INDEPENDENT RESEARCH Payments
6th September 2017 PSPs to play and avoid in the European payments sector Payments
Finalised on 5th September In our sample of payment stocks, our preference is more than ever for GEMALTO SELL FV EUR39 Ingenico Group (for its attractive valuation and improved momentum), Bloomberg GTO FP Reuters GTO.PA Price EUR38.74 High/Low 63.98/38.6 Wirecard (best fundamentals in the sector and speculative appeal) as Market cap. EUR3,503m Enterprise Val EUR4,556m well as Worldline (a natural consolidator in Europe and good PE (2017e) 21.5x EV/EBIT (2017e) NS momentum). We remain negative on Gemalto (lack of visibility and INGENICO GROUP BUY FV EUR119 another profit warning possible for 2017), Nets (the current share price is Bloomberg ING FP Reuters INGC.PA Price EUR81.86 High/Low 95.01/69.73 close to the IPO price and already includes speculation) and Worldpay Market Cap. EUR5,105m Enterprise Val EUR6,560m (we advise selling to gain exposure to other European PSPs rather than PE (2017e) 17.2x EV/EBIT (2017e) 16.1x becoming shareholder of the new Vantiv+Worldpay group). NETS SELL FV DKK119 Bloomberg NETS DC Reuters NETS.CO The payments sector is attracting attention, which is no surprise given Price DKK150.4 High/Low 158.5/105.9 Market Cap. DKK30,142m Enterprise Val DKK36,612m its sharp growth (6-8% for physical payments and ~15% for online), PE (2017e) 20.2x EV/EBIT (2017e) 23.0x recurring sales, healthy margins (EBITDA margin of 20-25% for WIRECARD BUY FV EUR73 physical payments and 30-35% for online), excellent transformation of Bloomberg WDI GR Reuters WDIG.DE Price EUR71.57 High/Low 71.91/39.345 EBIT into FCF (60% on average for our sample) and still accessible Market Cap. EUR8,844m Enterprise Val EUR8,196m valuation levels. Not to mention the fact that European regulations are PE (2017e) 32.0x EV/EBIT (2017e) 26.6x favouring competition by reducing the monopoly enjoyed by banks (e.g. WORLDLINE BUY FV EUR37 cut in interchange commissions in the EU at end-2015 and PSD2 in 2018), Bloomberg WLN FP Reuters WLN.PA Price EUR33.5 High/Low 35.71/23.505 and since security issues (especially online fraud: ~50% of global fraud) are Market Cap. EUR4,428m Enterprise Val EUR4,123m PE (2017e) 27.0x EV/EBIT (2017e) 20.7x prompting banks to outsource payment activities to specialists.
WORLDPAY SELL FV 278p We expect further consolidation in the payment services sector Bloomberg WPG LN Reuters WPG.L especially in e-commerce, like that seen a few years ago in the terminals Price 413.2p High/Low 430.4/256.6 Market Cap. GBP8,264m Enterprise Val GBP9,382m segment (in 2007 there were around 20 hardware manufacturers in the PE (2017e) 30.9x EV/EBIT (2017e) 27.0x world whereas today there is virtually only Ingenico and VeriFone). Until Top Picks recently, wide-ranging transactions have taken place between US players (Heartland Payment Systems bough by Global Payments in December 2015, TransFirst by TSYS in January 2016 and CardConnect by First Data Corp in May 2017) while Europe could now catch up its lag. We therefore believe that the next takeover move could target European players whether on a national scale (e.g. Dalenys' takeover by Natixis) or a transnational one (e.g. acquisition of UK group Worldpay by US group Vantiv).
Analyst: Sector Analyst Team: Richard-Maxime Beaudoux Thomas Coudry 33(0) 1.56.68.75.61 Gregory Ramirez [email protected] Dorian Terral Frédéric Yoboué
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Table of contents
1. H1 2017 and investment cases ...... 3 1.1. Gemalto: 4th profit warning in a row for 2017! ...... 3 1.2. Ingenico: an acquisition and a reassuring publication ...... 5 1.3. Nets: H1 slightly below forecasts, the group is considering signs of interest ...... 7 1.4. Wirecard: solid H1 and excellent momentum ...... 9 1.5. Worldline: healthy H1 figures and a fresh wave of M&A ...... 11 1.6. Worldpay: a weak H1 and a firm offer from Vantiv ...... 13 2. Is there any real speculative appeal in our coverage? What to do? ...... 15 2.1. Players the most immune to takeover bids ...... 15 2.1.1. Gemalto (Sell, FV EUR39) ...... 15 2.1.2. Ingenico Group (Buy, FV EUR119) ...... 16 2.1.3. Worldline (Buy, FV EUR37) ...... 17 2.2. Players with the easiest takeover profiles ...... 18 2.2.1. Nets (Sell, FV DKK119) ...... 18 2.2.2. Wirecard (Buy, FV EUR73) ...... 19 2.2.3. Worldpay (Sell, FV 278p) ...... 21 3. Multiples and main M&A deals ...... 23 3.1. Multiples of players we cover ...... 23 3.2. Main M&A operations in payment services ...... 23 4. Accounts of groups we follow ...... 24 Gemalto ...... 24 Ingenico Group ...... 25 Nets ...... 26 Wirecard ...... 27 Worldline ...... 28 Worldpay ...... 29 Bryan Garnier stock rating system ...... 31
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1. H1 2017 and investment cases 1.1. Gemalto: 4th profit warning in a row for 2017! Gemalto's H1 2017 results were slightly below the consensus: H1 sales stood at EUR1.393bn (cons.: EUR1.405bn, BG EUR1.391bn) with a PFO of EUR93m (cons.: EUR96m, BG: EUR95m, guidance: EUR90-100m). The group announced a 9% like-for-like sales decline in Q2, representing an organic fall of 12% on our estimates (i.e. adjusting for the acquisition of 3M Identity Management Business, which contributed two months over the quarter). H1 sales were therefore down 10% in organic terms with a PFO margin of just 6.7%. This sales under-performance was due to the payments business at -19% (especially due to the Americas -37%) and the SIM business at -17% (deterioration).
Fig. 1: H1 2017 sales were penalised by two main businesses
Date Sales growth Contribution to Explanations (YoY) sales Payment -19% 30% Especially due to the Americas -37%: ongoing return to normalised inventory levels of US EMV cards at GTO’s customers, coupled with a soft market environment in Latam. SIM -17% 17% Lower market share in a more competitive landscape as MNOs continue to shift their investments from removable SIMs to focus on next-gen connectivity, coupled with soft demand in regions affected by a stricter subscription registration processes.
Source: Company.
The other businesses were not satisfying with Enterprise down 1% lfl, Government programmes up 1% lfl, M2M up 7% and Mobile Platforms & Services down 12%. The group is now expecting the trends seen in Q2 to continue in H2, namely YoY sales between -15% and -20% for both Payment and SIM businesses. This contrasts significantly with what it was previously hoping for in the second half of the year (stable organic growth over one year as of Q3, implying that 77% of full- year PFO would be generated in H2), a situation that we considered a blue-sky scenario. Finally, a EUR425m goodwill write-down was booked in H1 accounts (representing 100% of goodwill in the Mobile Communication division in 2016), to reflect the deteriorated outlook in the removable SIM market.
Fig. 2: Four profit warnings in a row over 2017 (EURm)
Guidance 2017 09/2013 28/10/16 22/03/17 24/04/17 24/07/17 PFO >660 500-520 ~453 390-450 293-323
Source: Company.
Consequently, as we expected, the company issued its fourth profit warning in a row for 2017 (but again far higher than we had expected). Gemalto is now forecasting stable H2 sales over one year in consolidated terms (i.e. including 3M's biometric division) whereas it was previously targeting stable organic sales. In this business where fixed costs are very high, the impact on margins is clearly substantial. Gemalto has provided guidance for PFO of between EUR293m and EUR323m for 2017e (vs. EUR390-450m previously) i.e. less than half of the "more-than- EUR660m" initially targeted. Assuming it delivers the middle of this range, this would imply a
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return to the level of PFO seen back in 2012 (despite two major acquisitions: SafeNet and 3M Identity Management Business).
Fig. 3: PFO sequence so far (EURm)
Date 2012 2013 2014 2015 2016
PFO 305 348 382.7 422.6 452.7 PFO margin 13.6% 14.6% 145.5% 13.5% 14.5%
Source: Company.
Furthermore, the group indicated that its transition plan (announced last April) would only really start to produce its effects as of end-2017 (the plan is supposed to enable savings of EUR15m in 2017 and then more than EUR50m a year). In all, even after the profit warning, Gemalto is expecting 70% of 2017 PFO to be generated in H2 (vs. 77% before). Although we believe the group has finally taken sufficient precautions in the payments businesses and in SIM, we consider that it is still ambitious to expect growth in its Enterprise, M2M and government programmes businesses (including 3M IMB) to offset the decline in the other two activities. Following its preliminary H1 publication, we have slashed our EPS estimates by 27% on average over 2017/2018 (-36% for 2017e and -18% for 2018e).
Fig. 4: H2 guidance by main business
Date H2 guidance SIM Between -15% and -20%
Payment Between -15% and -20%
Government programmes Stable to mid-single digit organic growth Enterprise Mid to high-single digit growth
M2M Low- to mid-teen growth
Source: Company.
Finally, note that management has pushed back the announcement of its three/four-year plan from “by the end of 2017” to “in the course of H1 2018”, reflecting its lack of visibility. In strategic terms, the share is often subject to a high proportion of short positions until the middle of the plan (due to fears that the PFO target is not reached) and then again at the end of the plan if the target is confirmed as being out of reach (just after a rerating period). Whereas short positions are currently very low (~7% of the capital), we believe they could build up again when the new multi-year plan is announced.
We are maintaining our Sell recommendation and our FV of EUR39. Indeed, newsflow is unlikely to be buoyant in coming months (we are not ruling out a last profit warning before the end of the year even if we do not integrate it in our current FV; the announcement of the new plan could provide another downside catalyst in H1 2018) not to mention the fact that the group has no visibility on its main activities (payments, SIM and SIM-related services account for 60% of sales), for which the cost structure is primarily fixed.
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1.2. Ingenico: an acquisition and a reassuring publication Ingenico Group announced the acquisition of Bambora from Nordic Capital. This takeover was perfectly in line with the group's strategy to increase exposure to payment services (especially online) and finally ticked the merchant acquiring box (the only business that was missing in the payments value chain). Bambora is a Swedish PSP present in all distribution channels (breakdown in sales: 44% global online, 40% in-store in Europe and 16% in Australia) and is the main rival of Nets. The company is primarily exposed to Nordic countries and Switzerland. In the online segment, Bambora is highly focused on Canada and Australia. The acquisition is therefore very complementary, in terms of both businesses and geographies. Note that Bambora has an acquiring segment in both the online and physical segments. The group therefore reassured us that the physical acquiring segment would be implemented cautiously in a few cherry-picked European countries (i.e. where there are no strong acquirers) in order not to compete with its own clients (i.e those who buy terminals from the group). Post-acquisition, Ingenico is set to derive 38% of its sales from payment services (vs 31%) and 62% from payment terminals (vs. 69%).
In terms of figures, we estimate Bambora's 2017e sales at EUR252m with a margin of 18%e (the group has communicated cautious CAGRs for the next three years: >+20% for sales and >+30% sur EBITDA). This acquisition should increase Ingenico's growth profile by around 1-2% a year, with a pace of synergies of EUR30m over three years. Although the price is expensive in absolute terms at EUR1.5bn (or 32.5x for 2017e P/E on our estimates, i.e. more expensive than the 30x paid for Ogone, but 15.8x for 2019e post-synergies), it is not really surprising to us. Indeed, 1) Ingenico is traditionally the group that pays the most for its acquisitions since it often looks at targets that are much sought-after by rivals, and 2) the price-tag is normal for a player with this type of growth profile and an online bias. We estimate 2017e Net Debt/EBITDA at 2.8x with the multiple falling to 1.8x as of 2018e (thanks to the group's debt-reduction capacity) i.e. management can quite well make other purchases depending on the opportunities that arise. By cautiously integrating this operation from 1st January 2018 (Ingenico expects it to be completed during Q4 2017), we calculate EPS accretion of 3% in 2018e, 8% in 2019e and 14% in 2020e.
Fig. 5: Ingenico + Bambora: presence throughout the value chain
Source: Company.
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Fig. 6: Ingenico + Bambora: a key stage in the group's strategy
Source: company
Ingenico made the most of the announcement of this acquisition to report its interim earnings: H1 sales stood at EUR1.222bn, +5% lfl (vs. cons. EUR1.218bn, BG EUR1.215bn) with EBITDA margin of 20.0% (consensus 20.6%, BG 20.0%). Q2 sales were particularly reassuring with organic growth of 5% (as in Q1) despite still very demanding comparison with the year earlier period. The publication showed encouraging signs in three key regions: 1) North America picked up again in Q2 to +1% (vs. -33% in Q1) whereas we did not expect this before H2 and even though we were the most optimistic among the consensus. The group confirmed that the stock of terminals at US merchants continued to fall, which in our view adds weight to the message from Verifone, which expects a recovery in EMV in Q3 and Q4 this year whereas Ingenico prefers not to include this in its 2017 guidance. 2) China also returned to a growth path in Q2 following a single-digit decline in Q1. 3) A still solid performance in India in line with the group's guidance: sharp growth in Q4 2016 and Q1 2017, a slowdown in Q2 and a return to normal in Q3. The H1 publication was very reassuring in view of full-year guidance since the impact of seasonal factors should favour the second part of the year.
We expect positive momentum in H2. Indeed, comparison bases are set to return to normal as of Q3 (for Europe, the US, China and Brazil) and the payments segment is continuing to win new contracts (numerous new clients have been signed up since the start of the year). Margin should therefore improve automatically in H2 in this high fixed-cost business. Finally, margin guidance for this year is not based on an improvement in gross margin, but on a decline in operating expenses. As such, although the group has maintained its 2017 guidance (lfl sales growth of around 7% and a slight improvement in the EBITDA margin, i.e. >20.6%), we believe it is quite capable of bettering it. In addition, Jennifer Miles, a genuine star in the sector (former head of the US as well as the Americas region at VeriFone), joined the group in mid-July. Although we expect no contribution from her before 2018, we are not ruling out the prospect of her succeeding in signing up new contracts as of H2 2017. This is especially so since VeriFone works with all the major retailers in the US (its original region) whereas Ingenico only works with 15 out of the top 100 for the moment, implying leverage for this region in coming years.
Ingenico Group is our Top Pick. The group has a more recurring profile and manages to resist even in unfavourable conditions, generating 2016 sales growth of 8% lfl and EBITDA margin of 20.6% despite the shift in the EMV deadline in the US. Before Bambora, we estimated that the share price warranted a return to the EUR100-mark, but now we expect it to go further. The rerating operated since the beginning of the year should continue.
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1.3. Nets: H1 slightly below forecasts, the group is considering signs of interest Nets announced slightly lower than expected H1 results. Gross sales stood at DKK5.096bn (vs. our forecast for DKK5.2042bn) and net sales at DKK3.816bn or +6% lfl (vs. the consensus at DKK3.853bn and DKK3.875.4bn). Organic growth in the period was underpinned by the Merchant Services division (+10%) and Corporate Services (+3%), but penalised by Financial & Network Services (+2%, due to demanding comparison with the year-earlier period caused by implementation revenues). As such, EBITDA came in at DKK1.192bn (vs. DKK1.224bn, BG at DKK1.2121bn), or a margin of 23.4%. The group has net debt of DKK5.95bn (gearing of 59%). Management maintained its 2017 guidance for organic net sales growth of 5-7% and underlying EBITDA margin of at least 36.5% on net sales, or at least 26.5% on gross sales. In contrast, management increased its guidance for non-recurring expenses to DKK200m (vs DKK150m previously), given the valuation of various options linked to a potential takeover of Nets and higher than expected costs for technology updates.
In view of Nets' balance sheet, we forecast a first dividend payment for 2018e (pay-out of 25% probably). Furthermore, the group's acquisition policy should remain focused on Nordic countries (to continue to benefit from its scale effect in the region) with modest-sized targets.
Fig. 7: Nets most recent 2017 guidance (17th August 2017)
FY 2017 Guidance Organic revenue growth 5-6% EBITDA margin before special items >=36.5% (on net revenue) Special items (incl. DKK200m IPO-related retention expenses) (of which ~DKK30m is IPO-related) Capital expenditure incurred ~8% (% of net revenue) ~2.5x, incl. effect of share buyback of approx. Net interest-bearing debt / EBITDA DKK150m to cover long-term incentive programme and including acquisition of OP's before special items merchant acquiring business
Source: Company.
Shareholders that took part in Nets' flotation last September at DKK150 have only seen this price level again recently. The uptrend started in early July when management confirmed that it had attracted the interest of potential buyers. The group is currently studying various options for its possible takeover. However, it is too early to have any certainty on the potential outcome of this current interest. We see three possible scenarios: 1) Nets decides to be bought out (but upside looks limited relative to the current price), 2) Nets remains independent and focused on the Nordic region in which case we expect market share losses and hence pressure on margins in this fixed-cost business (its rivals have European or global platforms and their size effects), 3) Nets remains independent but decides to invest in its platforms to open itself up to countries outside the Nordic region, which would cause a narrowing in its margin over the short/medium terms.
Whatever the case, we estimate that even in the event of a takeover, upside potential is limited. Indeed, the share price already factors in speculative appeal that has driven it back towards its flotation price. The share is trading on an EV/EBITDA multiple of 12.3x over 12 rolling months, which is in line with its positioning (primarily a physical PSP) but in no way takes accounts of the risks associated with the group that are already beginning to materialise. These include the arrival of
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European or even global rivals (especially Worldine via its acquisitions, Ingenico via Bambora etc.), the gradual maturity of Nordic countries and gradual market share gains by Visa and MasterCard in the region. We are maintaining our Sell recommendation and our FV at DKK119.
Fig. 8: Nets rivals by business
Merchant services Competitors Financial & Competitors Corporate Competitors Network services services Merchant acquirer Bambora, Elavon, Debit card scheme Visa, Mastercard Recurring payment Merchant acquirers, (acquiring and Payex and financial services and other card systems bank-to-bank processing institutions schemes services that are set- services) (Swedbank and up as recurring Handelsbanken) payments POS solution Point (VeriFone), Card issuer TSYS, Clearing services Clearing houses business iZettle and Payex processor Worldline/Equens, including EBA First Data, Evry and Clearing, VocaLink, financial institutions Equens and STET Next generation PayPal, Adyen, Adjacent value- Niche single-solution services Stripe added services providers (Internet and mobile payments)
Sources: Company; Bryan, Garnier & Co.
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1.4. Wirecard: solid H1 and excellent momentum The group announced very respectable H1 earnings with sales of EUR615.5bn, up 25.1% in organic terms vs. the consensus at EUR592.1bn, BG at EUR592.7m) with EBITDA of EUR176.5m or an EBIT margin of 28.7% (cons. EUR173.1m; BG EUR173.5m). Unsurprisingly, Wirecard confirmed its EBITDA guidance that it raised a few weeks earlier from EUR382-400m to EUR392-406m (cons. EUR399.5m, BG EUR402.7m, bearing in mind that we were already ahead of the top-end of the previous range). The middle of the range at EUR399m is based on: 1) organic growth of 25%, 2) a contribution of more than EUR13m stemming from Citi Prepaid Card Services post-integration costs, 3) no contribution from the operation with Citi APAX (EBITDA being equal to integration costs) and 4) a EUR1.5m contribution from MyGate post integration costs. In all, we believe it is very likely that the group will up its guidance again before the end of the year.
In recent years, management has regularly increased its annual guidance. On average between 2010 and 2014, it reported EBITDA 2% higher than the middle of its initial guidance range, with the level slightly closer to the top end of the range every year. Since 2015, the group has managed to exceed the upper threshold. We do not consider that this outperformance stems from a more cautious stance by management but more from the rising share of e-commerce in the world, which is driving sales growth (acceleration in the volume of transactions handled each year) and therefore automatically, margin growth (since the business is primarily fixed-cost).
Fig. 9: Track-record: reported EBITDA vs. initial guidance (EURm)
EURm 2014 2015 2016 2017e
Guidance Initial Reported Initial Reported Initial Reported Initial BG est.
EBITDA 160-175 172.9 205-225 227.3 280-300 307.6 382-400 402.7
Mid-point 167.5 172.9 215 290 391
Reported vs. mid- +3.2% +5.7% +6.1% +3.0% point Reported vs. +1.2% +1.0% +2.5% +0.7% upper range
Sources: Company; Bryan, Garnier & Co.
Margin growth in coming years is set to be driven by: growth in the European market of e- commerce and additional growth stimulants such as omni-channel solutions (physical, internet and mobile), connected commerce (in view of the advanced digitalisation of physical stores), the volume of transactions handled with existing or new customers, economies of scale and the contribution from recent acquisitions. Wirecard intends to support companies in their work to migrate towards integrated and digitalised payment solutions with value-added services. In all, we estimate that the share of e-commerce in the overall retail segment remains the largest driver (ahead of the disappearance of cash and checks in favour of electronic payments). Indeed, potential remains huge since the share of e-commerce only stands at around 10% of total retail trade in the world (including 12% in the US and 8% in Europe, bearing in mind that the UK is the most advanced western country at 14-15%).
Wirecard's 2020 financial targets (excluding new acquisitions) are considered cautious: Transaction volumes of more than EUR45.2bn in 2015 to more than EUR190bn in 2020, namely a CAGR of more than 33.3%, including +25% in Europe and +40% outside Europe (primarily in India).
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Sales of more than EUR2.5bn, i.e. a CAGR of 26.5% (vs. BG at EUR2.46bn with the latest acquisitions).
EBITDA margin of 30-35% (vs BG: 30.3% with the latest acquisitions).
A conversion rate of EBITDA into FCF of more than 65% (vs BG at 63.7%), limiting capex to 7-8% of sales on average over the period (vs. our forecast for 7.8% on average over 2016- 20e) and with neutral if not negative WCR over the medium-term (collection of commission fees).
Fig. 10: 2020 strategic plan (excluding new acquisitions)
EURbn 2020 financial targets (lfl) CAGR BG est. Transaction volume >190 +33.3% Revenues >2.5 +26.5% 2.5 EBITDA margin 30-35% 30.3% FCF/EBITDA conversion (%) >65 63.7%
Sources: Company; Bryan, Garnier & Co.
We believe the majority of short positions have already been unwound (falling from 35% of the capital at the peak of the Zatarra affair to an estimated 8.7% today, namely close to the average in the payments sector which is between 6% and 7%). This was genuinely triggered once the takeover of Citi Prepaid Card Services was completed and then a week later following the second operation with Citi in the APAC region (takeover of Citi customer portfolio in the acquiring segment in 11 markets). The audit of accounts undertaken by Citi took some time, but finally helped remove the doubts weighing on the company following the false allegations contained in the Zatarra pseudo report (the authors of which are still unknown). From the equity markets' perspective, this is a better quality stamp than any other account signature stemming from the largest Anglo-US audit networks (Deloitte, EY, KPMG and PwC).
Wirecard remains one of the rare players on the global stockmarkets to play the e-commerce payments theme and it has what it takes to attract suitors with its unusual profile. The group is a pure online player, now present in all continents and with significant exposure to South-East Asia (30% of sales, the most developed market in e-commerce) and is the only PSP to have an internal digital bank (Wirecard Bank). Finally, Wirecard is by far the most suitable payments company for a prospective takeover bid in all of our coverage (93% free float). In terms of valuation over 12 rolling months, the share remains attractive with an EV/EBITDA multiple of 17.3x (the takeover of Worldpay went ahead on a 2017e EV/EBITDA multiple of 19x whereas the group is only 20% exposed to online payments) and a P/E of 27.3x vs. 2016-19 EPS growth of +34%. Note that the group historically traded on P/E of 30-40x before the Zatarra affair. We are maintaining our Buy recommendation and our FV of EUR73, which reflects at least the group's positioning (in our FV, Wirecard is trading on 2017e EV/EBITDA of 20.8x and 17.6x over 12 rolling months). Even if we are pushing the stock slightly less than we were before given the share's rerating since the start of the year, we advise investors to maintain their positions in view of the company's excellent fundamentals and its speculative appeal (see part 2.2.2).
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1.5. Worldline: healthy H1 figures and a fresh wave of M&A Interim figures were better than expected. The group generated sales of EUR778.2m (vs. the consensus at EUR775.5m and our forecast for EUR777.2m, up 1.7% lfl (1.4% in Q1 and 2% in Q2) and EBITDA margin of 19.7% (vs. the consensus at 19.3% and our forecast of BG 19.8%). Management therefore raised its full-year guidance, both in terms of lfl sales growth (from 3.5% to +3.5-4%), EBITDA margin (from 20.0-20.5% to >20.5% incl. EUR25m in synergies vs EUR20m before i.e. 62% of the budget vs. 50% previously, while we consider the EUR40m budget for synergies as cautious), and FCF (from EUR160-170m to EUR170m). Concerning acquisitions, management reminded that its pipeline has never been so full and that there would be others by the end of the year, some of which could be transforming. This term indicates to us that the acquisitions could have sales at the top end of assets potentially on sale at present in Europe (ranging from EUR50m to EUR400m in sales). The group has the means behind its ambitions since it can mobilise EUR1.5bn in cash (EUR2bn by playing on the target's net debt/EBITDA) and also has the joker of Atos (which has 70% of the capital but could dilute its stake to 50% plus one share).
Fig. 11: 2017-2019 targets (data provided on 8th November 2016)
EURbn 2019 financial targets (lfl) Organic revenue growth After H1 2017 with slightly positive growth, 5% to 7% CAGR EBITDA margin (%) +350bp to +400bp margin improvement in 2019 vs 2016¹ FCF EUR210m to EUR230m in 2019, a more than 50% increase compared with the 2016 target
¹ c.18.5% OMDA margin, 2016 pro forma best estimate, before finalization of pro forma methodology review
Source: Company.
The group has embarked on a fresh round of acquisitions, announcing two takeovers and a small sale of a non-core business last July:
1) Takeover of Digital River World Payments, the global online PSP of Digital River, based in Stockholm, with 120 staff. Via this acquisition, Worldline is above all acquiring a technology, namely a global payment gateway with multi-acquiring and collecting services. On a 12-month basis, we estimate it should generate sales of EUR27m with EBITDA margin of 19%. Margin prospects are very attractive since they should reach 20-23% in 2018e and the high twenties in 2020e. DRWP is very complementary with Worldline's SIPS platform (SIPS is very local customer oriented in France and Belgium: vente-privée, Cdiscount etc, DRWP offers a footprint in Sweden, the US and Brazil with very high-quality customers such as Airbnb and, Lastminute.com etc.). The acquisition should accelerate the growth profile in Worldline's Merchant Services division. We estimate the price- tag on the operation at EUR60-70bn, namely less than 13.6x in terms of EV/EBITDA (a very reasonable price for online, generally transactions in this segment are over 20x). Note also this included a five-year commercial agreement with the Digital River group. Once integrated into our model, DRWP is accretive to earnings by 0.4% in 2017e (consolidated over three months) and 3% in 2018 (full-year).
2) Takeover of First Data Baltics (the subsidiary of First Data in the Baltic countries). The company is a processor at the service of banks in Baltic countries, but also services banks in the Nordic region more generally. On a 12m basis, we estimate 2017 sales at EUR23m with EBITDA margin at 30%. On our figures, the acquisition went ahead at EUR73m, pointing to a very reasonable EV/EBITDA multiple of 10.6x (vs. between 10 and 12x generally). This acquisition should
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strengthen Worldline's Financial Processing division. Worldline made the most of this to sell a very small non-core business in France, namely the service voucher segment in France. The transaction went ahead as a management buy-out (the business was in its financial processing and software licensing division). Note that this business was dilutive in terms of both sales growth (EUR18m in sales) and EBITDA margin (3%e). It probably generated slightly less than EUR3m for Worldline, namely EV/EBITDA of 5.6x. After factoring in the acquisition of First Data Baltics (as of October) and the small disposal of the service voucher activity (since July), we have increased our EPS estimates by 1.3% for 2017 and 2.6% for 2018 (full year).
We recommend playing this very positive momentum prompted by M&A (materialisation of deals by the end of the year), the Payment Services Directive 2 (see our sector report of 19th April 2017) and the return to a normal base effect as of Q3. Finally, we believe that there is every likelihood Worldline could raise its medium-term guidance during its Investor Day on 3rd October (especially for organic growth of 5-7%, which has never changed since the presentation of its IPO in 2014). On our estimates, two-thirds of the increase is set to stem from PSD2 and the remaining one third from India. We are making no change to our Buy recommendation and our FV of EUR37. The share is trading at 10.8x EBITDA over 12 rolling months i.e. whereas we believe its current positioning deserves 12x. Moreover, every new acquisition should provide further leverage to this multiple and automatically lift our FV. For instance, we believe that a "transforming" acquisition (which the group could complete by the end of the year) could add c.EUR10 per share.
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1.6. Worldpay: a weak H1 and a firm offer from Vantiv Worldpay's H1 performance was still low in absolute terms for the payments sector. Gross sales stood at GBP2.5095bn (vs. the consensus at GBP2.434bn and BG at GBP2.403bn) and net sales at GBP600.5m, up .8% lfl (vs. the consensus at GBP610.2m and BG at GBP606.3m). Once again, Global eCom had a normal average performance (+17%), as did WP UK (+2%) whereas WP US underperformed again (+3%). As such, EBITDA came in at GBP223.9m, vs the consensus of GBP 224.1m and our figure of GBP223.3m, or a margin of just 8.9%, penalised by the US (50% of revenues), where it does not have critical mass and therefore does not generate operating leverage. The group's financial situation is still delicate with a hefty net debt of GBP1.3bn (gearing of 147%). Management maintained its medium-term guidance for net sales growth of 9-11% and its plan to migrate customers to its acquiring platform (the main ones by the end of 2017 and the more complicated ones in 2018).
Note that Vantiv has made a firm offer for Worldpay, backed by management. It is offering 55p in cash and 0.0672 new Vantiv shares for each WPG share and a dividend of 5p per share (0.8p interim dividend and 4.2p as a special dividend at the end of the merger). This represents 397p/share including dividends (24% premium to the share price on 3rd July of 320p/share), or a price of GBP7.92bn, pointing to 2017 EV/EBITDA of 19x and 16.8x over 12 rolling months. The terms of the offer have been slightly reworked after certain UK investors complained over the projects to withdraw from the LSE (around 15% of WPG's investor base cannot invest in the US). Vantiv therefore solved the issue and the new group will finally have a main listing on the NYSE and a secondary listing on the LSE. The group's global head office is to be located in Cincinnati (Vantiv head offices) and international operations are to be directed from London (Worldpay head office), although the UK employees will not benefit from any specific guarantees in terms of job preservation. The new group will continue to be called Worldpay. It is set to have combined net sales of more than USD3.2bn and EBITDA before synergies of EUR1.5bn. It will handle around USD1.5bn in payments and 40bn transactions via more than 300 payment methods in 146 countries and 126 currencies. Fig. 12: Vantiv + Worldpay: global leader in omni-commerce
¹ Based on number of transactions; analysis of data published in The Nilson Report, issues 1095 (September 2016), 1105 (March 2017) and 1110 (May 2017) Source: Company
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Following the takeover of Worldpay, Vantiv is set to diversify its US revenues beyond major distributors (Worldpay has a customer base primarily made up of small and medium-sized merchants), will be more exposed to e-commerce and have solid positions in the UK (Worldpay is the leading player in this country, ahead of Barclaycard). Before the vote in favour of Brexit last year, the company was prepared to make acquisitions. However, the sudden downturn in the value of the GBP following the Brexit referendum has transformed Worldpay from predator to prey, weakening the group and automatically reducing its reach in continental Europe.
The accretion to pro-forma adjusted EPS is expected as of 2019. Completion of the operation is expected in early 2018. Since the first terms were unveiled by Vantiv, we expect no counterbid or blockage by the US anti-trust authorities since Worldpay's positions in this region are low.
Fig. 13: The new pro-forma combined entity (before synergies)
FY 2016 Vantiv Worldpay Vantiv + Worldpay¹ ² Transaction volume (USDtn) 0.9 0.6 1.5 Transactions (bn) 25 15 40 Net revenue (USDbn) 1.9 1.3² 3.2 Adjusted EBITDA (USDbn) 0.9 0.6 1.5 Margin 48% 47%² 48% FCF (USDbn)³ 0.8 0.4 1.2 FCF/EBITDA conversion (%) 87% 66% 78% Notes: in certain cases, numbers are rounded; assumes ~1.3 GBP to USD exchange rate ¹ Figures shown are pro forma for combined company ² Worldpay for illustrative purposes only; net revenue reflects reported gross profit for comparable reporting conventions to Vantiv; Underlying EBITDA shown for Worldpay, margin shown after taking into effect net revenue to gross profit adjustment ³ Free cash flow defined as Adjusted EBITDA – Capex
Source: Company.
We have always considered the US as Worldpay's weakpoint. With the takeover by US group Vantiv and given the terms of the potential merger between Vantiv and Worldpay (43% higher than our FV and with a bid primarily in shares), we advise selling Worldpay’s shares and buying shares of other European PSPs (Ingenico Group, Wirecard and Worldline) rather than becoming a shareholder in the new Vantiv+Worldpay combination.
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2. Is there any real speculative appeal in our coverage? What to do? 2.1. Players the most immune to takeover bids
2.1.1. Gemalto (Sell, FV EUR39) During June and July, Gemalto was the object of takeover rumours stemming from the Betaville website (a source that we consider particularly unreliable). In a buoyant M&A backdrop in the payments sector, this was enough to underpin the share price until the group issued its umpteenth profit warning.
We consider that Gemalto is the group in our coverage that is the most immune to a takeover bid. Indeed, BPI (former-FSI, a fund created by the French state) is its leading shareholder (8.51% of the capital). Furthermore, Gemalto is a Franco-Dutch company that ranks among the "strategic" groups in the French electronics industry, especially for securities activities in electronic identity documents and in telecoms (identification and complex cryptography procedures). Finally, the group's recent acquisition in biometrics (3M Identity Management Business) was all the more strategic in the current context of heightened terrorism. In our view, the French state would therefore very probably oppose a hostile bid for Gemalto from a third party. This is especially true since the adoption of decree no. 2014-479, "relative to foreign investments subject to prior approval" that was voted in May 2014 and backs this view (having been adopted following the takeover of Alstom by General Electric).
Fig. 14: Share of capital owned by BPI and the Quandt family in Gemalto
Shareholders % of share capital
EPIC BPI Groupe 8.51 S.N. Quandt 5.67 S.H.U. Klatten née Quandt 3.21 Source: Company. The main factors that do not favour a takeover are:
BPI Group has 8.51% of Gemalto's capital and voting rights (its largest shareholder). It entered the capital in 2009 (8% of capital in the TPG Capital fund for EUR160m) just as takeover rumours were rife.
The group's historical technology is French (the chip card created by Roland Moreno in 1974).
While France does not account for a large share of revenues (5% of sales), it nevertheless represents just under 20% of headcount (with excellent level of engineering schools).
The group receives a research tax credit from the French state that significantly underpins its R&D (patents are primarily registered in France and Singapore, which also has a system equivalent to the research tax credit).
The group's visibility is extremely poor, whether in its historical business (SIM) or more recent ones (payments, security etc.).
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We see no company likely to take over Gemalto, bearing in mind that the group is currently losing its historical business (SIM), is suffering in the payments segment (especially in the US) and has still not managed to generate enough revenues from its platforms to make its recurring investments profitable. In this context of a total lack of visibility (we are not ruling out the prospect of a final profit warning for 2017), speculative appeal seems very low.
2.1.2. Ingenico Group (Buy, FV EUR119) Ingenico Group was the object of a rumour stemming from the Lettre de l’Expansion last March but which was rapidly denied by the parties in question. The rumour was that Worldline was preparing an EUR8bn offer for Ingenico. This rumour was not particularly credible given that: 1) Worldline is aiming to gain more exposure to payment services and hence has little interest in taking over Ingenico which at the time generated 70% of its sales in payment terminals, and 2) Ingenico would like to strengthen its positions in payment services and partly in e-commerce whereas Worldline is a primarily physical PSP, for 85%e of its sales.
The future of Safran's stake in Ingenico Group via its subsidiary Morpho (specialised in electronics for security) also fed speculation for a while. However, Safran eventually sold off its stake gradually (9.1% of the capital and 16.3% of voting rights), therefore playing a role in the group's development for seven years. Since Safran (which was 18.03%-owned by the French state at the time) has been replaced by investment bank BPI (banque publique d’investissement whose capital is owned by the Caisse des Dépôts et Consignations and the French state), a takeover scenario still seems very unlikely.
Fig. 15: Leading Ingenico shareholders just before and after entry of Bpifrance
Shareholders % of share capital Shareholders % of share capital (before) (after)
Morpho (a Safran company) 9.10 Allianz Global Investors 7.99 Jupiter 4.61 Bpifrance Participations 5.42 Source: Company. In all, Ingenico shares a few common points with Gemalto that makes it fairly immune to a takeover bid: 1) the company also has BPI among its main shareholders (second-largest shareholder with 5.42% of the capital), and 2) its technologies are considered strategic by the French state.
An aborted attempt in 2010: At the end of 2010, Ingenico's managers and shareholders made no secret of their aim to sell off the company. However, the government under president Sarkozy blocked a takeover bid from US conglomerate Danaher (in December 2010 at EUR1.44bn, i.e. EUR28 per share, around 18x net profit), using the intervention of Safran, which owned 22% of Ingenico at the time. Note that the French state owned 30% of Safran's capital. The minister for industry, energy and the digital economy stated that the company was too strategic for the French electronics industry to fall into US hands. However, the disposal of Thales' payment terminals to US group Hypercom (early 2008) or that of Gemalto to US group VeriFone (at end-2010) did not cause such resistance. The major difference stems from the fact that Ingenico Group works in data encrypting and that it has its fundamental R&D in France. In addition to its historical business in electronic payment terminals, the group is also developed in management of transactions and secure electronic payment solutions. However, since transmission of information is a critical business for a country (security of state infrastructure and protection of the information system), it was logical that the French state preferred to keep the company in its bosom.
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Although speculative interest seems limited at present, the recent takeovers (e.g. Dalenys by Natixis, Worldpay by Vantiv etc.) show that the payments and security sectors are of interest. We see Ingenico more as a consolidator than a prey. As leader in terminals and one of the main players in payment services, the group looks clearly undervalued.
2.1.3. Worldline (Buy, FV EUR37) Worldline has a shareholding structure that makes it a difficult takeover target. In concrete terms, the group could not be acquired without the agreement of Atos, which owns 70% of its capital. We do not believe that Atos is currently selling its stake, especially since Worldline is only at the start of its acquisition policy. In addition, Atos has not yet diluted its stake since its payments subsidiary was floated on the stockmarket. Worldline has the means to continue its M&A policy since it has an envelope of EUR1.5-2bn (without taking into account a potential dilution of Atos in the capital). In our view, Atos would only agree to reduce its stake (probably not below 50% plus one share in order to continue to consolidate Worldline's growth) to enable Worldline to make a significant acquisition (e.g.: a bank subsidiary could increase its stake in Worldline via a reserved rights issue).
Fig. 16: Breakdown of Worldline capital on 30th June 2017
30/06/17 % of share capital % of voting rights Atos 69.97 82.32 Board of Directors 0.02 0.02 Employees 0.22 0.13 Free float 29.78 17.52 Total 100.00 100.00
Source: Company.
We see Worldline as one of the main consolidators in the payment services segment in Europe (mostly in the physical part) rather than a prey. We believe it should take over subsidiaries of banks specialised in payments (for example, in eastern or central Europe). Note that the group has stated that it has never had such a large reservoir of potential acquisitions and that it seems to be in the very late stages of discussions since it intends to make announcements by the end of the year, including certain "transforming" acquisitions. Since the takeover of Equens, the group has become a fully-fledged payments player and is now a heavyweight in services in Europe. It now naturally attracts targets (there are still more than 40 processors in Europe with sales between EUR5m and EUR400m). In addition, regulations are tending to favour competition and reduce the monopoly enjoyed by banks (e.g. decline in interchange commission fees in the EU in 2015 and PSD2 planned for 2018). Meanwhile, security issues (especially online fraud, which accounts for around 50% of global fraud) mean that banks are increasingly outsourcing this business to specialists (PSPs).
In our view, Worldline is an attractive stock for investors to play the group's use of its cash to make acquisitions and reach an EV/EBITDA multiple of around 12x. Once it has finished these acquisitions and no longer has a hefty net cash pile and once Atos is no longer present in its capital, the group could possible end up being a target in Europe. In addition, Worldpay's takeover multiple of 19x for 2017e EV/EBITDA, whereas it has a similar profile to Worldline (primarily a physical acquire) suggests a rerating could be on the cards for the share.
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2.2. Players with the easiest takeover profiles
2.2.1. Nets (Sell, FV DKK119) During July, Nets confirmed that it had received signs of interest from potential acquirers. This is hardly surprising given the share price performance since the group's flotation in September 2016 and its unusual profile. Indeed, Nets is vital in the main Nordic countries (having contributed to the development of payments in the region over the past five decades). It is present in the entire payments value chain (acquisition transaction handling for merchants, handling of card issue, clearing and settlement) and has the original feature of operating the main local debit card schemes.
Fig. 17: Nets is a highly diversified PSP in the Nordic region
Source: Company
Note that the funds that floated Nets still own 40% of the capital, such that a potential takeover could only go ahead with their agreement (the lock-up period for the funds ended on 31st March 2017 while management's ends on 30th September 2017).
Fig. 18: Breakdown of Nets capital pre and post-IPO
ATP, 5.4% NH Fintech, 0.4%
Funds, 40% Bain, 47.1% Advent, 47.1% Free float, 60%
NH Fintech is partly owned by the CEO (22% of the share capital and all the votes) and a company (78% of the share capital and none of the votes) owned by a related party to the CEO.
Source: Company.
The group is at the stage where it is considering various options concerning its possible takeover. However, it is still too early to have any certainty on the potential outcome of current
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Payments interest from possible buyers. According to Bloomberg, these potential buyers are private equity funds Hellman & Friedman LLC (US), Nordic Capital (Jersey) and Permira (UK). The Financial Times has recently relayed quotes from a source close to the matter saying Hellman & Friedman LLC would be close to exclusive talks with Nets and could propose a valuation of more than DKK31.3bn (~USD5bn), namely DKK156 per share (close to the current share price and the IPO price) and an EV/EBITDA of 14.2x over 2017e and 12.6x over 12 rolling months. We also believe that players such as Visa and MasterCard could potentially be interested by Nets which owns and operates Dankort (leading local card scheme in Denmark with 78% market share) and which operates BankAxept (leading card scheme in Norway with 88% market share). In contrast, we do not believe in a takeover of Nets by Worldline since 1) the group does not have the financial means to acquire Nets without calling on the market (Worldline's management has the same philosophy as Atos' which itself has never undertaken a capital increase), and 2) since the acquisition of Equens, Worldline has succeeded in expanding in the Nordic region and is even continuing to make small targeted acquisitions in the region (Digital River World Payments and First Data Baltics).
Even in the event of a takeover, we estimate that upside is currently limited for the share (which seems to be confirmed by the recent article in the FT). A bid at DKK 156 (close to the IPO price) would still allow private equity funds to realize a capital gain of 88% compared to their purchase price in March 2014. Indeed, the share price already reflects speculative appeal that has pushed it back towards its flotation price. We advise Nets shareholders to sell their shares and buy other European PSPs (Ingenico Group, Wirecard and Worldline).
2.2.2. Wirecard (Buy, FV EUR73) Wirecard is without doubt the company in our coverage the most suited for a takeover operation. This could initially take place via a minority stake, but we would be seriously surprised if the group did not end up being bought out given its unusual profile.
The following factors make it ideal prey in our view:
The structure of the group's capital makes it easy to bid for with free float at 93% (management only owns the remaining 7%).
It boasts the best fundamentals in the sector: organic sales growth of more than 20%, EBITDA margin of more than 30% and EPS growth of more than 30% a year.
The group is present globally in all continents with wide exposure to South-East Asia (30% of sales), the most well-developed market in e-commerce.
The group is the only pure online player and has an internal bank (Wirecard Bank is a digital bank offering card acquisition, pre-paid card issue and mobile payment services among others). It therefore combines payment services (PSP) and online banking services (bank).
Wirecard is the only genuinely listed player in Europe via which the e-commerce theme can be played since it is present throughout the entire value chain of online payments. It is also the global no. 2 in e-commerce and one of the rare listed pure online players in the payments world. Indeed, while Worldpay is the leader in market share terms, its e-commerce business only accounts for 26% of sales vs. 100% for Wirecard.
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Fig. 19: 2016 market share in e-commerce for European groups
In % Global market share Market share in Western Europe
Worldpay 6% 20
Wirecard 5% 18 Adyen 4% 15 Ingenico Group (Ogone + GlobalCollect) 3% 10
Top 4 18 63
Source: Bryan, Garnier & Co ests.
In our view, the types of player that could be interested in a technological company supplying online payment services are: - Direct rivals or physical payment players that would like to have a multi-channel and/or extend their customer base. - Card payment networks or card issuers aiming to round out their digital contents.
- Advertising or social network platforms looking for integrated payment solutions.
- Suppliers of electronic wallets looking to change dimension.
- Private equity funds attracted by high growth and profitability levels at online payment players.
Fig. 20: Potential acquirers of a group like Wirecard
Who? Direct Card network or Ad platforms/Social e-wallet providers Private equity firms competitors, or issuing banks networks from in-store physical payment Why? Add scale and Increase digital mix Improve conversion Add scale and global Attractive global acceptance (offense) and defend acceptance fundamentals and turf (defense) scarce asset Examples Vantiv, First Data, Global banks, Visa, Facebook, Google, PayPal, Alipay, Bain Capital, Advent, Worldline, Ingenico MasterCard, Microsoft… Apple, Amazon, Blackstone… Group… Discover… Google, Microsoft, Samsung…
Source: Bryan, Garnier & Co.
Since the takeover of Worldpay, speculative interest in Wirecard seems to have increased massively. The group's speculative appeal is no longer set to be correlated only with changes in the weight of e-commerce on a global scale (which is set to grow sharply in coming years). Consequently, it is possible that short positions (currently at an estimated 8.7%) continue to be unwound and even fall below the sector average (around 6-7%). We have a Buy recommendation on the share and estimate that the group merits an EV/EBITDA multiple of 20x for 2017 and 17x over 12 rolling months (bearing in mind that it traded historically at between 15x and 24x before the Zatarra affair, with a 3-year average of 18.2x). In a speculative scenario, we believe that the share is worth at least EUR90 (i.e. EV/EBITDA of 22x over 12 rolling months and P/E of 34x in line with the CAGR in EPS over 2016-19).
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2.2.3. Worldpay (Sell, FV 278p) The group's structural underperformance in the US was always the explanation for its disappointing results in the payments sector. While the group generated 50% of its gross sales in the country, it clearly lacked critical mass and therefore did not manage to generate sufficient growth to enabled operating leverage (given that costs are mostly fixed in the sector). The sudden plunge in the GBP following the vote in favour of Brexit therefore precipitated the group's fate. Vantiv, the largest heavyweight in acquiring in the US (ahead of First Data and JP Morgan Chase, according to the 2017 Nilson Report 2017) ended up making a firm offer, which is backed by the management team in place.
Fig. 21: Positioning of Vantiv + Worldpay
¹ Indicative representation of number of countries where the player has an office, number of countries where transactions are processed (or number of currencies processed) ² Indicative representation of position across the value chain (hardware, merchant acquiring, issuer processing, eCom gateway, etc.); Omni channel capabilities (online and offline); value added services (analytics, risk and fraud, etc.)
Source: Company.
Worldpay has joined the list of UK growth companies bought by foreign groups during 2017 (this includes chip manufacturer Arm Holdings bought by SoftBank and Sky broadcasting company by la 21st Century Fox).
The terms of the operation are as follows:
55p in cash and 0.0672 new Vantiv shares for one WPG share + dividend of 5p per share (0.8p interim dividend and 4.2p special dividend at the end of the merger). This represents 397p/share including dividends (24% premium to the share price on 3rd July at 320p per share) or a price of GBP7.92bn or 2017 EV/EBITDA of 19x.
Control of pro-forma capital: 57% Vantiv shareholders and 43% Worldpay shareholders
The group is to be headed by Charles Drucker (former Vantiv CEO) as executive chairman and co-CEO, Philip Jansen (former Worldpay CEO) as co-CEO and Stephanie Ferris as CFO.
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The new entity's Board of Director will have 13 members, eight designated by Vantiv and five by Worldpay.
The project is set to generate pre-tax synergies of around USD200m on an annual basis, with this set to be reached in the third year after the merger. The group is also targeting USD330m in restructuring and integration costs.
We do not expect a counterbid or the deal to be blocked by US anti-trust authorities since Worldpay's positions in this region are weak. Given the terms of Vantiv's offer (43% higher than our FV i.e. 2017e EV/EBITDA of 19x and 16.8x over 12 rolling months) with a high paper share, we advise Worldpay shareholders to sell their shares to buy other European PSPs (Ingenico Group, Wirecard and Worldline) rather than to become shareholders in the combined group.
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3. Multiples and main M&A deals 3.1. Multiples of players we cover Multiples 12 Gemalto Ingenico Nets Wirecard Worldline Worldpay roll. months Sell, FV EUR39 Buy, FV EUR119 Sell, FV DKK119 Buy, FV EUR73 Buy, FV EUR37 Sell, FV 278p EV/Sales 1.4 2.2 3.2 5.1 2.3 1.8
EV/EBITDA 10.4 10.4 12.3 17.3 10.8 16.1
P/E 15.4 15.4 17.7 27.3 24.2 25.8
Source: Bryan, Garnier & Co ests.
3.2. Main M&A operations in payment services Date Target Acquirer Country EV (EURm) EBITDA multiple (x) Nov-09 Easycash Ingenico Group Germany 284 13.0 Apr-10 Mercury Payment Syst. Sylver Lake USA 726 14.8 Aug-10 DataCash MasterCard UK 520 19.5 Nov-10 Worldpay Bain Capital/Advent UK 2,030 8.2 Dec-10 Loyalty Partner American Express Germany 496 10.8 Jan-13 Ogone Ingenico Group Belgium 360 29.0 Feb-13 NetSpend Total System Services USA 1,400 14.6 Aug-13 Skrill CVC Capital Partners UK 600 12.0 Jan-14 PayPros Global Payments USA 420 19.1 Mar-14 Nets Bain Capital/Advent/ATP Denmark 2,300 12.4 May-14 Mercury Payment Syst. Vantiv USA 1650 17.7 Oct-14 DIBS Nets Sweden 790 17.9 Oct-14 GlobalCollect Ingenico Group Netherlands 820 16.4 Oct-14 TransFirst Vista Equity Partners USA 1,500 13.2 Mar-15 Skrill Optimal Payments UK 1,100 13.5 May-15 ICBPI Bain Capital/Advent/Clessidra Italy 2,150 11.0 Nov-15 Equens/Paysquare¹ Worldline Netherlands 1,931 11.6 Dec-15 Heartland Payment Syst. Global Payments USA 3,957 18.1 Jan-16 Total System Services TransFirst USA 2,196 15.6 Jan-17 Concardis Bain Captal / Advent International Germany ~700 19.3 May-17 CardConnect First Data US 671 16.3 Jul-17 Worldpay Vantiv UK 10,300 19.0 Jul-17 Bambora Ingenico Group Sweden 1,500 32.4 ¹ full price estimated i.e. cash out and buyout of 100% of the JV (equensWorldline) Sources: Companies; Bryan, Garnier & Co ests.
In payment services, transactions over the past eight years have gone ahead on an average EV/EBITDA multiple of 16.3x.
Until recently, operations concerning card issue handling payers have gone ahead at 10-12x (fairly stable multiples over time), while those concerning physical merchant acquirers have seen multiples of 12-15x (fairly stable multiples over time), and those for online players have risen from 13x to 15x then to 17x and now more than 20x (targets in online are highly sought-after since this high-growth segment has the highest margins).
It is interesting to note that the latest acquisitions by US players have gone ahead on multiples for online players, even for takeovers of mostly physical PSPs. The prices paid seem to already anticipate the shift towards e-commerce at target groups.
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4. Accounts of groups we follow Gemalto Simplified Profit & Loss Account (EURm) 2014 2015 2016 2017e 2018e 2019e Revenues 2,465 3,122 3,127 3,024 3,126 3,266 Change (%) 3.4% 26.6% 0.2% -3.3% 3.3% 4.5% lfl change (%) 5.0% 4.0% 0.2% -7.9% 0.0% 4.5% EBITDA 359 345 490 320 471 599 EBIT 270 203 347 (187) 339 477 Adjusted EBIT 327 313 440 262 391 514 Change (%) 4.6% -4.3% 40.5% -40.4% 49.0% 31.6% Financial results (12.4) (38.0) (34.3) (50.0) (40.0) (30.0) Pre-Tax profits 258 165 313 (237) 299 447 Tax (35.9) (30.6) (107) 54.6 (74.7) (112) Profits from associates (0.63) 2.1 (19.0) 0.0 0.0 0.0 Minority interests (0.60) (0.10) (0.47) 0.36 (0.45) (0.67) Net profit 221 134 186 (182) 224 334 Restated net profit 270 226 247 164 263 363 Change (%) -5.1% -16.1% 9.1% -33.7% 60.3% 38.1%
Cash Flow Statement (EURm) Cash flow 394 443 468 411 402 520 Change in working capital (81.0) 65.0 (23.0) 15.9 (16.0) (22.2) Capex, net (144) (338) (127) (151) (141) (147) Financial investments, net (84.0) (897) (3.0) (801) 0.0 0.0 Dividends (33.0) (37.0) (42.0) (44.4) (47.9) (51.4) Other 8.9 (61.1) (6.4) (416) (13.6) (21.5) Net debt (493) 335 67.1 1,053 869 591 Free Cash flow 169 170 318 275 246 350
Balance Sheet (EURm) Net fixed assets 1,399 2,466 2,456 3,231 3,208 3,187 Investments 54.3 65.2 48.0 48.0 48.0 48.0 Deferred tax assets 0.0 0.0 0.0 0.0 0.0 0.0 Cash & equivalents 1,060 408 664 0.0 0.0 0.0 current assets 1,076 1,223 1,272 1,231 1,272 1,329 Other assets 194 261 187 181 187 196 Total assets 3,782 4,422 4,627 4,691 4,715 4,760 L & ST Debt 566 742 731 1,053 869 591 Provisions 154 267 255 255 255 255 Deferred tax liabilities 0.0 0.0 0.0 0.0 0.0 0.0 Others liabilities 666 923 966 934 966 1,009 Shareholders' equity 2,396 2,490 2,675 2,448 2,624 2,908 Total Liabilities 3,782 4,422 4,627 4,690 4,713 4,763 Capital employed 1,903 2,824 2,743 3,501 3,493 3,499
Ratios Operating margin 13.28 10.04 14.08 8.67 12.50 15.75 Tax rate 13.91 18.48 34.38 23.00 25.00 25.00 Net margin 9.00 4.23 6.56 (6.05) 7.17 10.26 ROE (after tax) 9.21 5.39 6.94 (7.45) 8.52 11.50 ROCE (after tax) 11.27 7.14 10.30 4.88 7.28 9.58 Gearing (20.59) 13.44 2.51 42.99 33.08 20.35 Pay out ratio 16.46 30.78 23.88 (26.25) 23.01 16.45 Number of shares, diluted 88,514 89,377 90,484 90,929 90,929 90,929
Data per Share (EUR) EPS 2.55 1.53 2.09 (2.06) 2.52 3.77 Restated EPS 3.05 2.53 2.73 1.80 2.89 3.99 % change -5.9% -16.9% 7.7% -34.0% 60.3% 38.1% BVPS 27.01 27.78 29.51 26.88 28.82 31.88 Operating cash flows 4.45 4.96 5.17 4.52 4.42 5.71 FCF 1.91 1.90 3.51 3.03 2.70 3.85 Net dividend 0.42 0.47 0.50 0.54 0.58 0.62
Source: Company Data; Bryan, Garnier & Co ests.
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Payments
Ingenico Group Simplified Profit & Loss Account (EURm) 2014 2015 2016 2017e 2018e 2019e Revenues 1,607 2,197 2,312 2,505 3,028 3,326 Change (%) 17.2% 36.7% 5.2% 8.3% 20.9% 9.8% lfl change (%) 19.1% 13.9% 8.0% 7.6% 8.3% 9.8% EBITDA 376 508 476 524 634 731 EBIT 273 381 357 408 508 597 Adjusted EBIT 323 437 403 449 543 631 Change (%) 35.7% 34.9% -7.7% 11.3% 21.0% 16.2% Financial results (19.5) (18.6) (7.8) (15.0) (39.2) (38.5) Pre-Tax profits 254 362 349 393 469 558 Tax (80.7) (125) (97.2) (117) (139) (166) Profits from associates (1.4) (2.6) (0.73) (0.79) (0.95) (1.0) Minority interests (0.03) (4.4) (6.6) (7.4) (8.8) (10.5) Net profit 172 230 244 268 320 381 Restated net profit 207 274 276 305 354 416 Change (%) 40.5% 32.1% 0.9% 10.3% 16.2% 17.6%
Cash Flow Statement (EURm) Operating cash flows 255 351 322 391 454 525 Change in working capital 39.9 (14.0) (12.3) 5.0 14.7 8.3 Capex, net (51.1) (61.7) (67.9) (72.6) (87.8) (96.5) Financial investments, net (794) (3.7) (50.2) (1,595) 0.0 0.0 Dividends (19.8) (29.9) (36.3) (39.9) (43.9) (48.3) Other 102 268 (30.2) (17.6) (14.9) (16.6) Net debt 764 252 126 1,455 1,132 760 Free Cash flow 244 275 242 324 381 437
Balance Sheet (EURm) Net fixed assets 1,939 1,915 1,972 3,541 3,518 3,497 Investments 13.9 12.3 8.6 8.6 8.6 8.6 Deferred tax assets 0.0 0.0 0.0 0.0 0.0 0.0 Cash & equivalents 426 920 1,014 (1,209) (886) (514) current assets 547 615 702 761 921 1,011 Other assets 439 398 439 476 575 632 Total assets 3,365 3,860 4,136 3,578 4,136 4,635 L & ST Debt 1,191 1,172 1,140 246 246 246 Provisions 64.9 70.3 82.6 82.6 82.6 82.6 Deferred tax liabilities 0.0 0.0 0.0 0.0 0.0 0.0 Others liabilities 1,033 1,107 1,206 1,307 1,581 1,736 Shareholders' equity 1,076 1,511 1,707 1,942 2,227 2,570 Total Liabilities 3,365 3,860 4,136 3,578 4,136 4,635 Capital employed 1,840 1,763 1,833 3,397 3,359 3,330
Ratios Operating margin 20.13 19.87 17.43 17.91 17.93 18.97 Tax rate 31.79 34.47 27.86 29.70 29.70 29.70 Net margin 10.77 10.80 10.88 11.02 10.88 11.80 ROE (after tax) 15.95 15.24 14.31 13.79 14.36 14.82 ROCE (after tax) 11.80 16.54 14.58 8.92 10.91 12.79 Gearing 71.03 16.68 7.40 74.90 50.85 29.57 Pay out ratio 33.46 34.43 37.76 35.00 35.00 35.00 Number of shares, diluted 60,865 61,644 63,212 64,206 64,206 64,206
Data per Share (EUR) EPS 2.99 3.78 3.97 4.36 5.20 6.20 Restated EPS 3.41 4.44 4.37 4.75 5.51 6.49 % change 35.4% 30.4% -1.6% 8.6% 16.2% 17.6% BVPS 17.64 24.43 26.94 30.07 34.36 39.55 Operating cash flows 4.19 5.69 5.10 6.09 7.08 8.18 FCF 4.00 4.46 3.83 5.04 5.94 6.81 Net dividend 1.00 1.30 1.50 1.52 1.82 2.17
Source: Company Data; Bryan, Garnier & Co ests.
25
Payments
Nets Simplified Profit & Loss Account (DKKm) 2014 2015 2016 2017e 2018e 2019e Revenues 8,607 9,040 10,084 10,755 11,346 11,947 Change (%) -0.9% 5.0% 11.5% 6.7% 5.5% 5.3% lfl change (%) 0.0% 6.1% 10.4% 0.0% 0.0% 0.0% EBITDA 1,252 1,710 2,013 2,666 3,056 3,321 EBIT 844 812 943 1,591 2,035 2,366 Underlying EBIT 1,365 1,977 2,203 2,436 2,757 3,052 Change (%) 14.2% 44.8% 11.4% 10.6% 13.2% 10.7% Financial results 76.0 (286) (1,643) (338) (275) (275) Pre-Tax profits 920 526 (700) 1,252 1,760 2,091 Tax (281) (404) 112 (363) (493) (564) Profits from associates 13.0 (3.0) 4.0 0.0 0.0 0.0 Minority interests 4.0 (22.0) (17.0) 0.0 0.0 0.0 Net profit 656 97.0 (601) 889 1,267 1,526 Restated net profit 1,177 756 980 1,489 1,787 2,027 Change (%) 26.3% -35.8% 29.6% 52.0% 20.0% 13.4%
Cash Flow Statement (DKKm) Cash flow (476) 2,094 (806) 1,966 1,598 1,797 Change in working capital 173 64.0 67.0 (56.0) (73.0) (98.0) Capex, net (403) (539) (646) (613) (590) (597) Financial investments, net (731) (1,570) 713 (216) (45.0) 0.0 Dividends (498) 0.0 0.0 0.0 (222) (317) Other 455 (12,330) (116) 0.0 0.0 0.0 Net debt (18.0) 12,263 7,551 6,470 5,803 5,018 Free Cash flow (706) 1,619 (1,385) 1,297 935 1,102
Balance Sheet (DKKm) Net fixed assets 2,760 19,631 19,301 19,250 19,751 20,301 Investments 24.0 227 231 231 231 231 Deferred tax assets 0.0 0.0 0.0 0.0 0.0 0.0 Cash & equivalents 2,159 2,310 1,869 (6,423) (5,755) (4,970) current assets 786 899 867 924 975 1,026 Other assets 5,373 6,491 6,031 6,432 6,786 7,146 Total assets 11,102 29,558 28,299 20,415 21,988 23,734 L & ST Debt 2,141 14,573 9,420 47.3 47.3 47.3 Provisions 69.0 59.0 66.0 66.0 66.0 66.0 Deferred tax liabilities 0.0 0.0 0.0 0.0 0.0 0.0 Others liabilities 6,526 9,946 9,007 9,606 10,134 10,671 Shareholders' equity 2,366 4,980 9,806 10,695 11,740 12,949 Total Liabilities 11,102 29,558 28,299 20,415 21,988 23,734 Capital employed 2,348 17,243 17,357 17,165 17,543 17,967
Ratios Operating margin 15.86 21.87 21.85 22.65 24.30 25.54 Tax rate 30.54 76.81 16.00 29.00 28.00 27.00 Net margin 7.42 1.35 (5.83) 8.27 11.17 12.77 ROE (after tax) 27.73 1.95 (6.13) 8.31 10.79 11.79 ROCE (after tax) 46.80 8.73 15.23 11.73 12.60 13.53 Gearing (0.76) 246 77.00 60.49 49.43 38.75 Pay out ratio 0.0 0.0 0.0 25.00 25.00 25.00 Number of shares, diluted 200,000 200,000 200,411 200,411 200,411 200,411
Data per Share (DKK) EPS 3.27 0.48 (3.00) 4.44 6.32 7.62 Restated EPS 5.89 3.78 4.89 7.43 8.92 10.11 % change 26.5% -35.8% 29.4% 52.0% 20.0% 13.4% BVPS 11.73 21.58 47.93 52.36 57.58 63.61 Operating cash flows (2.38) 10.47 (4.02) 9.81 7.97 8.97 FCF (3.53) 8.10 (6.91) 6.47 4.66 5.50 Net dividend 0.0 0.0 0.0 1.11 1.58 1.90
Source: Company Data; Bryan, Garnier & Co ests.
26
Payments
Wirecard Simplified Profit & Loss Account (EURm) 2014 2015 2016 2017e 2018e 2019e Revenues 601 771 1,028 1,347 1,718 2,098 Change (%) 24.8% 28.3% 33.3% 31.0% 27.6% 22.1% lfl change (%) 21.0% 23.2% 20.6% 21.0% 19.1% 16.7% EBITDA 173 227 308 403 505 620 EBIT 133 173 235 308 385 474 Adjusted EBIT 150 197 269 351 440 541 Change (%) 38.1% 31.2% 36.0% 30.9% 25.2% 22.9% Financial results (6.7) (7.2) 67.7 (8.6) (9.6) (8.6) Pre-Tax profits 126 166 303 300 375 465 Tax (18.2) (23.0) (36.1) (58.5) (75.1) (93.0) Profits from associates 0.0 0.0 (0.20) 0.0 0.0 0.0 Minority interests 0.0 0.0 0.0 0.0 0.0 0.0 Net profit 108 143 267 241 300 372 Restated net profit 123 164 177 276 344 426 Change (%) 33.9% 33.2% 8.0% 56.0% 24.7% 23.7%
Cash Flow Statement (EURm) Cash flow 173 228 398 414 520 641 Change in working capital (33.5) (20.7) (24.6) (106) (123) (126) Capex, net (75.0) (64.0) (73.2) (108) (137) (147) Financial investments, net (94.3) (158) (58.0) (274) (244) 0.0 Dividends (14.8) (16.1) (17.3) (17.3) (19.8) (21.0) Other 28.3 125 (179) 0.0 0.0 0.0 Net debt (597) (692) (738) (647) (644) (990) Free Cash flow 64.8 143 300 200 260 368
Balance Sheet (EURm) Net fixed assets 687 1,052 1,153 1,655 2,159 2,387 Investments 124 227 216 216 216 216 Deferred tax assets 0.0 0.0 0.0 0.0 0.0 0.0 Cash & equivalents 695 1,063 1,333 695 691 1,038 current assets 358 451 597 782 998 1,218 Other assets 131 142 183 240 306 374 Total assets 1,995 2,936 3,482 3,589 4,370 5,233 L & ST Debt 98.4 371 595 47.3 47.3 47.3 Provisions 10.8 15.7 25.6 25.6 25.6 25.6 Deferred tax liabilities 0.0 0.0 0.0 0.0 0.0 0.0 Others liabilities 813 1,269 1,387 1,817 2,318 2,830 Shareholders' equity 1,073 1,281 1,475 1,699 1,979 2,330 Total Liabilities 1,995 2,936 3,482 3,589 4,370 5,233 Capital employed 476 588 737 1,052 1,336 1,340
Ratios Operating margin 25.03 25.59 26.11 26.09 25.60 25.77 Tax rate 14.42 13.90 11.91 19.50 20.00 20.00 Net margin 17.96 18.49 25.96 17.91 17.47 17.73 ROE (after tax) 10.06 11.14 18.09 14.20 15.17 15.96 ROCE (after tax) 27.59 29.50 32.53 27.73 27.19 33.30 Gearing (55.62) (54.06) (50.04) (38.10) (32.52) (42.50) Pay out ratio 13.54 11.25 6.48 8.19 6.99 5.98 Number of shares, diluted 121,841 123,497 123,491 123,491 123,491 123,491
Data per Share (EUR) EPS 0.89 1.16 2.16 1.95 2.43 3.01 Restated EPS 1.01 1.33 1.43 2.24 2.79 3.45 % change 23.4% 31.4% 8.0% 56.0% 24.7% 23.7% BVPS 8.81 10.37 11.94 13.76 16.03 18.87 Operating cash flows 1.42 1.84 3.22 3.35 4.21 5.19 FCF 0.53 1.16 2.43 1.62 2.10 2.98 Net dividend 0.12 0.13 0.14 0.16 0.17 0.18
Source: Company Data; Bryan, Garnier & Co ests.
27
Payments
Worldline Simplified Profit & Loss Account (EURm) 2014 2015 2016 2017e 2018e 2019e Revenues 1,149 1,227 1,309 1,615 1,748 1,867 Change (%) 1.3% 6.8% 6.7% 23.3% 8.2% 6.8% lfl change (%) 2.8% 4.4% 3.5% 4.0% 6.3% 6.8% EBITDA 215 235 261 335 383 427 EBIT 151 148 210 200 262 317 Adjusted EBIT 170 175 197 256 302 342 Change (%) 3.8% 2.7% 12.4% 30.0% 18.2% 13.1% Financial results (7.4) (5.9) (5.9) (7.0) (6.1) (15.6) Pre-Tax profits 143 142 204 193 256 301 Tax (41.0) (38.8) (53.7) (50.1) (66.1) (76.7) Profits from associates (1.8) 0.0 0.0 0.0 0.0 0.0 Minority interests 0.0 0.0 (6.2) (19.5) (29.5) 0.0 Net profit 100 103 144 123 160 224 Restated net profit 116 123 129 164 190 243 Change (%) 0.4% 5.7% 5.1% 27.3% 15.6% 27.7%
Cash Flow Statement (EURm) Cash flow 164 187 190 244 292 310 Change in working capital 22.8 11.9 37.3 32.4 4.7 4.2 Capex, net (68.9) (66.9) (85.1) (105) (96.1) (103) Financial investments, net (1.2) (1.9) (69.5) (140) 0.0 (703) Dividends (45.1) 0.0 0.0 0.0 (30.8) (40.1) Other 230 (9.6) (0.40) (100) 16.9 15.6 Net debt (203) (323) (399) (330) (517) (23.2) Free Cash flow 118 132 142 171 201 212
Balance Sheet (EURm) Net fixed assets 552 570 1,182 1,296 1,273 1,955 Investments 9.0 56.4 27.8 27.8 27.8 27.8 Deferred tax assets 0.0 0.0 0.0 0.0 0.0 0.0 Cash & equivalents 216 353 425 377 564 70.5 current assets 288 285 373 404 438 468 Other assets 96.4 84.2 103 135 147 157 Total assets 1,161 1,349 2,112 2,241 2,450 2,678 L & ST Debt 12.5 30.0 26.3 47.3 47.3 47.3 Provisions 94.6 89.6 162 162 162 162 Deferred tax liabilities 0.0 0.0 0.0 0.0 0.0 0.0 Others liabilities 425 440 631 597 646 691 Shareholders' equity 629 789 1,292 1,435 1,594 1,778 Total Liabilities 1,161 1,349 2,112 2,241 2,450 2,678 Capital employed 426 465 893 1,105 1,077 1,755
Ratios Operating margin 14.82 14.25 15.02 15.83 17.29 18.30 Tax rate 28.63 27.29 26.31 26.00 25.80 25.50 Net margin 8.89 8.43 11.49 8.83 10.87 12.01 ROE (after tax) 15.96 13.11 11.16 8.58 10.07 12.61 ROCE (after tax) 29.91 28.95 15.81 18.47 21.79 14.88 Gearing (32.28) (40.99) (30.87) (22.98) (32.43) (1.30) Pay out ratio 0.0 0.0 0.0 25.00 25.00 25.00 Number of shares, diluted 131,927 132,046 132,426 132,426 132,426 132,426
Data per Share (EUR) EPS 0.76 0.78 1.09 0.93 1.21 1.70 Restated EPS 0.88 0.93 0.98 1.24 1.44 1.83 % change -11.5% 5.6% 4.8% 27.3% 15.6% 27.7% BVPS 4.77 5.97 8.54 9.47 10.45 11.84 Operating cash flows 1.24 1.41 1.44 1.84 2.21 2.34 FCF 0.89 1.00 1.08 1.29 1.52 1.60 Net dividend 0.0 0.0 0.0 0.23 0.30 0.42
Source: Company Data; Bryan, Garnier & Co ests.
28
Payments
Worldpay Simplified Profit & Loss Account (GBPm) 2014 2015 2016 2017e 2018e 2019e Revenues 3,627 3,963 4,541 4,904 5,296 5,720 Change (%) 7.3% 9.3% 14.6% 8.0% 8.0% 8.0% lfl change (%) 9.2% 5.6% 14.6% 8.0% 8.0% 8.0% EBITDA 286 302 405 489 602 726 EBIT 125 167 277 347 462 578 Underlying EBIT 296 341 389 421 504 620 Change (%) 7.0% 14.9% 14.3% 8.1% 19.8% 23.0% Financial results (172) (147) (10.9) (51.7) (40.7) (28.1) Pre-Tax profits (46.8) 20.3 266 296 421 550 Tax (2.9) (48.9) (133) (80.8) (109) (137) Profits from associates 0.0 0.0 0.0 0.0 0.0 0.0 Minority interests 0.0 0.0 0.0 0.0 0.0 0.0 Net profit (50.0) (29.8) 132 213 310 411 Restated net profit 91.7 138 245 266 342 443 Change (%) -2.0% 50.9% 77.2% 8.6% 28.3% 29.5%
Cash Flow Statement (GBPm) Cash flow 174 182 326 357 452 561 Change in working capital (30.6) 29.2 5.5 (24.5) (18.5) (14.3) Capex, net (143) (179) (161) (132) (140) (149) Financial investments, net (99.4) (16.6) 449 0.0 0.0 0.0 Dividends 0.0 0.0 (12.9) (39.8) (53.3) (77.6) Other (100) (84.5) (155) (311) (12.8) (19.9) Net debt 2,254 1,425 967 1,118 891 591 Free Cash flow 0.65 32.4 171 200 293 398
Balance Sheet (GBPm) Net fixed assets 2,061 2,117 2,275 2,271 2,267 2,263 Investments 3.2 5.2 4.3 4.3 4.3 4.3 Deferred tax assets 0.0 0.0 0.0 0.0 0.0 0.0 Cash & equivalents 169 165 714 (1,071) (844) (543) current assets 384 397 477 920 994 1,073 Other assets 1,210 1,447 3,092 4,693 5,069 5,474 Total assets 3,827 4,131 6,563 6,818 7,490 8,271 L & ST Debt 2,423 1,591 1,681 47.3 47.3 47.3 Provisions 22.6 150 577 577 577 577 Deferred tax liabilities 0.0 0.0 0.0 0.0 0.0 0.0 Others liabilities 1,574 1,720 3,473 5,188 5,604 6,052 Shareholders' equity (192) 671 832 1,005 1,262 1,596 Total Liabilities 3,827 4,131 6,563 6,818 7,490 8,271 Capital employed 2,062 2,096 1,799 2,123 2,153 2,186
Ratios Operating margin 8.17 8.59 8.57 8.58 9.52 10.84 Tax rate (6.16) 256 50.21 27.50 26.00 25.00 Net margin (1.38) (0.75) 2.90 4.34 5.86 7.18 ROE (after tax) 26.03 (4.44) 15.81 21.20 24.59 25.75 ROCE (after tax) 14.03 12.15 14.06 15.48 17.91 21.80 Gearing (1,173) 212 116 111 70.59 37.02 Pay out ratio 0.0 0.0 30.24 25.00 25.00 25.00 Number of shares, diluted 1,605,083 2,000,000 1,992,800 1,994,500 1,994,500 1,994,500
Data per Share (p) EPS (3.12) (1.77) 6.61 10.72 15.62 20.67 Restated EPS 5.71 6.92 12.31 13.36 17.13 22.19 % change -92.9% 21.1% 77.9% 8.5% 28.3% 29.5% BVPS (11.97) 33.56 41.75 50.40 63.29 80.00 Operating cash flows 10.83 9.11 16.37 17.88 22.66 28.12 FCF 0.04 1.62 8.58 10.01 14.70 19.95 Net dividend 0.0 0.0 2.00 2.68 3.90 5.17
Source: Company Data; Bryan, Garnier & Co ests.
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Payments
Bryan Garnier stock rating system For the purposes of this Report, the Bryan Garnier stock rating system is defined as follows: Stock rating Positive opinion for a stock where we expect a favourable performance in absolute terms over a period of 6 months from the publication of a BUY recommendation. This opinion is based not only on the FV (the potential upside based on valuation), but also takes into account a number of elements that could include a SWOT analysis, momentum, technical aspects or the sector backdrop. Every subsequent published update on the stock will feature an introduction outlining the key reasons behind the opinion. Opinion recommending not to trade in a stock short-term, neither as a BUYER or a SELLER, due to a specific set of factors. This view is intended to NEUTRAL be temporary. It may reflect different situations, but in particular those where a fair value shows no significant potential or where an upcoming binary event constitutes a high-risk that is difficult to quantify. Every subsequent published update on the stock will feature an introduction outlining the key reasons behind the opinion. Negative opinion for a stock where we expect an unfavourable performance in absolute terms over a period of 6 months from the publication of a SELL recommendation. This opinion is based not only on the FV (the potential downside based on valuation), but also takes into account a number of elements that could include a SWOT analysis, momentum, technical aspects or the sector backdrop. Every subsequent published update on the stock will feature an introduction outlining the key reasons behind the opinion. Distribution of stock ratings
BUY ratings 48.8% NEUTRAL ratings 35.3% SELL ratings 15.9% Research Disclosure Legend 1 Bryan Garnier shareholding Bryan Garnier & Co Limited or another company in its group (together, the “Bryan Garnier Group”) has a No in Issuer shareholding that, individually or combined, exceeds 5% of the paid up and issued share capital of a company that is the subject of this Report (the “Issuer”). 2 Issuer shareholding in Bryan The Issuer has a shareholding that exceeds 5% of the paid up and issued share capital of one or more members No Garnier of the Bryan Garnier Group. 3 Financial interest A member of the Bryan Garnier Group holds one or more financial interests in relation to the Issuer which are No significant in relation to this report 4 Market maker or liquidity A member of the Bryan Garnier Group is a market maker or liquidity provider in the securities of the Issuer or No provider in any related derivatives. 5 Lead/co-lead manager In the past twelve months, a member of the Bryan Garnier Group has been lead manager or co-lead manager No of one or more publicly disclosed offers of securities of the Issuer or in any related derivatives. 6 Investment banking A member of the Bryan Garnier Group is or has in the past twelve months been party to an agreement with the No agreement Issuer relating to the provision of investment banking services, or has in that period received payment or been promised payment in respect of such services. 7 Research agreement A member of the Bryan Garnier Group is party to an agreement with the Issuer relating to the production of No this Report. 8 Analyst receipt or purchase The investment analyst or another person involved in the preparation of this Report has received or purchased No of shares in Issuer shares of the Issuer prior to a public offering of those shares. 9 Remuneration of analyst The remuneration of the investment analyst or other persons involved in the preparation of this Report is tied No to investment banking transactions performed by the Bryan Garnier Group. 10 Corporate finance client In the past twelve months a member of the Bryan Garnier Group has been remunerated for providing No corporate finance services to the issuer or may expect to receive or intend to seek remuneration for corporate finance services from the Issuer in the next six months. 11 Analyst has short position The investment analyst or another person involved in the preparation of this Report has a short position in the No securities or derivatives of the Issuer. 12 Analyst has long position The investment analyst or another person involved in the preparation of this Report has a long position in the No securities or derivatives of the Issuer. 13 Bryan Garnier executive is A partner, director, officer, employee or agent of the Bryan Garnier Group, or a member of such person’s No an officer household, is a partner, director, officer or an employee of, or adviser to, the Issuer or one of its parents or subsidiaries. The name of such person or persons is disclosed above. 14 Analyst disclosure The analyst hereby certifies that neither the views expressed in the research, nor the timing of the publication of Yes the research has been influenced by any knowledge of clients positions and that the views expressed in the report accurately reflect his/her personal views about the investment and issuer to which the report relates and that no part of his/her remuneration was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. 15 Other disclosures Other specific disclosures: Report sent to Issuer to verify factual accuracy (with the recommendation/rating, No price target/spread and summary of conclusions removed).
A copy of the Bryan Garnier & Co Limited conflicts policy in relation to the production of research is available at www.bryangarnier.com
31
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Important information This document is classified under the FCA Handbook as being investment research (independent research). Bryan Garnier & Co Limited has in place the measures and arrangements required for investment research as set out in the FCA’s Conduct of Business Sourcebook. This report is prepared by Bryan Garnier & Co Limited, registered in England Number 03034095 and its MIFID branch registered in France Number 452 605 512. Bryan Garnier & Co Limited is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 178733) and is a member of the London Stock Exchange. Registered address: Beaufort House 15 St. Botolph Street, London EC3A 7BB, United Kingdom This Report is provided for information purposes only and does not constitute an offer, or a solicitation of an offer, to buy or sell relevant securities, including securities mentioned in this Report and options, warrants or rights to or interests in any such securities. This Report is for general circulation to clients of the Firm and as such is not, and should not be construed as, investment advice or a personal recommendation. No account is taken of the investment objectives, financial situation or particular needs of any person. The information and opinions contained in this Report have been compiled from and are based upon generally available information which the Firm believes to be reliable but the accuracy of which cannot be guaranteed. All components and estimates given are statements of the Firm, or an associated company’s, opinion only and no express representation or warranty is given or should be implied from such statements. All opinions expressed in this Report are subject to change without notice. To the fullest extent permitted by law neither the Firm nor any associated company accept any liability whatsoever for any direct or consequential loss arising from the use of this Report. Information may be available to the Firm and/or associated companies which are not reflected in this Report. The Firm or an associated company may have a consulting relationship with a company which is the subject of this Report. This Report may not be reproduced, distributed or published by you for any purpose except with the Firm’s prior written permission. The Firm reserves all rights in relation to this Report. Past performance information contained in this Report is not an indication of future performance. The information in this report has not been audited or verified by an independent party and should not be seen as an indication of returns which might be received by investors. Similarly, where projections, forecasts, targeted or illustrative returns or related statements or expressions of opinion are given (“Forward Looking Information”) they should not be regarded as a guarantee, prediction or definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. A number of factors, in addition to the risk factors stated in this Report, could cause actual results to differ materially from those in any Forward Looking Information. Disclosures specific to clients in the United Kingdom This Report has not been approved by Bryan Garnier & Co Limited for the purposes of section 21 of the Financial Services and Markets Act 2000 because it is being distributed in the United Kingdom only to persons who have been classified by Bryan Garnier & Co Limited as professional clients or eligible counterparties. Any recipient who is not such a person should return the Report to Bryan Garnier & Co Limited immediately and should not rely on it for any purposes whatsoever. Notice to US investors This research report (the “Report”) was prepared by Bryan Garnier & Co Limited for information purposes only. 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