an independent structure with its own financing. The structure also carried out a capital increase last April for €12.0m based on a pre-money valuation of €34.4m.
Graph 5: Milan, a relatively young, student-heavy city population
Milanese population breakdown by age Number of students in Milan - 2020 group - 2020
0-9 ans Université de Milan 10-19 ans 7% 2% 8% 20-29 ans 14 700 10% 9% Université 30-39 ans 33 739 61 693 polytechnique 10% 40-49 ans Université catholique 10% de Milan 50-59 ans Université Milano- 39 593 Bicocca 14% 60-69 ans 15% 45 543 70-79 ans Bocconi 16% 80-89 ans 90+ ans
Sources: Citypopulation, Statista, Bocconi
Surfing on the trend of shared consumption, co-living offers, in our opinion, extremely interesting growth prospects for the years to come. This new product could indeed be a relevant response to the tensions currently experienced by the Milan property market. The strong demographic growth experienced for several years by the Lombardy capital has in fact caused the need for housing to take off. Between a still insufficient number of new constructions to absorb demand and the growing cannibalisation of the properties available for rent by Airbnb, the offer developed by AbitareIn could thus rapidly meet its demand. In view of the group's strong focus on customer care, it is not inconceivable that Homizy's future customers could subsequently become AbitareIn's future customers in the property development business. By diversifying its offer, AbitareIn is thus positioning itself as a more global player in the residential property market, supporting its customers for a part of their real estate life cycle.
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IV. Milan, an Important Growth Reserve
As previously mentioned, all of AbitareIn’s business takes place in Milan. Although this positioning may at first glance seem limited, the Lombard capital is nevertheless an ideal playground for property developers. A dynamic economic activity, a very favourable demographic trend, a still low population density and above all significant land reserves, Milan does represent a significant reservoir of growth for the players in residential real estate.
A. An Extremely Buoyant Market
Milan is above all a very dynamic economic centre. The economic capital of Italy, Milan alone represents more than 45% of Lombardy's GDP and 10% of the national GDP. With more than 330,000 companies, the Lombardy capital is also an important region for employment. Milan thus has an unemployment rate that is structurally much lower than the national average, as can be seen in the graph below. This economic dynamic is, of course, also reflected in the standard of living of the inhabitants, which is well above the national average. The average gross annual income in Milan is around €34,000 compared to an average of €26,000 in southern Italy. Milan's economic attractiveness thus attracts population flows, particularly among young people. This observation on Milan's attractiveness to young people is further reinforced by the reputation of its universities which attract more and more students every year, including from abroad.
Graph 6: Unemployment rate trends
12,00% 9,95% 10,00% 7,47% 8,00% 5,96% 5,89% 6,00% 6,78% 3,87% 5,62% 4,00% 3,70% 2,00% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Italie Lombardie Milan Europe
Sources: Istat, Eurostat
Economically dynamic, a renowned university and a generally superior quality of life have logically been driving Milan's population growth for several years. Contrary to the trend observed in Italy, the population of Milan has been growing at a relatively high rate. Last year, the Lombardy metropolis saw an increase of more than 40,000 people. At the end of 2019, Milan had nearly 1.4 million inhabitants compared to only 1.26 million at the end of 2013, with an increasingly preponderant share of the 18 to 35-year olds. This positive demographic trend is of course extremely favourable to AbitareIn, whose average client is 34-years old.
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Graph 7: Demographics favourable to the sector
Source: Istat
This favourable development is set to continue in the years to come. The most conservative scenarios are based on a population of 1.6 to 1.7 million inhabitants in the next fifteen years or so, representing almost 20,000 new residents each year, which will further increase the already strong demand for housing. Furthermore, these important housing needs are far from being met by the current supply (see graph below), particularly for the most demanded housing (2 to 3 bedrooms). The weak competitive environment (few players and essentially small in size - AbitareIn is already number 1 in residential housing in Milan) combined with the slowness of the public administration in granting building permits explain this structural deficit of supply on the market. The strong demand associated with a largely insufficient supply is thus likely to irremediably push up prices.
Graph 8: A largely unsatisfied demand
Source: Immobiliare.it
As can be seen in the graph on page 4, in barely 3 years, an increase of more than 28% in house sales prices has been observed in the Lombardy capital, a dynamic that is certainly unique in Europe. Is this enough to fuel a possible speculative bubble? Certainly not, as shown by the UBS real estate bubble index, the relatively low population density (1/10th of the density in Paris) combined with the great availability of land reserves inherited from its past as an industrial city preserves the market, in our opinion, from a sudden turnaround in the years to come.
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Graph 9: UBS Global Real Estate Bubble Index 2020
Source: UBS The situation of the Milanese market is often compared to that of London 15 years ago both in terms of demographic evolution and price dynamics. At present, the overall size of the real estate market in Milan is about €10bn/year, and of this amount, sales of new homes still only represent 15%, or €1.5bn/year, compared to 25% on the London market today. The size of the city's land reserves therefore gives reason to hope that this share should continue to gradually increase in the years to come.
B. Little Affected by the Health Context
Lombardy was one of the regions most affected by the COVID-19 epidemic. The strict confinement measures imposed by the government for almost three months brought economic activity to a virtual standstill and, of course, the real estate sector with it. Stoppage of building sites, slowdown in building permit instructions and marketing operations have been the main effects observed in the sector. Once the sector had been brought out of its lockdown, the recovery was slow but real. Firstly, the implementation of specific health measures on the building sites logically slowed down their rate of progress while creating a slight inflation on construction costs. Secondly, administrative delays also stalled the launch of new projects, thus further reducing the supply that is already largely insufficient to meet the Milanese market’s demand.
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The important point is that the health crisis has not affected the demand for housing in Milan at all for the moment. As proof, after a slight logical downturn linked to the lockdown, prices have very quickly started to rise again and even more so in the Lombard capital. To date, the latest data provided by Istat indicate that on average, new home prices have increased by 3.4% compared to last year in Italy and by almost 16% in Milan! The trend for AbitareIn is similar. Between the two marketing campaigns carried out during the lockdown and the last one started in July for its Savona 105 project, an average increase of 10% in sales prices has been observed compared to the pre-COVID period.
Graph 10: Index of real estate price trends (base 100 January 2020)
119,14
115,40
Lockdown End of lockdown 108,19
103,12
Janvier 2020 Février 2020 Mars 2020 Avril 2020 Mai 2020 Juin 2020 Juillet 2020 Août 2020
Lombardie Province de Milan Milan Italie
Source: idealista.it
Of course, in the long-term, it will be necessary to monitor the potential impact of the economic crisis, but also the future evolution of interest rates, which for the moment remain fairly stable. These criteria are even more critical for first-time buyers, the group's core target group. If the question of the solvency of these customers could arise in the long-term, at least one thing is certain: the demand is there.
The demand’s evolution could further demonstrate AbitareIn's interest in the customisation of its offers. The evolution of a residence’s usage, induced particularly by the generalisation of smart working, is indeed leading to new demands from households and for housing in general. Fitting out an office, children's playroom, sports areas, terraces, shared gardens, these elements are increasingly becoming prerequisites for the purchase of a new home, possibilities that AbitareIn has already integrated into its construction process. For example, each flat developed by the group already incorporates 40-50% of the surface area of the terrace. These assets could thus help to diversify the group's customer base: in addition to the core target represented by young families, people wishing to change homes in favour of new homes that best meet their new expectations could also be added.
The health crisis could also be a source of opportunity for the group, particularly with a view to finding new, high-potential land at lower cost. The context could reduce the pressure exerted by certain investment funds on land prices and, above all, further weaken the situation of office properties, with the possibility of converting them into residential buildings.
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V. Development Assured by a Deep Pipeline
On this extremely buoyant market, AbitareIn can already boast about being the leader in the residential sector, a position that is set to be largely consolidated over the next few years. Its business model, which consists of positioning itself on land well before the launch of operations, has already enabled it to secure a large pipeline of projects at extremely attractive prices. To date, the group has a pipeline of 17 residential projects on a commercial surface area of nearly 233,000 sqm (equivalent to around 2,530 flats). The completion of this pipeline should generate potential sales of at least €1.0bn and EBIT of nearly €250m, which should largely guarantee its prospects for profitable growth over the next five years. Of course, these projects are at different stages of maturity, with six projects already commercialised, one of which has now been released (Maggiolina), while the others are still at a more early stage of development, the group having secured the land or having started the project design. The number and diversity of the secured programmes also enables the group to protect itself against the risk of a delay in obtaining the authorisations required to launch construction, a recurring problem in the Milan market and potentially accentuated by the health crisis.
All of the projects under development are located in the most dynamic areas of Milan (see map on page 20), located in the third ring road but very close to the centre. Milan is still a human scale city. These areas are still marked by relatively affordable prices, although constantly increasing, compared to the centre where prices are already extremely high, with sales prices already exceeding €10,000 per m2.
A. Finished Projects
Still a relatively young player in the property development market, AbitareIn has nevertheless already completed two projects: AbitareIn Poste, released in 2017, and the Maggiolina project, which is more emblematic and much more representative of the group's know-how, currently being released.
ABITAREIN POSTE
AbitareIn Poste was thus the first project developed by the group. Located in the eastern part of the capital, the project included the creation of three residential buildings (completed by a basement with garages and storage facilities), with a commercial surface area of 6,000 sqm for the sale of the 81 flats. The construction extended from 2014 to 2017 with a delay of approximately one year compared to the initially planned timing. Unlike the other projects, construction was started before the flats were sold. Nevertheless, all of the flats had all been sold by the 35% mark of the construction progress.
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ABITAREIN MAGGIOLINA
Thanks to its contemporary architecture and the introduction of customisation for each flat, Maggiolina can be considered the group's first real project, a showcase for all the know-how acquired in recent years.
Covering just under 14,000m2, the project comprises 125 flats, two penthouses and garages for a turnover of €67.4m, representing an average selling price per sqm of over €4,600. The expected EBIT on the project is close to €13.0m, for a margin of 19.3%, a strong profitability to be associated with the extremely low amount of equity capital committed by the group. The project was scheduled to be delivered by the end of the first half of 2020, but the health crisis has led to a slight delay of about two months, a delay that has also generated additional costs of about €2.0m. In this sense, excluding the COVID impact, the project’s operating margin should have been 23%. The project is now being finalised and the final notarial deeds should all be signed by November. Marketed in 2016/2017, this project has been a real success as all the flats were sold before work began.
B. A Significant Number of Projects Already Sold
After Maggiolina's completion, five projects, representing a surface area of more than 55,000 sqm, are already at a relatively advanced stage with the marketing phase completed or in progress for deliveries scheduled between 2021 and 2023.
MILANO CITY VILLAGE
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Milano City Village is one of the group’s most advanced projects at the moment. Covering an area of over 20,000m2, it is the largest project developed by the group to date. It is located in the south of Milan in the Porta Romana district, one of the city's most promising neighbourhoods, close to the future Olympic Village for the 2026 Winter Olympics. The project calls for the construction of 160 flats by 2022, with an estimated revenue exceeding €80.0m with an EBIT of over €20.0m. Once again, all the lots have already been sold and work has begun (the demolition phase has been completed).
TRILOGY TOWERS
Located in the Portello/Certosa neighbourhood in the north of Milan, the Trilogy Towers development will cover an area of over 12,000m2. The construction of three residential buildings within a large private garden will result in the creation of just under 100 new flats, again all already sold and scheduled for delivery by 2022. The expected revenue on this project is about €48.0m with an EBIT of €14.0m.
PALAZZO NAVIGLIO
In the heart of the dynamic Navigli district in the south-west of the city, the Palazzo Naviglio project will result in the creation of about 60 new apartments built upon a commercial centre of 6,800 m2. This project has already been entirely commercialized. It is also expected to be completed in 2022 and should generate just under €28.0m in revenue with an operating margin of approximately 25%.
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OLIMPIA GARDEN
Positioned a little further south of Porta Romana, Olimpia Garden is a slightly different type of project for the group. This time, it’s not an urban regeneration project entailing demolition and construction, but a new construction on an existing site. This development of just under 13,000m2 will result in the construction of 138 flats spread over three buildings, two of which had been already built. Located on land that had already been prepared for development, the logical consequence was a purchase price that cost almost the double of what the group usually pays for land (close to €1300 per sq. m compared to approximately €600, as seen in the rest of the pipeline, for a total price of €15.6m). Despite this higher price, expected profitability remains satisfactory; the much shorter development time means lower costs. Given the nature of the project, the group has proceeded with marketing in a more traditional manner. This has not prevented its success since all the lots have already been sold. Olimpia Garden should represent revenue of €45.0m, delivered next year, with an estimated margin of 27%.
SAVONA 105
Finally, the last project in the launch phase is Savona 105, located in the area near the Navigli. This large 19,500 sq. m. development has been in the marketing phase since last July. Despite COVID, it is progressing quite well and should soon be 100% complete. It should be noted in particular that this is the first sale where the group is testing its new 100% online sales platform, a practice that is particularly well adapted to the context. We estimate that the project should be delivered between 2023 and 2024 and should generate revenue of approximately €80.0m with a 25% margin.
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C. A Large Reservoir of Growth Already Assured
In addition to the projects that are already progressing, the group has already secured a large project pipeline to be developed in the coming years. The group is therefore already positioned on specific, high potential sites with a purchase price agreement in place. By positioning itself well upstream regarding real estate, the group is thus in a position to maximise its future profitability by taking advantage of the strong upward trend in real estate prices observed for several years now. On approximately 150,000 sqm of land to be developed, the land costs are quite attractive at about €600 per sqm, representing only 10% to 15% of the projects’ current potential selling prices. It should be noted that the group does not hesitate to position itself on relatively large plots of land, notably with a view to protecting itself from potential competitors. Of course, these projects are still at a very early stage of development, so it is still relatively difficult to estimate either their timing or delivery. Nevertheless, the group is counting on a period of five years to develop and market these developments. Nevertheless, some projects are already attracting interest. This is the case of Milano Progetti, a huge project of more than 35,000m2 in the dynamic Porta Romana district, which has aroused Korian's interest to occupy 15% of the future development, an interesting new outlet for the group. The table below summarises all the elements currently available on the pipeline. It should be noted that for projects still in the development phase, potential revenue data is based on current selling prices observed in these neighbourhoods. This hypothesis can be considered conservative in view of price trends.
Table 1: ABITAREIN Pipeline – Midcap Partners Estimates
Actual selling Potential Surface Land price Land price Localisation price per sqm - Turnover Delivery (sqm) (M€) (per sqm) market (M€)
Total project delivered 14 500 7,5 517 4 648 67,4 Abitare In Maggiolina Maggiolina 14 500 7,5 517 4 648 67,4 2020
Total projects commercialized and in progress 70 500 57,3 813 4 050 285,5 Olimpia Garden Calvairate 12 700 15,6 1 228 3 543 45,0 2021 Milano City Village Porta Romana 20 000 13,8 689 4 250 85,0 2022 Trilogy Towers Portello/Certosa 12 000 4,5 371 4 000 48,0 2022 Palazzo Naviglio Navigli 6 800 5,0 735 4 044 27,5 2022 Savona Navigli 19 000 18,5 974 4 211 80,0 2023
Total projects to be developed 148 950 75 506 4 050 603,2 My City Porta Romana 5 800 4,1 710 4 200 24,4 nd Milano Progetti Porta Romana 36 000 15,2 421 4 200 151,2 nd Milano Sviluppi Porta Romana 7 000 1,5 214 4 200 29,4 nd Naviglio Grande III Navigli 12 600 7,9 623 4 500 56,7 nd Certosa Portello/Certosa 6 000 2,6 437 3 400 20,4 nd Porta Romana Porta Romana 44 000 16,1 366 4 200 184,8 nd Piazzale Accursio Portello/Certosa 14 000 11,0 786 3 400 47,6 nd NoLo North di Loreto 8 000 2,7 338 3 300 26,4 nd MICA Navigli 7 050 6,5 922 4 500 31,7 nd Lambrate I Lambrate 5 500 5,3 964 3 600 19,8 nd Lambrate II Lambrate 3 000 2,5 833 3 600 10,8 nd
TOTAL PIPELINE 233 950 140 599 4087 956,1
Sources: Company, Immobiliare.it, Midcap Partners Estimates
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Projects located in the most dynamic areas of Milan
Sources: www.immobiliare.it; Midcap Partners Estimates
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VI. An Attractive Financial Outlook
On the strength of this major pipeline, which already represents almost €1.0bn assuming the 230,000 sqm shall be sold at an average of at least 4,000€ per sqm, the group's prospects for profitable growth are therefore well assured for the coming years. The group has communicated a guidance for the financial year now ending in 2020 (the group's financial year ended on 30 September) and FY 2021. For 2020, revenue of €100.0m is expected, up 124% compared with last year, driven in particular by the delivery of Maggiolina, but also by the technical progress of the Milano City Village and Trilogy Towers projects, with EBIT of €13.0m. For 2021, revenue of €140.0m is expected, with EBIT also rising sharply to €40.0m, giving an EBIT margin of 28.6% (+13.6 points).
Before detailing our expectations, it is worth looking at the presentation of the group's consolidated financial statements. The group's legal organization as an SPV and the sales model implies a special accounting treatment of consolidated revenue. As explained above, the promotion model in Italy does not involve a transfer of ownership to the customer based on the construction’s progress (unlike the VEFA model in France). The final deed of sale, and therefore the payment, is made on the unit’s delivery. For AbitareIn's clients, only two financial flows are therefore recorded: the deposit at the start of the project, representing on average 30% of the total price, and then the balance due on delivery of the goods (70%), amounts that are paid to the SPV, and not to the parent company. It is in order to better reflect on the group’s current activity that it recognizes the value of its inventory based on its stage of completion as consolidated revenue. In this sense, the expected revenue for the coming years represents projects based on the current progress of construction and not the revenue actually received. The same process is applied for costs, with the margin per project also being recognized on a percentage-of-completion basis. This method greatly facilitates comparing data with that released by other players in the sector, particularly internationally.
Table 1: Growth estimates 2020-2022 by project
Source: Midcap Partners Estimates
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By applying this method to growth, we are therefore generally in line with the group's expectations, with revenue expected to reach €100.6m in 2020 and €145.6m in 2021. Our estimates have been constructed based on the revenue and margin assumptions detailed above, initially for projects already commercialized or in the process of being, taking into account an average construction lead time of 30 months (longer for large developments such as Savona or Milano City Village and faster for Olimpia Garden).
Regarding profitability, we have adopted a more cautious scenario for 2020 with an expected EBIT of €12.1m, representing a margin of 12.5%, taking into account the additional costs related to COVID which mainly affected the margin of the Maggiolina project, already delivered. Any additional costs incurred on future projects related to delays and the application of health measures should have less of an impact on margins as they can be offset by price increases. It should be noted that 2020 is also a slightly lower margin than the group's norm simply due to the timing of project launches (numerous destruction phases, notably on Milano City Village and Trilogy Towers). The ramp-up of the projects already launched should then enable the group to return to a cruising speed in terms of profitability. In any event, it is important to point out that delays may temporarily affect the consolidated financial statements without calling into question the fundamentals of each project, all of which are secure and extremely profitable.
Table 1: Growth estimates 2020-2022 by project
180 27,5% 30% 160 24,2% 24,5% 25% 140 120 20% 12,0% 100 15% 80 60 8,3% 10% 40 5% 20 49,0 44,6 100,6 145,6 163,1 00 0% 2018 2019 2020 2021 2022
Turnover op.margin net margin
Source: Midcap Partners Estimates
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VII. A Largely Undervalued Pipeline
Regarding our valuation approach, we have decided to use a single method, which consists of determining the group’s valuation by discounting the expected dividends on each project developed.
We believe that a conventional DCF approach is not appropriate based on the structure of the group's results. As explained above, during the global project development process, activity and financial flows are isolated at the SPV level. While the consolidated financial statements provide a good picture of the progress of the different projects, the reading of the cash position is somewhat biased. The group's trajectory of strong profitable growth over the next few years will not initially materialise regarding its cash position, as the ramp-up of the different projects under construction logically implies a strong increase in working capital. Given the projects’ duration (between 3 and 4 years on average) and therefore the necessary carrying capacity, working capital requirements are, in any case, structurally high. Our estimates therefore anticipate a strong increase in working capital requirements in 2020 and 2021 before a marked decline in 2022. This corresponds solely to the projects’ timing, with many more deliveries planned than new launches for the time being. The pipeline's gradual completion, which is highly likely, will certainly lead us to revise upwards our working capital requirement estimate for 2022 as well.
This will result in a biased view of the net debt’s landing for the years to come. It should also be remembered that the debt is only housed within individual SPVs and not within the parent company. In addition, these are mortgages directly backed by the real estate projects, and therefore risk-free insofar as these projects are all sold before work begins. The banks' support for the projects' financing, combined with buyers’ down payments (approximately 30% of the sale price), enable the group to constantly minimize its equity contribution for each project. It should be noted that out of the nearly €250.0m of revenue already secured by sales, the group has already received €73.5m in buyer advances, thus confirming that cash is absolutely not a problem for the group.
The same reasoning can be applied to justify the fact that we have not used a peer group valuation. It should also be noted that AbitareIn is the only listed property developer in Italy: comparison with international players is rather irrelevant as each market has its own dynamics and specificities. For example, it does not seem relevant to compare the dynamics currently observed on the French market with those of the Milanese market, which is much more buoyant in the short-term.
Dividend valuation approach
Based on the assumptions detailed above for the projects already marketed, we deduct the amount of the dividend to be paid by the SPV to AbitareIn, net of tax. We then update our estimates to a WACC of 8.3%, representing a 9.8% equity cost (beta of 1, risk-free rate of 0.8% and market risk premium of 9%) and an after-tax cost of debt of 2.9%. The valuation obtained for the following six projects (Maggiolina, Milano City Village, Trilogy Towers, Palazzo Naviglio, Olimpia Garden and Savona 105) is €53m, equivalent to €20.7 per share.
Our model’s final valuation is based on the already secured pipeline, representing almost 150,000m2 of potential surface area. Based on this growth reserve for the group, we decided to adopt the conservative assumption of 15% for marketing, representing just over 22,000m2. With a sales price per m2 of only €4,000, we have obtained revenue of €89.0m, well below our expectations for the next three years. After having retained an operating margin rate at the lower end of the group's standard range of 20%, and after applying the corporate tax rate, we have therefore obtained a standard
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dividend of €12.5m. By applying a zero perpetual growth rate, we obtain a valuation of €39.6 per share for the yet to be built pipeline. The launch of the next projects will lead us to gradually raise our expectations.
In the end, by combining the expected valuation of the projects already marketed with the hypothetical completion of the pipeline that is already secured, we obtain a valuation of €154.1m, or €60.3 per share. This represents an upside potential of 32%. Convinced by the quality of the innovative Milanese developer’s business model and by its attractive prospects for profitable growth in the coming years, we are initiating our coverage of AbitareIn with a Buy rating and TP rounded at €60.
Dividend valuation approach WACC parameters Risk free rate 1,0% Cost of Equity 9,800% WACC 8,303% Market risk premium 9,0% Cost of debt net of taxes 2,9% Beta 1,0 Perpetual growth rate 0,0%
m€ 2020 2021 2022 2023 Terminal Value Maggiolina 9,2 Milano City Village 14,9 Trilogy Towers 9,5 Palazzo Naviglio 4,7 Savona 105 13,9 Olimpia Garden 8,7 Pipeline 12,5
Cash flow to Equity 9,2 8,7 29,0 13,9 12,5 Discounted FCF 9,2 8,7 29,0 13,9 12,5
Sensitivity table (WACC/% pipeline for terminal value) 60,3 5,0% 10,0% 15,0% 20,0% 25,0% Resume 8,0% 34,7 48,6 62,5 76,4 90,2 Valuation of projet already sold 53,0 8,1% 34,5 48,1 61,7 75,4 89,0 Per share 20,7 8,2% 34,2 47,6 61,0 74,4 87,9 Terminal value (based on Actual Pipeline) 101,1 8,3% 33,9 47,1 60,3 73,5 86,7 Per share 39,6 8,4% 33,7 46,7 59,6 72,6 85,6 Valuation of equity 154,1 8,5% 33,4 46,2 59,0 71,7 84,5 number of shares 2,6 8,6% 33,2 45,8 58,3 70,9 83,4 Valuation per share 60,3 8,7% 33,0 45,3 57,7 70,0 82,4 Source: Midcap Partners Estimates
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VIII. Annexes
Management Description
Luigi Francesco Gozzini, President
Born in 1967 in Bergamo, Mr. Gozzini graduated in Information Science at the University of Milan and holds a Master's degree in Business Administration from Bocconi University. Luigi Francesco Gozzini subsequently worked as an associate consultant at Mc Kinsey. In addition to his consultancy experience, the President of AbitareIn has worked in the finance sector in various institutions: Ministry of Finance, Unicredit, San Paolo di Brescia and Banca Popolare di Brescia. As a result of these various professional experiences, Mr. Gozzini evolved in the aeronautical sector as a founding partner of Gandalf Airline and then in the real estate sector through the foundation of T Immobiliare and more recently AbitareIn.
Marco Claudio Grillo, Director
Born in Savona in 1968, Mr. Grillo graduated in Information Sciences at the University of Milan. In 1994, he joined IUnet, the first Italian Internet Service Provider in the business world, which was bought by Olivetti Telemedia and in the following years evolved with American multinationals in the computer and networking sectors. In 2005 he founded the company Flowinspect, acquired in 2008 by a major US security products provider. Subsequently, he was appointed CEO of Emaze Networks, a leading Italian IT security company acquired by a German private equity fund. Marco Claudio Grillo subsequently devoted himself to the real estate sector and founded the company AbitareIn with his partner Luigi Francesco Gozzini.
Mario Benito Mazzoleni, Independent Director
Born in 1957 in Milan, Mr. Mazzoleni graduated in Business Economics with a specialization in Public Administration Economics at Bocconi University. Mario Benito Mazzoleni's academic experience continues as Associate Professor of Business Economics and then Director of the Master in Business Administration at SDA Bocconi. Since 2010 he has held the position of Professor of Strategy and Coordinator at the University of Brescia and since 2015 he has been Director of the Master in Business Management and Innovation at the University of Brescia.
Giuseppe Carlo Ferdinando Vegas, Independent Director
Born in Milan in 1951, Mr. Vegas obtained a law degree in 1973. He has been a civil servant of the Senate of the Republic since 1978. Mr. Vegas has held senior government positions such as Under Secretary of State for Finance and Treasury, Senator, Under Secretary and Deputy Minister of Economy. In December 2010, he was appointed Chairman of Consob (National Commission for Business and the Stock Exchange), a position that ended in December 2017. Mr. Vegas is also a director of Techedge (a listed company), Ucapital 24 (a company listed on AIM), Officine CST based in Rome, Selfiewealth and Chairman of Arisk srl, based in Milan.
Luca Manara, Director
Born in 1977, Mr. Manara graduated in Civil Engineering, with a specialization in Building Engineering, at the University of Parma. He has been working in the construction sector since 2002, as Head of the Technical and Quality Office for Pizzarotti & C. until 2003. S.p.A. from 2003 to 2013. Luca Manara has also held the position of Head of Real Estate Development and Promotion at Pizzarotti & C. S.p.A. From 2013 to 2016 he was Director of Real Estate Development and Promotion at Pizzarotti & C. S.p.A.
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IX. Market Data
STOCK MARKET DATE
Daily average volume (k) Stock performance
3M 2,0 12M High 54,5
6M 1,4 12M Low 30,8
1Y 2,4 Perf YTD 1%
3Y 2,4
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Share price trends (6 months)
50 5%
48
0% 46
44 -5% 42
40 -10% 38
36 -15%
34
32 -20%
Performance (sousperformance) Abitare In vs FTSE Small Cap Italy - Rebased Abitare In FTSE Small Cap Italy - Rebased
Source: Factset
Share price trends (2 years)
60 100% 58 56 54 90% 52 50 48 80% 46 44 42 70% 40 38 36 60% 34 32 30 50% 28 26 24 40% 22 20 18 30% 16 14 12 20% 10 8 6 10% 4 2 0 0%
Performance (sousperformance) Abitare In vs FTSE Small Cap Italy - Rebased Abitare In FTSE Small Cap Italy - Rebased
Source: Factset
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X. Financial Data (1/2)
Income statement (m€) 2017 2018 2019 2020e 2021e 2022e Sales 9,3 49,0 44,6 100,6 145,6 163,1 Change n/a 429,4% -9,1% 125,7% 44,7% 12,0% Gross margin 3,4 20,1 35,9 69,3 121,1 139,2 % du CA 37,0% 41,0% 80,5% 68,9% 83,2% 85,3% Service cost and Personnel costs -0,6 -15,3 -23,7 -56,7 -85,0 -93,8 Other operating costs -0,5 -0,6 -0,9 0,0 0,0 0,0 EBITDA 2,4 4,2 11,3 12,6 36,2 45,4 % du CA 25,4% 8,6% 25,4% 12,5% 24,8% 27,8% D&A 0,0 -0,1 -0,5 -0,5 -0,5 -0,6 EBIT 2,3 4,1 10,8 12,1 35,6 44,8 % de CA 25,2% 8,3% 24,2% 12,0% 24,5% 27,5% Net income -0,2 -0,4 -1,4 -3,1 -4,5 -5,0 Income tax -1,0 -1,1 -3,1 -2,9 -10,2 -13,0 Taux d'IS -47,5% -30,1% -32,6% -32,6% -32,6% -32,6% Net income 1,1 2,6 6,4 6,1 21,0 26,9 Minority interests 0,0 0,0 0,0 0,0 0,0 0,0 Net income group share 1,1 2,6 6,4 6,1 21,0 26,9
Financial Balance Sheet (m€) 2017 2018 2019 2020e 2021e 2022e Tangible and intangible assets 0,7 6,0 7,4 8,3 9,3 10,2 Financial assets 0,4 0,7 1,9 1,9 1,9 1,9 WCR 19,7 62,9 98,0 111,1 136,7 84,8 Assets 20,9 69,6 107,2 121,4 147,8 97,0 Shareholders equity 12,2 40,8 47,5 53,5 74,5 101,4 Provisions 7,2 18,5 23,1 23,1 23,1 23,1 Deferred tax liabilities 1,0 1,4 4,5 4,5 4,5 4,5 Net debt 0,5 8,9 32,1 40,2 45,7 -32,1 Liabilities 20,9 69,6 107,2 121,4 147,8 97,0
Cash flow statement (M€) 2017 2018 2019 2020e 2021e 2022e
Cash-flow from operations 2,2 3,3 11,7 9,5 31,7 40,4 ∆WCR 7,9 -31,0 -30,7 -10,1 -21,1 56,8 Net financial result -0,2 -0,4 -1,1 -3,1 -4,5 -5,0 Taxes paid 0,0 -0,7 -0,1 -2,9 -10,2 -13,0 Cash flow operating activity 9,9 -28,8 -20,3 -6,6 -4,0 79,3 Investments in tangible fixed assets 0,0 -5,4 -0,8 -0,5 -0,5 -0,5 Investments in intangible fixed assets -0,6 -0,1 -0,7 -1,0 -1,0 -1,0 FCF 9,4 -34,3 -21,7 -8,1 -5,5 77,8 Other investments 0,0 0,0 -1,1 0,0 0,0 0,0 Cash flow from investing activity -0,6 -5,5 -2,6 -1,5 -1,5 -1,5 Bank loan increases / (repayments) -9,7 22,0 26,6 0,0 0,0 0,0 Change in current / non-current financial liabilities 0,5 -0,3 0,0 0,0 0,0 0,0 Net change in current financial assets 0,0 0,3 0,0 0,0 0,0 0,0 Increase in paid-up capital 3,3 25,7 0,0 0,0 0,0 0,0 Payment to shareholders on the capital increase account 0,0 0,0 0,0 0,0 0,0 0,0 Cash flow from financing activity -5,8 47,7 26,6 0,0 0,0 0,0 Change in cash 3,5 13,4 3,8 -8,1 -5,5 77,8 Source: Company - Midcap Partners
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XI. Financial Data (2/2)
KEY RATIOS 2017 2018 2019 2020e 2021e 2020e Evolution of Sales na 429,4% -9,1% 125,7% 44,7% 12,0% EBITDA margin 25,4% 8,6% 25,4% 12,5% 24,8% 27,8% EBIT margin 25,2% 8,3% 24,2% 12,0% 24,5% 27,5% Net margin 12,2% 5,2% 14,3% 6,0% 14,4% 16,5%
EPS 0,69 1,00 2,50 2,37 8,23 10,52 Dividend per share 0,00 0,00 0,00 0,00 0,00 0,00 Dividend Yield 0,0% 0,0% 0,0%
WCR in % of sales 213,2% 128,3% 219,8% 110,5% 93,9% 52,0%
FCF 9,4 -34,3 -21,8 -8,1 -5,5 77,8 FCF yield ns ns 67,0% Conversion rate (FCF/EBITDA) 397% -814% -192% -64% -15% 171% CAPEX/Sales 6,3% 11,3% 3,3% 1,5% 1,0% 0,9%
ROE 9,3% 6,3% 13,4% 11,3% 28,2% 26,5% ROA 4,0% 2,7% 4,1% 2,8% 6,7% 6,0% ROCE (after tax) 13,5% 6,0% 10,7% 22,5% 47,8% 44,2% Gearing 4,4% 21,8% 67,7% 75,1% 61,3% -31,6% Leverage 0,2x 2,1x 2,8x 3,2x 1,3x -0,7x
EV/Sales 1,6x 1,1x 0,5x EV/EBITDA 12,4x 4,5x 1,8x EV/EBIT 13,0x 4,5x 1,9x PE 19,1x 5,5x 4,3x
MIDCAP PARTNERS vs CONSENSUS 2020e 2021e 2022e Midcap Midcap Midcap Consensus Consensus Consensus Partners Partners Partners Sales 100,6 104,3 145,6 141,4 EBITDA 12,6 13,8 36,2 55,5 EBIT 12,1 13,2 35,6 54,9 EPS 2,5 3,1 2,4 14,7
Sources: company - Midcap Partners - FactSet
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Disclaimer
This document may refer to valuation methods defined as follows:
1/DCF method: discounting future cash flows generated by the business’s operations. Cash flows are determined using the analyst’s financial forecasts and models. The discount rate used is the weighted average cost of capital, defined as the weighted average cost of the company’s borrowings and the theoretical cost of its equity as estimated by the analyst; 2/ Comparables method: application of stock-market valuation multiples, or multiples observed for recent transactions. These multiples may be used as benchmarks and be applied to the company’s financial aggregates to determine its valuation. The sample is constituted by the analyst according to the company’s characteristics (size, growth, profitability, etc.). The analyst may also apply a premium/discount based on his perception of the company’s characteristics; 3/ Asset-based method: estimation of the value of the equity on the basis of the revalued assets and corrected for the value of the liability. 4/ Discounted dividend method: discounted future value of estimated dividend flows. The discount rate applied is generally the cost of capital; 5/ Sum of the parts method: this method consists of estimating the different activities of a company, by using the most appropriate assessment method for each, then calculating the total.
Recommendation scale:
Buy: expected over-performance above 10% compared to the market within 6 to 12 months Neutral: expected to outperform or under-perform the market within a range of +10% and -10%, within 6 to 12 months Sell: expected to under-perform the market by more than 10% within 6 to 12 months
Detection of conflicts of interest:
Company Closing price (€) Rating Warning ABITARE IN €45,4 Buy G
A LOUIS CAPITAL MARKETS – MCP or any legal entity related to it holds more than 5% of the issuer’s total issued capital; B The issuer holds over 5% of the totality of capital issued by LOUIS CAPITAL MARKETS - MCP or a related legal entity; C LOUIS CAPITAL MARKETS - MCP, alone or with other related legal entities, is related to the issuer through other significant financial interests; D LOUIS CAPITAL MARKETS - MCP or any legal entity related to it is a market maker or a liquidity provider with which a liquidity contract has been concluded in relation to the issuer’s financial instruments; E LOUIS CAPITAL MARKETS - MCP or any legal entity related to it has, within the last twelve months, acted as lead manager or joint lead manager for an offer relating to the issuer’s financial instruments, and that offer has been made public; F LOUIS CAPITAL MARKETS - MCP or any legal entity related to it is a party to any other agreement with the issuer concerning the provision of investment services relating to the corporate activity; G LOUIS CAPITAL MARKETS - MCP and the issuer have agreed on the supply by the former to the latter of a service for the production and circulation of the investment recommendation concerning the said issuer.
Breakdown of recommendations
At October 2020, the recommendations issued by the Midcap research team at LOUIS CAPITAL MARKETS – MCP break down as follows:
Rating Midcap Partners coverage universe Of which Investment banking services Buy 66% 76% Hold 27% 22% Sell 6% 2% Under review 1% 0%
The reference prices used in this document are the closing prices. Any opinion given in this document reflects our current judgement and may be modified at any time without prior notice. LOUIS CAPITAL MARKETS - MCP has adopted effective administrative and organisational arrangements, including information barriers to prevent and avoid conflicts of interest in relation to investment recommendations. The remuneration of the financial analysts involved in drafting the recommendation is not tied to the corporate finance business. Past performance is not guarantee of future performance.
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Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc. (“FINRA”) or other regulatory requirements pertaining to research reports or research analysts. The non-US Company is not registered as a broker-dealer under the Exchange Act or is a member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization. The non-US Company is the employer of the research analyst(s) responsible for this research report. The research analysts preparing this report are resident outside the United States and are not associated persons of any US regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a US broker- dealer, and are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with US rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.
Analyst Certification. Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and such recommendations were elaborated independently; and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report.
This material was produced solely for information purposes and for the use of the recipient. This document does not constitute an offer of, or an invitation to buy or sell any security. The information contained herein has been obtained from published information and other sources which are considered to be reliable. The Companies noted herein accepts no liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document.
Louis Capital Markets, LP assumes responsibility for the research reports content in regards to research distributed in the U.S. Louis Capital Markets, LP, or its affiliates, has not managed or co-managed a public offering of securities for the subject company in the past 12 months, has not received compensation for investment banking services from the subject company in the past 12 months, does not expect to receive and does not intend to seek compensation for investment banking services from the subject company in the next 3 months. Louis Capital Markets, LP, or its affiliates, do not beneficially own 1% or more of the subject securities and there are not any other actual, material conflicts of interest noted at the time of the publication of this research report. As of the publication of this report, Louis Capital Markets, LP does not make a market in the subject securities.
The non-US Company will refrain from initiating follow-up contacts with any recipient of this research report that does not qualify as a Major Institutional Investor, or seek to otherwise induce or attempt to induce the purchase or sale of any security addressed in this research report by such recipient.
MIDCAP PARTNERS • LOUIS CAPITAL MARKETS • 42 rue Washington • PARIS • 130 Wood Street • LONDON 31