Equity Company Flash MID CORPORATE 28 July 2020: 7:53 CET Piaggio Date and time of production BUY 2Q20 Further Strengthens Confidence Piaggio’s 2Q20 results, which came in 9% and 10% better than our and consensus expectations at the EBITDA level, reinforce our confidence in Target Price: EUR 3.1 Piaggio’s equity story. While adopting a slightly more cautious approach on (from EUR 2.8) 2020E to account for the prolonged lockdown in some Indian areas, we leave our 2021-22E estimates broadly unchanged as we believe that Piaggio will Italy/Automobiles & benefit from the new mobility habits following the Covid-19 outbreak. This trend Components may prove to be even stronger than what we are currently incorporating, Update paving the way for a better than forecast growth in 2021. MTA Price Performance 2Q20 results better than expected (RIC: PIA.MI, BB: PIA IM) 120 110 With 2Q20 revenues in line with our expectations, EBITDA in the quarter stood at EUR 100 90 43.3M (implying a 15% margin), exceeding our expectations and market consensus 80 70 (Bloomberg) by 9% and 10% thanks to a higher than expected opex reduction (EUR 20M 60 50 vs. our EUR 15M assumption, most of which related to temporary layoffs). Overall, in 2Q20 J A S O N D J F M A M J J and in 1H20, the group’s net profit was stronger than expected also thanks to slightly Piaggio FTSE IT All Sh - PRICE INDEX lower than projected D&A and a more favourable tax rate (40%) than in 1H19. As Piaggio - Key Data Price date (market close) 24/07/2020 anticipated in our preview report (24/7), net debt peaked but looks fully under control, Target price (EUR) 3.1 in our view, and was slightly better than our expectations. Target upside (%) 28.84 Market price (EUR) 2.41 Piaggio - 2Q/1H20 results Market cap (EUR M) 861.72 EUR M 2Q19A 1H19A FY19A 2Q20A 2Q20E 2Q20C 2Q A/E 2Q A/C 2Q yoy 1H20A 52Wk range (EUR) 3.09/1.43 % % % Price performance % 1M 3M 12M Sales 470.8 817.0 311.4 288.74 288.7 291.7 0 -1 -0.39 600 Absolute 13.6 18.8 -9.5 EBITDA 84.8 134.3 39.8 43.30 39.8 39.5 9 10 -0.49 83 Rel. to FTSE IT All Sh 8.7 0.5 -0.5 Margin % 18.0 16.4 12.8 15.0 13.8 13.5 NM NM NM 13.8 Y/E Dec (EUR M) FY19A FY20E FY21E EBIT 54.4 75.1 10.0 14.70 10.0 9.2 47 59 -0.73 24.7 Revenues 1,521.3 1,313.5 1,567.6 Margin % 12 9 3 5.1 3.5 3.2 NM NM NM 4.1 EBITDA 227.8 185.3 229.6 Net Income 26.7 34.6 3.10 6.0 2.7 2.1 121 190 -0.78 9.1 EBIT 104.5 65.31 109.6 Net income 46.72 26.59 51.96 Net debt 418.0 418.0 548.6 528.5 535.4 514.0 -1 3 0.26 528.5 EPS (EUR) 0.13 0.07 0.15 (net cash) SampleNet debt/-cash 429.7 478.5 450.9 NM: not meaningful; A: actual; E: estimates; C: Bloomberg consensus; Source: Company data and Intesa Sanpaolo Adj P/E (x) 19.9 32.4 16.6 Research EV/EBITDA (x) 5.8 7.2 5.7 Outlook and estimates EV/EBIT (x) 12.7 20.5 12.0 Div ord yield (%) 5.8 3.3 4.2 Source: Company data, FactSet and Intesa The group announced the postponement of the distribution of its interim dividend on Sanpaolo Research estimates 2020 to November. As expected, Piaggio did not release any guidance on the back of the ongoing evolution of the pandemic. However, the main feedback from the conference call strengthens our view that the volumes outlook in Europe (where the group enjoys a strong price mix and a higher operating leverage) is stronger than initially Intesa Sanpaolo Research Dept. expected. Based on preliminary data for the first weeks of July, the group sees a Monica Bosio - Research Analyst European 2W market up by 25-30% despite a very tough comparison base as in July +39 02 8794 9809 2019 the EU 2W market grew by around 16%. We see this as very positive as July is [email protected] particularly important for the 2W market as it accounts for around 13% of the yearly registrations. In this context, Piaggio’s management stated that, based on July orders, on pre-orders for August and on their predictions for September, in 3Q20 Piaggio’s orders See page 8 for full disclosure and analyst certification 28 July 2020: 07:53 CET Date and time of first circulation Piaggio 28 July 2020 in Europe are seen up by 20%/25%. Given that 3Q20 is expected to have a similar mix to 3Q19, we expect a similar trend for revenues. On top of this strong trend, Piaggio is performing very well in some key strategic countries, such as China, where Vespa volumes are rising above expectations with very sound margins. In 1Q20, Vespa volumes in China were seen at around 10k by year-end and management now seems more optimistic. We believe that China will offer strong growth opportunities ahead for a high value brand, such as Vespa. At the same time, with the lift of the lockdown in many Asian countries, we think APAC could resume its growth path. By contrast, with a market still down by 45% in July, according to the management, India still represents a question mark but we believe that the group will be able to offset a large part of the declining volumes in India with a much stronger trend in Europe. From an estimates standpoint, we think a slightly more cautious approach for 2020 is reasonable due to the ongoing restrictions in certain Indian areas. Nevertheless, while reducing our volumes projections on India for 2020 and going forward, we increase our volumes outlook for Piaggio’s operations in Europe and we leave unchanged our price mix assumptions across all of Piaggio’s main areas. While cutting our 2020E EBITDA and adj. EPS by 5.6% and 19.7%, respectively, we leave our 2021-22E estimates broadly unchanged. We believe that the changes in consumers’ commuting habits will open up new growth opportunities for Piaggio across all geographical markets on top of the still ongoing replacement cycle in Europe. As a result, we do not rule out that our volumes assumptions for Piaggio’s 2W in 2021 might prove to be conservative. Piaggio - 2020E-21E earnings outlook Old New EUR M 2020E 2021E 2022E 2020E 2021E 2022E Sales 1,376 1,550 1,708 1,313 1,568 1,731 EBITDA 196 230 255 185 230 257 EBITDA % 14.3 14.9 15.0 14.1 14.6 14.8 EBIT 76.2 110.4 129.5 65 110 131 EBIT % 5.5 7.1 7.6 5.0 7.0 7.6 Pre-tax income 55 87 106 44 87 108 Net income (attributable) 33 52 64 27 52 65 Net cons. debt / (cash) 471 452 415 479 451 412 Capex 110 Sample130 130 110 130 130 Adjusted EPS (EUR) 0.092 0.146 0.178 0.074 0.145 0.181 Dividend per ord share (EUR) 0.08 0.1 0.11 0.08 0.10 0.11 NA: not available; NM: not meaningful; A: actual; E: estimates; Source: Intesa Sanpaolo Research 2 Intesa Sanpaolo Research Department Piaggio 28 July 2020 Piaggio - Main estimates revisions % New vs. Old 2020E New vs. Old 2021E New vs. Old 2022E Sales -4.6 1.2 1.3 EBITDA -5.6 -0.4 0.5 Adjusted EPS -19.7 -0.9 1.2 DPS 0.0 0.0 0.0 Net consolidated debt / (cash) 1.5 -0.2 -0.7 Capex 0.0 0.0 0.0 E: estimates; Source: Intesa Sanpaolo Research Piaggio - Volumes assumptions Volumes 2020E yoy % 2021E yoy % 2022E yoy % 2W Western Countries) 216 -3.8 238 10.2 257 8.0 2W India 50 -35.1 65 30.0 80 23.1 2 W APAC 91 -7.3 101 11.0 106 5.0 Total 2Wheels 357 -10.7 404 13.2 443 9.7 LCV Europe 15 -20.3 18 17.6 23 27.8 LCV India 115 -40.3 160 39.1 180 12.5 Total LCV 130 -38.5 178 36.6 203 14.0 Total volumes 487 -20.3 582 19.4 646.0 11.0 E: estimates;Source: Intesa Sanpaolo Research Valuation While trimming our 2020E EBITDA estimates, our positive view on Piaggio remains unchanged as our revision reflects the temporary restrictions in certain areas of India and we see a resumption of market demand ahead also for the Indian market. Valuation-wise, our 2020E SOP analysis benefits from the recent sector multiples re-rating and, our updated DCF analysis (which now incorporates a revised beta at 0.9 but retains a conservative 1% G rate), still points to upside ahead on the stock up to EUR 3.1/sh (from the previous EUR 2.8 sh). We thus keep our BUY rating on Piaggio. Piaggio – Target price calculation EquitySample value (EUR M) Equity Value (EUR/sh.). 2020 SOP by business area 1,216 3.4 DCF 2020-22E 1,021 2.9 Piaggio target price 1,118 3.1 Source: Intesa Sanpaolo Research estimates Intesa Sanpaolo Research Department 3 Piaggio 28 July 2020 2020E SOP Piaggio - Main peers by area x EV/Sales EV/EBITDA EV/EBIT P/E Harley-Davidson, Inc.