PIAGGIO S.p.A.
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Transcript of PIAGGIO S.p.A.
PIAGGIO S.p.A.Politecnico Student Research
Global Investment Research Challenge 2011
Automobiles & Parts
Company Overview Why Invest in Piaggio
Financial AnalysisValuation
Risk Analysis
• Wide brand portfolio
Company Overview
Mobility
Style
YoungSport
Business
• Largest European producer of 2w and LCVs by revenues
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
Company Overview
• Internationalization strategy
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
• Premiumisation strategy
Production FacilitiesDistribution NetworkJoint Venture
Design Safety Performance Reliability Environment
Revenues Breakdown
Company Overview
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
• Latest Results
Actual Guidelines
Revenues €1,485M €1,500M1
Ebitda Margin 13.3% 13.3%
EPS €0.115 €0.118
Slightly below guidelines … … but positive underlying trends.
Europe India Vietnam
335,0002Ws 220,000
LCVs 60,0002Ws
-7.5% +11.7% +25%
• Growth in Emerging Markets stronger than expected• Developed Markets at their bottom
Unit Sold Vs Management Guidelines: From Revenues to Earnings:
• Efficiency Improvements
• Financial Savings
• Higher Materials Costs
• One-off Fiscal Items
Company Overview
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
• Our Rating
Price (03/31/11): €2.4112 M Target Price: €2.8Upside: 16.2% Rating: BUY
BUY
HOLD
Indian sales report 2010 financial results
1. Launch of new products in India
2. Expansion in South-Eastern Asia
3. Consolidation in Europe
Why invest in Piaggio
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
- Entry in the 2 wheel market with the launch of Vespa
- Expansion of the 4 wheel product line
- Expansion of the Hanoi plant (200k vehicles per year)
- Entry in other ASEAN countries
- Leadership Consolidation
- Efficiency Improvements
Why invest in Piaggio: New products in India
Trend: shift from 3 wheelers to 4 wheelers
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
Launch of Vespa in IndiaExpected sales: 75,000 units by 2013
2 Wheel Segment
25%
24%23%
18%
10%
LCV Segment
Why invest in Piaggio: Expansion in Asia
Vietnam
Malaysia Indonesia
Thailand Taiwan
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
Potential market: 3M vehicles per year
Potential Market: 11M vehicles per year
From Vietnam to new markets
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Why invest in Piaggio: Consolidation in Europe
155bps European EBITDA margin increase by 2013 due to: - Improvement of global sourcing position - Production plants rationalization - Synergies in the distribution network
Main trends in the European market:- entering of new low cost competitors, such as Kymco (in
the right chart) - the introduction of anti pollution laws (bottom chart).
CompanyOverview
€153M €155M €181M €197M
€0.11 €0.14 €0.18 €0.22
€197M €218M €249M €276M
€1485M €1615M €1745M €1850M
7.6% Revenue CAGR 10-13
Income Statement
Cash Flow Statement
+ 160bps EBITDA margin
8.8% OCF CAGR 10-13
11.9% EBITDA CAGR 10-13Lower D&A and Financial Charges CAGR
24.3% EPS CAGR 10-13
Financial Analysis
Higher than Revenue CAGR
2010 E 2011 E 2012 E 2013 E
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
~ €65M
~ €140M
Financial Analysis
2010~ €15M
~ €310M
~€530M
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
2013
∆NWCCapexOCF ∆NFP
8.8% OCF CAGR 10-13
Div. &Buy Back
Balance Sheet
Financial Analysis
Ability to meet short and long term obligations Deleveraging and improving ROE
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
2010 2011 E 2012 E 2013 E
NFP €350M €342M €318M €288M
Debt €528M €500M €470M €440M Cash&other €155M €148M €147M €147M
Equity €443M €467M €499M €537M
• Sum-of-the-part approach
Two-Stage model Three-Stage model Analytical Period + Perpetuity Analytical Period + Convergence Stage + Perpetuity
Valuation: Discounted Cash Flow
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
Source: Politecnico Estimates
Valuation: Discounted Cash Flow
Source: Politecnico Estimates
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
Sales 2010
Sales CAGR 10-15
EBITDA margin 2010
Tax Rate
FCFF 2010
WACC
€389M
12.9%
19.5%
42%
€13M
9.31%
€963M
2.5%
9.75%
30%
€33M
7.63%
€133M
13.5%
20.5%
7.5%
€10M
10.72%
Valuation: Discounted Cash Flow
Source: Politecnico Estimates
€2.90
€0.95
€1.30
€0.65
TP DCF EU + US India Vietnam
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
Piaggio-Asia Hero Honda Mahindra & Mahindra
Bajaj Auto Tata Motors
Average EBITDA% (2010E-11E)
Piaggio-Asia Hero Honda Mahindra & Mahindra
Bajaj Auto Tata Motors-5%0%5%
10%15%20%25%30%35%
Sales growth rate (2009-11E)
• Piaggio’s Indian and Vietnamese businesses are comparable to its Indian peers
Valuation: Multiple Analysis
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverviewCompany Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
• Using the median EV/EBITDA multiple
EV Piaggio Asia
€ 1,114M
DCF EV
€ 970.5M13% discount
Harmonic Mean Hero Mahindra Bajaj Tata
2011 E 9.35 x 10.60 x 8.10 x 11.12 x 5.46 x
Piaggio
Hero Honda
Mahindra
Bajaj
Tata
Yamah
aHarl
ey KtmHonda
Suzuki
Peuge
ot0%
33%
67%
100%Geographical exposure to EMs
Valuation: Multiple AnalysisAs regards the whole Piaggio Group (EV/EBITDA multiple):
0%
10%
20%
30%
Sales growth rate (2009-2011)
0%
10%
20%
30%
Average EBITDA % (2010-11)
0%
33%
67%
100%Business exposure to 2w market to LCVs market
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
Valuation: Multiple AnalysisAs regards the whole Piaggio Group (EV/EBITDA multiple):
EMs multiple- for the Asian Business:
DMs multiple- for the non-Asian Business:
9.3 x 4.4 x
Multiple Target Price: € 2.62
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
DCF Target Price: € 2.90
30% weight
70% weight
Year end TP:€ 2.80
Probable
Possible
•Istable Vietnam •labour market•Supply Chain risk
•Tighter regulations•Credit risk•Increase in interest rates
Unlikel
y
•Strikes •Intellectual Property•Liquidity risk
•De-premiumisation
Rare
•Machinary failure •Vehicles defects
Marginal Minor Intermediate Major
Risk analysis: Risk matrix
Impact
Like
lihoo
d
Source: Politecnico Estimates
• Unsuccessful product launches
• Stronger competition• Exchange rate risk
• Increase in energy, raw materials and components costs
• GDP growth rates
Risk analysis: Risks from Asia
Company Overview
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Financial Analysis
Valuation Risk Analysis
Data and Charts
• Unsuccessful product launches
• Exchange rate risk
• Stronger competition
• Unsuccessful product launches
Risk analysis: Risk matrixRisk analysis: Risks from Asia
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
• Increase in energy,
raw materials and components costs
• GDP growth rates
19992001
20032005
20072009
2011-4
-2
0
2
4
6
8
Real GDP growth rates
WorldMajor advanced economies (G7)ASEAN-5Axis Title
Risk analysis: Risk matrixRisk analysis: Global risks
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
Price Confidence Interval: (€ 2.70, € 2.90)
Risk analysis: Montecarlo Simulation
Company Overview
Wht invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Data and Charts
0.64
0.65
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1.15
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0
50
100
150
200
250
300
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400
Price of ASEAN operations Price of European operations Price of Indian operations
Num
bers
of i
tera
tions
0.61
0.62
0.63
0.64
0.65
0.66
0.67
0.68
0.69
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0.79
0.84
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0.87
0.88
0.89
0.90
0.63
0.64
0.65
0.66
0.67
1.18
1.19
1.20
1.21
1.22
1.23
1.24
1.25
1.26
1.27
1.28
1.29
1.30
1.31
1.32
1.33
1.34
1.35
74% of volatility comes from AsiaSource: Politecnico Estimates
P = 80%
Freq
uenc
y
Target Price
€2.8
0
€2.8
2
€2.8
5
€2.8
7
€2.9
0
€2.9
2€2
.95
€2.9
7
€2.7
7
€2.7
5
€2.7
2
€2.7
0
€2.6
7
€2.6
5
€2.6
2
Source: Company Data, Politecnico Estimates
Data and ChartsData and Charts
Balance Sheet 2008 2009 2010 2011 E 2012 E 2013 EFIXED ASSETS 899,186 892,251 909,909 917,080 920,218 923,412 Intangible assets 648,234 641,254 652,622 655,611 656,929 658,271 Tangible assets 250,354 250,415 256,759 260,887 262,707 264,559 Financial assets 598 582 528 582 582 582 NET WORKING CAPITAL (3,726) 17,212 30,553 52,103 72,844 92,798 Current trade receivables 90,278 103,164 90,421 103,292 116,800 129,597 Other current receivables 21,380 24,198 23,300 25,823 27,893 29,622 Other non-current receivables 12,587 12,914 12,655 13,718 14,818 15,737 Inventories 257,961 252,496 240,066 264,685 289,385 309,182 Trade payables (362,224) (345,987) (352,627) (377,660) (402,699) (425,820) Short term Tax receivables 27,772 23,979 44,200 40,200 39,400 37,000 Long term Tax receivables 8,166 4,990 967 4,708 4,708 4,708 Deferred tax assets 36,227 46,462 46,294 42,994 42,994 42,994 Short term Tax payables (19,065) (18,952) (19,290) (19,102) (19,102) (19,102) Long term Tax payables (166) - (3,361) - - - Other short term payables (70,677) (79,567) (69,503) (75,855) (87,164) (92,569) Other long term payables (5,965) (6,485) (5,961) (6,294) (6,799) (7,220)PROVISIONS (137,531) (133,685) (131,100) (124,680) (123,807) (122,733)NET CAPITAL EMPLOYED 757,929 775,778 785,970 808,645 816,645 824,808 NET FINANCIAL POSITION 359,708 351,976 349,938 341,645 317,957 287,535 Short term debt 140,691 113,178 156,800 140,000 110,000 90,000 Long term debt 264,789 443,164 371,048 360,000 360,000 350,000 Other liquid assets 5,787 4,127 23,051 10,000 5,000 5,000 Cash 39,985 200,239 154,859 148,355 147,043 147,465 TOTAL SHAREHOLDER’S EQUITY 398,221 423,802 442,890 467,000 498,688 537,273 SOURCES OF FUNDS 757,929 775,778 785,970 808,645 816,645 824,808
Source: Company data, Politecnico Estimates
2008 2009 2010 2011 E 2012 E 2013 ENet Sales 1,570,060 1,486,882 1,485,304 1,613,932 1,743,286 1,851,390
Reported Growth -7.2% -5.3% -0.1% 8.7% 8.0% 6.2%Business Units
Two Wheeler Vehicles 1,180,666 1,065,417 988,015 1,063,383 1,154,554 1,224,789 Reported Growth -8.8% -9.8% -7.3% 7.6% 8.6% 6.1%
Commercial Vehicles 389,394 421,465 497,289 550,549 588,732 626,600 Reported Growth 2.4% 8.2% 18.0% 10.7% 6.9% 6.4%
Geographical Area Europe and America 1,280,932 1,116,191 963,253 1,008,187 1,038,362 1,060,882
Reported Growth -8.6% -12.9% -13.7% 4.7% 3.0% 2.2%India 243,972 286,753 388,890 448,934 527,477 590,348
Reported Growth 2.5% 17.5% 35.6% 15.4% 17.5% 11.9%ASEAN 45,156 83,938 133,161 156,810 177,447 188,000
Reported Growth -13.2% 85.9% 58.6% 17.8% 13.2% 5.9% Other operating income 133,474 135,938 121,128 130,728 134,233 140,706 Cost for materials (936,603) (871,653) (881,075) (963,517) (1,040,742) (1,107,131) Cost for services (292,920) (272,065) (258,358) (279,210) (294,615) (307,331) Employee costs (250,967) (242,916) (240,115) (251,773) (256,263) (262,897) Other operating costs (33,993) (35,387) (29,821) (32,279) (36,609) (38,879)EBITDA 189,051 200,799 197,063 217,881 249,290 275,857 EBITDA margin 12.04% 13.50% 13.27% 13.50% 14.30% 14.90% D&A 94,540 96,378 86,006 94,560 101,459 103,261 % Capex 91.85% 102.76% 89.50% 93.00% 97.00% 97.00%EBIT 94,511 104,421 111,057 123,321 147,831 172,596 EBIT margin 6.02% 7.02% 7.48% 7.64% 8.48% 9.32% Financial charges (41,288) (33,275) (33,905) (32,725) (32,548) (31,570) % Tot Financial Liabilities 10.18% 5.98% 6.42% 6.55% 6.93% 7.18% Other Financials 6,410 2,947 6,625 3,000 3,000 3,000 Earnings before tax 59,633 74,093 83,777 93,596 118,283 144,026 Taxation for the period 16,302 26,674 40,983 41,182 50,862 61,931 Actual tax rate (%) 27.34% 36.00% 48.92% 44.00% 43.00% 43.00%Consolidated net income 43,331 47,419 42,794 52,413 67,421 82,095 Profit margin 2.76% 3.19% 2.88% 3.25% 3.87% 4.43% Minority Shareholders 330 1,388 30 262 337 410 Earnings per share (€) 0.11 0.116 0.115 0.14 0.18 0.22 Avg. number of Ordinary Shares 396,041 396,041 371,793 371,793 371,793 371,793Dividend per share (€) 0.06 0.07 0.07 0.08 0.10 0.12 Earnings paid as dividends 22,120 25,795 26,000 28,303 35,733 43,510 Payout Ratio 51% 56% 61% 54% 53% 53%
Income Statement
Data and Charts
Source: Politecnico Estimates
Data and ChartsData and Charts
Cash Flow Statement IndiaINDIA 2011 E 2012 E 2013 E 2014 E 2015 ELCV volumes (units) 243,756 258,381 271,817 285,408 299,393LCV ARPU (€) 1,842 1,910 1,977 2,036 2,0972w volumes (units) 50,000 75,000 95,000 110,000
2w ARPU (€) 680 707 735 765
Sales from India 448,934 527,477 590,348 650,970 712,000% tot sales 27.82% 30.26% 31.89% 33.38% 34.71%
% growth 15.44% 17.50% 11.92% 10.27% 9.38%
EBITDA from India 87,542 102,331 114,528 124,986 134,568EBITDA margin India 19.50% 19.40% 19.40% 19.20% 18.90%
D&A India 22,877 24,580 25,017 25,206 25,309% Capex India 90.00% 94.00% 94.00% 94.00% 94.00%
EBIT from India 64,665 77,750 89,511 99,780 109,259EBIT margin India 14.40% 14.74% 15.16% 15.33% 15.35%
Tax Rate India 42.00% 42.00% 42.00% 42.00% 42.00%
Op. Tax India 27,159 32,655 37,594 41,908 45,889Adj. Op. Tax India 34,713 40,725 47,069 52,582 57,556Adj. Tax Rate India 53.68% 52.38% 52.58% 52.70% 52.68%
D&A India 22,877 24,580 25,017 25,206 25,309Change in NWC India (4,363) (2,262) (2,265) (1,005) (84)Cash Flow From Indian Operations 48,466 59,343 65,194 71,399 76,928Capex India 25,419 26,149 26,614 26,815 26,924% Capex 25.00% 25.00% 25.00% 25.00% 25.00%
FCFF India 23,046 33,194 38,580 44,585 50,004% growth 44.03% 16.23% 15.56% 12.15%
Source: Politecnico Estimates
Data and ChartsData and Charts
Cash Flow Statement Europe and USEUROPE and US 2011 E 2012 E 2013 E 2014 E 2015 E2W volumes (units) 352,275 362,843 370,100 373,801 377,5392W ARPU (€) 2,573 2,599 2,625 2,651 2,678LCV volumes (units) 13,165 12,560 11,982 11,431 10,905LCV ARPU (€) 7,718 7,584 7,452 7,323 7,195Sales from Europe and US 1,008,187 1,038,362 1,060,882 1,074,822 1,089,504% tot sales 62.47% 59.56% 57.30% 55.11% 53.11%% growth 4.66% 2.99% 2.17% 1.31% 1.37%EBITDA from Europe and US 98,802 110,066 119,880 121,455 123,114EBITDA margin Europe and US 9.80% 10.60% 11.30% 11.30% 11.30%D&A Europe and US 61,007 63,386 64,512 64,999 65,264% Capex Europe and US 100.00% 101.00% 101.00% 101.00% 101.00%EBIT from Europe and US 37,796 46,680 55,368 56,456 57,850EBIT margin Europe and US 3.75% 4.50% 5.22% 5.25% 5.31%Tax Rate Europe and US 30.00% 30.00% 30.00% 30.00% 30.00%Op. Tax Europe and US 11,339 14,004 16,610 16,937 17,355Adj. Op. Tax Europe and US 15,754 18,849 22,471 22,976 23,532Adj. Tax Rate Europe and US 41.68% 40.38% 40.58% 40.70% 40.68%D&A Europe and US 61,007 63,386 64,512 64,999 65,264Change in NWC Europe and US (3,265) (869) (811) (231) (20)Cash Flow From EU Operations 79,783 90,348 96,597 98,248 99,562Capex Europe 61,007 62,758 63,873 64,356 64,618% Capex 60.00% 60.00% 60.00% 60.00% 60.00%FCFF Europe 18,777 27,590 32,725 33,892 34,943% growth 17.54% 12.71% 5.53% 1.42%
Source: Politecnico Estimates
Data and ChartsData and Charts
Cash Flow Statement ASEANASEAN 2011 E 2012 E 2013 E 2014 E 2015 E2W volumes (units) 76,160 93,677 112,412 132,646 153,8702W ARPU (€) 2,059 1,894 1,781 1,692 1,624Sales from ASEAN 156,810 177,447 200,160 224,379 249,869% tot sales 9.72% 10.18% 10.81% 11.51% 12.18%% growth 17.76% 13.16% 12.80% 12.10% 11.36%
EBITDA from ASEAN 31,676 35,667 40,232 44,651 49,224EBITDA margin ASEAN 20.20% 20.10% 20.10% 19.90% 19.70%
D&A ASEAN 11,896 13,336 14,371 14,480 14,539% Capex ASEAN 78.00% 85.00% 90.00% 90.00% 90.00%
EBIT from ASEAN 19,779 22,331 25,861 30,171 34,685EBIT margin ASEAN 12.61% 12.58% 12.92% 13.45% 13.88%
Tax Rate ASEAN 7.50% 7.50% 7.50% 7.50% 7.50%
Op. Tax ASEAN 1,483 1,675 1,940 2,263 2,601Adj. Op. Tax ASEAN 3,794 3,993 4,677 5,490 6,305Adj. Tax Rate ASEAN 19.18% 17.88% 18.08% 18.20% 18.18%
D&A ASEAN 11,896 13,336 14,371 14,480 14,539Change in NWC ASEAN (1,211) (504) (675) (335) (29)Cash Flow From ASEAN Operations 26,671 31,170 34,880 38,826 42,890Capex ASEAN 15,252 15,690 15,968 16,089 16,155% Capex 15.00% 15.00% 15.00% 15.00% 15.00%
FCFF ASEAN 11,419 15,480 18,912 22,737 26,735% growth 35.56% 22.17% 20.22% 17.59%
Data and Charts
Source: Company data, Politecnico Estimates
Ratios Key Financial Ratios 2009 2010 2011E 2012E 2013E 2009 2010 2011E 2012E 2013EProfitability ratios EBITDA margin 13.50% 13.27% 13.50% 14.30% 14.90% ROI 6.67% 7.18% 7.85% 9.19% 10.49% EBIT margin 7.02% 7.48% 7.64% 8.48% 9.32% ROA 3.03% 2.77% 3.34% 4.19% 4.99% EBT margin 4.98% 5.64% 5.80% 6.79% 7.78% ROE 11.19% 9.66% 11.22% 13.52% 15.28%Cost structure Du Pont Analysis Labor Cost / Sales 16.34% 16.17% 15.60% 14.70% 14.20% Profit Margin 3.19% 2.88% 3.25% 3.87% 4.43% Materials Cost / Sales 58.62% 59.32% 59.70% 59.70% 59.80% Asset Turnover 0.95x 0.96x 1.03x 1.08x 1.13x Services Cost / Sales 18.30% 17.39% 17.30% 16.90% 16.60% Total Assets/Equity 3.69x 3.49x 3.36x 3.22x 3.06xGearing ratios Debt ratios Net Debt to Equity 0.83x 0.79x 0.73x 0.64x 0.54x Interest coverage ratio 3.44x 4.07x 4.15x 5.00x 6.04x Total Debt to Equity 1.31x 1.19x 1.07x 0.94x 0.82x Net Debt / EBITDA 0.57x 0.56x 0.64x 0.78x 0.96xLiquidity ratios Cash flow ratios Current ratio 1.05x 0.93x 0.94x 0.99x 1.02x OCF / Sales 10.93% 10.28% 9.60% 10.37% 10.62%Solvency ratio 0.26x 0.24x 0.29x 0.36x 0.42x OCF / Earnings 3.43x 3.57x 2.96x 2.68x 2.40x Market Ratios Capex EPS €0.116 €0.115 €0.141 €0.181 €0.221 Capex / Sales 6.31% 6.30% 6.00% 5.85% 5.75% DPS €0.07 €0.07 €0.08 €0.10 €0.12 D&A / Capex 6.48% 5.79% 5.86% 5.82% 5.58%