BRAKES ON AT PIAGGIO. Dhaka Stock Exchange - February

Transcription

1 BRAKES ON AT PIAGGIO 1

2 Strong EBITDA Margin 14,00% 12,00% 10,00% 8,00% 11.7% 6,00% 15.74% 20% 35% 4,00% 2,00% 0,00% IS IT SUSTAINABLE IN THE LONG RUN? 2

3 Business & Market Valuation Potential Brakes on at Piaggio Price full despite solid management Performance strongly dependent on Asian markets Rating SELL Price Target ( ) 2.20 Closing Price, 21 st Jan 2011 ( ) 2.42 Upside/(Downside) (9.1%) Ticker (Bloomberg) PIA.IM Hidden dangers in the face of healthy growth potential Strategy to capture Indian 2W growth not entirely clear 2,7 2,5 2,3 2,1 1,9 1,7 3

4 Business & Market Valuation Potential From Pontedera to the World Majority of stocks held by IMMSI (Colannino family) Whole range of scooters, motorbikes, and light commercial vehicles Financials ( m) Revenues 1,692 1,570 1,487 EBITDA EBIT Net Income Net sales by business (in 2009) Net sales by geographical area (in 2009) 6 factories in Europe, India, and Vietnam 12% 19% 6% 32% 18% 51% 4% 610,000 units sold in % 11% 39% Scoters Bikes CV Europe CV India Spare Parts Italy Rest of Europe Americas India Asia Pacific 4

5 Business & Market Valuation Potential 2W: Will the Asian Bull Overpower the European Bear? Europe: Slow growth, risk of increased competition 80% Moto Segmentation in India 8,00% 2W growth in Asia Pacific 6,80% 60% 6,00% 4,00% 5,30% 4,20% 4,20% 4,80% Europe: Focus on efficiency, protection of market share 40% 2,00% 0,00% 20% -2,00% Asia Pacific, India: Markets grow with income, competition tough 0% Standard Commuter Commuter Deluxe Sport -4,00% -6,00% -4,30% - India: Entry in 2012, Indian Vespa - Asia Pacific: Expansion, tap new regional markets EUROPE INDIA ASIA PACIFIC OUR PREDICTIONS Keep leadership position, pressure on margins 1% market share to be achieved, further growth difficult Healthy growth, long-run pressure on margins 5

6 Business & Market Valuation Potential CVs = India In 2010, around 78% of revenues from India 100% 80% 60% 2,5 3W Segmentation in India 2,5 3,0 3,3 3,5 4,0 5,4 Increasing reliance on Indian demand Piaggio leading in weaker cargo segment 40% 20% 0% 1,4 2,0 2,3 3,1 2,9 2,3 3,0 FY04 FY05 FY06 FY07 FY08 FY09 FY CAGR Europe: 2.45% Cargo (lacs) Passenger (lacs) - Eco-friendly focus in Europe - Efficiency and introduction of new 4W in India CAGR India: 10.86% CAGR CVs: 7.57% 6

7 Strong EBITDA Margin 11.7% 15.74% 20% 35% Current 13.5% margin IS IT SUSTAINABLE IN THE LONG RUN? 7

8 Business & Market Valuation Potential Declining Margins, Despite Top Line Hike Drop in 2010 revenues followed by healthy growth EBITDA margin turning in 2013 to reach 12.5% in Revenues and EBITDA margin E E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 16% 14% 12% 10% 8% 6% 4% 2% - Europe s share in 2W and CV falling steadily 100% 80% Revenues composition forecast 60% 2W India to contribute nearly 5% in % 20% 0% 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2W EUROPE 2W AMERICAS 2W ASIA-PACIFIC 2W INDIA CV EUROPE CV INDIA 8

9 Business & Market Valuation Potential Performance Underneath Rising current ratio with falling debt ratio No refinancing concerns 3,0 2,5 2,0 1,5 1,0 0,5 - Balance sheet trend E 2012E 2014E 2016E 2018E 2020E Maturities of financial liabilities (EUR mil) Q beyond Total Current ratio Debt/Equity Profitability ratios weaker than peer average According to F- Score not a strong stock Profitability ratios Piaggio ROE Peer Group ROE Piaggio ROA Peer group ROA Source: Reuters 9

10 Business & Market Valuation Potential Enterprise DCF principal valuation Multiples used for crosschecking 2 Methods Enterprise DCF Model Flexible model which allowed us to simulate different scenarios based on cash flow forecasts. Multiples As no perfect comparables were found, multiples valuation was not key to derive our target price. Nonetheless, a multiples comparison was performed to crosscheck our valuation. 3 Scenarios Base Case (50%) EBITDA margin will reach a steady state of 12.5% (after a first increase to 15% in 2013) resulting from tougher competition in India and other ASEAN markets. Bull Case (30%) Higher revenues with a delay in the decline combined with the EBITDA margin down only to 13.5% as the toughening competition will take longer to play out. Bear Case (20%) Revenues in-line with base case; greater pressure from Asian-Pacific markets eating in EBITDA margin, bringing it down to 11%. 10

11 Business & Market Valuation Potential Illiquidity discount bringing price down to 2.20 Summary of the main results of the valuation: Financials DCF Valuation Enterprise Value (in m) 1, Equity Value (in m) Shares outstanding (in m) Price per share (in ) 2.20* * After illiquidity discount of 10.7% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Terminal value Explicit forecast period By international standards, Piaggio is a small cap stock Assumptions Constant WACC of 6.89% Corporate tax rate at 35% Terminal growth rate of 2.5% Only reinvestment needs Target debt/equity ratio of 1/3 11

12 Terminal growth Business & Market Valuation Potential Risks to our Price Target Maximum value: 2.61 WACC 6.39% 6.89% 7.39% Minimum value: % % % WACC impacts price highly Changes in growth and tax can drive price 0,0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 in EUR Sensitivity analysis WACC -1% growth +1 tax rate -1% 12

13 Business & Market Valuation Potential Peer group valuation Piaggio trading at premium 33% weight assigned to Indian, 67% to global peers Multiples valuation below DCF forecasts 16x 14x 12x 10x 8x 6x 4x 2x 0x EV/EBIT and EV/EBITDA Piaggio Global peers Indian peers Piaggio* P/E 20x 18x 16x 14x 12x 10x 8x 6x 4x 2x 0x Range of share price P/E Piaggio Global peers Indian peers Piaggio* Indian peers showing higher multiples EV/EBIT EV/EBITDA * Based on peer average 1 1,5 2 2,5 3 3,5 4 13

14 Business & Market Valuation Potential Higher downside than upside Potential Catalysts Risks Despite strong financial performance, Piaggio s price has reached its potential SELL Target price:

15 Thank you very much for your attention! Q&A 15

16 SWOT Illiquidity discount P & L Balance sheet Free cash flow WACC breakdown Debt Net financial position Management structure Commodities Margin trend forecast Asia 2W growth 3w sales and piaggio s market share in india 2W registration in Europe Z-SCORE M-SCORE Piaggio Vs market Beta EDGE Advisory - October

17 1) Strong premium brands 2) Leadership in the scooter market in Europe and in the 3W in india 3) Fuel effecient products 4) High customer loyalty S 1) High exposure to saturated markets 2) Lack of presence in some high growth markets 3) Missing some early opportunities to penetrate the 2W india market W O T 1) Positioning in more emerging markets 2) Eco-friendly products 1) Increasing competition in Piaggio s major markets 2) Competitors consolidation 3) Change in the regulations 17

18 Illiquidity Discount Shareholder structure Illiquidity discount* 1) Free Float: 35% 2) Average daily volume/outstanding shares: 0.2% 3) Majority strongly hold by Colannino 35% 54% Positive Earnings: yes Cash/Value: 15% 3% 3% 5% Immsi s.p.a Diego Della Valle & C. s.a.p.a State of New Jersey Common Fund Federated investors Inc Others Revenues: 1,464 mln Illiquidity discount: 10.7% *Calculated with the Damodaran s Formula: Trading Volume/Value: 4% Illiquidity discount= 0,145-0,0022*LN( Revenues) -0,015*(positive(1) or negative(0) earnings) - 0,016*(cash/value)-0,11*(trading volume/value) 18

19 Profit & Loss Statement 19

20 Balance Sheet 20

21 Free Cash Flow for DCF Reconciliation EUR m E 2011E 2012E 2013E 2020E NOPLAT Depreciation /- Working Cap - Capital Expenditure Free Cash Flow (15.9) (16.9) (4.5) (104.1) (95.3) (90.6) (100.7) (108.2) (115.2) (145.5) (20.5) (7.3) NOPLAT Depreciation +/- D Working Cap Capital Expenditure Free Cash Flow 21

22 Free Cash Flow Forecast 100,0 80,0 60,0 40,0 20, E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E TV (20,0) (40,0) 22

23 WACC breakdown Cost of Equity Industry beta relevered to arrive at 0.94 Market risk premium for Italian companies (Damodaran 2010) Cost of Debt Corporate debt spread (from rating BB) on top of risk-free German government bond 23

24 Debt Nature of the Debt Financial debt analyzed by currency 22,906 5,205 2, , ,321 25,392 22, , ,179 Bonds Bank financing Leases and others Factoring EIB Euro US Dollar Indian Rupee Japanese Yen Financial debt analyzed by interest rate 155,2 187,716 Fixed rate Floating rate Maturities of long term debt 186, ,46 29, ,422 31,384 88, Beyond Total 24

25 Net Financial Position EUR m E 2011E 2012E 2013E 2020E NET FINANCIAL POSITION NET DEBT/EBITDA (255.5) (0.8) E 2011E 2012E 2013E 2020E NET FINANCIAL POSITION 25

26 Management Structure 26

27 Commodity Snapshot COMMODITY SNAPSHOT Commodity Bearish Neutral Bullish Rationale Crude Oil 1) Global inventories contracting, while demand hitting its historical high in 3Q10 2) Declining spare capacity, reaching 2007/2008 levels in 2012 Plastic 1) Price affects by the a bull oil market 2) Demand recovery to the 2007 levels Steel 1) No further upside given the efforts to cool the Chinese economy 2) Possibility of future decline due to the slowdown in the developed countries construction Aluminum 1) Market likely to be in surplus until 2012, with strong demand not eliminating excess capacity 27

28 Margin trend forecast 16% 14% 12% 10% 8% 6% 4% E 2012E 2014E 2016E 2018E 2020E EBITDA EBIT 28

29 Asia 2W growth 8,00% 6,00% 4,00% 2,00% 0,00% ,00% -4,00% 29

30 3w sales (units) and Piaggio s market share M & M Bajaj Piaggio Other Piaggio's Market share % 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 30

31 2W registration in Europe France Italy Germany United Kingdom Spain 31

32 Z-Score Z-Score EBIT 104,421 94, , ,224 Total Assets 1,564,820 1,399,329 1,443,979 1,469,326 Net Sales 1,486,882 1,570,060 1,692,126 1,607,412 Market Value of Equity 796, , , ,226, Total Liabilities 1,141,018 1,001, ,532 1,030,628 Current Assets 608, , , ,016 Current Liabilities 576, , , ,130 Retained Earnings 226, , ,780 0 Net income-dividends Z-SCORE Z-Score above 2.9 "Safe" Zone Z-Score between 1.8 and 2.99 "Grey" Zone Z-Score less than 1.8 "Distress" Zone 32

33 M-Score M-Score Value DSRI - Days' Sales in Receivables Index 1.19 GMI - Gross Margin Index AQI - asset quality index SGI - sales growth index DEPI - depreciation index SGAI - sales, general and administrative expenses index LVGI - leverage index TATA - total accruals to total assets M-Score Reliable disclosures 33

34 Piaggio Vs Market 2,90 2,70 Piaggio Euro Stoxx 2,50 2,30 2,10 1,90 1,70 1,50 34

35 Beta reconciliation Company Beta D/E Effective Tax Rate Beta unlevered Mahindra TVS Honda Suzuki Yamaha Reuters Industry beta unlevered 0.78 Piaggio beta