Vontobel Morning Note 03-06-10
Vontobel Morning Note
MARKET OVERVIEW 02-06-10 Closing +/-% +++ Tecan - Growth initiatives on track - upgrade to Buy SMI 6368.8 +0.8 +++ Dow Jones 10249.5 +2.2 NASDAQ 2281.1 +2.6 Stoxx 50 2389.6 -0.1 Overview 'Vontobel Morning Note' Hang Seng 19471.8 -0.1 Nikkei 9603.2 -1.1 • Equity Research SMI Companies − PRE-MARKET INDEX 03-06-10 Novartis: Pivotal phase III study of Afinitor in treatment of pancreatic neuroendocrine tumors met Current +/-% its primary endpoint SMI (LEU) 6451.67 +1.31 − Roche: Positive phase III results with CellCept in Lupus Nephritis; enrollment into phase III study with Avastin in non-Hodgkin's lymphoma stopped MSCI EU SECTOR OVERVIEW Non-SMI Companies PRICE INDEX (LOC.) 02-06-10 − Closing +/-% Tecan: Growth initiatives on track - upgrade to Buy Pharmaceuticals 88.0 +1.4 − Cosmo: Begin of enrollment into phase III trial of Rifamycin SV MMX in Traveler's Diarrhea Chemicals 176.9 -0.2 − EG Laufenburg: Had it not been for good trading results - PT CHF 800 (880), HOLD Health Care Eq. 203.9 +0.5 − Galenica: CellCept reaches positive results in Phase III trial in Lupus Nephritis Biotechnology 80.3 +0.4 − Implenia: A new lawsuit on the horizon Food & Beverage 136.3 +1.4 − Kuoni: Cash offer for the majority of Et-china T, A & Luxury Goods 247.5 +1.4 − Insurance 39.3 -0.5 LEM: 4Q order intake exceeds pre-crisis levels - good 4Q results slightly ahead of estimates, HOLD Information Tech. 45.3 0.0 PT 370 (340) Techn., HW & Equip. 39.8 -0.7 − OC Oerlikon: Rights offering successfully concluded − Sulzer: Expanding the service business - new PT 140 (old: 135) CURRENCIES 03:19 Ex rate +/-Rp • Preview USD/CHF 1.1548 -0.18 EUR/CHF 1.4144 -0.22 • Upcoming Corporate Events
INT. RATES (CHF) Closing +/-bp 3-mth money mkt 10-y SWAP 1.94 % -3
© 2010. The objectivity of this report may be compromised by existing or planned business relationships between the author and the analysed companies and potential conflicts of interest arising thereof. Investors should therefore on no account use this report as the sole basis on which to make a decision. Please see the end of the document for more details on potential conflicts of interest and disclaimer information.
Vontobel Morning Note 03-06-10
Equity Research
Novartis Pivotal phase III study of Afinitor in treatment of pancreatic Reuters: NOVN.VX Price: CHF 52.9 neuroendocrine tumors met its primary endpoint Hold PT: CHF 59.0 (CHF) 2008A 2009A 2010E 2011E FACTS: EPS 3.76 4.01 4.67 4.77 A pivotal phase III trial investigating Afinitor (everolimus) plus best supportive JCF Cons. EPS 3.76 4.01 5.49 5.79 P / E 14.0 13.2 11.3 11.1 care in the treatment of advanced pancreatic neuroendocrine tumors (NET) met EV / EBITDA 8.3 7.1 7.0 5.7 its primary endpoint of showing an extension of progression free survival (PFS). P / B 2.3 2.0 1.9 1.6 Div. Yield (%) 3.8 4.0 4.3 4.3 COMMENT: Silvia Schanz +41 (0)58 283 63 44 The phase III study RADIANT-3 (n=410) indicates that administration of Afinitor [email protected] in combination with best supportive care significantly extended PFS, or time without tumor growth in patients with advanced pancreatic neuroendocrine tumors. Full study details will be presented at the conference of the European Society of Medical Oncology, to be held in Milan, Italy, October 2010.
Afinitor is already approved for treatment of advanced renal cell carcinoma (RCC) in the US and EU. The recent data could form the basis for approval of the drug in pancreatic NET.
CONCLUSION: The phase III data of Afinitor in pancreatic NET is good news for Novartis and comes as expected. We carry peak sales of CHF 550 mn for RCC and CHF 300 for NET. We maintain our HOLD rating and the PT of CHF 59.
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Vontobel Morning Note 03-06-10
Roche Positive phase III results with CellCept in Lupus Nephritis; enrollment Reuters: ROG.VX Price: CHF 163 into phase III study with Avastin in non-Hodgkin's lymphoma stopped Buy PT: CHF 210 (CHF) 2008A 2009A 2010E 2011E FACTS: EPS 10.4 9.03 11.8 14.4 Roche and Galenica reached positive results with CellCept in the treatment of JCF Cons. EPS 10.4 9.03 13.4 14.8 P / E 15.7 18.0 13.9 11.3 Lupus Nephritis (LN). The study had successfully reached its primary endpoint. EV / EBITDA 9.1 10.2 8.5 7.3 Following the recommendation of an independent Data and Safety Monitoring P / B 3.2 19.1 12.0 7.6 Board (DSMB), Roche has stopped enrollment into a phase III study Div. Yield (%) 3.1 3.7 4.0 4.2 investigating Avasting in treating diffuse large-B-cell lymphoma. Silvia Schanz +41 (0)58 283 63 44 [email protected] COMMENT: - CellCept in lupus: The phase III study demonstrated superiority of CellCept (mycophenolate mofetil) versus azathiprine (AZA) in delaying treatment failure in patients with lupus nephritis. Details will be presented at an upcoming medical meeting, June 24-27, 2010. Data might be used to seek regulatory approval in the US, Europe and other major market. CellCept is already approved for prevention of transplant rejection, where the patent has expired in the US.
- Avastin in non-Hodgkin's lymphoma: Enrollment into the phase III MAIN trial was stopped based on a recent safety and efficacy analysis for the first 720 patients, indicating an unfavorable risk-benefit assessment of the addition of Avastin to standard of care treatment Rituxan/MabThera plus CHOP chemotherapy.
CONCLUSION: Positive phase III results for CellCept are good news for Roche. If successful, CellCept could be the first new drug to be approved for lupus in fifty years. Stop of enrollment of Avastin in treatment of large B-cell-lymphoma will not impact our CHF 9 bn peak sales estimates for Avastin. We confirm our BUY rating and PT of CHF 210.
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Vontobel Morning Note 03-06-10
Tecan Growth initiatives on track - upgrade to Buy Reuters: TECN.S Price: CHF 66.5 Buy PT: CHF 90.0 FACTS: (CHF) 2008A 2009A 2010E 2011E A number of promising growth initiatives have the potential to boost sales EPS 2.48 4.74 4.63 5.48 growth rates up to the mid-teen level beyond 2011. While spending on these JCF Cons. EPS 2.48 4.74 4.79 5.46 P / E 26.8 14.0 14.4 12.1 initiatives will impact profitability in 2010-11, we believe that Tecan's core EV / EBITDA 9.3 9.4 8.7 7.0 business is developing positively enough to compensate for this extra spending. P / B 4.3 3.4 2.9 2.4 Accelerated sales growth could lift EBIT margins by up to 400 bp. Our 2010-13 Div. Yield (%) 1.4 1.5 1.7 1.8 estimates revisions result in EPS changes of 2%, 10%, 11% and 18%. The Christoph Gubler +41 (0)58 283 63 43 share price has dropped 20% from its April peak. We lift our PT to CHF 90 [email protected] (from CHF 80) per share and upgrade the stock to Buy (from Hold).
COMMENT: Growth initiatives to push sales growth: We believe Tecan has the potential to push sales growth rates to up to the mid-teens level through growth initiatives like 1) the development of innovative workflow solutions, 2) the establishment of new OEM contracts, 3) an increase of the share of its consumables and service business, and 4) an expansion of the global footprint into emerging markets.
Volume growth and efficiency gains set to boost profitability: We expect Tecan's EBIT margin to improve by up to 400 bp (excluding new investments) over the coming years with 200 bp to come from volume growth, 50 bp from mix effects, 50 bp from the termination of project Inspire, 80 bp from the termination of project Ginseng, and 40 bp from the solution for Sample Management.
CONCLUSION: Valuation leaves 40% upside potential: Tecan is trading at 2011E P/E and EV/EBITDA multiples of 12x and 7x, 10%-15% below Swiss and international peers and 20% below the shares' April high. Our DCF analysis yields a fair value of CHF 110 per share. Based on our 2009-13E EPS CAGR estimate of 14%, we apply a 2011E P/E target multiple of 16x, increase our PT to CHF 90 (from CHF 80) per share and upgrade the stock to Buy (Hold).
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Cosmo Begin of enrollment into phase III trial of Rifamycin SV MMX in Reuters: COPN.S Price: CHF 19.2 Traveler's Diarrhea Hold PT: CHF 20.0 (CHF) 2008A 2009A 2010E 2011E FACTS: EPS 1.08 0.45 0.63 1.90 Cosmo's US partner Santarus announced the begin of enrollment into the first JCF Cons. EPS 1.08 0.45 P / E 17.7 42.1 30.4 10.1 phase III study, evaluating safety and efficacy of Rifamycin SV MMX in the EV / EBITDA 13.1 28.0 20.5 7.0 treatment of Traveler's Diarrhea. P / B 3.4 2.7 3.2 1.9 Div. Yield (%) 0.0 0.0 0.0 0.0 COMMENT: Silvia Schanz +41 (0)58 283 63 44 Rifamycin SV MMX is being developed for Traveler's Diarrhea (TD) and [email protected] potentially other indications with an infectious component in the colon. The start of enrollment into the first phase III trial was scheduled to coincidence with the peak summer travel season. Study centers are localized in Mexico and Guatemala. 20-50% of all international travelers (approx. 10 mn) are affected by TD per year.
The phase III trial evaluates safety and efficacy of Rifamycin SV MMX 400 mg (2 times 200 mg) oral tablets taken twice daily (800 mg total daily dose) in TD patients for three days versus placebo. Primary endpoint of the study will be time to last unformed stool (TLUS), goal is to demonstrate superiority versus placebo.
Rifamycin SV is a broad spectrum antibiotic that has been used for more than 20 years in Europe for treatment of bacterial infections. Data seen so far indicate that the drug has a good safety profile.
CONCLUSION: Commencement of Rifamycin phase III is inline with our expectations (2Q10). Since the treatment duration is short and limited to the summer travel season, we anticipate that data could be ready in only a few months. Next clinical catalyst for Cosmo will be EU phase III results from Budesonide MMX, expected in June 2010. We confirm our HOLD rating and the PT of CHF 20.
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Vontobel Morning Note 03-06-10
EG Laufenburg Had it not been for good trading results - PT CHF 800 (880), HOLD Reuters: EGL.S Price: CHF 724 Hold PT: CHF 800 FACTS: (CHF) 2008A 2009A 2010E 2011E 1H09/10 numbers were primarily in line with VontE. Following publication of EPS 119 70.7 39.8 78.2 interim results, we revise our EPS 09/10E estimate upwards 7% to CHF 39.8 JCF Cons. EPS 119 70.7 35.2 80.5 P / E 6.1 10.2 18.2 9.3 and forecast EPS 10/11E at CHF 78.2 (-5%). Consequently and applying lower EV / EBITDA 5.4 6.1 7.1 5.7 P/E, EV/EBITDA and P/B sector multiples, we lower our price target to CHF 800 P / B 0.9 0.9 0.9 0.8 from CHF 880. Div. Yield (%) 2.5 2.5 1.4 2.7 Source: Vontobel Equity Research Andreas Escher +41 (0)58 283 73 55 COMMENT: [email protected] Gross margin came in 4% below previous year at CHF 420.9 mn (VontE 420), which is clearly a positive as higher procurement costs (Bugey, CHF 2 mn per month) and negative impacts from the Gazprom gas contract are included. On the other hand, the surprisingly strong trading results of CHF 181 mn (VontE 120) compensated for the downsides and led to a good contribution to the Energy Trading & Origination segment proving the success of the hub strategy. Going forward, we do not include any further settlement costs in 2H. In terms of the TAP, up to the present stage EUR 42 mn (EGL share 42%, CHF 25 mn) have so far been activated. According to our information, the main shareholder did not increase its holding, hence free float remains at 9%.
CONCLUSION: On the basis of our reduced FY10/11 estimates and applying sector multiples as well as a traditional 30% discount due to the unpredictable contribution from trading, we calculate a fair value of CHF 805. Hence, we lower our PT to CHF 800 (880) and reiterate our HOLD rating.
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Galenica CellCept reaches positive results in Phase III trial in Lupus Nephritis Reuters: GALN.S Price: CHF 406 Buy PT: CHF 500 FACTS: (CHF) 2008A 2009A 2010E 2011E Galenica and Roche today announced that the maintenance phase of the EPS 29.1 32.4 33.4 34.1 Aspreva Lupus Management Study (ALMS) has successfully achieved its primary JCF Cons. EPS 29.1 32.4 32.7 34.1 P / E 13.9 12.5 12.2 11.9 endpoint demonstrating the superiority of Roche's CellCept versus azathioprine EV / EBITDA 7.2 10.2 9.9 10.1 (AZA) in delaying treatment failure in patients with Lupus Nephritis (LN). P / B 4.4 3.5 2.9 2.4 Div. Yield (%) 1.7 1.8 2.0 2.2 COMMENT: Christoph Gubler +41 (0)58 283 63 43 In total, 227 patients participated in ALMS for up to three years, with 116 [email protected] receiving CellCept and 111 receiving AZA. The primary efficacy parameter, which showed CellCept to be superior to AZA with p=0.003, was time to treatment failure, comprising death, serious renal damage or relapse of LN. In light of these positive topline results, and assuming the final results are consistent, Galenica and Roche are assessing the potential to seek regulatory approval in major markets for the use of CellCept in the treatment of LN.
CellCept is approved to prevent heart, liver, and kidney transplant rejection. Based on clinical trials conducted by Aspreva, CellCept is used off-label against lupus, a chronic auto-immune disease that causes the body to attack its own tissues and joints.
Azathioprine (AZA) is a drug that suppresses the immune system. AZA is produced by a number of generic manufacturers and as branded names (Azasan by Salix in the US, Imuran by GSK in Canada and the US, etc).
CONCLUSION: We estimate that CellCept royalties for Galenica will amount to CHF 205 mn in 2010 and CHF 63 mn in 2011 and fall to zero thereafter (due to patent expiry of CellCept for transplant rejection). Regulatory approval for CellCept to treat LN could obviously lead to additional royalties for Galenica in future. However, we believe it would take at least two years, likely more, until CellCept would be approved for LN. For the time being, we do not change our estimates. Buy, PT CHF 500.
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Implenia A new lawsuit on the horizon Reuters: IMPN.S Price: CHF 29.0 Hold PT: CHF 33.0 FACTS: (CHF) 2008A 2009A 2010E 2011E The City of Zurich yesterday announced that 2/3 of the roof girders of the EPS 2.28 2.56 2.75 2.89 Letzigrund stadium, which was built by Implenia, are damaged. According to JCF Cons. EPS 2.28 2.56 2.97 3.17 P / E 12.7 11.3 10.6 10.0 the city, Implenia will have to take over the costs for the load tests and the EV / EBITDA 4.9 4.3 3.8 3.4 necessary renovation. P / B 1.2 1.2 1.1 1.0 Div. Yield (%) 1.7 2.4 2.6 2.8 Source: Vontobel Equity Research COMMENT: Serge Rotzer +41 (0)58 283 71 04 Costs will run into the millions, but Implenia refuses to accept responsibility and [email protected] a new lawsuit therefore appears likely. Furthermore, there are still outstanding debts of around CHF 20 mn (VtE) which Implenia now will claim for.
Implenia told us that it never denied that there are certain deficiencies, but the dead weight capacity was never at risk and that no major renovations are necessary. Implenia will present 3 experts who will testify to this.
As Implenia will now enter into a lawsuit, current costs will probably be activated and should so far not impact the P&L.
CONCLUSION: It is a tricky affair, but in our view Implenia's chances are not that bad as: 1.) the damages might be not that severe as it will be fixed by the city within only 1.5 months, 2.) the matter involves a political element and, as the responsibility has recently changed, a "big bath" effect might still be possible and 3.) we understand that Implenia has the more credible experts. Nevertheless, the issue will burden the company with uncertainty and a lawsuit could easily take one to two years. As we leave our forecast unchanged, we reiterate our HOLD rating and PT of CHF 33.
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Vontobel Morning Note 03-06-10
Kuoni Cash offer for the majority of Et-china Reuters: KUNN.S Price: CHF 325 Hold PT: CHF 440 FACTS: (CHF) 2008A 2009A 2010E 2011E One year after the acquisition of 32% stake of Et-china.com, Kuoni announced EPS 53.1 0.08 0.35 14.0 last night that it has made a proposal to acquire the rest of the issued and to be JCF Cons. EPS 53.1 0.08 18.7 30.5 P / E 6.1 3959.4 930.4 23.3 issued shares in the Chinese company listed in London (since August 2007). The EV / EBITDA 2.6 106.9 9.1 4.6 cash offer of CHF 1.95 per share values Et-china at CHF 95 mn. Kuoni will P / B 1.5 1.6 1.7 1.6 finance the transaction from existing cash resources. The transaction is expected Div. Yield (%) 3.1 2.5 2.5 3.1 Source: Vontobel Equity Research to close in the third quarter of 2010. Et-china reported turnover of CHF 303 J. Bertschy +41 58 283 76 48 mn, and gross profit of CHF 34 mn last year. The company has about 1,600 [email protected] employees and operates through 160 retail outlets.
COMMENT: Management has always made it clear that it wanted to take over the majority of Et-china. The acquisition has significant strategic potential in terms of geographic footprint, given the company's strong market position and customer base in Southern China. This move will significantly increase Kuoni's presence in the region where it will be a major player. In terms of sales, Et-china represents 7.5% of our estimated 2010E group sales (or 40% of Asian's sales) and 4% of gross profit.
The overall acquisition price paid by Kuoni, including the price paid for the stake it already owns, amounts to CHF 82 mn (first offer for the 32% stake amounted to CHF 9 mn, the Et-china share price was roughly at the current level - GBPp 35 vs GBPp 42 per share yesterday after closing). We expect the offer to go through, given the price offered by Kuoni (GBPp 115 per share), which we consider fair.
CONCLUSION: The announced offer was expected and, in our view, makes a lot of sense. After the successful Indian story of the late 90s, Et-china may well prove to be Kuoni's next successful growth story. The Chinese market has huge potential with high growth rates and is expected to become the world's number one tourist destination and the fourth biggest tourist exporter by 2020. In view of Et-china's low profitability as well as the expected low financing costs, the impact on our EPS estimates is expected to be marginal. We rate the stock a Hold.
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LEM 4Q order intake exceeds pre-crisis levels - good 4Q results slightly Reuters: LEHN.S Price: CHF 350 ahead of estimates, HOLD PT 370 (340) Hold PT: CHF 370 (CHF) 2008A 2009A 2010E 2011E FACTS: EPS 20.8 9.2 18.9 22.7 FY09/10 results were published preliminarily yesterday afternoon. LEM JCF Cons. EPS 18.0 22.7 P / E 16.8 38.0 18.5 15.4 exceeded its own guidance with sales of CHF 185.5 mn (+21% QoQ, guidance EV / EBITDA 3.9 17.2 9.8 8.1 170-180, VontE 179) and a pro-forma EBIT of CHF 25.8 mn (+32% 3Q vs 4Q, P / B 2.1 4.1 3.5 2.9 FY guidance 25, VontE 25.5). Liabilities of the stock option plan amounted to Div. Yield (%) 2.8 5.7 2.2 2.6 Source: Vontobel Equity Research CHF 8.3 mn (VontE -7.3) and resulted in a group net result of CHF 10.5 mn Andreas Escher +41 (0)58 283 73 55 (VontE 10.8). A dividend of CHF 20 (CHF 5 plus CHF 15 extraordinary) is [email protected] proposed (yield: high 5.5%). Additionally, the BoD intends to launch a share buyback program worth CHF 15 mn over the next 2 years.
COMMENT: The high growth momentum continued in 4Q: orders received soared to CHF 78.3 mn (+43%, VontE 65), implying a record book-to-bill ratio of a high 1.34 (3Q: 1.14). The gross margin amounted to 43.3% for FY09/10, hence, although QoQ the GPM declined to 42.7% in 4Q (3Q: 45.2%) the result indicates that the early implemented measures bear fruits. As to the regions, China was the main highlight with sales +41% YoY. Both segments enjoyed 21% QoQ sales growth:
Industrials (92% of group sales): main drivers for growth were renewables, electric motor drives and traction. Profitability increased 130 bp to 18.2% reaching pre-crisis levels.
Automotive: Starting with a weak 1Q, top line improved continuously and remained stable YoY and pro-forma EBIT has reached break-even level. As the value content per electrical/hybrid vehicles is increasing compared to conventional cars, we assume that the positive trend in the segment will continue and current projects are expected to turn into sales shortly.
CONCLUSION: Excellent 4Q results and the strong order intake are whetting investors' appetite. The announced share buy back program will certainly support the share price. Assuming CHF 350 per share, the program amounts to 4% of outstanding shares. Further, we welcome the expected reduction of volatility given the changes in the stock option plan. Following the results, we increased EPS10E +5% and leave EPS11E unchanged. Applying historical EV/EBITDA (excluding SOP) and peer multiples, we increase our new PT to CHF 370 up from 340 while reiterating our HOLD recommendation.
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LEHN (mn CHF) Jul-Sep Oct-Dec Jan-Mar Apr-Mar 2Q09 3Q09 4Q09A 4Q09E GAP FY09A FY09E GAP QoQ YoY
ORDERS RECEIVED - Industrial segment 43.6 50.5 73.2 60.0 22% 201.0 187.9 7% 45% 18% - Automotive segment 3.5 4.3 5.2 4.8 8% 15.7 15.3 3% 21% 11% - LEM group 47.1 54.8 78.4 64.8 21% 216.7 203.2 7% 43% 17% - book-to-bill ratio 1.09 1.14 1.34 1.25 1.17 1.14
SALES - Industrial segment 39.8 44.3 53.8 47.6 13% 170.8 164.6 4% 21% -6% - Automotive segment 3.4 3.9 4.7 4.1 15% 14.7 14.2 4% 21% -1% - LEM group 43.2 48.2 58.5 51.7 13% 185.5 178.8 4% 21% -6%
GROSS MARGIN 43.0% 45.2% 42.7% 44.9% 43.4% 44.0%
OPERATIONAL PRO-FORMA EBIT - Industrial segment 5.9 7.5 9.8 9.3 5% 26.8 26.3 2% 31% -14% - margin 14.8% 16.9% 18.2% 19.5% 15.7% 16.0% - Automotive segment -0.5 -0.1 0.0 0.2 -100% -1.0 -0.8 25% -100% -47% - ma rg in -14.7% -2. 6% 0.0% 4.9 % -6.8 % -5 .6% - LEM group 5.4 7.4 9.8 9.5 3% 25.8 25.5 1% 32% -12% - margin 12.5% 15.4% 16.8% 18.4% 13.9% 14.3%
STOCK OPTION PLAN (SOP) -0.3 -0.8 -1.7 -1.7 0% -8.3 -7.3 14% 113% -280%
REPORTED EBIT 5.0 6.6 7.1 7.6 -7% 17.5 18.1 -3% 8% -48% - margin 11.6% 13.7% 12.1% 14.7% 9.4% 10.1% GROUP NET PROFIT 2.9 4.0 5.0 5.2 -4% 10.5 10.8 -3% 24% -56%
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OC Oerlikon Rights offering successfully concluded Reuters: OERL.VX Price: CHF 5.66 Hold PT: CHF 5.80 FACTS: (CHF) 2008A 2009A 2010E 2011E The trading of rights to participate in the upcoming capital increase of OC EPS -33.2 -46.2 -1.03 0.27 Oerlikon ended yesterday at noon. Close to 100% of the rights were exercised JCF Cons. EPS -33.2 -46.2 -0.309 0.05 P / E NM NM NM 21.1 by existing shareholders. With this outcome, lending banks will cancel CHF 125 EV / EBITDA 6.3 NM 14.7 5.3 mn of debt and will swap another CHF 150 mn of debt into equity in a second P / B 0.1 0.1 1.0 0.9 capital increase against issuance of shares. Div. Yield (%) 0.0 0.0 0.0 0.0 Source: Vontobel Equity Research Michael Foeth +41 (0)58 283 5223 COMMENT: [email protected] The number of shares to be issued amounts to 268.7 mn. The total equity raised in this refinancing plan amounts to CHF 1.3 bn, resulting in an estimated equity at the end of FY10 of CHF 1.6 bn or a book value per share of CHF 5.8 per share.
With 100% of the rights being taken up by shareholders, the old credit facility is replaced with two new facilities in the amount of CHF 580 mn and CHF 474 mn, respectively, resulting in total new debt of CHF 1'054 mn on the balance sheet and an estimated net debt at the end of FY10 of CHF 629 mn.
CONCLUSION: Although the order intake reported by Oerlikon for 1Q10 was encouraging and the profitability showed improvements, the company is still restructuring and the positive trends need to be confirmed. The shares trade at 0.9x P/B 11E and at a P/E 11E of 21.1x. Only when looking into 2012 does the valuation start to look more attractive. We thus stick to our Hold rating at this point and adjust our PT to CHF 5.8 to adjust for the new number of shares.
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Sulzer Expanding the service business - new PT 140 (old: 135) Reuters: SUN.S Price: CHF 99.0 Buy PT: CHF 140 FACTS: (CHF) 2008A 2009A 2010E 2011E Following the acquisition of Dowding & Mills we have adjusted our EPS EPS 9.61 8.06 6.31 8.32 estimates by 4% in 10E, 8% in 11E and 12E. JCF Cons. EPS 9.61 8.06 6.13 7.18 P / E 10.3 12.3 15.7 11.9 EV / EBITDA 5.3 5.7 7.1 5.4 COMMENT: P / B 2.2 1.9 1.7 1.6 Sulzer announced yesterday the cash offer for Castle Support Services plc, the Div. Yield (%) 2.8 2.8 2.0 2.5 Source: Vontobel Equity Research sole owner of Dowding & Mills. The offer is supported and recommended by Fabian Haecki +41 (0)58 283 63 47 the Board of Directors of Castle Support Services. The total offer price is GBP [email protected] 127.5 mn (CHF 217 mn). The business will be integrated into Sulzer Turbo Services (TS). The company has 1,400 employees and generated in FY09 CHF 213 mn revenues at a margin of 13.8%. Sulzer has already received irrevocable undertakings of 94% of shares outstanding which makes a succesfull offer very probable.
Reasons why we like the deal:
- Inexpensive valuation multiples: On 2009 figures, Sulzer paid 7.5x EV/EBIT, 1.0x EV/Sales and 10.6x P/E
- Debt free company after the divestment of the calibration business
- High op. margins of 13.8% last year which is slightly above that of Sulzer Turbo Services
- Signficant customer synergies
- Geographic leverage
- complementary service offering
CONCLUSION: We regard Sulzer's offer as an smart move to expand its Turbo Services business and to increase the overall service content of the group which lowers the strong cyclicality of the equipment business. The acquisition multiples appear inexpensive and the service business for electromechanical equipment structurally attractive as reflected in the strong margins. Following the recommended announcement of the offer, we have increased our EPS estimates by 8% in 11E/12E and increase our PT from CHF 135 to CHF 140. Buy.
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NOVARTIS (IN USD) 04-06-10 Preview Event Sales chng (%) EBIT chng (%) Net Prof chng (%) ASCO NA NA NA NA NA NA American Society of Clinical Oncologists in Chicago: data from Tasigna, Sprycel and denosumab
ROCHE (IN CHF) 04-06-10 Event Sales chng (%) EBIT chng (%) Net Prof chng (%) ASCO NA NA NA NA NA NA American Society of Clinical Oncologists: data on Avastin, Rituxan, pertuzumab, T-DM1
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Upcoming Corporate Events DATE COMPANY EVENT TOPIC 04-06-10 Novartis SY ASCO 04-06-10 Roche SY ASCO 07-06-10 Hermès AGM 07-06-10 Nationale Suisse AGM 08-06-10 ARYZTA PR 9M 09/10 results 08-06-10 Burckhardt Compression AR FY 09 results 09-06-10 Kardex OTH Investors day 10-06-10 Novartis SY FDA Advisory Committee 11-06-10 Flughafen Zurich PR Traffic Figures Mai10 11-06-10 Swiss Re AM Investor Day London 14-06-10 Oridion AGM
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Vontobel Morning Note 03-06-10
1. Analyst declaration Disclaimer This Vontobel Report has been produced by the organizational unit responsible for investment research (Research unit, sell-side analysis) of Bank Vontobel AG, Gotthardstrasse 43, CH-8022 Zurich, Tel +41 (0)58 283 71 11 http://www.vontobel.com/. Bank Vontobel AG is subject to supervision by the Swiss Financial Market Supervisory Authority (FINMA), Schwanengasse 12, Bern, http://www.finma.ch. The authors of the individual articles confirm that this report gives a complete and precise reflection of their opinion of the analysed companies and that they have neither directly nor indirectly received compensation for their assessment or opinion. The compensation of the authors of this report is not directly related to the investment banking volume generated between Vontobel Group and the analysed companies. The authors of this document own securities in the analysed companies: Kuoni This document was not submitted to the analysed companies before publication or distribution.
2. Disclosure of conflicts of interest As an internationally active company, Vontobel Group is subject to a number of provisions in drawing up and distributing its investment research documents. The producer and distributors of this financial analysis point out the following potential conflicts of interests: The producer and its associated companies • will or are attempting to generate investment banking business with the analysed companies within the next three months, • conduct transactions with securities of the analysed companies from time to time, • have participated in capital market transactions/the issue of securities of the analysed companies in the last 12 month: none, • have been active as Market Maker in equities of the analysed companies in the last 12 months: none, • have provided other publicly known Investment Banking services for companies mentioned in this report in the last 12 months: none, • have received compensation for products and services outside Investment Banking from analysed companies: none, • hold more than 5 % of the voting rights of the analysed companies: none, • does not have executives who are members of the board of the analysed company and the analysed company does not have executives who are members of the board of Bank Vontobel AG or affiliated companies, • have no significant financial interest in the analysed companies and • have reached no agreement with the analysed companies regarding this financial analysis.
3. Research rating history The rating history of the companies analyzed in the Morning Note can be found on the Vontobel Research Information System (RIS) or in the respective company report.
4. Global rating distribution (beginning of each quarter) Share of VT IB clients in VT research universe VT research universe rating category No. As % As % Buy 42 25% 43% Hold 113 68% 27% Reduce 12 7% 17%
The table above is revised at the beginning of each quarter, i.e. it currently reflects the status as at 30th September 2009.
5. Methodology / Rating system Bank Vontobel’s financial analysts apply a variety of valuation methodologies (e.g. DCF and EVA modelling, 'sum- of-the-parts', break-up and event-related analysis, peer group and market multiple comparisons) to their own financial projections for the companies they cover. Overall, our investment recommendations take into consideration an assessment of the company in its entirety and of the sector to which it belongs ("bottom-up approach"). Price target calculation is based on a number of factors, observations and assumptions, including but not limited to: key business performance indicators and ratios, public and private valuation multiples, comparison with one or more peer groups of comparable companies, overall equity market valuations, and with the company's own history and track record.
The stock recommendations published by Vontobel’s research team are defined as follows:
Rating Definition
Large cap SLI Index (inc. tolerance) / non-Swiss stocks of similar market capitalisation Buy Price target (when set) implies 10% or more upside on a 12-month horizon Hold Price target (when set) implies 0-10% upside on a 12-month horizon Reduce Price target (when set) implies downside on a 12-month horizon
Mid & small cap Other Swiss stocks / non-Swiss stocks of similar market capitalisation Buy Price target (when set) implies 15% or more upside on a 12-month horizon Hold Price target (when set) implies 0-15% upside on a 12-month horizon Reduce Price target (when set) implies downside on a 12-month horizon
Analysts are required to review their recommendations under the following conditions: Buy: When upside to price target falls below 5% (all caps). Hold: When upside to price target reaches or exceeds 15% for large caps or 20% for mid & small cap; when downside to price target reaches or exceeds 5% (all caps). Reduce: When upside to price target reaches or exceeds 5% (all caps).
We reserve the right to waive repeated changes of recommendation during periods of unusually high equity market or specific stock price volatility.
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Vontobel Morning Note 03-06-10
Share prices used in this financial report are closing prices on the date given. Deviations from this rule are disclosed. The underlying figures of a company valuation, i.e. the profit and loss statement, capital flow and balance sheet are estimates based on date and thus bear certain risks. They can change at any time without notice when other models, assumptions, interpretations and/or estimates are applied. The use of the valuation methods do not rule out the risk that the stock fails to achieve the "fair value" within the projected period. Numerous factors influence share price performance. Unforeseen changes can arise from the emergence of competitive pressure, from a change in demand for the products of an issuer, technological development, from macroeconomic activity, exchange rate fluctuation or from a shift in society’s moral concept. Changes in taxation law or supervisory regulations can often have a grave, unforeseen impact. This discourse on valuation methods and risk factors does not claim completeness. For more information on our methodology and rating system see www.vontobel.ch.
6. Disclaimer & Sources Although Vontobel Group believes that the information provided in this document is based on reliable sources, it cannot assume responsibility for the quality, correctness, timeliness or completeness of the information contained in this report. This research report is for information purposes only and does not constitute a solicitation to invest or investment advice. This report has been written without regard for the financial interests of individual recipients. The producer maintains the right to change and/or revoke all opinions expressed in this report at any time. The producer also points out that the statements contained in this report are on no account to be considered as advice on tax, accounting, legal or investment matters. The producer neither guarantees that the equities discussed in this report are accessible to recipients nor that they are suitable for them. This research report has been produced for institutional investors only. If non-institutionals receive this report it is recommended they seek advice from an asset manager or investment advisor prior to making an investment decision. The maker of this report does not regard recipients of this report as clients if there are no other business or contractual relations. No part of this material may be reproduced or duplicated in any form, by any means, or redistributed, without acknowledgement of source and prior written consent from Vontobel Research. Bank Vontobel AG has taken internal organisational measures to prevent potential or, if unavoidable, to disclose existing conflicts of interest. For more details on handling conflicts of interest and maintaining the independence of financial analysis as well as other disclosures relating to the recommendations of Bank Vontobel AG, see www.vontobel.com.
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