European small and mid caps-Stock picks Q4 2007-Q1 2008 - Fourlis

Mid cap 

European small and mid caps 

abc 

Global Research 

Stock picks 

Q4 2007-Q1 2008 

9M 2007 performance: HSBC Smaller 

European Companies index up 0.3%, 

with France up 2.7%, Germany up 7.6%, 

Greece up 11.4% and the UK down 7.8% 

We expect small and mid caps to 

maintain their solid performance over 

the rest of 2007 and start of 2008, but 

we still think large caps are likely to 

outperform during that period 

However, we have compiled investment 

ideas that we think will outperform the 

sector and offer attractive returns in Q4 

2007, as well as in Q1 2008 

Among our stock picks, in this report, 

we raise our price targets for Fourlis to 

EUR31.3 from EUR25.5 and for Hochtief 

to EUR108 from EUR101; we maintain 

our Overweight ratings on both stocks 

Stock selection: European small and mid caps, Q4 2007–Q1 2008 

17 October 2007 

Burkhard Weiss* 

Analyst 

HSBC Trinkaus & Burkhardt AG, Germany 

+49 211 910 3722 

burkhard.weiss@hsbc.de 

Company name RIC Rating Target Potential 

price (old) return (% ) 

EV/EBITDA 

2009e (x) 

PE 

2009e (x) 

France 

EUR 

Ingenico INGC.PA OW 26.0 21 6.5 11.6 

Séché CCHE.PA OW 138.0 11 7.9 17.8 

Teleperformance ROCH.PA OW 38.0 38 4.7 13.1 

Germany 

EUR 

Carl Zeiss Meditec AFXG.DE OW 19.0 27 9.1 17.6 

Deutz DEZG.DE OW 11.0 17 4.9 11.1 

Hochtief HOTG.DE OW 108 (101) 19 4.0 40.2 

Lanxess LXSG.DE OW 47.0 32 4.1 8.8 

Greece 

EUR 

Fourlis FRLr.AT OW 31.3 (25.5) 20 12.6 18.2 

Metka MTKr.AT OW 20.5 13 11.1 15.7 

UK 

GBp 

FirstGroup FGP.L OW 8.1 11 7.0 14.4 

Spectris SXS.L OW 10.10 11 8.5 13.7 

Source: Reuters, HSBC estimates, 

*Employed by a non-US affiliate of HSBC Securities (USA) Inc, 

and is not registered/qualified pursuant to NYSE and/or NASD 

regulations 

Issuer of report: HSBC Trinkaus & Burkhardt AG 

Disclaimer & Disclosures 

This report must be read with the 

disclosures and the analyst certifications 

in the Disclosure appendix, and with the 

Disclaimer, which forms part of it

Mid cap 



abc 

Contents 

Stocks can creep higher 3 

Regional focus: France 12 

Regional focus: Germany 14 

Regional focus: Greece 16 

Regional focus: UK 18 

European small and mid-cap 

stock picks for Q4/Q1 20 

Company profiles 23 

Carl Zeiss Meditec 24 

Deutz 28 

FirstGroup 33 

Fourlis Holdings 37 

Hochtief 41 

Ingenico 46 

Lanxess 51 

Metka 55 

Séché Environnement 59 

Spectris 64 

Teleperformance 68 

HSBC European small and 

mid-cap coverage universe 73 

Notes 78 

Disclosure appendix 80 

Disclaimer 83 

2

Mid cap 



abc 

Stocks can creep higher 

We expect total returns from stocks to more than offset most 

estimates of equity risk over the rest of 2007 and into 2008 

In our opinion, European stocks are pricing in a bigger fall in 

profitability than is likely, particularly in the liquidity-strapped and 

ABS-lashed financial arena 

Larger caps should continue to outperform over the remainder of 

2007; name of the game: stock picking for small and mid caps 

Our HSBC Global Equity Strategy views are set out 

in more detail in ‘The End of the Beginning’, 

published 2 October 2007 

The easy stockmarket gains of 2003-06 are long 

since behind us. In our view, however, equities 

are still conservatively priced, many balance 

sheets are under-leveraged and ‘riskless’ interest 

rates are still low. We have been advocating a 

‘long-cycle’ view of the current equity rally – and 

this summer arguably marks not the end of that 

cycle, nor the beginning of the end, but perhaps 

the end of the beginning... 

We think it boils down to whether the surge in 

corporate value added amid the golden operating 

climate of the last 4-5 years – a surge which, in 

our view, has not been priced into stock 

valuations – has been driven primarily by cheap 

subprime US housing loans. And we doubt it. 

So what happened this summer? We did not expect 

the ABS story to play out as it did, but as the 

liquidity trap sprang and it became clear that central 

banks were indeed staring into the monetary abyss 

so we had to assume that they would do whatever 

was necessary to get the system moving again. As 

we write, three-month money rates are slowly 

returning to earth and, believe it or not, the MSCI 

All-Countries index is almost exactly where it was 

when we posted our Q3 preview, entitled Don’t look 

down, on 4 July 2007. 

The risk of recession is, of course, still high. But 

there is also a more positive possibility out there, 

one we think is being overlooked and which we 

term the ‘1999 redux’ scenario. The possibility of 

such an outcome for us balances the more visible 

risk of a ‘nervous recession’ (for more detail, see 

Collateral damage, 22 August). We are also 

prepared to stick our necks out and suggest that the 

M&A boom is not yet done: cash-flow yields still 

comfortably exceed (slightly) higher credit costs. 

The outlook, then, remains one of ‘muddling 

through’, in which equity prices continue to creep 

higher, supported by continued modest earnings 

growth and some increase in PE multiples. We 

expect a total return on the main US and European 

indices of 5-10% through year-end and pencil in a 

similar return for 2008e. 

Kevin Gardiner* 

Head of Global Equity Strategy 

HSBC Bank plc (UK) 

+44 20 7991 6714 

kevin.gardiner@hsbcib.com 

3

Mid cap 



abc 

Estimated ex-ante US equity risk premium, % 

5 

4 

3 

2 

1 

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 

US Implied ERP Av erage +1 St. Dev -1 St. Dev 

Source: HSBC, Thomson Financial Datastream 

At the regional and sectoral levels, conviction has 

been in short supply over the course of 2007, as 

we thought it might be. This is a reflection of 

several issues – M&A and infrastructure appeal, 

for example – that cut across conventional 

cyclical attributes. 

If anything, this lack of intra-market conviction 

has become even more pronounced as a result of 

the ABS and liquidity crises. Nonetheless, on a 3- 

6 month view, we have cut our cyclical positions 

and added to a mixture of technology and growthoriented 

sectors and regions, with the weak dollar 

making some degree of shift back into the US 

more favourable. We have trimmed our 

Overweight positions in Europe and emerging 

markets accordingly, though Europe remains our 

favourite among the larger blocs. 

One of those cross-market themes that we thought 

might make themselves felt in 2007 is size and, 

indeed, so far, this has been the case. Larger-cap 

companies are beginning to claw back some of the 

last few years’ underperformance. The turnaround is 

now clearly visible in price relative charts in the US 

and Europe and has been for some time in Japan. 

US and Europe trailing PE/economic value added (EVA) index (ROE/COE) 

30 

25 

20 

15 

10 

5 

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 

PE/EVA 


4

Mid cap 



abc 

We expect large caps to continue to outperform. 

Larger companies tend to be less dependent on the 

vagaries of the business cycle, partly by virtue of 

their greater international diversification. They 

have stronger balance sheets and are likely to be 

relatively sheltered from any residual liquidity 

pressures. When M&A revives, we suspect its 

focus will shift upscale – partly because private 

equity may become a little less prominent and 

partly because many of the potential targets in the 

small/mid-cap space have already been snapped 

up and/or have become too expensive. Recently, 

large caps have been trading more cheaply than 

small and mid-cap companies, both in terms of 

PEs and dividend yields. 

And not all large caps look equally attractive. 

Most utilities, for example, are large simply by 

virtue of their physical assets and their earnings 

are non-cyclical. However, for us, their earnings 

are too defensive, their balance sheets are not the 

strongest and there has already been a wave of 

consolidation in the sector, so we see less 

consolidation to look forward to. There are many 

small technology companies, for example, that we 

would buy ahead of larger utilities. 

Other things being equal, though, we think investors 

will continue to ‘think big’ over the course of the rest 

of 2007 and into 2008. 

As with other intra-market themes, however, we 

do not expect size to prove overwhelmingly 

important: we simply expect smaller-cap indices 

to rise less markedly than their large-cap peers. 

Some of the post-2000 outperformance by mid and 

small caps has reflected a structural decision by 

many money managers to increase their exposure 

to what they see as relatively under-researched 

and, hence (arguably), less efficiently priced 

segments of the global market. Smaller caps – 

together with emerging markets, their regional 

equivalents, perhaps – have benefited accordingly. 

This shift is unlikely to be reversed any time soon, 

in our opinion. 

Price relatives: small & mid cap indices versus large caps 

200 

160 

120 

80 

40 

97 98 99 00 01 02 03 04 05 06 07 

UK US Germany Japan 

PE relatives: small & mid cap indices versus large caps 

180 

160 

140 

120 

100 

80 

60 

40 

97 98 99 00 01 02 03 04 05 06 07 

UK US Germany Japan 



5

Mid cap 



abc 

European indices: HSBC target prices 

Index Country/Type Price 30 Sep 07 Target 31 Dec 07e % potential 

CAC 40 France/Large cap 5,717 6200 8.5% 

DAX Germany/Large cap 7,862 8500 8.1% 

MDAX Germany/Mid cap 10,335 10500 1.6% 

FTSE100 UK/Large cap 6,467 7000 8.2% 

FTSE 250 UK/Mid cap 11,037 11850 7.4% 

Source: JCF, HSBC estimates 

Valuation and indices targets 

Europe remains our Global Equity Strategy 

team’s preferred region and Germany its preferred 

country (Overweight) within it. Europe is 

currently benefiting from strong global growth 

and the relatively cyclical nature of European 

markets means they benefit more from this than 

most. This is even more true of Germany, which 

benefits strongly from Asian demand for capital 

goods and which is also seeing the benefits of 

structural and corporate reforms in the form of 

renewed growth. 

We also Overweight the UK and Underweight 

France. 

One reason we do not expect small/mid caps to 

outperform large caps for the first time in many 

years is that valuations based on 12-month 

forward PEs have become more ambitious, as the 

table below indicates. More elevated multiples for 

small/mid caps are partly justified, in our view, 

because of their higher growth potential, as 

reflected by our EPS growth expectations. 

Nevertheless, we expect the large-cap indices to 

outperform the small/mid-cap ones. 

As a result, we more than ever, believe stock 

picking to be the way forward for the next quarter 

in order to maximise returns. As every time, there 

are still particular stocks, which we expect to have 

the potential to significantly stand out positively 

and show extraordinary performances. 

We would hereby focus on non-cyclical stocks, 

infrastructure plays, stocks with strong Asia 

exposure, construction plays. We would avoid if it 

is not a really strong story: real estate, financials, 

telco's, media. Focus is also on companies with 

healthy balance sheet structures and strong 

cash-flows. 

As a conclusion, while the valuation gap between 

small- and mid-caps and large caps seems partly 

justified by the higher earnings growth, we 

believe stock picking to be a paramount success 

factor especially for small/mid-caps. 

European indices: overview 

Index Country/Type % Change 

3M 

% Change 

6M 

% Change 

1Y 

Forward 

12M PE 

Forward 

12M P/B 

Net div 

yield 2008e 

Forward EPS-CAGR 

12M ROE 2007e-09e 

CAC 40 France/large cap -5.6% 1.4% 8.8% 12.3 x 1.9 x 3.4% 15.1% 8.3% 

CAC 100 France/mid cap -5.2% -1.0% 15.8% 16.3 x 1.9 x 2.5% 11.5% 13.9% 

DAX Germany/large cap -1.8% 11.0% 27.6% 12.7 x 1.8 x 3.1% 14.2% 13.0% 

MDAX Germany/mid cap -6.4% 0.0% 19.1% 14.6 x 2.1 x 2.2% 14.1% 16.6% 

FTSE100 UK/large cap -5.4% 0.0% 5.7% 12.1 x 2.3 x 3.7% 18.8% 5.1% 

FTSE 250 UK/mid cap -7.6% -8.5% 7.2% 13.8 x 2.4 x 2.9% 17.5% 9.3% 

Source: JCF consensus 

6

Mid cap 



abc 

Main movers - European small and mid caps 

HSBC Smaller European Companies Index**: top performers 9M 07* HSBC Smaller European Companies Index: worst performers 9M 07* 

Top 50 companies Country Performance 

relative to index 

Top 50 companies Country Performance 

relative to index 

ROTH & RAU AG Germany +419.5 NORTHERN ROCK UK -85.5 

MANZ AUTOMATION AG Germany +384.2 VERBIO AG Germany -74.7 

ACOTEL GROUP S.P.A Italy +328.9 ASTROC MEDITERRANE Spain -74.2 

BETSSON AB Sweden +301.8 BANCA ITALEASE Italy -70.1 

MEYER BURGER TECHN Switzerland +291.7 VUELING AIRLINES Spain -66.7 

SPRIDER SA Greece +241.4 AVIS EUROPE UK -58.0 

SOLON AG Germany +232.5 PARAGON GROUP OF COS UK -57.1 

TANFIELD UK +199.7 GPC BIOTECH Germany -56.1 

GPO SOARES DA COST Portugal +192.4 CENTRAL AFRICAN MI UK -55.5 

RECYLEX SA France +190.3 MCINERNEY HLDGS Ireland -54.8 

CLIMATE EXCHANGE UK +166.7 CAPITAL & REGIONAL UK -54.5 

NORDEX AG Germany +148.9 IKB DT INDUSTRIEBK Germany -53.1 

RUUKKI GROUP Finland +136.5 INFOGRAMES ENTERTAIN France -53.0 

D/S NORDEN Denmark +130.4 PATRIZIA IMMO AG Germany -52.9 

VON ROLL BR Switzerland +128.8 DEBENHAMS UK -52.6 

INTL FERRO METALS UK +126.0 SOITEC France -51.7 

KLOUKINAS-LAPPAS Greece +121.5 WOOLWORTHS GROUP UK -50.5 

OMX AB Sweden +117.6 MAPELEY UK -49.3 

OUTOTEC OYJ Finland +115.7 MEINL EUROPEAN LAND Austria -49.1 

SOLAR MILLENNIUM Germany +114.3 DERICHEBOURG France -48.9 

SGL CARBON Germany +112.5 SAVILLS UK -48.5 

ANEK LINES Greece +112.2 RAYMARINE UK -48.4 

CORIN GROUP UK +108.4 FBD HDGS Ireland -47.3 

STRABAG Germany +107.4 MINERVA UK -46.7 

AIXTRON Germany +102.3 URBAS PROYEC URBAN Spain -46.1 

BEGHELLI Italy +101.3 DTZ HOLDINGS UK -46.0 

GILDEMEISTER Germany +100.7 REDROW UK -46.0 

VIVARTIA SA Greece +100.4 NIBE INDUSTRIER AB B Sweden -45.6 

ARQUES INDUSTRIES Germany +100.2 MICRONAS SEMICON REG Switzerland -45.3 

ALAPIS S.A. Greece +99.9 BIOPETROL INDUSTRIES Germany -45.3 

BLOM Norway +95.9 PHOTO-ME INTL UK -45.0 

ROCKWOOL INTL B Denmark +92.4 TT ELECTRONICS UK -44.4 

LAVENDON GROUP UK +88.6 NORSKE SKOG Norway -43.5 

SCANA INDUSTRIER Norway +87.5 GAGFAH SA Germany -43.2 

BEIJER AB G & L 'B' Sweden +85.5 PENDRAGON UK -43.0 

UBISOFT ENTERTAIN France +85.3 MICRONIC LASER SYS Sweden -42.7 

DUCATI MOTOR HLDG Italy +85.2 BOVIS HOMES GROUP UK -42.4 

IRISH CONTINENTAL Ireland +83.2 TRANSCOM WRLD 'B'SDR Sweden -42.2 

DANIELI N/CV RISP Italy +82.2 TRANSCOM WRLD 'A'SDR Sweden -42.1 

CONSTR Y AUX FERRO Spain +80.8 LAVIPHARM Greece -41.7 

CARRARO SPA Italy +78.6 ADV DIGITAL BROAD Switzerland -41.3 

TECNICAS REUNIDAS Spain +75.8 HOGG ROBINSON GRP UK -41.3 

NOKIAN RENKAAT OYJ Finland +75.0 H & R WASAG Germany -40.6 

KEMIRA GROWHOW OYJ Finland +74.9 ETAM DEVELOPPEMENT France -40.6 

SEVAN MARINE Norway +74.2 USG PEOPLE NV Netherlands -40.3 

SENIOR UK +73.7 BUONGIORNO SPA Italy -40.0 

ODIM ASA Norway +72.2 BRIXTON UK -40.0 

EXPERT EILAG Norway +71.1 TECHNIKI OLYMPIAKI Greece -39.8 

IASO SA Greece +70.2 SONDAGSAVISEN Denmark -39.8 

SCHOELLER BLECKMAN Austria +69.9 SHAFTESBURY UK -39.7 

Source: HSBC; * (02.01.2007 – 28.09.2007), **Bloomberg Index RIC: JCSCEURO Index 

7

Mid cap 



abc 

HSBC European Smaller European Companies Index: top 30 companies with highest dividend yield for 2007e 

Company Country Share price (as of 30 September 2007) (EUR) Dividend yield 2007e 

Baader Wertpapierhandelsbank AG Germany 4.4 12.1% 

Acta Holding ASA Norway 3.2 11.5% 

Woolworths Group Great-Britain 0.3 10.0% 

Drax Group PLC Great-Britain 8.7 9.7% 

ABG Sundal Collier ASA Norway 1.9 9.5% 

Lloyd Fonds AG Germany 16.3 9.5% 

Mapeley Ltd. Great-Britain 30.2 9.5% 

Norske Skogindustrier ASA Norway 7.5 9.3% 

HCI Capital AG Germany 15.2 9.0% 

Axfood Ab Sweden 23.6 8.3% 

Cairo Communication SpA Italy 37.0 8.1% 

Chesnara Plc Great-Britain 2.5 8.1% 

Paragon Group Of Cies Great-Britain 4.3 8.0% 

MPC AG Germany 59.9 8.0% 

Vastned Offices Industrial Netherlands 22.2 7.9% 

Bradford And Bingley Great-Britain 4.3 7.7% 

HQ AB Sweden 19.2 7.6% 

KappAhl Holding AB Sweden 7.4 7.5% 

Maurel Et Prom France 15.0 7.5% 

Deep Sea Supply ASA Norway 3.1 7.4% 

DAB Bank AG Germany 6.3 7.4% 

AWD Holding AG Germany 23.4 7.4% 

Sparebank 1 SR-Bank Norway 21.4 7.3% 

Pendragon Great-Britain 0.9 7.3% 

Electrocomponents Great-Britain 3.6 7.2% 

Note: * dividend 2007e to be paid out in 2008 

Source: HSBC 

2007e dividend yield plays 

As many funds require a constant stream of cash 

flow without having to liquidate parts of their 

holdings, dividend yield is still a key decider 

when it comes to stock investment. Another 

element of investing in stocks with a high 

dividend yield is the ‘bird-in-the-hand’ theory, 

which dubs stocks with high yields preferable to 

those with lower yields (all else being equal). 

Note, though, that there are hardly any 

technology companies in our top 30. This is no 

surprise, however, as we expect companies with 

high growth potential to retain and reinvest 

profits rather than pay them out. 

From this perspective, German Baader 

Wertpapierhandels AG and Norwegian Acta 

Holding ASA appear to be the most attractive 

small- or mid-cap dividend stocks, with more 

than a 10% dividend yield (payable in 2008e). 

In general, financial and financial-related stocks 

dominate our top 30 dividend yield list, not only 

because of their relatively low capital 

requirements, allowing them to pay out a large 

portion of their earnings, even in growth 

periods, but also because they suffered strongly 

during the recent market turmoil. 

8

Mid cap 



abc 

HSBC European small and mid-cap conferences in 2007-08 

HSBC’s newly bolstered European small and mid-cap product will be represented at a number of 

interesting small and mid-cap conferences to be held in Q4 2007 and H1 2008: 

06 November 2007, Paris, Hotel de Crillon - HSBC Leisure Conference 

28 November 2007, London, Great Eastern Hotel - HSBC Small/Mid-Cap Healthcare Conference 

29 November 2007, Paris, Hotel de Crillon - HSBC European Aerospace Conference 

28-29 January 2008, Frankfurt, Hilton Hotel - HSBC Small and Mid-cap SRI Conference: 

‘Responsible growth – investments for the future’ 

27-28 February 2008, Frankfurt, Hilton Hotel - HSBC European Real Estate (TREC) 

08-09 April 2008, Paris, HSBC Office – HSBC French Small and Mid-Cap Conference 

At our first HSBC Leisure Seminar on 6 November 2007 in Paris, we will present 12 selected European 

small and mid-cap companies that we consider to be among the leaders in the leisure sector. 

Source: HSBC 

9

Mid cap 



abc 

At our HSBC Small and Mid-cap Healthcare Conference on 28 November 2007 in London, we will 

present 14 selected German and European small and mid-cap companies that we view as being among the 

leaders in their particular sectors. 

HSBC Small/Mid-Cap Healthcare Conference 

- save the date - 

London - 28 November 2007 

Great Eastern Hotel, Liverpool Street, London EC2M 7QN 

HSBC is pleased to announce that it will conduct a HSBC Healthcare Conference 

with leading German and selected European Small/Mid Cap stocks (companies see page 2) in London. 

Please SAVE THE DATE in your diary, a formal invitation will be sent to you shortly, accompanied 

by a detailed schedule. 

We will offer 1-1 meetings and small group meetings with the management of the attending 

companies and present a captivating key note speaker, who will be giving a sector related lunch speech. 

Anke Ohm 

Event Management – Institutional Clients 

Telephone: +49 (2 11) 9 10 25 44 

Fax: +49 (2 11) 32 61 19 

E-mail: anke.ohm@hsbc.de 

Source: HSBC 

HSBC Small/Mid-Cap Healthcare Conference 

LIST OF ATTENDING COMPANIES*: 

Germany: 

Curanum, Nursing, EUR203m 

Celesio, Wholesale/Pharmacies, EUR8.3bn 

Fresenius Medical Care, Medical Systems/Services, EUR11bn 

QIAGEN, Medtech/Diagnosis, EUR2.3bn 

Carl Zeiss Meditec, Medtech, EUR1.1bn 

Drägerwerk, Medtech, EUR866m 

Sartorius, Medtech, EUR743m 

STRATEC Biomedical, Medtech, EUR243m 

PULSION Medical Systems, Medtech, EUR51m 

CompuGROUP, Healthcare Equipment, EUR651m 

Greece: 

Lavipharm, Wholesale, EUR175m 

Switzerland: 

Sonova (formerly Phonak), Hearing Systems, EUR4.5bn 

Nobel Biocare, Implants, EUR5.2bn 

UK: 

Vectura, Pharmaceuticals, EUR320m 

* Companies listed by Sector and Market Capitalization 

Source: HSBC 

10

Mid cap 



abc 

At our third HSBC Small and Mid-Cap SRI Conference on 28-29 January 2008 in Frankfurt, we will 

present 35 German and European small- and mid-cap companies that we believe to be among those 

companies leading the way in combining economic growth and shareholder value creation with a socially 

responsible business model and approach. 

3. HSBC Small / Mid Cap SRI-Conference 

- Responsible Growth – Investments for the Future - 

Please SAVE THE DATE in your diary! 

Frankfurt Main, 28 - 29 January 2008 

HSBC Trinkaus & Burkhardt cordially invites you to its 

Small / Mid Cap Socially Responsible Investment Conference. 

We will present Small / Mid cap companies, who are among those leading the way 

in combining economic growth and shareholder value creation with socially 

responsible business models and attitudes. (Please see planned participants page 2) 

Venue: 

Hilton Frankfurt 

Hochstrasse 4 

60313 Frankfurt 

Anke Ohm 

Event Management / Inst. Clients 

Telephone: +49 (2 11) 9 10 25 44 

Fax: +49 (2 11) 9 10 26 34 

E-mail: 

anke.ohm@hsbctrinkaus.de 

Source: HSBC 

PARTICIPATING COMPANIES 

(PRELIMINARY LIST) 

European companies (28 January, 2008) German companies (29 January, 2008) 

Abengoa 

Suzlon 

Agor 

Pfeiffer Vaccum 

Andritz 

Tomra 

Biogas Nord 

Phönix Sonnenstrom 

BDI 

Vectrix 

Biopetrol Industries 

Q-Cells 

BWT 

Veolia 

Centrosolar 

Rational 

Christ Water 

Vestas 

Centrotec 

REpower Systems 

Clipper Windpower 

Conergy 

Roth & Rau 

Energies Nouvelles / EdF 

CropEnergies 

Schmack Biogas 

Gamesa 

Deutz 

SGL Carbon 

Kingspan 

Envitec Biogas 

Smart Fuel Cells 

Lassila & Tikanoja 

Elring Klinger 

Solar Millenium 

MayrMelnhof 

EOP Biodiesel 

SolarWorld 

Meyer Burger Technology 

ErSol 

Solon 

NIBE 

Interseroh 

Steico 

Uralita 

K+S 

Techem 

PV Crystalox Solar 

Krones 

Verbio 

REC 

KWS Saat 

Wacker Chemie 

Rockwool 

Manz Automation 

Washtec 

Schulthess 

MAX Automation 

Seche Environnement 

MVV Energie 

Shanks 

Nordex 

SIG 

Petrotec 

Source: HSBC 

11

Mid cap 



abc 

Regional focus: France 

Growth gap between France and the Eurozone set to diminish 

France should hold up, in our opinion, thanks to the rebound in 

the automotive and aerospace industries 

Sarkozy’s fiscal plan should increase disposable income by 

€ € 13.7bn and benefit major firms in sectors employing large 

numbers of unskilled workers 

The macroeconomic view 

Weak industrial production was one of the main 

items that dragged down French economic growth 

last year, notably in the automotive sector. The 

situation has been improving since the beginning 

of 2007, however, with the introduction of new 

car models in France. Furthermore, deliveries of 

the Airbus A380, the first of which is expected in 

October, should bolster exports. As a result of this 

counter-cyclical trend, along with favourable 

fiscal measures, we expect the French economy to 

expand 1.8% in both 2007 and 2008, despite what 

is likely to be slowing growth in the Eurozone. 

Tax breaks to prop up household 

spending 

The French economy is still being fuelled by 

consumer spending. Measures have been 

proposed to exempt overtime hours from income 

tax and social security levies, as well as to limit 

the tax burden, ie, income tax, wealth tax, local 

taxes, and social charges to a combined total of 

50% of income. According to our calculations, 

this should add 1.1 percentage point, or 

EUR13.7bn, to gross disposable income in 2008. 

We expect such tax breaks, effective 1 October 

2007, to buoy consumer spending and offset any 

increase in the unemployment rate. The other 

facet of the tax package, which makes interest on 

new home loans deductible from income tax, 

should bolster the residential property market and 

is tantamount to a 34bp decrease in interest rates. 

The labour-market reforms planned for 2008 

could limit the anticipated rise in the 

unemployment rate to 8.9%, from 8.6% currently. 

Growth should prove resistant to the 

impact of tighter monetary policy 

We expect household spending to be only slightly 

impacted by the tighter money supply, which we 

believe should be partially offset by the planned 

tax cuts. The expected slump in the housing 

market is likely to be delayed until tighter 

monetary policy pushes up interest rates on home 

loans by 34bp. Furthermore, a potential short term 

interest rate increase due to the financial turmoil 

will have little impact on households that have 

already borrowed. Debt-funded business 

investment could slow with a tightening of 

monetary policy. However, the French 

government has said it will seek to enact 

corporate tax reforms in 2008, to complement the 

lowering of on-payroll costs. 

Pierre Bosset 

Head of Equity Research, France 

HSBC Bank plc 

+33 1 56 52 43 10 

pierre.bosset@hsbc.fr 

Mathilde Lemoine 

Economist 

HSBC France 

+33 1 40 70 32 66 

mathilde.lemoine@hsbc.fr 

12

Mid cap 



abc 

Main movers – French small and mid caps 

HSBC Smaller European Comp index (France) – top performers* 

HSBC Smaller European Comp index (France) – worst performers* 

Top 10 companies Performance relative to index Top 10 companies Performance relative to index 

RECYLEX SA +190.3 INFOGRAMES ENTERTAIN -53.0 

UBISOFT ENTERTAIN +85.3 SOITEC -51.7 

AUDIKA +66.0 DERICHEBOURG -48.9 

SELOGER PROMESSES +65.3 ETAM DEVELOPPEMENT -40.6 

STALLERGENES +64.9 SPIR COMMUNICATION -35.8 

WAVECOM +55.3 NRJ GROUP -33.9 

VILMORIN CL & CIE +51.2 ARCHOS -33.8 

BUSINESS&DECISION +50.9 LACIE SA -32.8 

THEOLIA +50.6 AVENIR TELECOM -31.8 

COMPLETEL EUROPE N +48.6 ASSYSTEM -29.4 

Source: HSBC, *(02.01.2007 – 28.09.2007) Source: HSBC, *(02.01.2007 – 28.09.2007) 

HSBC Smaller European Companies index (all) versus HSBC 

Smaller European Companies index (France) 

CAC40 index versus CAC100 index and CAC 90 index (top 

190 French small and mid-cap stocks) 

114 

111 

108 

105 

102 

99 

96 

Jan-07 Mar-07 May -07 Jul-07 Sep-07 

HSBC Smaller European Companies HSBC Smaller European Companies (FRA) 

110 

105 

100 

95 

90 


CAC 40 CAC 100 CAC 90 

Source: HSBC 

Source: Datastream 

HSBC Smaller European Companies Index (FR) – lowest PE 

HSBC Smaller European Companies Index (FR) – Highest 2007e 

dividend yield (payable in 2008) 

Top 10 companies Forward 12-month PE Top 10 companies Forward 12-month net dividend yield 

SCOR SA 7.7 x Maurel Et Prom 7.5% 

Rhodia SA 8.1 x Kaufman & Broad SA 5.5% 

Nexity 8.2 x Tour Eiffel 5.4% 

Montupet Sa 8.3 x M6 Metropole Television 5.3% 

Ims Int Met Serv 8.5 x Spir Communication SA 5.2% 

LACIE SA 9.0 x LACIE SA 4.9% 

Recylex SA 9.2 x SCOR SA 4.6% 

Groupe Crit SA 9.8 x Avenir Telecom 4.5% 

Steria (Groupe) 10.0 x Smtpc 4.4% 

Kaufman & Broad SA 10.1 x Montupet Sa 4.3% 

Source: HSBC, JCF 


13

Mid cap 



abc 

Regional focus: Germany 

Robust German GDP growth expected on the back of healthy 

balance sheets 

Small and mid caps set to be potential beneficiaries of German 

corporate tax reform in 2008e 

Falling unemployment rate should provide a boost to consumption 

Macroeconomic view 

Leading indicators for Germany suggest that the 

economic momentum being witnessed in 2007 

may be sustainable, as the outlook remains robust, 

with HSBC GDP growth forecasts now for an 

expansion of perhaps 3% y-o-y in 2007 and 2.2% 

in 2008. Furthermore, private consumption, 

temporarily constrained by the VAT increase in 

January 2007, is expected to regain strength in 

2008 (1.5% y-o-y growth in 2008e versus a 0.1% 

decline in 2007e, we estimate). In addition, 

Germany’s exceptional credit discipline (solid 

balance sheets at German companies, and high 

household savings rate) gives the economy a 

comfortable buffer from potential liquidity 

crunches or increasing credit spreads. 

Corporate tax reform 

By 2008, the tax burden on German companies 

should have been reduced to below 30% (from 

39% currently) in a bid to improve the country’s 

international competitiveness and make it more 

attractive to investors. The reduction in the total 

tax burden will stem largely from a planned 

reduction in corporate income tax from 25% to 

15%. This should result in higher reported net 

income and, hence, higher EPS. However, not all 

companies will benefit to the same extent from the 

reduction in income tax. As German companies 

that generate most of their revenues in Germany 

are set to benefit more than companies with a large 

proportion of revenues from abroad, we expect 

small and mid-cap firms to benefit more than, say, 

German blue chips (many of which generate most 

of their sales abroad). 

Declining unemployment rate 

Germany’s unemployment rate is falling, reaching 

a new low of 8.8% in September 2007, down from 

10.1% just a year before. This and a corresponding 

drop in the savings rate (according to our 

economists) should support a more significant 

recovery in consumer spending than has 

materialised to date. 

We believe that this falling-savings-rate effect 

will start showing in H2 2007, but much more so 

in 2008. This view is supported by the HDE, the 

umbrella association of German retailers. While 

the HDE sees little consumption recovery so far, it 

says momentum is improving. For H2, the HDE 

expects nominal market growth of 1.5% y-o-y, 

though it says its guidance could prove overly 

cautious if economic developments remain robust. 

Key contact for German stocks:: 

Thomas Teetz 

Head of Equity Research, 

Germany 

HSBC Trinkaus & Burkhardt AG 

+49 211 910 2353 

thomas.teetz@hsbc.de 

Burkhard Weiss 

Product Coordinator S/M Cap 

Research 


+49 211 910 3722 

burkhard.weiss@hsbc.de 

14

Mid cap 



abc 

Main movers – German small and mid caps 

HSBC Smaller European Companies Index (GER) – top performers* 

HSBC Smaller European Companies Index (GER) – worst performers* 


ROTH & RAU AG +419.5 VERBIO AG -74.7 

MANZ AUTOMATION AG +384.2 GPC BIOTECH -56.1 

SOLON AG +232.5 IKB DT INDUSTRIEBK -53.1 

NORDEX AG +148.9 PATRIZIA IMMO AG -52.9 

SOLAR MILLENNIUM +114.3 BIOPETROL INDUSTRIES -45.3 

SGL CARBON +112.5 GAGFAH SA -43.2 

STRABAG +107.4 H & R WASAG -40.6 

AIXTRON +102.3 DEUTSCHE WOHNEN (BR) -38.5 

GILDEMEISTER +100.7 MLP AG -38.5 

ARQUES INDUSTRIES +100.2 BOEWE SYSTEC -35.3 

Source: HSBC, (02.01.2007 – 28.09.2007) Source: HSBC, (02.01.2007 – 28.09.2007) 

HSBC Smaller European Companies Index (all) versus HSBC 

Smaller European Companies Index (Germany) 

124 

DAX versus MidCap market index (Top 100 German small 

and mid-cap stocks) 

125 

119 

120 

114 

115 

109 

104 

99 

94 


110 

105 

100 

95 


HSBC Smaller European Companies HSBC Smaller European Companies (GER ) 

DAX 30 

MidCap market index 

Source: HSBC 


HSBC Smaller European Companies Index (GER) – lowest PE 

Top 10 companies 

Forward 12-month 

PE 

HSBC Smaller European Companies Index (GER) – highest 2007e 



Forward 12-month net 

dividend yield 

ARQUES Industries AG 5.3 x Baader Wertpapierhandelsbank AG 12.1% 

Vivacon AG 6.1 x Lloyd Fonds AG 9.5% 

Baader Wertpapierhandelsbank AG 6.1 x HCI Capital AG 9.0% 

Indus Holding AG 7.7 x MPC (Munchmeyer Petersen Ca 8.0% 

Colonia Real Estate AG 7.9 x DAB Bank AG 7.3% 

WMF AG 8.9 x AWD Holding AG 7.4% 

Dyckerhoff AG 9.0 x WMF AG 6.8% 

Lloyd Fonds AG 9.0 x Telegate AG 6.6% 

HCI Capital AG 9.3 x MLP AG 5.8% 

Grammer AG 9.4 x ProSiebenSat.1 Media AG 5.6% 



15

Mid cap 



abc 

Regional focus: Greece 

Medium-term macroeconomic environment remains benign, with 

high real economic growth providing a boost to corporate profitability 

Liberalisation of the energy market is attracting investment from 

domestic and foreign players 

Greek companies’ exposure to central and southeastern Europe is 

growing rapidly 


The medium-term outlook for the Greek economy 

remains favourable, in our view. We expect real 

GDP growth of 4.1% in 2007 and 3.9% in 2008, 

well above the EU 13 average (2.6% and 1.9% in 

2007e and 2008e according to HSBC estimates). 

Economic growth should be underpinned, we 

believe, by (a) healthy private consumption (a 

function of robust real wage growth, employment 

gains and positive wealth effects on rising equity 

and real-estate markets), (b) a favourable policy 

mix, supported by accommodating monetary 

conditions, persisting rapid credit expansion to 

households and tax reform gains and (c) robust 

investment spending on continued inflows of EU 

funds, strong residential construction and a sharp 

pick-up in corporate investment (driven by low 

real lending rates, special incentives and increased 

private-sector participation in infrastructure 

spending through public-private partnerships). 

Energy market liberalisation 

Electricity demand in Greece has grown by nearly 

50% over the past decade and is forecasted by 

HTSO (Hellenic Transmission system operator) to 

expand by 3% pa through 2012 (and by 2.5% 

annually thereafter). Furthermore, electricity 

reserve margins remain very tight, while the 

country’s rich RES (renewable energy source) 

potential is largely unexploited. The benign sector 

outlook, coupled with the full liberalisation of the 

electricity market (as of July 2007) and special 

incentives provided under the RES law, have 

attracted considerable investment from both 

Greek and large foreign groups. With the 

exception of Terna (TERr.AT), all other domestic 

players have formed strategic partnerships with 

large European utilities. 

Growing exposure to C&SEE 

The Greek corporate sector is committing more 

and more capital to expanding across central and 

southeastern Europe, placing special emphasis on 

its neighbouring Balkan economies and, most 

recently, Turkey. Although domestic operations 

should remain the chief driver of corporate 

earnings for the majority of Greek small and mid 

caps, increasing exposure to central and 

southeastern Europe is a longer-duration theme, 

which, in our view, is certain to feature more and 

more on investors’ radar screens going forward. 

By our estimates, c20% of our Greek small and 

mid-cap universe’s earnings will come from this 

region in 2008e. 

Key contact for Greece stocks: 

Joanna Telioudi 

Head of Equity Research, Greece 

HSBC Pantelakis Securities 

+30 210 696 5209 

joanna.telioudi@hsbc.gr 

16

Mid cap 



abc 

Main movers – Greece small and mid caps 

HSBC Smaller European Comp index (Greece) – Top performers* 

HSBC Smaller European Comp index (Greece) – Worst performers* 


SPRIDER SA +241.4 LAVIPHARM -41.7 

KLOUKINAS-LAPPAS +121.5 TECHNIKI OLYMPIAKI -39.8 

ANEK LINES +112.2 GENIKI BANK SA -34.4 

VIVARTIA SA +100.4 ASPIS BANK -30.0 

ALAPIS S.A. +99.9 MARFIN EGNATIA BK -22.3 

IASO SA +70.2 HELLENIC DUTY FREE -22.1 

METKA +69.7 BABIS VOVOS SA -18.3 

HELLENIC EXCH SA HLD +63.9 ALUM CO OF GREECE -15.7 

FOURLIS +62.2 TITAN CEMENT PREF -14.9 

SIDENOR METAL PROC +61.5 GREEK POSTAL SAVIN -14.7 

Source: HSBC, *(02.01.2007 – 28.09.2007) Source: HSBC, * (02.01.2007 – 28.09.2007) 


Smaller European Companies Index (Greece) 

115 

110 

105 

100 

95 


HSBC Smaller European Companies 

HSBC Smaller European Companies (GRE) 

FTSE/ATHEX 20 (Greece blue-chip Index) versus FTSE/ATHEX 

40 and FTSE/ATHEX 140 (Top Greek small & mid-cap stocks) 

135 

130 

125 

120 

115 

110 

105 

100 

95 


ATHEX 20 ATHEX 40 ATHEX 140 

Source: HSBC 


HSBC Smaller European Comp index (GRE) – lowest PE 


12-month forward 

PE 

HSBC Smaller European Comp index (GRE) – highest 2007e 



12-month forward net 

dividend yield 

Technical Olympic SA 3.8 x Motor Oil Hellas Corinth 6.8% 

Sidenor 8.5 x Hellenic Duty Free Shops SA 5.8% 

Aluminium Co Of Greece 8.6 x Heracles General Cement 5.8% 

I.Kloukinas-I.Lappas 8.7 x Aluminium Co Of Greece 5.6% 

Lamda Development SA 9.1 x Autohellas Hertz 5.0% 

Titan Cement 10.7 x Greek Postal Savings Bank SA 4.7% 

Autohellas Hertz 11.0 x Metka SA 4.3% 

Folli Follie SA 11.4 x Hellenic Petroleum Sa 3.8% 

Blue Star Maritime 11.5 x I.Kloukinas-I.Lappas 3.8% 

Babis Vovos Int 11.7 x Agricultural Bk Greece 3.6% 



17

Mid cap 



abc 

Regional focus: UK 

Substantial deterioration in consumer spending (HSBC expects 

consumer spending growth of only 0.8% in 2008e) 

Rising inflation in non-discretionary household spending 

categories magnifies pressure on discretionary spending 

Housing to go from spending enabler to spending disabler 


HSBC recently lowered its estimate for UK 

consumer spending growth in 2008e to only 0.8% 

and we do not expect an interest-rate cut until 

February 2008. We have looked at the housing 

market’s grip on UK consumers, who have 

become too used to steady house-price inflation, 

which they have used as a proxy for saving. We 

believe that house-price declines will unnerve 

consumers’ propensity to spend. As for the 

pressures on household budgets, the 

incontrovertible conclusion is that inflation is 

rising on the non-discretionary side of household 

spending, which means even more pressure on the 

discretionary element, which fuels this sector. 

Food prices will be a particular pressure point. 

UK retailers head for troubled waters 

Equally worrying is the raft of cost pressures 

facing retailers and the possibility of adverse 

currency movements for a change. Retailers that 

have enjoyed (and continue to promise) gross 

margin expansion will be gasping for breath - 

clothing retailers are most exposed here, but gross 

margin optimism is also central to earnings 

growth expectations at, say, WH Smith (SMWH 

LN) and Home Retail (HOME LN). Therefore, we 

have recently cut our sales growth expectations 

for 2008e for most of our UK retailing universe. 

Index view for UK market 

We held firm on our 7000 end-year FTSE 100 

index target throughout the July-August turmoil 

and, after the subsequent 700-point bounce, we 

see no reason to change it now. The reasons why 

we remain positive are also unchanged. Corporate 

profitability is as attractive as ever. The interestrate 

cycle appears to have peaked (certainly if rate 

expectations are any guide). And valuations, 

inexpensive even before the recent correction, in 

our view, look even more compelling now. 

Elsewhere, M&A activity may be down, but we 

think it’s far from out (trade buyers, petrodollarfinanced 

buyers and Asian FX reserve-financed 

buyers look likely candidates to stimulate a reacceleration 

in activity going forward). In 

addition, pension funding levels, an ongoing 

concern for many, but not for us, are now moving 

sharply back into surplus. Within the broader UK 

market, we continue to prefer large caps over mid 

and small caps. The large-cap theme appears to be 

gathering momentum. Since the start of the 

second quarter of this year, the FTSE 100 has 

outperformed the 250 by 7.5%. 

Key contact for UK stocks: 

David May 

Head of Equity Research, EMEA 

HSBC Bank plc 

+44 (0) 02079916781 

david.may@hsbcib.com 

Kevin Gardiner 

Head of Global Equity Strategy 

HSBC Bank plc (UK) 

+44 20 7991 6714 

kevin.gardiner@hsbcib.com 

18

Mid cap 



abc 

Main movers – UK small and mid caps 

HSBC Smaller European Comp index (UK) – top performers* 

HSBC Smaller European Comp Index (UK) – worst performers* 


TANFIELD 199.7 NORTHERN ROCK -84.5 

CLIMATE EXCHANGE 166.7 AVIS EUROPE -58.0 

INTL FERRO METALS 126.0 PARAGON GROUP OF COS -57.1 

CORIN GROUP 108.3 CENTRAL AFRICAN MI -55.5 

LAVENDON GROUP 88.6 CAPITAL & REGIONAL -54.5 

SENIOR 73.7 DEBENHAMS -52.6 

AUTONOMY CORP 69.0 WOOLWORTHS GROUP -50.5 

AMEC 67.8 MAPELEY -49.3 

IMPERIAL ENERGY CO 66.4 SAVILLS -48.5 

GAME GROUP 61.4 RAYMARINE -48.4 

Source: HSBC, * (02.01.2007 – 28.09.2007) Source: HSBC, * (02.01.2007 – 28.09.2007) 


Smaller European Companies Index (UK) 

FTSE100 versus FTSE350 (top 350 UK stocks) 

130 

110 

105 

100 

95 

90 

J an-07 Mar-07 M ay -07 Jul-07 Sep-07 

HSBC Smaller European Companies HSBC Sm aller European Companies (UK) 

125 

120 

115 

110 

105 

100 

95 

90 


FTSE 100 FTSE 350 

Source: HSBC 


HSBC Smaller European Companies Index (UK) – lowest PE 

HSBC Smaller European Companies Index (UK) – highest 2007e 


Top 10 companies 12-month forward PE Top 10 companies 12-month forward net dividend yield 

RAB Capital Plc 8.4 x Woolworths Group 10.0% 

Johnson Service Group 8.5 x Drax Group PLC 9.7% 

Smiths News Plc 8.5 x Mapeley Ltd. 9.5% 

Pendragon 8.6 x Chesnara Plc 8.1% 

Brit Insurance Holdings 8.6 x Paragon Group Of Cies 8.0% 

Sports Direct International Plc 8.8 x Bradford And Bingley 7.7% 

Lupus Capital 8.8 x Pendragon 7.3% 

TT Electronics 8.9 x Electrocomponents 7.2% 

Johnston Press 9.0 x Provident Financial 7.1% 

SThree Plc 9.3 x Debenhams Plc 6.9% 



19

Mid cap 



abc 

European small and midcap 

stock picks for Q4/Q1 

Best ideas from our French 

universe 

Ingenico is one of the world’s leading providers of 

payment solutions. The company has built up its 

position by adopting an aggressive, but carefully 

targeted acquisition policy. In the years to come, 

the company should benefit by upgrading its 

installed networks to EMV (Europay-Mastercard- 

Visa standard) and the rollout of electronic 

payment projects in emerging markets. Moreover, 

Ingenico has announced that negotiations to acquire 

Sagem Monetel (Safran group) are in their 

advanced stages. We see this as a strong potential 

driver of further margin improvement and value 

creation. Hence, we maintain our Overweight 

rating and DCF-based target price of EUR26, 

implying potential return of 21%. 

Séché Environnement is the third-largest player 

in waste management in France, far behind Suez 

and Véolia Environnement. Because of its smaller 

size and more pure-play positioning, the company 

has been able to maintain sustained organic 

growth for the last 10 years (6-8% on average). Its 

recent acquisition of 33% of water management 

company Saur underpins the group’s aim to 

become a multi-services company. With this 

transaction, Séché should become the third-largest 

multi-utility player in France. We expect Séché to 

continue to benefit from a increasingly favourable 

regulatory environment and its ability to boost 

treatment capacity at a steady pace. We rate the 

stock Overweight, with a DCF-based target price 

of EUR138, implying 11% potential return. 

Teleperformance is a leading player in the 

outsourced call-centre market, ranked No.2 in the 

world after Convergys (United States). The group 

has increased its market share (3.2% calculated on 

2006 sales) with average organic growth of 9.5% 

pa over the past six years versus only 7.0% for the 

market. The company’s strong organic growth is 

combined with an active external growth policy, 

aimed at improving the group's geographic grid 

and presence in countries targeted for strategic 

expansion (the US, the UK, France and 

Germany). After the capital increase in November 

2006 (EUR260m) and external growth, paid for in 

cash, the resulting financial leverage on the 

balance sheet is the main value driver for the 

company, in our view. Our DCF-based target 

price of EUR38 implies a potential return of 38% 

and justifies our Overweight rating. 

Best ideas from our German 

universe 

Carl Zeiss Meditec is a supplier of medical 

devices and services in the ophthalmology and 

neuro/ENT-surgery business. With the recent 

acquisitions of Carl Zeiss Surgical, IOL Tech and 

AcriTech, Carl Zeiss Meditec has widened its 

product portfolio in these areas. We see the high 

proportion of R&D expenses and the further 

development of the group’s sales network as 

supportive to the company’s further growth. 

20

Mid cap 



abc 

Based on our DCF model, we derive a target price 

of EUR19 and rate the stock Overweight, 

implying 27% potential return. 

Deutz is an independent manufacturer of diesel 

and gas engines, with a highly recognised brand 

image. Following several years of restructuring, 

with a successful turnaround in 2002 and the 

recent disposal of the power systems division, the 

focus is now on the expansion of its compact 

engines division. We expect Deutz to outperform 

the market in terms of growth rates until 2009e 

driven by rising captive production volumes. Our 

DCF-based target price of EUR11 implies 

potential return of about 17% on a 12-month 

horizon. As our Neutral band for non-volatile 

German stocks is 3.9-13.9%, we have an 

Overweight rating on the stock. 

Hochtief is a Germany-based construction service 

company, with a wide global offering: planning, 

financing, building and operating facilities. With its 

recent acquisition of aurelis (real-estate subsidiary 

of Deutsche Bahn), Hochtief gained access to a 

broad strategic platform from which it should gain 

access to project development and assetmanagement 

know-how. Moreover, we view 

Hochtief as being well positioned to benefit from 

the increasing market demand for complex 

infrastructure and building projects, not only in 

emerging regions but also in developed countries 

(PPP, facilities management, project development). 

Our sum-of-the-parts valuation yields a fair value 

of EUR108 (up from EUR101 previously), 

implying potential return of 19% from the current 

share price. We rate the stock Overweight. 

Lanxess is a Germany-based global chemicals 

company with a broad portfolio of basic to fine 

chemicals and is among Europe’s major producers 

of chemical and polymer products. Lanxess has 

been transformed in record time from a merely 

profitable restructuring case into a ‘normal’ 

specialty chemicals group, which is now on a 

profitability par with its European peers. 

However, the market still assigns a significant 

discount to Lanxess, of more than 20% based on 

2008-09e PE and EV/EBITDA multiples. As we 

do not see this discount as justified, we reiterate 

our Overweight rating on the stock, as well as our 

target price of EUR47, which implies a potential 

return of c32%. 

Best ideas from our Greek 

universe 

Fourlis Holdings is a holding company 

consisting of three main divisions: IKEA home 

furniture, Intersport sportswear retail and the 

wholesaling of electrical goods, with powerful 

brands like Samsung and GE. The exclusive and 

lucrative long-term IKEA franchise for Greece, 

Cyprus and Bulgaria is the company’s key asset. 

Moreover, Fourlis Holdings stands to gain from 

the positive momentum of the exclusive Intersport 

franchise, which we believe is well placed to 

become one of the largest sportswear apparel 

retail chains in southeast Europe. We expect EPS 

CAGR of 42% for 2006-09e, primarily driven by 

new IKEA store rollouts. Based on our sum-ofthe-parts 

valuation, we reiterate our Overweight 

rating on the stock and raise our target price to 

EUR31.3 (from EUR25.5), implying 20% 

potential return. 

Metka is the leading electromechanical and metal 

construction company in Greece, actively engaged 

in the energy, defence and infrastructure sectors. 

Because of its excellent track record and expertise 

in energy projects, we are confident that Metka will 

be a major beneficiary of the upcoming 

liberalisation of the domestic energy market. In 

addition, cooperation agreements with Endesa, 

Helllenic Technodomiki and Alstom should provide 

a steady flow of business, in our view. We rate the 

stock Overweight, with a DCF-based target price of 

EUR20.5, implying 13% potential return. 

21

Mid cap 



abc 

Best ideas from our UK 

universe 

First Group is the UK’s largest bus operator 

(fourth-largest in London), with approximately 

9,000 buses, carrying 2.9m passengers every day. It 

is also the UK’s largest passenger rail franchise 

operator, with four franchises, one open access 

service and GB Railfreight. In North America, the 

combined First Student and Laidlaw business is c5x 

the size of its nearest competitor. As management 

recently confirmed the Laidlaw acquisition, our 

attention now turns to the integration process. We 

believe that there is still upside potential to 

synergies guidance. In our view, the market is still 

underestimating the value of Laidlaw and we 

remain Overweight, with an 810p target price based 

on our DCF sum-of-the-parts valuation, implying 

11% potential return. 

Spectris is involved in the development and 

manufacture of a range of precision testing and 

inspection instrumentation and control equipment 

which assists customers in improving the 

efficiency, quality and cost effectiveness of their 

production process. It is currently benefiting from 

a strong industrial backdrop in emerging 

economies, combined with buoyant market 

conditions in Europe; together these areas account 

for nearly two-thirds of group sales. In our view, 

Spectris shares remain inexpensive, trading on 

14.3x 2008e EPS. This is a 5% valuation premium 

to its UK sector peers, but a 30% discount to its 

major US peer group. Our 1010p target price 

stems from our market-assessed cost of capitalbased 

valuation methodology. This implies 

potential return of 11% from the current share 

price, and our rating is Overweight. 

22

Mid cap 



abc 

Company profiles 

23

Mid cap 



abc 

Carl Zeiss Meditec 

Leading position in the medical devices and service market for 

ophthalmology and neuro/ENT surgery 

Recent AcriTec acquisition to strengthen IOL business 

Promising product launches should reanimate organic growth; TP 

EUR19, Overweight 

Investment summary 

Based in Germany, Carl Zeiss Meditech (CZM) is 

a globally operating specialist of integrated 

medical solutions. After recent acquisitions, it 

now focuses on four main divisions: in the 

ophthalmology field it has diagnosis and laser and 

intraocular lenses (IOL) divisions; the other two 

divisions are neuro/ear, nose and throat (ENT) 

surgery and services. Regarding the nature of the 

addressed symptoms and diseases, demographic 

trends signal growing demand for their respective 

treatments (eg, by the age of 80, c50% of all 

Americans suffer from cataracts, the most 

common cause of blindness). 

The company is operating in a very dynamic market. 

Owing to constantly improving technologies, 

diseases that were long inoperable can now be 

addressed and treated, generating strong growth 

opportunities. We expect the completed acquisitions 

of IOLtech, Carl Zeiss Surgical and, most recently, 

Acri.Tec will enable CZM to provide an enhanced 

product portfolio to clients. Moreover, we think the 

Acri.Tec acquisition should allow CZM to generate 

synergies at the cost and revenue levels. 

FY2006/9M 2007 results… 

The 9M figures (FY 2006/07) were strong, but 

slightly disappointed our bullish expectations. Sales 

were up 45.6% y-o-y (c52% excluding exchange 

rate effects) to EUR417.6m, mainly driven by the 

recent acquisitions. EBIT increased by 39% to 

EUR48.7.1m, representing an 11.7% EBIT margin. 

However, organic growth amounted to 7.4% in 9M 

2006/07, which is in line with the overall respective 

market. Following the 9M results, we slightly 

adjusted our top-line expectations for 2006/07e (- 

2%). Our new full-year figures see organic growth 

rising to 13.3%, mainly driven by the promising 

product launches in November 2007 of Cirrus 

OCT TM , VisuMax, new IOL lenses. 

Key facts ___________________ Financial summary ____________________ ___________Valuation summary____________ 

Analyst: Christian Packebusch 

Year to Revenue EBITDA HSBC HSBC HSBC Yield HSBC EV/ EV/ IC ROIC HSBC 

Tel: +49 211 910 2446 

(EURm) (EURm) net profit EPS EPS growth (%) PE EBITDA (x) (%) REP 

Email: christian.packebusch@hsbc.de 

(EURm) (EUR) 

(%) 

(x) (x) 

(x) 

Current price (EUR) 15.0 9/2006a 390.6 58.9 26.7 0.33 55.7 0.9 45.7 21.2 4.3 12.0 3.1 

Target price (EUR) 19.00 9/2007e 581.6 80.3 46.6 0.57 74.6 1.1 26.2 13.3 3.3 14.2 1.9 

Mkt cap (EURm) 1,218.8 9/2008e 659.0 98.3 57.4 0.71 23.3 1.4 21.2 10.7 2.9 16.0 1.5 

Bloomberg AFX GR 9/2009e 730.0 113.9 69.3 0.85 20.6 1.7 17.6 9.1 2.6 17.2 1.3 

Reuters 

AFXG.DE 

Source: company data, HSBC estimates 

24

Mid cap 



abc 

Organisational structure 

Carl Zeiss Meditec 

Diagnosis 

Laser and IOL 

Neuro / ENT 

Services 

Primary sales drivers: 

diagnostic systems Stratus 

OCT , IOL Master 

Launch of Cirrus OCT in 

November should trigger sales 

 

Positive growth in laser 

business not compensating 

negative growth in IOL 

business in 9M 06/07 due to 

product portfolio streamlining 

and platform changes 

 

 

Consolidation of Carl Zeiss 

Surgical major sales driver in 

FY2006/2007e 

Primary sales drivers: surgical 

microscopes OPMI ® Pentero ® 

and OPMI ® Vario 

 

Services include installation of 

instruments and systems, 

maintenance ex service 

agreements and guarantees as 

well as IT services. 

54% of sales in 9M FY 2006/07 18% of sales in 9M FY 2006/07 

19% of sales in 9M FY 2006/07 

9% of sales in 9M FY 2006/07 

Source: Carl Zeiss Meditec, HSBC 

Company profile – at a glance 

Carl Zeiss Meditec has a leading position in the 

global market for ophthalmology devices and 

systems. External growth, ie, the acquisition of Carl 

Zeiss Surgical, also gives the company premium 

access to neuro/ENT surgery. Non-organic growth 

contributed c84% of the 45.6% revenue growth in 

the first nine months of FY 2006/07. 

Following the recent acquisitions, Carl Zeiss 

Meditec now operates in four business segments: 

diagnosis; neuro/ENT; laser and IOL; and service. 

The company develops, manufactures, and 

distributes devices and integrated medical 

solutions for the diagnosis, disease management, 

treatment and aftercare of the four main 

ophthalmic disorders: vision defects, cataracts, 

glaucoma and retinal disorders. In the neuro/ENT 

market, the company focuses on surgical 

microscopes and other digital visualisation 

solutions for surgical and dental applications. 

Carl Zeiss Meditec is regionally diversified, with 

subsidiaries in North America, France, Japan and 

Spain, and employs more than 1,900 people 

worldwide. The company has production facilities in 

Germany, California and France. The Americas, 

including the US, continues to be the company’s 

main sales generator. Sales in this region have risen 

by +39% to EUR176.5m in 9M FY 2006/07. 

Shareholder structure 

As of 31 July 2007, Carl Zeiss Group was the main 

shareholder, with a 65% stake. The remaining 35% 

were free float in the German TecDax Index, of 

which 70% is held by institutionals. 

Carl Zeiss Meditec - Sales by division 9M 2006/07 Carl Zeiss Meditec - Sales by region 9M 2006/07 

Serv ice 

Asia/Pacific 

Germany 

9% 

21% 

7% 

EMEA 

Neuro/ENT 

(ex GER) 

19% 

31% 

Diagnosis 

54% 

Laser/IOL 

18% 

Am ericas 

41% 



25

Mid cap 



abc 

Investment case 

We expect the future development of the sales 

network (23.5% of sales in 9M 2006/07), as well 

as the investments in R&D (10.6%) and the 

launch of three promising products to trigger 

additional future organic growth. Hence, we 

forecast organic growth of c13.3% for 2007/08e. 

The 9M 2006/07 figures include the negative impact 

from the lost law suit versus Notal Vision Inc in Q2 

(-cEUR2.8m before taxes). This one-time effect 

distorts the 9M figures and will have less of an effect 

in the FY 2006/07e results. In Q4 2006/2007e, we 

expect Carl Zeiss Meditec to report a cEUR1.5m 

extraordinary income from tendering its 5% stake in 

Wavelight to Alcon. This should partially offset the 

negative effect of the law suit. 

Following the recent changes in the business of 

CZM (streamlining of IOL portfolio, change in 

platform strategy, currency effects), we slightly 

lower our FY 2006/2007 forecast, but maintain 

our forecasts for 2008 onwards. 

Change in FY 2006/07e forecasts 

EURm FY 2006/07e new FY 2006/07e old % change 

Sales 581.6 594.6 -2.2% 

EBIT 68.6 74.7 -8.2% 

EBIT margin 11.8% 12.6% -0.8pp 

Net profit 43.6 45.9 -5.0% 

Source: HSBC estimates 

We view the most recent acquisition of Acri.Tec 

as a positive move for CZM. Acri.Tec’s strength 

in the IOL segment complements CZM’s product 

portfolio. This is especially the case for refractive 

error correction. IOL (and respective surgery 

disposables) is one of the fastest-growing areas of 

ophthalmology (c10% pa in the midterm). 

The potential acquisition of competitor Wavelight 

was cancelled and the already acquired 5% stake 

tendered to Alcon. We view this step as positive, 

since Wavelight does not offer exposure to 

significantly better products or clients. 

Catalysts 

Promising product launches in Q1 and onwards, 

following the AAO conference in November are: 

The femtosecond laser VisuMax 

The Cirrus OCT TM providing volumetric and 

high definition scans 

The XL Stabi ZO® and Invent ZO® 

intraocular lenses 

We expect further synergies and efficiency gains 

from the successful integration of the recently 

consolidated Carl Zeiss Surgical, Carl Zeiss S.A., 

Ioltech S.R.L., Acri.Tec AG and the restructuring 

of the Carl Zeiss Vertriebsgesellschaft mbH, 

which should translate into a further rise in 

operating margins. 

Investment risks 

Rising competition could have a negative effect on 

margins and market share. Furthermore, the 

reduction of cost reimbursement for certain 

treatments by health insurance funds could reduce 

the demand for the company’s products. In addition, 

acquisition and execution risks in connection with 

the integration of Carl Zeiss Surgical and Acri.Tec 

could affect our expected margin improvement. As 

seen in the 9M figures, exchange-rate developments 

also pose a risk to CZM. 

Valuation 

We calculate a DCF-based target price of EUR19, 

while assuming an 8.4% cost of ungeared equity 

(4.4% risk-free rate, 4.5% equity risk-premium, 

beta 1.0). Our target price of EUR19 implies a 

potential total return of 27% from the current 

share price versus the hurdle rate for non-volatile 

European stocks of 8.9% +/-5ppt. We, therefore, 

rate the stock Overweight. 

26

Mid cap 



abc 

Financials & valuation: Carl Zeiss Meditec 

Financial statements 

Year to 09/2006a 09/2007e 09/2008e 09/2009e 

Profit & loss summary (EURm) 

Revenue 390.6 581.6 659.0 730.0 

EBITDA 58.9 80.3 98.3 113.9 

Depreciation & amortisation -10.8 -11.6 -12.5 -14.1 

Operating profit/EBIT 48.1 68.6 85.8 99.8 

Net interest -0.9 3.2 7.9 11.0 

PBT 45.6 76.4 93.7 110.7 

HSBC PBT 45.6 76.4 93.7 110.7 

Taxation -15.9 -28.3 -34.7 -39.9 

Net profit 26.7 46.6 57.4 69.3 

HSBC net profit 26.7 46.6 57.4 69.3 

Cash flow summary (EURm) 

Cash flow from operations 28.4 -30.6 41.9 77.5 

Capex -5.5 -7.0 -12.0 -15.0 

Cash flow from investment -18.4 -16.1 -17.0 -21.0 

Dividends -13.0 -11.4 -13.1 -17.2 

Change in net debt 25.1 -182.9 -15.1 -23.3 

FCF equity 22.0 -10.1 38.5 70.0 

Balance sheet summary (EURm) 

Intangible fixed assets 127.0 128.1 128.1 128.7 

Tangible fixed assets 29.9 33.3 37.8 44.0 

Current assets 212.3 489.9 525.2 557.6 

Cash & others 51.3 224.7 224.7 224.7 

Total assets 387.4 682.7 722.4 761.7 

Operating liabilities 30.4 99.8 107.0 113.9 

Gross debt 72.7 63.2 48.1 24.8 

Net debt 21.4 -161.5 -176.6 -199.9 

Shareholders funds 223.1 451.3 495.7 547.7 

Invested capital 287.6 326.8 359.4 391.8 

Ratio, growth and per share analysis 


Y-o-y % change 

Revenue 20.7 48.9 13.3 10.8 

EBITDA 29.2 36.4 22.5 15.8 

Operating profit 31.4 42.7 25.0 16.3 

PBT 32.0 67.8 22.5 18.2 

HSBC EPS 55.7 74.6 23.3 20.6 

Ratios (%) 

Revenue/IC (x) 1.5 1.9 1.9 1.9 

ROIC 12.0 14.2 16.0 17.2 

ROE 12.4 13.8 12.1 13.3 

ROA 8.4 9.4 8.6 9.6 

EBITDA margin 15.1 13.8 14.9 15.6 

Operating profit margin 12.3 11.8 13.0 13.7 

EBITDA/net interest (x) 65.6 

Net debt/equity 9.2 -34.8 -34.7 -35.6 

Net debt/EBITDA (x) 0.4 -2.0 -1.8 -1.8 

CF from operations/net debt 132.8 

Per share data (EUR) 

EPS Rep (fully diluted) 0.33 0.57 0.71 0.85 

HSBC EPS (fully diluted) 0.33 0.57 0.71 0.85 

DPS 0.14 0.16 0.21 0.26 

NAV 2.74 5.55 6.10 6.74 

Valuation data 

Overweight 


EV/sales 3.2 1.8 1.6 1.4 

EV/EBITDA 21.2 13.3 10.7 9.1 

EV/IC 4.3 3.3 2.9 2.6 

PE* 45.7 26.2 21.2 17.6 

P/NAV 5.5 2.7 2.5 2.2 

FCF yield (%) 1.8 -0.8 3.1 5.7 

Dividend yield (%) 0.9 1.1 1.4 1.7 

Note: * = Based on HSBC EPS (fully diluted) 

Issuer information 

Share price (EUR) 14.99 Target price (EUR) 19.00 Potent'l tot rtn (%) 26.8 

Reuters (Equity) AFXG.DE Bloomberg (Equity) AFX GR 

Market cap (USDm) 1727.3 Market cap (EURm) 1218.8 

Free float (%) 35 Enterprise value (EURm) 1070.3 

Country Germany Sector Health Care Equipment 

Analyst Christian Packebusch Contact +49 0 211 9102446 

Price relative 

20 

19 

18 

17 

16 

15 

14 

13 

12 

11 

10 

Oct-06 Apr-07 Oct-07 

Carl Zeiss Meditec Rel to DAX-100 

Source: HSBC 

Note: price at close of 12 Oct 2007 

20 

19 

18 

17 

16 

15 

14 

13 

12 

11 

10 

27

Mid cap 



abc 

Deutz 

Strong Q2 top-line momentum and substantial EBIT margin 

improvement in Compact Engines, despite ongoing production 

bottlenecks 

We expect stress factors to fully disappear in H2 2007 and a 

return to the fore of the structural growth story - driven by OEM 

outsourcing 

10% premium for far above-average CAGR 2007-09e of 17%, vs 

7% in our German Engineering universe. Overweight rating and 

EUR11.0 target price remain unchanged 


Top-line CAGR 2007-09e of 17% 

Q2 2007 results support our view that margin 

pressure, resulting from production bottlenecks is 

a temporary issue. We continue to believe that the 

structural growth story, which is driven by an 

OEM outsourcing trend on the back of steadily 

tightening emission thresholds, should again come 

to the fore. The recent disposal at an attractive 

price of the Power Systems division - which 

lacked synergies with the rapidly growing 

Compact Engines division - has further sharpened 

the company’s short-to-mid-term growth profile 

and also creates the financial scope to sufficiently 

exploit the considerable long term growth 

potential of compact engines. We now expect a 

2007-09 CAGR of 17% (10% before), far above 

the 4% average of the relevant market, above all 

driven by increasing captive production volumes. 

Underlying EBIT margin improving 

Q2 saw strong momentum in the remaining 

Compact Engines division (eg sales +43% y-o-y, 

EBIT +26%) and a substantial improvement of the 

EBIT margin, from 4% in Q1 2007 to 6%, despite 

ongoing production bottlenecks, which emerged in 

Q4 2006, due to much stronger-than-expected 

demand (Q2 margin >7% if adjusted for the 

bottleneck impact). 

Key facts ____________________Financial summary _____________________ __________ Valuation summary ___________ 

Analyst: Juergen Siebrecht 


Tel: +49 211 910 3350 


Email: juergen.siebrecht@hsbc.de 

(EURm) (EUR) 

(%) 

(x) (x) 

(x) 

Current price (EUR) 9.4 12/2006 1,490.0 154.1 60.9 0.51 220.5 0.0 18.3 9.2 2.0 11.3 1.6 

Target price (EUR) 11.0 12/2007e 1,550.0 161.7 68.5 0.58 12.5 1.4 16.3 6.3 1.8 12.9 1.2 

Mkt cap (EURm) 1,105.0 12/2008e 1,749.0 191.2 89.8 0.76 31.0 2.0 12.4 5.3 1.6 16.7 0.8 

Bloomberg DEZ GR 12/2009e 1,840.6 202.4 100.1 0.85 11.5 2.1 11.1 4.9 1.4 15.7 0.8 

Reuters 

DEZG.DE 


28

Mid cap 



abc 

DEUTZ organisational structure 

DEUTZ 

Compact Compact Engines 

Engines 

• •Oiland Air-, oil-, water- and water-cooled engines engines with outputs with outputs of up of to up 500kW 

to 500kW 

for on-road and off non-road applications 

• Tailor made solutions for customers 

• DEUTZ Customised solutions 

Deutz Deutz Customised Power Systems 

Solutions 

• Engines, • Air-cooled gensets engines 

and systems with outputs of up to 4.0 MW 

Used • Water-cooled to convert engines renewable above and 8 fossil litres fuels 

cylinder capacity 

• Project-related • Other, non-engine systems activities business (eg special that involves generator/sets) 

high degree of 

engineering 

Source: DEUTZ 

While Deutz lowered its 2007 EBIT margin target 

from around 7% to more than 6% at Q2, it 

substantially increased its 2007 top-line target 

from 10% to 20-25%, implying a substantial 

increase in the Compact Engines top-line 

expectation to +30% y-o-y. We expect a solid 

H2 2007 Compact Engines performance, driven 

by ongoing high volume growth (HSBCe 

Compact Engines sales H2 +27% y-o-y) and even 

higher EBIT growth (HSBCe Compact Engines 

H2 EBIT +70%). This is driven by a 

normalisation of component supply, on the back 

of conducted capacity expansions and further 

price increases, both indicated at Q2, as well as on 

ongoing cost optimisation progress. 

We expect the company to meet its 2007 EBIT 

margin target of more than c6% (HSBCe 6.3%) 

and see further EBIT margin expansion in 2008 

(we estimate c7% in 2008, up from a one-off 

adjusted 5.5% in 2006) as: (1) the two largest 

compact engines outsourcing agreements should 

be fully ramped up by then and in the meantime, 

capacity problems, which caused margin pressure 

in 2007, should be resolved. Second, the company 

should be able to profit from a broad range of 

engine innovations released over the last two 

years and from a relative low level of R&D 

spending (with no new emission thresholds 

requiring major engine development efforts). 

Valuation not fully reflecting growth 

Given an expected 2007-09 CAGR of 17% for 

Deutz, substantially above the 7%, that we expect 

for our German Small & Mid-Cap Engineering 

universe on the one hand, and average EBIT 

margins 2007-09 in line with the sector, on the 

other, we allow for a 10% valuation premium, 

which leaves us with a target price of EUR11.0 

and an Overweight rating. 

Deutz: sales by division (FY 2007e) Deutz: sales by region (FY 2007e) 

Customised 

Solutions 

18% 

Compact 

Engines 

82% 

Other 

European 

43% 

Middle East 

4% 

Africa 

3% 

Germany 

27% 

America 

14% 

Asia/Pacific 

9% 



29

Mid cap 



abc 


Deutz is an independent manufacturer of diesel 

engines, with a long history and a highly 

recognised brand image. Following several years 

of restructuring and a successful turnaround in 

2002, management shifted its strategic focus to 

business expansion in 2006. This has also been 

supported by the emergence of positive structural 

trends in the market, such as steadily tightening 

emission thresholds and greater model diversity, 

in conjunction with shorter serial model 

circulation, which triggered an outsourcing trend 

among OEMs due to the increased R&D 

requirements and lack of scale effects. Deutz’s 

core business, compact engines, has been the key 

beneficiary of this trend, which is reflected in the 

high growth of divisional sales over the last few 

years and the build-up of several large 

outsourcing agreements. 

Deutz sold its Power Systems division, shortly ahead 

of Q2 2007, for an attractive price (EV disposal price 

of EUR360m implies an EV/EBITDA of 9x based 

on our 2008 estimates). We regard the disposal as 

strategically sensible: despite the high theoretical 

margin potential of the business, resulting from the 

high service intensity of sold machines, the build-up 

of a sufficient installed base has probably become an 

increasingly difficult task in the industry. Apart from 

an existing strong competitor with an advanced 

technological base (GE’s subsidiary Jenbacher), 

Tognum also recently announced that it was 

targeting an expansion of its corresponding business. 

Power Systems lacked synergies with the 

dominant and rapidly growing Compact Engines 

division, for which several months ago Deutz had 

pronounced an aggressive growth strategy, calling 

for an increase in the annual production volume 

by at least 100% until 2010. We believe that via 

the Power Systems disposal, Deutz now has the 

financial scope to sufficiently exploit the high 

long-term growth potential of compact engines. 


We think the current, somewhat weaker, 

sentiment towards the stock, resulting from 

production-bottleneck-induced margin pressure 

and a pending CEO replacement offers a good 

buying opportunity, given that we expect these 

stress factors to be temporary and to be resolved 

in the course of H2 2007. We do not see any 

fundamental impact resulting from the departure 

of CEO Gordon Riske. Although he successfully 

implemented the re-alignment of the group, a 

changed market environment (steadily tightening 

emission thresholds, triggering compact engine 

outsourcing) has also greatly helped and these 

positive trends should remain. 

We believe that Deutz’ structural growth story 

(company target is to at least double annual 

engine output by 2010 vs 2006) will soon be in 

the spotlight again. Should management succeed 

in this and should the company generate a 

sustainable EBIT margin of 7.5% by then, we 

could justify a long-term fair value of EUR15 per 

share by applying the long-term average German 

Industrials 12-month-forward 15.3x PE from JCF 

on our 2010 estimates. 

Potential catalysts 

Announcement of new CEO and more growth 

capex visibility 

The pending new CEO announcement and the 

poor visibility with regard to concrete further 

growth investments (the recent private placement 

and the Power Systems disposal lead to 

EUR370m available extra cash for growth) are a 

load factor for the shares. We believe that both 

issues are closely related to each other and hence 

the announcement of a credible new CEO should 

be a trigger for the shares. 

30

Mid cap 



abc 

Solution to bottleneck problems by H2 

Deutz and its suppliers have already invested in 

component capacity expansion, which should be 

fully available by H2 2007. While Q2 already 

showed much margin improvement, we expect the 

bottleneck problem to be fully resolved in Q4 2007 

latest, and hence also expect the focus to shift back 

to the company’s structural growth story. 

Further larger engine co-operations 

Structural factors in the market create incentives 

among OEMs to outsource engine production. 

Deutz has profited in the past from this trend and, 

in our view, there is still potential for Deutz to 

establish further larger engine outsourcing 

agreements. Deutz’ largest co-operations 

comprise an annual output of 30,000 (eg such as 

the most recent co-operation with Volvo for the 

new Light/Medium truck series when fully 

ramped up in 2008). Depending on the engine 

series, unit prices range from EUR2,000-8,000. 

Applying these figures to a potential new 30,000 

co-operation would result in additional sales of 

EUR60-240m pa. 

Valuation 

We apply a valuation premium to the German 

Engineering sector of c10%, given that we are 

expecting substantially above-average top-line 

CAGR in 2007-09 of 17%, vs 7% for the sector, 

and see an average EBIT margin for 2007-09 

nearly in line at 6.9% vs 7.1% for the sector. By 

applying a c10% premium to the average German 

Engineering 2008e EV/EBITDA of 5.9x and 

average 2008e PE of 12.6x, we arrive at a target 

price of EUR11.0. With an implied potential total 

return of 17% (incl. dividends) on our usual 12- 

month horizon; compared with our 3.9-13.9% 

Neutral band for non-volatile German stocks, we 

assign an Overweight rating. 


Risks to our forecasts and ratings could occur 

from a weakening of the US dollar (which 

accounts for c15% of total sales) and dependency 

on a few large customers (two major customers 

should account for c30% of sales in the medium 

term). Also, a delayed elimination of the 

production bottlenecks could mean that the 

company will not achieve its 2007 targets. 

31

Mid cap 



abc 

Financials & valuation: Deutz 




Revenue 1490.0 1550.0 1749.0 1840.6 

EBITDA 154.1 161.7 191.2 202.4 



Net interest -22.1 -16.0 -12.2 -11.2 

PBT 71.4 272.0 111.8 127.5 

HSBC PBT 71.4 82.0 111.8 127.5 

Taxation -9.9 -16.5 -22.0 -27.4 

Net profit 62.1 252.5 89.8 100.1 



Cash flow from operations 104.6 66.3 123.8 157.3 

Capex -85.8 -100.0 -80.0 -80.0 


Dividends 0.0 -15.9 -15.6 -22.4 

Change in net debt -68.3 -327.9 0.6 -26.2 

FCF equity 39.2 48.5 49.2 71.0 





Cash & others 49.4 349.4 349.4 349.4 

Total assets 1162.9 1397.2 1503.8 1567.2 


Gross debt 378.7 350.8 351.4 325.3 

Net debt 329.3 1.4 2.0 -24.1 






Revenue 12.6 4.0 12.8 5.2 

EBITDA -12.2 4.9 18.2 5.8 

Operating profit -19.4 11.8 25.2 7.1 

PBT -17.2 281.0 -58.9 14.1 

HSBC EPS 220.5 12.5 31.0 11.5 

Ratios (%) 

Revenue/IC (x) 2.1 2.4 2.9 2.7 

ROIC 11.3 12.9 16.7 15.7 

ROE 20.1 14.1 13.9 13.9 

ROA 7.4 21.6 7.4 7.6 

EBITDA margin 10.3 10.4 10.9 11.0 


EBITDA/net interest (x) 7.0 10.1 15.7 18.0 

Net debt/equity 91.9 0.2 0.3 -3.2 

Net debt/EBITDA (x) 2.1 0.0 0.0 -0.1 

CF from operations/net debt 31.8 4662.2 6070.5 




DPS 0.00 0.13 0.19 0.20 

NAV 3.02 5.16 5.78 6.41 


Overweight 


EV/sales 0.9 0.7 0.6 0.5 

EV/EBITDA 9.2 6.3 5.3 4.9 

EV/IC 2.0 1.8 1.6 1.4 

PE* 18.3 16.3 12.4 11.1 

P/NAV 3.1 1.8 1.6 1.5 

FCF yield (%) 3.6 4.7 4.8 7.0 





Reuters (Equity) DEZG.DE Bloomberg (Equity) DEZ GR 



Country Germany Sector Machinery 

Analyst Juergen Siebrecht Contact +49 211 910 3350 


14 

13 

12 

11 

10 

9 

8 

7 

6 


Deutz Rel to DAX-100 

Source: HSBC 


14 

13 

12 

11 

10 

9 

8 

7 

6 

32

Mid cap 



abc 

FirstGroup 

Closed Laidlaw acquisition cements North American position 

Further upside potential from increased synergies, property 

disposals and possible Greyhound sale 

Reiterate Overweight rating and DCF-based 810p target price 


With the Laidlaw acquisition now closed, our 

attention turns to the integration process. We are 

buoyed by the fact that the result of the antitrust 

review is less onerous than first thought and 

believe that there is still upside to synergies 

guidance. In our view, the market is still 

underestimating the value of Laidlaw and we 

remain Overweight with an 810p target price. 

Laidlaw acquisition now closed 

FirstGroup has confirmed that the Laidlaw 

acquisition was closed as of 1 October (it is in our 

numbers from October) and used the statement to 

disclose positive integration news: 

Antitrust outcome and contract retention 

better than that which the company guided to 

in February, with an aggregated loss of 3% of 

combined school bus fleet versus previous 

guidance of c10% of Laidlaw fleet 

Upside potential to the property portfolio, 

with current valuations from the company in 

excess of USD200m 

Opportunity to release cUSD200m to 

USD300m cash from the Laidlaw captive 

insurance fund 

Positive news on funding with all debt 

facilities in place and strong cash generation 

negating further equity issue requirement 

Upbeat six-month trading statement 

Accompanying the Laidlaw closure 

announcement was a positive 6M trading 

statement. This gives comfort that management 

has not neglected the UK business at the expense 

of the Laidlaw acquisition. 

Key facts ____________________Financial summary _____________________ __________ Valuation summary ___________ 

Analyst: Tommy Bryson 

Year to Revenue EBITDA 

Yield 

EV/ EV/ IC ROIC 

(GBPm) (GBPm) 

(%) 

(x) (%) 

Tel: +44 20 7991 6799 

Email: tommy.bryson@hsbcib.com 

HSBC 

net profit 

(GBPm) 

HSBC 

EPS 

(GBp) 

HSBC 

EPS growth 

(%) 

HSBC 

PE 

(x) 

EBITDA 

(x) 

Current price (GBp) 734 3/2007a 3,708.8 398.9 134.3 0.34 9.3 2.1 21.7 9.3 2.8 13.5 1.6 

Target price (GBp) 810 3/2008e 4,679.4 554.3 184.0 0.42 24.4 2.3 17.5 10.2 2.6 11.6 1.7 

Mkt cap (GBPm) 3,192.8 3/2009e 5,754.0 741.3 225.0 0.51 22.3 2.6 14.3 7.2 1.7 10.9 1.2 

Bloomberg FGP LN 3/2010e 6,020.5 793.7 237.9 0.54 5.8 2.8 13.5 6.4 1.7 12.0 1.0 

Reuters 

FGP.L 


HSBC 

REP 

(x) 

33

Mid cap 



abc 


FirstGroup 

London 

c15% market share London bus 

UK bus UK rail North America 

Regional 

Operations in Scotland, York, Leeds, 

Manchester, Sheffield, Stoke-on-Trent, 

Leicester, Birmingham, Worcester, Norwich, 

Ipswich, Northampton, Southampton, 

Portsmouth, Bristol, Swansea, Cardiff and 

Plymouth 

Source: HSBC 

First Capital Connect spans SE England, 

First Great Western runs across S & W 

England, the Cotswolds and S Wales 

TransPennine Express runs intercity 

between the north-west, Yorkshire and NE 

England 

First ScotRail provides c95% of Scottish rail 

services and links with London 

Hull trains is open access between London 

Kings Cross and Hull 

US operations include yellow school bus 

(student), the transit division (public transport 

systems and airport shuttle bus services), the 

services unit (vehicle maintenance) and 

Greyhound (from Laidlaw) 

Laidlaw acquisition completed on Monday 1 

October for cGBP1.9bn 

UK bus reported 1.5% passenger volume growth, 

greater than 5% revenue growth and a margin 

uptick of more than 100bp (HSBCe 2008: 2%, 

6.3% and +60bp, respectively). Performance in 

rail was equally impressive, with passenger 

revenue growth up 9% on a like-for-like basis 

(HSBCe 2008: +8.8%). 

Additionally, existing North American operations 

are experiencing healthy growth, stable operating 

margins and positive transit contract renewals. 


FirstGroup is the UK’s largest bus operator 

(fourth largest in London), with approximately 

9,000 buses, carrying 2.9m passengers every day. 

It is also the UK’s largest passenger rail franchise 

operator with four franchises, one open access 

service and GB Railfreight. In North America, the 

combined First Student and Laidlaw business is 

c5x the size of its nearest competitor and 

FirstGroup also operates First Transit (public 

transport systems and airport shuttle bus services) 

and First Services (vehicle maintenance). 


Of the c500,000 school buses operating in North 

America, roughly one-third are operated by 

private contractors, with the remaining two-thirds 

operated by the school districts themselves (ie, 

they purchase buses and hire the drivers directly). 

The benefits to school districts of outsourcing 

include timesaving and lower fixed costs 

(contractors benefit from economies of scale). 

Together with Laidlaw, we estimate that 

FirstGroup (through its First Student brand) has 

c41% of the North American school bus 

contracted market (ie, c12% of the total market). 

Clearly Laidlaw cements FirstGroup’s foothold in 

the North American yellow school bus market, 

which is likely to benefit from more 

FirstGroup: sales by division (FY 2007) FirstGroup: sales by region (FY 2007) 

North 

America 

22% 

UK bus 

29% 

North 

America 

22% 

UK rail 

49% 

United 

Kingdom 

78% 

Source: FirstGroup, HSBC 

Source: FirstGroup, HSBC 

34

Mid cap 



abc 

subcontracting, and we note that FirstGroup is 

now the UK’s largest rail operator, with franchise 

renewal risk not on the horizon until 2012. 

FirstGroup (along with Arriva, Overweight ARI 

LN) is our top pick in the UK bus and rail sector. 

It is trading at a slight premium on calendarised 

FY 2009e PE of 13.7x versus the sector on 12.6x 

and calendarised FY 2009e EV/EBITA ex-rail of 

14.5x versus the sector on 14.4x, but this is before 

taking into account upside to synergies. 

Catalysts 

7 November H1 results and Laidlaw update 

We expect the H1 results to be strong (particularly in 

light of the recent trading statement) and think that 

the market will quite rightly choose to focus on 

Laidlaw updates at this stage. With current synergies 

guidance of USD70m per annum looking light given 

that roughly half of this comes from stripping out 

Laidlaw plc costs, and the Laidlaw books only 

recently opened to FirstGroup at a branch and 

contract data level, we think that there is plenty of 

scope for further good news at this stage. 

Potential Greyhound sale? 

Greyhound, c23% of Laidlaw FY 2007 

management estimates EBITDA, is not a natural 

fit with FirstGroup’s existing North American 

activities. In addition, we think that it increases 

the likelihood of management stretch in terms of 

both integrating and managing the expanded 

operations. Consequently, we think that the 

market might welcome a potential sale of 

Greyhound (Stagecoach, Underweight SGC LN, 

management stated at its FY results that it would 

look at it if it became available). 

By applying the pro-forma trailing EV/EBITDA 

multiple of 6.8x (pre-synergies) at which FirstGroup 

acquired Laidlaw, we get a valuation of cUSD796m 

for Greyhound, which, all other things being equal, 

would reduce FirstGroup’s 2008e net debt to 

EBITDA ratio to 3.4x from 4.2x. 

We expect an update on plans for Greyhound at 

the same time as the H1 results on 7 November. 

Valuation 

FirstGroup sum-of-the-parts (FY 2008e) 

Exit 

multiple 

(x) 

NPV Per 

(GBPm) share 

(GBp) 

Per 

share 

(%) 

EV/ 

EBITDA 

(x) 

EV/ 

EBITA 

(x) 

Bus 6.5 1720 395 49 9.0 14.9 

Rail 577 133 16 

North America 7.5 3777 868 107 8.8 15.4 

Head office 10 -200 -46 -6 

Net debt -2309 -531 -65 

Pensions deficit -88 -20 -3 

Minority interest -14 -3 0 

SOTP 3462 796 98 

Balance sheet efficiency 69 16 2 

Target price GBp 810 


Our DCF-based sum-of-the-parts valuation gives 

us a base-case corporate NPV of GBP3,462m, or 

796p per share, which is 8.4% higher than the 

734p at which FirstGroup is currently trading. Our 

7.4% WACC includes a 5.2% risk-free rate, 3.5% 

equity risk premium and the Bloomberg-observed 

two-year average adjusted beta of 0.94. 

We think that FirstGroup could raise GBP1,050m 

for buybacks in FY 2011e to take the net debt-to- 

EBITDA to 3.0x in that year. This level of 

buyback at our 796p SOTP valuation would 

increase our FY 2011e EPS by 1.3p and applying 

the pre-buyback PE multiple of 12.5x gives 

additional value of 16p per share. 

We re-iterate our target price of 810p per share 

and Overweight rating. 


Downside risks to our thesis include integration 

problems with Laidlaw, management stretch in 

dealing with the enlarged business and any 

potential terrorist incident in the UK slowing 

down medium-term UK bus patronage growth. 

35

Mid cap 



abc 

Financials & valuation: FirstGroup 

Overweight 


Year to 03/2007a 03/2008e 03/2009e 03/2010e 

Profit & loss summary (GBPm) 

Revenue 3,709 4,679 5,754 6,020 

EBITDA 399 554 741 794 

Depreciation & amortisation -140 -202 -271 -286 

Operating profit/EBITA 249 352 470 508 

Net interest -63 -104 -164 -184 

PBT 140 233 296 314 

HSBC PBT 196 248 306 324 

Taxation -38 -61 -77 -82 

Net profit 92 160 203 215 

HSBC net profit 134 184 225 238 

Cash flow summary (GBPm) 

Cash flow from operations 305 452 579 610 

Capex -251 -215 -250 -250 

Cash flow from investment -222 -2,115 -250 -250 

Dividends -68 -75 -82 -90 

Change in net debt -167 1,739 -247 -269 

FCF equity 52 191 264 291 

Balance sheet summary (GBPm) 

Intangible fixed assets 530 1,608 1,598 1,588 

Tangible fixed assets 1,060 1,914 1,893 1,857 

Current assets 861 626 797 988 

Cash & others 411 148 295 464 

Total assets 2,543 4,240 4,380 4,525 

Operating liabilities 836 880 918 952 

Gross debt 891 2,366 2,266 2,166 

Net debt 571 2,309 2,062 1,793 

Shareholders funds 596 681 802 927 

Invested capital 1,204 3,120 3,075 3,017 



Key forecast drivers 


Bus average fuel price 67 67 70 70 

Rail revenue growth 9.9 56.6 8.8 7.7 

Rail margin 6.0 6.3 6.3 6.4 

Student contract retention 95 90 90 95 

Student new contracts 9.8 150.0 125.0 10.0 

Student average fuel price 53 62 70 70 



EV/sales 1.0 1.2 0.9 0.8 

EV/EBITDA 9.3 10.2 7.2 6.4 

EV/IC 2.8 2.6 1.7 1.7 

PE* 21.7 17.5 14.3 13.5 

P/NAV 4.9 4.7 4.0 3.5 

FCF yield (%) 2.3 4.5 7.0 8.1 


Note: * = Based on HSBC EPS (basic) 


821 

721 

621 

521 

421 

321 

221 

Source: HSBC 

2005 2006 2007 2008 

FirstGroup Rel to FTSE ALL-SHARE 

821 

721 

621 

521 

421 

321 

221 


Revenue 22.4 26.2 23.0 4.6 

EBITDA 13.4 39.0 33.7 7.1 


PBT -10.9 66.5 26.9 5.9 

HSBC EPS 9.3 24.5 22.3 5.8 

Ratios (%) 

Revenue/IC (x) 3.0 2.2 1.9 2.0 

ROIC 13.5 11.6 10.9 12.0 

ROE 29.3 28.8 30.3 27.5 

ROA 6.7 7.6 8.1 8.5 

EBITDA margin 10.8 11.8 12.9 13.2 



Net debt/equity 93.9 332.2 251.7 189.7 

Net debt/EBITDA (x) 1.4 4.2 2.8 2.3 

CF from operations/net debt 53.4 19.6 28.1 34.0 

Per share data (GBPp) 

EPS reported (fully diluted) 22.81 36.09 45.91 48.67 


DPS 15.50 17.05 18.75 20.63 

NAV 149.84 155.40 182.99 211.48 


Stated accounts as of 31 Mar 2005 are IFRS compliant 

36

Mid cap 



abc 

Fourlis Holdings 

Unmatched growth prospects courtesy of the exclusive, lucrative, 

long-term IKEA franchise licence for Greece, Cyprus and Bulgaria 

We expect EPS CAGR of 42% for 2006-09e and 32% for 2006- 

11e, primarily driven by aggressive new IKEA store rollouts and 

strong like-for-like (LFL) same-store sales momentum 

We reiterate our Overweight rating and raise our target price to 

EUR31.3 (EUR25.5 previously), mirroring upward IKEA earnings 

revisions on higher LFL revenue growth and margin assumptions 


Fourlis Holdings’ (FH) key asset is the exclusive, 

lucrative, long-term franchise agreement with 

Swedish IKEA Group, encompassing Greece, 

Cyprus and Bulgaria. FH also stands to gain from 

the positive momentum of the exclusive Intersport 

franchise, which looks well-placed to become one 

of the largest sportswear apparel retail chains in 

South-East Europe. FH’s third business division 

of electronics wholesaling plays a small role in 

earnings contribution. 

Solid IKEA and wholesaling Q2 performance 

lead to valuation upgrades 

Q2 2007 group results were well ahead of our 

forecasts (39-43% higher) at the EBITDA and 

earnings levels, largely on the back of an 

impressive wholesale performance (on upbeat 

demand for Samsung flat TV screens and airconditioners 

in Greece and Romania), as well as 

stronger-than-expected margins from IKEA, 

mirroring a higher value-added sales mix. We 

raise our group EPS forecast by 12% for 2007 and 

7% for 2008, largely reflecting major upward 

revisions in our earnings forecasts for the 

wholesale division. In turn, the improved earnings 

outlook for existing IKEA stores – on higher 

penetration (number of visitors rose 14% in H1), 

ticket value, as well as stronger margins, more 

than offset the negative impact from delaying the 

second Athens-based IKEA store opening to 

March 2008, in our view. 

Key facts ____________________ Financial summary_____________________ __________ Valuation summary ___________ 

Analyst: Spiros Tsangalakis 


Tel: +30 210 6965 212 


Email: spiros.tsangalakis@hpss.hsbc.gr 

(EURm) (EUR) 

(%) 

(x) (x) 

(x) 

Current price (EUR) 26.1 12/2006 487.0 49.5 25.5 0.50 33.4 0.7 52.1 29.0 8.1 14.2 4.7 



Bloomberg FOYRK GA 12/2009e 934.9 119.6 72.9 1.43 30.1 1.7 18.2 12.6 3.9 23.8 1.4 

Reuters 

FRLr.AT 

Source: HSBC Pantelakis Securities estimates, Fourlis 

37

Mid cap 



abc 

Fourlis Holdings: 2007-08e forecasts revisions by business segment (EURm) 

_____________FY 2007e __________ _____________ FY 2008e ___________ 

FY 2006a Old New Revision y-o-y Old New Revision y-o-y 

Sales IKEA 200.8 270.0 246.9 -9% 23% 391.6 373.8 -5% 51% 

Existing IKEA stores 200.8 213.8 234.9 10% 17% 217.6 234.3 8% 0% 

Intersport 45.5 56.5 56.5 0% 24% 65.0 65.0 0% 15% 

Wholesale 235.7 267.3 287.3 7% 22% 292.8 315.3 8% 10% 

Total sales 482.1 593.7 590.7 -1% 23% 749.3 754.1 1% 28% 

Recurring EBITDA IKEA 40.2 51.5 51.6 0% 28% 73.3 71.4 -3% 38% 


Intersport 5.0 6.7 6.7 0% 35% 7.8 7.8 0% 17% 

Wholesale 6.1 7.2 12.0 67% 96% 7.8 13.2 69% 10% 

Consolidation differences (1.2) 

Total recurring EBITDA 50.1 65.3 70.3 8% 40% 88.9 92.4 4% 31% 

Recurring earnings IKEA 21.5 30.7 31.3 2% 45% 45.3 44.2 -2% 41% 


Intersport 2.2 3.8 3.8 0% 71% 4.8 4.8 0% 26% 

Wholesale 1.3 2.8 7.1 150% 458% 3.2 8.0 150% 13% 

Consolidation differences 0.5 1.9 1.9 (0.8) (1.0) 

Total recurring earnings 25.5 39.3 44.1 12% 73% 52.6 56.0 7% 27% 

Source: Fourlis Holdings, HSBC Pantelakis Securities estimates 

This is five months later than previously expected 

because of archaeological finds discovered in the car 

park. We now expect group 2006-09 sales, HSBC 

EBITDA and HSBC EPS CAGRs of 24%, 34% and 

42%, respectively, primarily driven by aggressive 

IKEA network expansion in Greece, Cyprus and 

Bulgaria. On our forecasts, IKEA should account for 

55% and 81% of FY 2009 group sales (vs 42% in 

2007e) and EBITDA (vs 70% in 2007e). 


FH is a holding company consisting of three main 

divisions: IKEA home furniture, Intersport 

sportswear retail and electrical goods wholesale, 

including powerful brands like Samsung and GE. 

The IKEA business segment started operating in 

2001, as FH, pursuant to its exclusive franchise 

agreement signed in 2000 with IKEA Group 

(Europe’s largest home furniture retailer) for Greece 

and Cyprus, launched its first store in Thessaloniki, 

Northern Greece. In June 2006, the IKEA franchise 

licence was extended to Bulgaria. FH’s franchise 

agreement with IKEA Group is based on a low 

single-digit commission on net sales. 


Following the second IKEA store opening in East 

Athens (April 2004), FH sold a 21.5% stake in 

Kotsovolos to Dixons. This move highlighted the 

group’s strategic decision to disengage from the 

stagnant and highly competitive market of electrical 

appliances retailing, shifting its focus towards the 

lucrative IKEA franchise. The unparalleled success 

of IKEA in Greece reflects, in our view, the structure 

of the local home products market. This market is 

highly fragmented, with very few organised chains, 

which, because of expensive pricing, lack a large 

client base. This is where IKEA has built its 

competitive edge, offering a wide variety of highquality 

home products, combining good design at 

low prices. 

The expansion of the exclusive Intersport franchise, 

both at home and abroad (ie, Cyprus, Bulgaria and 

Romania), is also crucial to FH’s growth strategy. 

By extending its foothold in SE Europe, capitalising 

on its know-how and extensive product offering, 

Intersport could well turn into one of the largest 

athletics apparel retail chains in South East Europe. 

Finally, we expect the electrical appliances 

wholesale business to maintain its upbeat 

momentum (both in sales and earnings) over our 3- 

year forecast period, adding value to the group. That 

said, the division’s contribution to group earnings 

should remain modest (12% of total in FY 2009e). 

38

Mid cap 



abc 

Fourlis Holdings: sum-of–parts valuation (EURm) 

Business division Valuation method EV % of total Minorities Net debt Eq. value New eq. value/sh Old eq. value/sh 

IKEA 3-stages DCF 1,600.4 90.1% 81.0 41.8 1,477.6 29.0 24.3 

Intersport 2007e EV/EBITDA 7.5x 50.0 2.8% 0.7 49.3 1.0 1.0 

Wholesale activity 2007e EV/EBITDA 6.5x 77.8 4.4% 55.2 22.6 0.4 -0.6 

Asset for sale Book value 29.5 1.7% 29.5 0.6 0.6 

Kotsovolos Put option 18.6 1.0% 18.6 0.4 0.3 

Fourlis Holding - 2.7 (2.7) -0.1 -0.1 

Total 1,776.3 100.0% 81.0 100.4 1,594.9 31.3 25.6 

Source: Fourlis Holdings, HSBC Pantelakis Securities estimates 

Catalysts 

Dynamic expansion of the IKEA franchise 

Given fast-growing brand awareness and 

popularity in Greece, FH seeks to exploit its 

regional IKEA franchise licence to its full 

potential. The group targets a minimum of seven 

new IKEA stores in Greece (+4) and Bulgaria 

(+3) over the next 3-4 years, compared with two 

stores in Greece and one in Cyprus currently. The 

first Cyprus-based store (Larnaca) opened its 

doors in September 2007. We expect sales from 

Cyprus and the upcoming IKEA Rentis store to 

reach EUR52m and EUR83m in FY 2008. This 

development, coupled with healthy organic 

growth, should boost the IKEA division’s sales 

and EBITDA to EUR374m (up 51% y-o-y) and 

EUR71m (up 64% y-o-y) in FY 2008, we think. 

Coming into play in H1 2009 with the Sofia store 

rollout and with the addition of at least two more 

outlets by end-2010, Bulgarian operations should 

then drive the IKEA franchise’s future growth. By 

2011, we expect the three Bulgarian IKEA stores 

to generate aggregate sales, EBITDA and net 

earnings of EUR152m, EUR29m and EUR15m, 

accounting for 13%, 18% and 15% of the group’s 

total, respectively. 

FH’s excellent execution record in developing the 

IKEA franchise could pave the way for new 

licence agreements in the region (eg, Serbia, 

FYROM and Albania). 

Valuation 

We have valued FH using a sum-of-the-parts 

method (please see table above). Our SOTP 

valuation model returns a new a target price of 

EUR31.3 per share vs EUR25.5 previously, largely 

reflecting our upward revisions to medium- and 

longer-term earnings forecasts for the IKEA 

franchise (on faster LFL revenue growth and higher 

margins), but also the better near-term visibility for 

the wholesale business. Our new target price 

implies a potential total return of 20%. We thus 

reiterate our Overweight rating on FH. 

In our view, valuation comparisons on 

conventional near-term multiples, fail to fully 

capture the dynamic expansion of the IKEA 

franchise (accounting for c93 % of FH’s appraised 

equity value, on our estimates), which unfolds 

over a longer period. We believe that FH deserves 

a premium given its outstanding growth outlook 

(2006-11e recurring EPS CAGR of 32%) on high 

earnings visibility – a unique way of investing in 

the unmatched IKEA model. 


Key downside risks include: a) delays in the 

execution of the IKEA store rollout plan, b) 

renegotiation of the IKEA franchise agreement (ie, 

higher royalties), c) higher-than-expected 

cannibalisation effects from the second IKEA store 

in Athens, d) a reduction in disposable income in 

any of the countries of operation, e) increasing 

working capital requirements, because of the robust 

IKEA store network expansion, and f) the 

emergence of a competitive home furnishing 

superstore network. 

39

Mid cap 



abc 

Financials & valuation: Fourlis 




Revenue 487.0 596.5 760.7 934.9 

EBITDA 49.5 62.3 92.4 119.6 



Net interest -5.1 -5.7 -7.4 -9.0 

PBT 47.9 55.9 92.7 96.8 

HSBC PBT 37.9 56.8 74.1 96.8 

Taxation -20.6 -12.5 -17.0 -21.2 

Net profit 27.4 43.5 74.6 72.9 




Capex -13.9 -43.0 -65.5 -71.8 


Dividends -9.2 -16.3 -20.4 -22.9 

Change in net debt 2.4 20.9 23.0 27.6 

FCF equity 1.2 -11.2 -25.6 -4.3 





Cash & others 25.5 29.7 21.0 12.8 

Total assets 386.5 456.5 552.7 652.1 


Gross debt 141.3 166.4 180.7 200.2 

Net debt 115.8 136.7 159.7 187.3 






Revenue 17.8 22.5 27.5 22.9 

EBITDA 15.5 25.9 48.3 29.5 


PBT 67.8 16.6 65.9 4.4 

HSBC EPS 33.4 72.9 27.0 30.1 

Ratios (%) 

Revenue/IC (x) 2.9 3.0 2.9 2.7 

ROIC 14.2 21.1 25.1 23.8 

ROE 24.5 34.5 33.3 33.1 

ROA 7.6 10.3 15.0 12.5 

EBITDA margin 10.2 10.4 12.1 12.8 









DPS 0.18 0.32 0.40 0.45 

NAV 2.24 2.77 3.84 4.82 

New IKEA stores 2008-2010 

Overweight 

Location Opening Investment (HSBCe) 

IKEA Athens West (Rentis) Mar-08 EUR10m 

IKEA Ioannina (NW Greece) Oct-08 EUR24m 

IKEA Larissa (central Greece) Feb-09 EUR24m 

IKEA Bulgaria 1 (Sofia) May-09 EUR22m 

IKEA Bulgaria 2 (Burgas) Oct-09 EUR21m 

IKEA Heraclion (Crete) Nov-09 EUR27m 

IKEA Bulgaria 3 (Plovdiv) Sep-10 EUR20m 



EV/sales 3.0 2.4 1.9 1.6 

EV/EBITDA 29.0 23.4 16.0 12.6 

EV/IC 8.1 6.5 4.8 3.9 

PE* 52.1 30.2 23.7 18.2 

P/NAV 11.7 9.4 6.8 5.4 

FCF yield (%) 0.1 -0.8 -1.9 -0.3 





Reuters (Equity) FRLr.AT Bloomberg (Equity) FOYRK GA 



Country Greece Sector Household Durables 

Analyst Spiros Tsangalakis Contact 30 210 6965 212 


29 

27 

25 

23 

21 

19 

17 

15 

13 

11 


Fourlis Rel to ATHENS SE 

Source: HSBC 


29 

27 

25 

23 

21 

19 

17 

15 

13 

11 

40

Mid cap 



abc 

Hochtief 

Coverage of the entire construction value chain on a global scale 

Growth catalysts are an increased focus on attractive service 

areas, synergies between the different business lines and 

globalisation 

Our sum-of-the-parts valuation shows a new target price of 

EUR108 (EUR101 previously), implying 19% potential return; 

Overweight 


Hochtief offers a broad portfolio of international 

construction activities and construction-related 

services. The main element of this strategy is an 

integrated approach offering solutions for the 

entire life cycle of construction activities: from 

developing, designing, financing and construction 

to the operational management of buildings. 

Hochtief is also able to manage complex projects 

cross border. Given this set-up, we think the 

company is well positioned to benefit from the 

increasing market volume for complex 

infrastructure and building projects, not only in 

emerging regions, but also in developed countries 

(PPP, facility management, project development). 

In recent weeks Hochtief has taken four important 

steps both to broaden its business opportunities and 

focus on more stable and higher-margin business: 

1 The merger of activities in the Gulf region of 

Leighton with Al Habtoor, (Hochtief’s 

Leighton stake is 45% with EUR1.65bn 

revenues enables Hochtief/Leighton to play a 

leading role in one of the fastest growing 

regions globally. 

2 With the acquisition of aurelis from Deutsche 

Bahn, Hochtief gains access to a real estate 

portfolio of 27m sqm. We are convinced that 

Hochtief will be able to generate relatively 

quickly a substantial return both in the rental 

and development parts of the portfolio. 

Key facts ____________________Financial summary _____________________ ___________ Valuation summary ___________ 

Analyst: Thomas Teetz 


Tel: +49 211 910 2353 


Email: thomas.teetz@hsbc.de 

(EURm) (EUR) 

(%) 

(x) (x) 

(x) 

Current price (EUR) 91.1 12/2006 15,508.0 651.8 89.1 1.27 41.5 1.2 71.6 7.7 3.0 10.8 2.2 



Bloomberg HOT GR 12/2009e 17,454.6 869.6 158.7 2.27 1.6 1.5 40.2 4.0 1.9 16.5 0.9 

Reuters 

HOTG.DE 


41

Mid cap 



abc 

3 The takeover of Flatiron Construction, a 

leading US construction company in the 

infrastructure sector, fits perfectly into 

Hochtief’s existing infrastructure and PPP 

activities and should lead to interesting 

synergy effects, in our view. 

4 Hochtief’s planned takeover of the Vattenfall 

energy contracting unit in Germany should 

enable it to play a leading role in a growthintensive 

business area (expected growth rates 

of more than 15%). 

These strategic steps are not adequately reflected 

in the stock price, in our view. Our sum-of-theparts 

analysis leads to a fair value of EUR108 per 

share. Nearly 85% of the market value is 

represented by the 54% Leighton stake, meaning 

that ll remaining activities would have an implied 

value of EUR1bn, which is a clear undervaluation 

in our view. 


Hochtief covers the entire construction value 

chain, divided into five segments: 

1 Hochtief Airport division operates six airports 

(Athens, Budapest, Düsseldorf, Hamburg, 

Sydney and Tirana).This portfolio makes the 

company one of the leading operators in this 

segment worldwide. The main focus for further 

value generation here will be the development 

of the existing portfolio (optimisation of rental 

structure, further revenue potential, etc) and 

selective expansion (expected privatisations in 

2007-08: Abu Dhabi, Bucharest, Chicago, 

Lisbon, Prague). 

2 The Development division encompasses 

mainly the PPP and facility management 

business, but also the real estate development 

(aurelis). We expect a much stronger impact 

on revenues/earnings from this business line 

in years to come as public infrastructure 

contracts (buildings, roads) and the 

professional management of buildings should 

offer significant growth potential. From 

aurelis we also expect significant earnings 

contributions from 2009 onwards. 

3 Construction services Asia/Pacific is 

represented by the 54% stake in the leading 

Australian construction company Leighton. 

Increasing penetration of new and growing 

markets like the Gulf region (Al Habtoor 

deal), India and Macao, and ongoing growth 

in the infrastructure segment, are the main 

drivers of this segment. 

4 Construction Services Americas (Turner) 

is mainly focused on attractive niche 

segments like retail, education/science and 

healthcare buildings. Generally these 

segments are not as cyclical as residential 

Hochtief: sales by division in %, 2006 Hochtief: EBT by division in %, 2006 

Hochtief Europe 

13.0% 

Hochtief 

Dev elopment 

6.5% 

Hochtief Airports 

0.6% 

Hochtief Europe 

0.5% 

Hochtief 

Dev elopm ent 

11.3% 

Hochtief Airports 

8.7% 

Hochtief Americas 

14.6% 

Hochtief 

Americas 

42.9% 

Hochtief Asia 

37.0% 

Hochtief Asia 

64.9% 

Source: company data, HSBC 

Source: company data, HSBC 

42

Mid cap 



abc 

construction (which is not part of Turner’s 

business) and should not dramatically suffer 

from a potential US recession. Given the 

acquisition of Flatiron, Hochtief is now also 

active in the US infrastructure/PPP business. 

5 Construction services Europe is focused on 

the German construction business (which 

experienced huge problems in 2007, due to 

strong price increases for 

materials/subcontractors) and the CEE area. We 

expect that the significant loss in 2007 

(EUR130m in Germany) will be turned into a 

small positive earnings contribution in 2008-09. 


Hochtief is one of the most interesting 

infrastructure plays in Europe, in our view. Future 

challenges in this sector are a rising complexity in 

infrastructure projects, which demand complete 

solutions and an international production and 

distribution network. In both areas we see 

Hochtief as well-positioned. In 2007, the stock 

suffered a slight dip resulting from the struggling 

German construction business generating a loss of 

EUR130m. In our view, this area is not really 

relevant for the stock’s valuation as the European 

construction business accounts for less than 3% of 

Hochtiefs EV in our sum-of-the-parts valuation. 

This indicates a clear mispricing, in our view, as 

the remaining segments should be valued higher 

than EUR0.8bn (see valuation section). One other 

point of note is that the airport stake alone has a 

value of at least EUR1.3bn (HSBCe): this would 

be sufficient to purchase the project development 

business, the US and European construction 

businesses, with EUR0.5bn left over in a 

hypothetical break-up scenario. 

Catalysts 

Main catalysts in our view could be: 

Further unexpected operational improvements 

at Leighton, mainly due to the Al Habtoor 

deal (there should be a significant earnings 

contribution from this already in 2008) 

Successful airport participations in 2008 

(Lisbon, Prague) 

New larger PPP deals (schools, toll roads) 

Large infrastructure or construction deals in 

the CEE (including Russia, for example the 

Olympic games in Sotchi 2012) 

The realisation of key projects from the 

aurelis portfolio 

The main driver for the share price in the last two 

years has been Leighton’s strong performance: 

The increase in market value of the Leighton 

stake over that period amounted as of 11 October 

2007 to EUR5.4bn, from EUR1.3bn as of 26 

September 2005) – but Hochtief’s market cap in 

the same period only increased by EUR3.6bn to 

EUR6.4bn (as of 10 October 2007). That means 

that the implied value for all the remaining 

businesses .has decreased by EUR0.5bn to 

EUR0.8bn – despite huge operational 

improvements mainly in the airport and project 

development divisions. 

43

Mid cap 



abc 

Valuation 

Owing to Hochtiefs diversified business profile, 

we think that a sum-of-the-parts analysis is the 

most appropriate valuation method. We use 

varying methods to arrive at a fair value for each 

business line (for more details see our report 

“Further upside potential from undervalued units” 

published 24 September). 

We value Airports with the NAV provided by the 

company. For the development business we use 

various discounted earnings models; for Leighton 

we use the current market valuation, while we 

assume multiple valuations both for Hochtief 

Americas and Europe. As a result, we get a new 

target price of EUR108 (old EUR101); this 

adjustment reflects the recent increase in 

Leighton’s share price 

We do not include any conglomerate discount as 

Hochtief’s business structure enables the company 

to generate interesting synergy effects. Thus, we 

believe a premium to our target price would be 

more appropriate. 


We believe that major risks to our view include: 

A slowing in Leighton`s infrastructure and 

contract mining business 

A slower-than-expected order intake in the 

PPP business 

Ongoing problems in the German 

construction business 

A recession in the US, which would affect the 

valuation of Turner 

Increasing credit crunch discussions 

Sum-of-the-parts valuation 2007e 

Business unit (in EURm) Method and assumptions 

1 Airports 1,252 

Airports 1,244 Internally-calculated NPV by Hochtief as of 31 December 2007 

Transport & Logistic Consultancy Ltd. 8 EV= P/S ratio of 2.0 for 2007 

2 Development 1,415 

PPP projects 703 NPV, rollover to 2007 

aurelis 302 Net value increase based on 2008 results of our model 

Facility management, Asset Management, Project Development 411 EV/EBIT 2008e 10x, PPP solutions expected to deliver a breakeven EBIT in 2008e 

3 Asia Pacific 4,883 

Leighton 4,883 Discount of 10% on current price 

4 Americas 611 

Turner 589 EV/EBIT 2008e 8.0x (America peer group) 

Hochtief do Brasil 22 2x book value of equity 2006, 91.5% stake 

Construction Europe 200 10x EBT 2008e, basis valuation of European construction companies 

5 Enterprise value (1-5) 8,361 

6 Cash & cash equivalents 2,076 as of 30 June 2007 

7 -Correction of net cash (Leighton) -400 as estimated to avoid double accounting 

-Pledged marketable securities -36 as of 30 June 2007 

-Debt -1,169 as of 30 June 2007 

10 -Prepayments -300 as of 30 June 2007 

11 -Pension provisions -33 as of 30 June 2007 

12 -Corporate functions -895 EV/EBIT 2008e 10x 

13 Implied equity value (6-14) 7,604 

14 Conglomerate discount 0% 

15 Equity target value (12)*[1-(13)] 7604 

No. of shares (million) 70.00 

Target price per share 108 

Current share price 91.1 

Potential return +18.6% 


44

Mid cap 



abc 

Financials & valuation: Hochtief 




Revenue 15508.0 15910.2 16305.4 17454.6 

EBITDA 651.8 712.3 845.2 869.6 



Net interest 24.8 38.7 22.3 22.3 

PBT 338.1 422.6 507.4 531.9 

HSBC PBT 338.1 422.6 507.4 531.9 

Taxation -136.7 -165.5 -208.1 -218.1 

Net profit 89.1 106.6 156.1 158.7 




Capex -263.7 -370.0 -390.0 -390.0 


Dividends -63.0 -77.0 -84.0 -91.0 

Change in net debt -486.8 228.0 -27.9 -9.9 

FCF equity 471.1 225.7 274.2 297.7 





Cash & others 2328.1 1876.0 2131.0 2131.0 

Total assets 8355.5 8264.8 8661.8 8989.2 


Gross debt 1077.2 853.1 1080.2 1070.3 

Net debt -1250.9 -1022.9 -1050.8 -1060.7 






Revenue 13.6 2.6 2.5 7.0 

EBITDA -0.1 9.3 18.7 2.9 

Operating profit -10.6 19.3 24.3 5.0 

PBT 2.7 25.0 20.1 4.8 

HSBC EPS 41.5 19.7 46.4 1.6 

Ratios (%) 

Revenue/IC (x) 8.6 9.3 9.2 9.6 

ROIC 10.8 13.9 16.2 16.5 

ROE 5.0 5.8 8.3 8.1 

ROA 2.9 3.8 4.3 4.3 

EBITDA margin 4.2 4.5 5.2 5.0 


EBITDA/net interest (x) 

Net debt/equity -53.2 -43.0 -42.9 -42.1 

Net debt/EBITDA (x) -1.9 -1.4 -1.2 -1.2 

CF from operations/net debt 




DPS 1.10 1.20 1.30 1.40 

NAV 25.89 26.31 27.34 28.31 


Overweight 


EV/sales 0.3 0.3 0.3 0.2 

EV/EBITDA 7.8 7.1 6.0 4.0 

EV/IC 3.0 2.9 2.8 1.9 

PE* 71.6 59.8 40.8 40.2 

P/NAV 3.5 3.5 3.3 3.2 

FCF yield (%) 7.5 3.7 4.5 6.6 





Reuters (Equity) HOTG.DE Bloomberg (Equity) HOT GR 


Free float (%) 68.7 Enterprise value (EURm) 5069.8 

Country Germany Sector Construction & Engineering 

Analyst Thomas Teetz Contact 49 211 9102353 


102 

92 

82 

72 

62 

52 

42 

42 


Hochtief Rel to DAX-100 

Source: HSBC 


102 

92 

82 

72 

62 

52 

45

Mid cap 



abc 

Ingenico 

Solid fundamentals and high entry barriers: Ingenico needs to shift 

into high gear to benefit from the ongoing changes in a buoyant 

market, we think 

We believe current negotiations with Sagem Monetel are potential 

strong driver for further margin improvement and value creation 

Generation of cash flow has only just begun, supporting our 

Overweight rating and EUR26 target price (21% potential return) 


Buoyed by sustained growth in the point of sales 

(PoS) terminal markets (CAGR of +8% until from 

2007-2010e), Ingenico should continue to benefit 

from upgrades of installed networks to EMV 

(Europay Mastercard Visa standard) and from the 

roll-out of electronic payment projects in 

emerging markets. Capitalising on its 

technological innovation, global coverage and 

strong entrepreneurial spirit, the group’s business 

model has escaped unscathed from multiple 

management changes in the past few years. 

Following the departure of group chairman, Amedeo 

d’Angelo – the man who put the group back on its 

feet – Ingenico is now looking to accelerate growth 

in order to: 1) win back its position as global leader 

in the payment-card terminal market via the 

acquisition of Safran’s PoS terminals business 

(valued at EUR3 per share according to our 

estimates); and 2) move up the value chain through 

services and software integration. 

With a strong recovery in volumes expected by 

the company in H2, we believe that the efforts 

made to improve the gross margin (up 350bp in 

H1 2007) will continue to yield profitability. 

According to our estimates, gross margin could 

advance at a strong pace, possibly climbing 300bp 

in H2 2007 from the H2 2006 level to reach 

nearly 45% before indirect costs. We reiterate our 

Overweight rating and leave our EUR26 target 

price unchanged (excluding the planned link-up 

with Sagem). 


Analyst: Christophe Quarante 

Year to Revenue EBITDA HSBC HSBC HSBC Yield HSBC EV/ EV/IC ROIC HSBC 

Tel: +33 (0) 1 56 52 43 12 

(EURm) (EURm) net profit EPS EPS growth (%) PE (x) EBITDA (x) (%) REP (x) 

Email: christophe.quarante@hsbc.com 

(EURm) (EUR) (%) 

(x) 

Current price (EUR) 21.6 12/2006a 506.2 37.9 16.2 0.52 -138.5 0.0 41.6 20.9 3.7 10.6 3.6 


Mkt cap (EURm) 706.0 12/2008e 641.2 88.1 48.5 1.48 44.3 0.0 14.6 8.3 3.2 23.3 1.4 

Bloomberg ING FP 12/2009e 723.6 107.6 61.0 1.86 25.9 0.0 11.6 6.5 2.9 27.4 1.1 

Reuters 

INGC.PA 


46

Mid cap 



abc 

Company profile 

A group built on external growth 

From the outset, Ingenico has built up its market 

positions through external growth, a strategy that has 

allowed the group to develop more quickly. For the 

most part, the group carries out acquisitions to build 

market share. The group’s most recent acquisitions 

are listed in the chart below. 

Major acquisitions carried out by Ingenico (consolidated 

sales) 

Source: Ingenico 

After the appointment of chairman Amedeo 

d’Angelo in 2005, the top priorities were to: 1) 

reposition the group in more value-added services, 

2/ gain market share, and 3) restore profitability. 

Repositioning beginning with 

MoneyLine acquisition 

As PoS terminal market growth trends go, the 

value of downstream products and services in 

particular (ie, application software and services 

platforms) is rising. The acquisition of 

MoneyLine (EV/sales 2006e: 1.6x; EV/EBIT 

2006e: 8.9x) in 2006 gave Ingenico access to this 

market (EUR1.3bn in 2008e, estimation from 

Ingenico) and presented it with many 

opportunities in terms of software applications. 

On the road to recovery 

Since 2005, the group’s reorganisation has 

resulted in: 1) mass purchasing; 2) cost reduction, 

ie, ‘redesign to cost’[same product made with less 

components], reduction of product-sourcing costs; 

and, finally, 3) the refocusing on the supply chain 

and its impact on lowering indirect charges. 

Thanks to such measures, a 410bp improvement 

was recorded from 2005 to 2006. The contribution 

of charges breaks down as follows: R&D (-1.5% 

of revenue), marketing expenses (-1%) and 

administrative costs (-1.6% of revenue). This 

positive trend is accelerating, with a further gross 

margin improvement in H1 2007 (up 350bp). 

Sagem Monetel: a real 

opportunity for the group 

On 26 July 2007, Ingenico announced that 

negotiations to acquire Sagem Monetel (part of 

the Safran Group) were in advanced stages. 

According to our analysis, the planned merger 

between these two companies implies synergies of 

around EUR30m (ie, 3.5% of combined 2009 

revenues) made possible thanks to three areas of 

cost rationalisation: R&D (0.8% of 2009e sales); 

sales and marketing (1.2%); and 

overheads/administrative costs (1.5%). This 

operation, valued at EUR3 per share according to 

our estimates, should strongly enhance the EPS of 

the new entity by 26%, excluding any debt 

inherited from Sagem Monetel. 

47

Mid cap 



abc 

Details of gross margin trend between H1 2005 and H1 2007 

50.00% 

Prospective operating margin trends (% sales) 

50.00% 

40.00% 

40.00% 

30.00% 

30.00% 

20.00% 

20.00% 

10.00% 

10.00% 

0.00% 

H1 2005 H2 2005 2005 H1 2006 H2 2006 2006 H1 2007 

0.00% 

FY 04 FY 05 FY 06 FY 07e FY 08e FY 09e 

PoS Gross margin 

Gross margin 

-10.00% 

Operating marginn 

Gross margin 

R&D Overheads & Adm. Sales & Marketing 

Gross margin after indirect costs Soft & Sces gross margin -20.00% 



Forecast profit and loss of Ingenico-Sagem Monetel 

EURm 2007e 2008e 2009e 

Revenue – Sagem Monetel 170 200 230 

% change 41.70% 17.65% 15.00% 

Revenue – Ingenico 543.4 602.0 664.6 

% change 7.35% 10.79% 10.41% 

Less market share loss -5.0 -20.0 -35.0 

Total revenue 708.4 782.0 859.6 

EBIT – Sagem Monetel 18.70 24.00 28.75 

% of revenue 11.00% 12% 12.50% 

EBIT – Ingenico 50.4 73.9 88.7 

% of revenue 9.27% 12.28% 13.35% 

Total EBIT 68.57 95.48 112.87 

% of revenue 9.68% 12.21% 13.13% 

Pre-tax synergy 1 15 30 

Post-tax synergy 0.7 10.5 21 

Net profit – Ingenico 32.21 47.52 58.22 

Net profit –Sagem Monetel 13.09 16.80 20.13 

Total net profit 45.80 74.00 97.80 

Number of pre-operation 

32.76 32.76 32.76 

shares (millions) 

EPS pre-operation (EUR) 0.98 1.45 1.78 

Number of post-operation 43.68 43.68 43.68 

shares (millions) 

EPS post-operation (EUR) 1.05 1.69 2.24 

Enhancement/dilution 6.64% 16.79% 26.00% 


Catalysts 

Regarding Ingenico’s prospects for gross margin 

growth, we believe the following areas are likely 

sources of improvement: 

Continued streamlining and building of a 

product platform to standardise the production 

process. For example, reducing the number of 

motherboards, as well as lowering the number 

of product references to fewer than 200. 

Streamlining the supply chain through: 

1) initiatives targeting distribution channels, 

and 2) the reallocation of manufacturing assets 

to improve the flexibility of outsourced 

electronic components, which will, 

furthermore, be produced in low-cost markets. 

We believe that the Ingenico share price will be 

driven by three powerful catalysts: 

Continued growth with or without any 

acquisitions. Sagem Monetel, the most likely 

operation, would not only strengthen 

Ingenico’s R&D facility, but in our view offers 

an excellent fit in terms of product mix and 

would give Ingenico faster access to new PoS 

terminal markets. Without any acquisitions, we 

believe Ingenico should still benefit from the 

growth in the PoS terminal markets (CAGR of 

+8% until 2010e). 

Improvements in operating margin through 

the synergies generated by the potential 

Sagem Monetel merger and, in particular, the 

integration of services into the group’s PoS 

terminal offering (notably for applications 

software) 

Value creation generated by strategic 

refocusing, the progressive repositioning of the 

group on the value chain (client-server) and 

optimised free-cash-flow generation. 

48

Mid cap 



abc 

Valuation 

Our DCF valuation for Ingenico is based on the 

following assumptions: 1) WACC of 10 %; 11.6% 

cost of capital (long bond yield of 4.4%, market 

premium of 4.5%, a beta of 1.6) and normative 

gearing at 20%, and 2) an average terminal 

growth rate between 1% and 3%. Our DCF gives 

a target price of EUR26, which implies a total 

potential return of 21%, above the Neutral band of 

our model, which is 3.9-13.9%. We, therefore, 

reiterate our Overweight rating on the stock. 


We have identified, except for the possible failure 

of the announced deal with Sagem Monetel, three 

major downside risks: 1) exchange rates – the 

company bills its clients in euros, but pays some 

of its suppliers in US dollars (around 40% of 

purchases), 2) rising interest rates, given our 

DCF-based valuation method, 3) a global 

economic downturn having a negative affect on 

secure payments. 

49

Mid cap 



abc 

Financials & valuation: Ingenico 




Revenue 506.2 572.5 641.2 723.6 

EBITDA 37.9 61.7 88.1 107.6 



Net interest -7.8 -5.7 -6.7 -5.6 

PBT 23.6 47.9 72.5 91.3 

HSBC PBT 23.6 47.9 72.5 91.3 

Taxation -7.4 -14.4 -23.9 -30.1 

Net profit 16.2 33.4 48.5 61.0 




Capex -10.3 -12.7 -13.0 -20.0 

Cash flow from investment 2.1 -0.6 -12.3 -19.3 

Dividends 0.0 -11.3 -11.4 -15.2 

Change in net debt -30.5 -25.6 -31.5 -34.2 

FCF equity 22.1 8.6 32.3 38.7 





Cash & others 67.6 83.8 96.3 123.6 

Total assets 459.6 504.4 536.6 590.7 


Gross debt 159.4 150.0 131.0 124.0 

Net debt 91.8 66.2 34.7 0.4 






Revenue 15.9 13.1 12.0 12.8 

EBITDA 63.0 42.8 22.1 

Operating profit 70.4 47.7 22.3 

PBT 102.8 51.3 25.9 

HSBC EPS 96.9 45.0 25.9 

Ratios (%) 

Revenue/IC (x) 2.5 2.6 2.8 3.1 

ROIC 10.6 17.0 23.3 27.4 

ROE 13.6 20.6 24.3 25.4 

ROA 4.8 7.8 10.2 11.5 

EBITDA margin 7.5 10.8 13.7 14.9 









DPS 0.00 0.00 0.00 0.00 

NAV 4.60 5.52 6.65 8.05 


Overweight 


EV/sales 1.6 1.3 1.1 1.0 

EV/EBITDA 20.9 12.4 8.3 6.5 

EV/IC 3.7 3.4 3.2 2.9 

PE* 41.6 21.1 14.6 11.6 

P/NAV 4.7 3.9 3.2 2.7 

FCF yield (%) 3.2 1.2 4.6 5.5 





Reuters (Equity) INGC.PA Bloomberg (Equity) ING FP 



Country France Sector Electronic Equipment 

Analyst Christophe Quarante Contact +33 1 56 52 43 12 


25 

24 

23 

22 

21 

20 

19 

18 

17 

16 

15 


Ingenico Rel to SBF-120 

Source: HSBC 


25 

24 

23 

22 

21 

20 

19 

18 

17 

16 

15 

50

Mid cap 



abc 

Lanxess 

LXS has been transformed into a stable chemicals company… 

…with a portfolio that achieves a profitability in line with peers 

However, LXS still trades at an unjustified discount; target price of 

EUR47.0 implies c32% potential return: Overweight 


Higher quality than perceived 

Since Lanxess’ spin-off in 2005, management has 

done a great deal to transform the business from a 

restructuring case into a ‘normal’ specialty 

chemicals company. Thanks to extensive 

restructuring and divestitures, we believe that the 

characteristics of the current product portfolio are 

better than currently acknowledged by the market. 

Exposure to petrochemicals, operating leverage 

and therefore risk has been reduced significantly 

and the company’s financing is stable and should 

be unaffected by the current market turmoil, in 

our view. 

Furthermore, we are convinced of management’s 

focus on value creation with regard to capital 

allocation, and as a result see acquisitions of small-to 

midsized businesses as a potential positive catalyst 

for the share price. The company’s strong balance 

sheet and the fact that current market conditions 

make it difficult for private equity to compete for 

potential takeover targets should be supportive for 

LXS in this regard. 

Profitability in line with peers… 

Thanks to the ongoing operational improvements, 

management recently brought its 2009 target of 

achieving a margin in line with its peers one year 

forward. Our (unchanged) estimates reflect this 

target and see an EBITDA margin improvement 

from 9.7% in 2006, to 12.7% for 2009e, implying 

an EBITDA CAGR of c6% (07-09e). 

…but Lanxess still trades at a discount 

Although Lanxess is now on a par with its European 

peers in terms of profitability, the market still assigns 

a significant discount of more than 20% based on 

2008-09e PE and EV/EBITDA multiples. Despite or 

just because of the continuous deleveraging of the 

balance sheet, we do not see the discount as justified. 


Analyst: Sebastian Satz 


Tel: +49 211 910 2373 


Email: sebastian.satz@hsbc.de 

(EURm) (EUR) 

(%) 

(x) (x) 

(x) 

Current price (EUR) 35.5 12/2006a 6,944.0 675.0 229.1 2.71 102.8 0.7 13.1 5.8 2.2 16.7 1.0 



Bloomberg LXS GR 12/2009e 6,349.9 807.2 335.1 4.03 9.7 1.6 8.8 4.1 1.9 21.5 0.7 

Reuters 

LXSG.DE 

Source: HSBC 

51

Mid cap 



abc 

Lanxess — organisational structure, 2007* 

Performance Polymers 

(45% of sales / margin level: ) 

Butyl Rubber (11% / ) 

Polybutadiene Rubber (9% / ) 

Technical Rubber Products (11% / ) 

Semi-Crystalline Products (14% / ) 

Advanced Intermediates 

(20% / ) 

Basic Chemicals (15% / ) 

Saltigo (5% / ) 

Performance Chemicals 

(35% / ) 

Material Protection Products (3% / ) 

Inorganic Pigments (7% / ) 

Functional Chemicals (6% / ) 

Leather (7% / ) 

RheinChemie (4% / ) 

Rubber Chemicals (5% / ) 

Ion Exchange Resins (3% / ) 

*Note: The arrow indicates the margin level (EBITDA pre-exceptionals 2006): 10-15%, below 10%, more than 15% 

Source: Lanxess, HSBC estimates 

Consequentially, we reiterate our Overweight rating 

as well as our price target of EUR47, which implies 

a potential return of c32%. 


Lanxess is a German-based, globally operating 

chemicals company with a broad portfolio ranging 

from basic to fine chemicals. A member of the 

MDax, it was spun-off from Bayer in 2004 and 

publicly listed in January 2005. It is among Europe’s 

major producers of chemical and polymer products. 

Originally, the company operated through four 

divisions (Performance Rubber, Engineering 

Plastics, Chemical Intermediates and Performance 

Chemicals). On 25 September 2007, management 

announced that it would reorganise its remaining 13 

business units into three segments, following its 

latest divestment of the Lustran Polymers business 

unit in June 2007. Lanxess now operates in three 

divisions, namely Performance Polymers, Advanced 

Intermediates and Performance Chemicals, with the 

first being the most important in terms of revenues. 

Some 46% of Lanxess’ assets and c50% of its 

c16,000 employees are based in Germany, although 

its revenues are less biased towards its domestic 

market. Asia, as one of the company’s main growth 

drivers, is of increasing importance within the 

company’s sales split and now accounts for c18% of 

group revenues. 

Lanxess —– sales by division, FY 2006 Lanxess — sales by region, FY 2006 

Adv anced 

Intermediates 

19% 

Performance 

Poly mers 

44% 

Performance 

Chemicals 

37% 

Asia/Pacific 

18% 

Americas 

26% 

Germany 

23% 

EMEA w /o 

Germany 

33% 

Source: Lanxess, HSBC 

Source: Lanxess, HSBC 

52

Mid cap 



abc 


Lanxess has been transformed in record time from 

a highly cyclical, barely profitable restructuring 

case into a more stable specialty chemicals group 

that is now on a par with its European peers. In 

the past two years the company implemented 

extensive restructuring programmes –the effects 

from a significant portion of which are yet to 

come in – and divested underperforming business 

units. In our view, the vast majority of Lanxess’ 

business units now operate either in markets with 

positive growth prospects, a disciplined 

supply/demand situation and/or where Lanxess 

has pricing power. Despite all the operational and 

structural improvements, the stock still trades at a 

significant, and in our view, unjustified, discount. 

Catalysts 

M&A activity: we see potential acquisitions as 

the most important possible catalyst for the stock. 

Here, Lanxess should benefit from its strong 

balance sheet and the turbulence in the credit 

markets, which should make it difficult for private 

equity to compete for potential takeover targets. 

Moderate re-gearing: While we see a low 

gearing level as key to successfully weathering a 

potential downturn, some investors perceive 

Lanxess’ balance sheet with a net debt/equity 

Mid cap 



abc 

Financials & valuation: Lanxess 




Revenue 6944.0 6545.9 6132.4 6349.9 

EBITDA 675.0 713.5 767.1 807.2 



Net interest -39.0 -18.0 -9.0 3.5 

PBT 287.0 191.4 407.8 481.2 

HSBC PBT 332.0 397.9 464.3 507.7 

Taxation -85.0 -57.4 -130.5 -154.0 

Net profit 197.0 128.8 271.8 321.5 




Capex -267.0 -298.6 -282.2 -292.7 


Dividends -21.2 -21.2 -19.3 -40.8 

Change in net debt -146.0 -127.9 -196.4 -252.1 

FCF equity 354.0 489.5 307.3 319.4 





Cash & others 171.0 122.0 122.0 122.0 

Total assets 4205.0 3992.5 4118.7 4228.3 


Gross debt 1202.0 1025.1 828.7 576.6 

Net debt 1031.0 903.1 706.7 454.6 






Revenue -2.9 -5.7 -6.3 3.5 

EBITDA 16.2 5.7 7.5 5.2 


PBT -33.3 113.0 18.0 

HSBC EPS 102.8 15.6 17.3 9.7 

Ratios (%) 

Revenue/IC (x) 3.9 3.8 3.5 3.6 

ROIC 16.7 18.9 20.6 21.5 

ROE 17.3 18.2 19.4 18.3 

ROA 5.1 3.6 7.0 7.8 

EBITDA margin 9.7 10.9 12.5 12.7 


EBITDA/net interest (x) 17.3 39.6 85.2 







DPS 0.25 0.23 0.49 0.58 

NAV 16.58 17.59 20.37 23.65 


Overweight 


EV/sales 0.6 0.6 0.6 0.5 

EV/EBITDA 5.7 5.2 4.6 4.1 

EV/IC 2.2 2.2 2.0 1.8 

PE* 13.1 11.4 9.7 8.8 

P/NAV 2.1 2.0 1.7 1.5 

FCF yield (%) 12.5 17.3 10.8 11.3 





Reuters (Equity) LXSG.DE Bloomberg (Equity) LXS GR 



Country Germany Sector Chemicals 

Analyst Sebastian Satz Contact +49 211 910 2373 


49 

44 

39 

34 

29 

24 

24 


Lanxess Rel to DAX-100 

Source: HSBC 


49 

44 

39 

34 

29 

54

Mid cap 



abc 

Metka 

In our view, Metka remains a promising vehicle with which to play 

the imminent liberalisation of the Greek electricity sector 

Consistent financial performer; keeps delivering on expectations 

Target price of EUR20.5 (13% potential total return); Overweight 


Metka, c52%-owned by Mytilineos Group (MG), 

is involved mainly in the EPC (engineeringprocurement-construction) 

of power plants. 

Overall, we believe that Metka is a consistent 

financial performer that keeps delivering on both 

our and market expectations. We also expect 

potential positive newsflow (new project awards 

both in Greece and abroad) to boost sentiment and 

financials. In our view, Metka remains a 

promising vehicle with which to play the 

imminent liberalisation of the Greek electricity 

sector, while continued international expansion 

further improves earnings visibility. On balance, 

we believe Metka’s strong backlog, resilient 

margins and bright prospects are not fully priced 

in at current levels. 

Strong Q2/H1 2007 results 

Metka released in August a very strong set of H1 

interims, which were above our estimates across 

the board (with the exception of the top line) on 

the back of impressive gross margin performance 

and cost containment. Metka recorded net profit 

of EUR13.5m in Q2 2007, matching last year’s 

record-high quarterly performance. 

Attractive valuation – Overweight 

Metka’s share price has gained 86% in absolute 

terms y-t-d, outperforming the market by 52%, on 

constant positive newsflow and strong results. 

Having said that, Metka’s relative valuation 

against its admittedly much larger peers continues 

to look attractive. Metka trades at a discount on 

2007-09e PE and EV/EBITDA, while offering a 

significantly higher dividend yield (in 2008e, 

Metka’s DY of 4.6% is among the highest in our 

Greek universe, on our estimates), but a weaker 

growth outlook (2006-09e EPS CAGR of 14.8%, 

versus 18.3% for the peer group). 

Key facts ___________________ Financial summary_____________________ ___________Valuation summary____________ 

Analyst: Vangelis Karanikas 

Year to Revenue EBITDA HSBC HSBC HSBC Yield HSBC EV/ EV/ ROIC HSBC 

Tel: +30 210 6965 211 

(EURm) (EURm) net profit EPS EPS growth (%) PE EBITDA IC (%) REP 

Email: vangelis.karanikas@hpss.hsbc.gr 


(x) (x) (x) 

(x) 



Mkt cap (EURm) 966.3 12/2008e 548.8 104.9 75.6 1.46 56.4 4.6 12.8 9.1 5.8 46.3 1.1 

Bloomberg METTK GA 12/2009e 494.9 85.8 61.5 1.18 -18.6 4.6 15.7 11.1 5.2 34.8 1.4 

Reuters 

MTKr.AT 

Source: Reuters, HSBC estimates 

55

Mid cap 



abc 

Metka’s sales and EBITDA breakdown per project category (IFRS, EURm) 

2007e % of total 2008e % of total y-o-y 2009e % of total y-o-y 

Sales 

EPC/Energy 259.4 82% 446.6 81% 72% 393.0 79% -12% 

Defence 20.9 7% 46.2 8% 121% 27.2 5% -41% 

Infrastructure* 35.8 11% 56.0 10% 57% 74.7 15% 33% 

Total sales 316.1 100% 548.8 100% 74% 494.9 100% -10% 

EBITDA ex-management fees 

EPC/Energy 58.3 77% 86.7 75% 49% 74.3 76% -14% 

Defence 8.2 11% 17.8 15% 117% 9.9 10% -45% 

Infrastructure 8.8 12% 11.4 10% 29% 14.0 14% 24% 

Total EBITDA ex-mgt fees 75.3 100% 115.9 100% 54% 98.1 100% -15% 

EBITDA % ex-mgt fees 

EPC/Energy 22.5% 19.4% 18.9% 

Defence 39.4% 38.6% 36.2% 

Infrastructure 24.5% 20.3% 18.8% 

Total EBITDA % ex-mgt fees 23.8% 21.1% 19.8% 

*Note that Metka’s subsidiary sales are categorised as infrastructure 

Source: HSBC Pantelakis Securities estimates 

75 


Metka is the leading electromechanical and metal 

construction company in Greece, actively engaged 

in the energy (construction of thermoelectric, 

hydroelectric and gas-fired power plants), defence 

(co-production of defence systems in co-operation 

with foreign manufacturers) and infrastructure 

(manufacturing of heavy steel constructions and 

integrated electromechanical equipment) sectors. 

Metka’s order backlog as at end-H1 2007 was 

cEUR650m, including the Aliveri power plant 

project. Energy-related projects account for 91% 

of Metka’s backlog, defence accounts for 8% with 

the remaining 2% stemming from infrastructure. 

To put things into perspective, we expect Metka’s 

sales and EBITDA margin, ex-management fees, 

in 2007-09e to be largely driven by energy-related 

EPC projects (18-20% average margin). The 

defence division should provide margin support in 

years that defence-related revenues have a more 

material contribution to group sales, largely on the 

back of the lucrative c40%-margin Leopard project 

(8.5% of total 2008e sales secured by backlog). 

We believe that Metka’s low-cost structure and 

experience gives it a considerable competitive 

advantage. More importantly, in our view, the 

risks for significant medium-term margin 

downgrades are low, given the high average 

margin of Metka’s EPC project pipeline (20.6%). 


Overall, our positive view on Metka is based on 

the following: a) we are confident that Metka will 

Metka : sales by division (FY 2007e) Metka: EBITDA* by division (FY 2007e) 

Defence 

6.6% 

22.5% margin 39.4% margin 

Defence 

10.9% 

EPC/Energy 

82.1% 

Infrastructure 

11.3% 

EPC/Energy 

77.4% 

24.5% margin 

Infrastructure 

11.7% 


Note: * EBITDA is ex-management fees to MG 


56

Mid cap 



abc 

be a major beneficiary of the upcoming domestic 

energy market liberalisation, given its excellent 

track record and expertise in energy projects, b) 

MG’s stated strategic focus on energy, the cooperation 

agreement with Hellenic Technodomiki 

(HT) in thermal power generation and the strategic 

partnership with Alstom should provide a steady 

flow of business for Metka in the medium term, 

and c) Metka’s international expansion strategy is 

now clear and we expect it to contribute materially 

to group financials post-2007. 

Catalysts 

We see a number of potential pockets of value 

that could increase our target price for Metka. In 

chronological order, these include: 

a) The construction of Endesa Hellas’ EUR800m, 

600MW coal-fired power plant, subject to the 

granting of the construction licence by the 

Development Ministry (EUR0.85/share) 

b) The construction of a EUR550m 330MW 

lignite-fired power plant, subject to MG and HT 

winning the Vevi mine tender, which is currently 

under way (EUR1.15/share) 

c) The completion of Metka’s industrial relocation 

project (EUR0.9-1.3/share; however, we do not 

expect this to occur in the near future) 

d) A potential capital return in 2009e (ie at least 

EUR1.0/share, implying a potential return of 6%) 

Valuation 

In our DCF model, we have used a WACC of 9.1% 

and a long-term growth rate of 3%. Following the 

Aliveri project award, we continue to assume a 33% 

success ratio for PPC’s future plant replacement 

projects, and we also continue to attach a 50% 

probability that Endesa Hellas will finally go ahead 

with the construction of a 600MW cleantechnology, 

coal-fired power plant at a cost of 

cEUR800m. On top of that, we assume that Endesa 

Hellas will also go ahead with the construction of a 

third natural gas-fired CCGT plant in Volos, central 

Greece, at a cost of EUR225m, some time in 2008. 

The above projects are included in our valuation 

model, but not in our financial estimates. 

Our DCF-based target price of EUR20.5/share 

implies a one-year potential total return of 12.9% 

from current levels, including the FY2007e DPS of 

EUR0.50 (DY 2.7%). We have an Overweight 

rating for Metka. Our TP is based on the assumption 

of a 20% long-term (ie post-2010) EBITDA margin 

(ex-management fees). We also expect Metka’s 

average LT (ie 2011-20) sales to reach EUR700m. 

Fair value sensitivity on LT sales and EBITDA margin (EUR/share) 

___ 2011-20e average sales (EURm) ___ 

626 662 700 740 783 

18.0% 16.6 17.5 18.4 19.4 20.5 

19.0% 17.5 18.4 19.5 20.5 21.7 

Long-term 20.0% 18.4 19.4 20.5 21.7 22.9 

EBITDA % 21.0% 19.3 20.4 21.6 22.8 24.1 

22.0% 20.2 21.4 22.6 23.9 25.3 

Source: HSBC Pantelakis Securities estimates 


The key negative risks to our forecasts and rating 

are: a) a potential failure by Endesa Hellas to get 

the construction licence for the 600MW coal-fired 

plant, which would take 4% off our valuation, or 

EUR0.8/share; b) a below 33% success rate in 

PPC’s future plant recycling programme. The 

unlikely scenario of Metka failing to win one out 

of three upcoming PPC projects would take 2% off 

our valuation, or EUR0.3/share; and c) a potential 

cancellation of Endesa Hellas’ plans to build a 

third natural gas-fired CCGT plant in Volos would 

take 3% off our valuation, or EUR0.5/share. 

Other negative risks include possible delays in the 

liberalisation of the Greek electricity market, 

reductions in government defence spending, 

weaker-than-anticipated margins, and failure to 

secure projects in the Balkans together with 

Alstom. Finally, human resources capacity 

constraints (ie, a failure to secure an adequate 

amount of skilled engineers) could result in Metka 

turning down potential new projects, especially 

outside Greece, or ineffective cost control. 

57

Mid cap 



abc 

Financials & valuation: Metka 




Revenue 294.1 316.1 548.8 494.9 

EBITDA 60.8 70.6 104.9 85.8 



Net interest 0.0 -0.8 0.9 1.1 

PBT 54.9 64.9 100.8 82.0 

HSBC PBT 54.9 64.9 100.8 82.0 

Taxation -14.4 -16.2 -25.2 -20.5 

Net profit 40.6 48.3 75.6 61.5 




Capex -3.9 -12.0 -4.0 -4.0 


Dividends -20.8 -26.0 -44.2 -44.2 

Change in net debt 14.6 23.3 -25.0 0.4 

FCF equity 7.7 -0.7 63.9 45.0 





Cash & others 8.7 13.2 8.1 7.7 

Total assets 225.8 272.1 290.8 309.1 


Gross debt 2.2 30.0 0.0 0.0 

Net debt/(cash) -6.5 16.8 -8.1 -7.7 




Overweight 


EV/sales 3.3 3.1 1.7 1.9 

EV/EBITDA 15.8 13.9 9.1 11.1 

EV/IC 8.5 6.2 5.8 5.2 

PE* 23.8 20.0 12.8 15.7 

P/NAV 8.7 7.2 5.9 5.3 

FCF yield (%) 0.8 -0.1 6.6 4.7 





Reuters (Equity) MTKr.AT Bloomberg (Equity) METTK GA 

Market cap (USDm) 1,369.4 Market cap (EURm) 966.3 


Country Greece Sector Machinery 

Analyst Vangelis Karanikas Contact +30 210 6965 211 


21 

21 

19 

19 

17 

17 

15 

15 

13 

13 

11 

11 

9 

9 

7 

7 


Metka Rel to ATHENS SE 




Revenue 38.2 7.5 73.6 -9.8 

EBITDA 15.7 16.1 48.6 -18.2 

Operating profit 16.4 17.5 52.2 -19.0 

PBT 5.4 18.2 55.4 -18.6 

HSBC EPS 8.7 19.0 56.4 -18.6 

Ratios (%) 

Revenue/IC (x) 3.2 2.3 3.4 2.8 

ROIC 45.1 36.3 46.3 34.8 

ROE 41.2 39.6 50.7 35.5 

ROA 16.5 19.8 26.9 20.6 

EBITDA margin 20.7 22.3 19.1 17.3 


EBITDA/net interest (x) 88.2 

Net debt/equity -5.3 11.6 -4.6 -3.9 

Net debt/EBITDA (x) -0.1 0.2 -0.1 -0.1 

CF from operations/net debt 66.2 




DPS 0.40 0.50 0.85 0.85 

NAV 2.14 2.57 3.17 3.51 

Source: HSBC 


Stated accounts as of 31 Dec 2004 are IFRS compliant 

58

Mid cap 



abc 

Séché Environnement 

Stake bought in Saur last April should lead to Séché becoming the 

No.3 multi-utility player in France 

Seemingly lacklustre H1, but full-year guidance maintained, 

auguring well for a dynamic H2 

Overweight rating and EUR138 target price maintained 


So far the only challenger to Suez and Veolia in 

the pure waste-management market, Séché made a 

major strategic move by acquiring of 33% of 

HIME last April (controlling holding of water 

management company Saur). In our view, Séché’s 

first move to take its stake in SAUR in April was 

just a first step. The group could well take a 

majority stake in Saur given the financial package 

set up by the consortium of players which was set 

up to acquire Saur and we expect Séché to up its 

stake in 2008-2009. Such a move would be not 

only an excellent opportunity, given that water 

and waste treatment in France are dynamic 

markets (favourable regulatory framework, high 

entry barriers, pricing power in waste treatment, 

etc), but also a unique chance for the group, since 

Saur’s shareholding structure is now closed to 

further investors. 

Lacklustre H1, but dynamic H2 ahead 

Despite top-line weakness (sales up 2.7% to 

EUR178.9m), group margins held up in H1, with 

the operating margin on ordinary activities 

increasing by 30bp to 15.1%. This rise came 

mainly from stable amortisation costs and 

provision levels, thanks to controlled investment 

over the past three years. 

Management reiterated its organic growth forecast of 

around 7% for 2007, excluding the impact of the 

Abidjan soil decontamination contract. This full-year 

target reflects group confidence in its ability to 

generate average organic growth of 14% in the 

second half. The group also confirmed its 2007 

operating-margin forecast of 17%. This objective 

implies that the H2 operating margin on ordinary 

activities will increase by 90bp to 18.6%. We 

believe this is feasible, given the group’s prospects 

of a rebound in the second half. 


Murielle André-Pinard 


Tel: +33 1 56 52 43 16 


Email: murielle.andre.pinard@hsbc.com 


(x) (x) 

(x) 




Bloomberg SCHP FP 12/2009e 443.5 132.4 60.4 7.00 11.3 1.7 17.8 7.9 1.6 8.4 1.4 

Reuters 

CCHE.PA 


59

Mid cap 



abc 

Positioning of Séché Environnement 

Source: company 

Overweight; target price of EUR138 

Using HSBC DCF model (based on a cost of capital 

of 8.9% and long-term operating margin of 19.0%), 

we derive a target price of EUR138. Our target price 

offers a total potential return of c10.6% to the current 

share price, and we have an Overweight rating on 

the stock. In our view, the acquisition of 33% of 

Saur was motivated by the group’s aim to create a 

coherent multi-services group, which could become 

the third-ranking sector player in France. 


Séché Environnement is the third player in the 

waste-management market, but it is far behind 

Suez and Véolia Environnement. Thanks to its 

smaller size and its more pure business model, the 

group was able to maintain sustained organic 

growth over the past 10 years (between 6% and 

8% on average). The group should continue to 

benefit from: 1) an increasingly favourable 

regulatory environment and 2) its ability to boost 

treatment capacity steadily and to adapt its plants 

to deal with the treatment of new waste with 

higher value added. 

Séché: sales by division (FY 2006) Séché: sales by region (FY 2006) 

Upstream 

activ ities 

20% 

Latin America 

Asia 

Europe 

4% 

3% 

0% 

BIW-HW 

24% 

HIW 

56% 

France 

93% 



60

Mid cap 



abc 

When Séché Environnement was floated on the 

stock market in 1997, it was operating only one 

landfill (class I and II) near Laval (250 hectares). Its 

market capitalisation in 2001 was less than 

EUR400m. The successive acquisitions and 

consolidations of Alcor in 2001 and Tredi in 2002 

lifted this to above the EUR1bn mark. With Saur, the 

group is, in our view, now about to undergo another 

change in size. 


In our view, the acquisition of 33% of Saur was 

motivated by the group’s aim to create a coherent 

multi-services group, which could become the 

third-ranking sector player in France. We expect 

significant synergies, not only in waste collection 

and treatment, but also in water activities, which 

have several things in common, namely, the same 

client base, similar ties with local authorities and 

attractive business models (high entry barriers, 

recurring cash flow). The recent announcement of 

Suez Environnement’s future market listing is 

particularly interesting. Not only does this mean 

that another pure investment vehicle will exist 

alongside Séché Environnement, but it will also 

give the environment market a powerful boost, 

and reduce dispersion risk for Séché. 

Catalysts 

There are several potential catalysts that we think 

could lead to a medium-term revaluation: 

Confirmation of growth acceleration in the 

coming quarters’ releases 

Positive regulatory changes, resulting from 

the Grenelle de l’Environnement in France 

Reassuring announcements regarding Saur’s 

financial situation 

Valuation 

Our valuation is based solely on a DCF approach. 

The HSBC DCF model is based on the principle that 

an enterprise cannot create value indefinitely in a 

competitively efficient market. Return-on-invested 

capital trends towards the weighted average cost of 

capital. The HSBC model discounts economic profit 

over 38 years, during which time the ROIC 

progressively converges with WACC. We use the 

cost of equity as the discount rate; the tax shields are 

valued separately. The cost of equity comes out at 

8.9%, assuming a 10-year risk-free rate of 4.4%, a 

market risk premium of 4.5% and a beta of 1.0 

(albeit conservative, given the defensive profile of 

the stock, this beta level factors in the risks 

associated to how Séché will go about increasing its 

stake in Saur). We also assume growth to infinity of 

2.5% and a long-term sustainable operating margin 

of 19.0%. These assumptions give a valuation of 

EUR1,191m, ie, EUR138 per share. 

Sensitivity table (EUR) 

_____________ Discounted over_______________ 

Years 15 20 25 30 38 

Cost of capital 

8.0% 102.4 113.6 125.1 138.2 153.8 

8.5% 96.8 107.3 118.5 131.6 146.2 

8.9% 91.4 101.2 112.1 124.3 138.0 

9.5% 89.8 97.4 106.8 119.4 132.4 

10.0% 83.4 91.9 101.2 135.8 139.1 


We have not retained the peer comparison 

approach in our valuation, since major rivals Suez 

and Veolia are significantly larger and more 

diversified than Séché. It is, however, interesting 

to note that on our estimates, Séché is trading at 

an average discount of around 15% to Véolia, 

which is excessive, in our view, given that Séché 

is a purer player than Veolia (also present in 

transport and energy services). 

61

Mid cap 



abc 


We have identified the following major potential 

downside risks to our rating: 

Uncertainty about how Séché will go about 

increasing its stake in Saur’s capital 

(timing, price) 

Risks attached to the change to IFRS 

accounting and the significant impact of asset 

depreciation 

Execution risk of Saur integration if Séché 

were to gain control 

62

Mid cap 



abc 

Financials & valuation: Seche Environnement 

Overweight 




Revenue 379.3 391.4 414.5 443.5 

EBITDA 101.8 107.4 118.7 132.4 



Net interest -7.5 -4.0 -4.0 -2.5 

PBT 54.2 59.2 79.3 88.2 

HSBC PBT 54.2 59.2 79.3 88.2 

Taxation -19.4 -21.9 -24.9 -27.8 

Net profit 34.3 36.8 54.3 60.4 




Capex -30.1 -50.9 -49.7 -53.2 


Dividends -7.1 -11.2 -11.0 -16.3 


FCF equity 34.2 28.4 36.0 43.7 





Cash & others 11.8 11.8 11.8 11.8 

Total assets 545.5 824.9 845.4 869.0 


Gross debt 118.7 291.8 266.4 238.0 

Net debt 106.9 280.0 254.6 226.1 





EV/sales 3.1 2.8 2.6 2.4 

EV/EBITDA 11.7 10.2 9.0 7.9 

EV/IC 1.9 1.7 1.7 1.6 

PE* 29.1 27.5 19.8 17.8 

P/NAV 0.0 0.0 0.0 0.0 

FCF yield (%) 3.2 3.5 4.4 5.4 





Reuters (Equity) CCHE.PA Bloomberg (Equity) SCHP FP 



Country France Sector Commercial Services 

Analyst Murielle Andre-Pinard Contact 33 1 56 52 43 16 


149 

139 

129 

119 

109 

99 

99 


Seche Environnement Rel to SBF-120 

149 

139 

129 

119 

109 




Revenue 12.2 3.2 5.9 7.0 

EBITDA 16.9 5.5 10.6 11.5 


PBT 18.5 9.2 33.9 11.3 

HSBC EPS 5.2 5.7 38.8 11.3 

Ratios (%) 

Revenue/IC (x) 0.6 0.6 0.7 0.7 

ROIC 6.5 6.7 7.9 8.4 

ROE 13.6 12.0 13.8 13.9 

ROA 6.4 5.4 6.5 7.0 

EBITDA margin 26.8 27.4 28.6 29.9 









DPS 1.40 1.28 1.89 2.10 

NAV 34124562.63 43492735.46 47895994.69 52795061.95 

Source: HSBC 



63

Mid cap 



abc 

Spectris 

Market-leading niche supplier of testing and inspection equipment 

Robust demand backdrop and restructuring should drive strong 

near-term EPS growth 

Rising CFROI and low cost of capital lead to 1,010p target price, 

reiterate Overweight rating 


Spectris is a niche producer of testing and 

inspection equipment, serving a broad range of 

end-markets and selling directly to a largely bluechip 

customer base. The group typically invests 

around 7% of sales in R&D and develops whollyowned 

intellectual property in order to 

differentiate itself on product excellence rather 

than price. Although the aftermarket represents a 

modest proportion of total sales (c25%), unlike 

many of its competitors Spectris is reluctant to 

sacrifice product margin in search of more stable 

service revenues. 

Market backdrop is especially robust 

The group is currently benefiting from a strong 

industrial backdrop in emerging economies, 

combined with buoyant market conditions in 

Continental Europe. Together, these areas account 

for nearly two-thirds of group sales. Medium-term 

demand is underpinned by positive drivers for 

testing and inspection, supported by environmental 

regulation on emissions, noise, waste, and health 

and safety, for which trends are increasingly 

migrating towards developing markets. 

Furthermore, despite the group’s market exposure 

being fairly diverse, we estimate that process 

industries account for c50% of sales – this is an 

area where we forecast a 13% increase in capital 

investment over the next two years. 

Margins reaching respectable levels 

Historically, Spectris’ margins have been 

uninspiring, but management’s efforts have 

recently focused on enhancing profitability 

through recent restructuring initiatives and 

disposals. As a result, we believe the group is now 

on course to meet mid-teens margin targets in FY 

2007 (from 12.2% in FY 2006), despite 

substantial currency headwinds. 


Analyst: Gary Murphy 

Year to Revenue EBITDA HSBC HSBC HSBC Yield HSBC EV/ EV/IC ROIC HSBC 

Tel: +44 20 7991 6749 

December (GBPm) (GBPm) net profit EPS EPS growth (%) PE EBITDA (x) (%) REP 

Email: gary.murphy@hsbcib.com 

(GBPm) (GBp) (%) 

(x) (x) 

(x) 

Current price (GBP) 9.08 12/2006a 642.6 66.5 54.6 0.44 22.5 1.9 20.7 11.8 3.4 18.4 1.2 

Target price (GBP) 10.1 12/2007e 656.1 98.8 66.8 0.55 25.1 2.2 16.6 10.3 3.2 20.1 1.6 

Mkt cap (GBPm) 1,088 12/2008e 687.5 101.0 71.4 0.62 12.2 2.4 14.8 9.3 3.3 21.1 1.7 

Bloomberg SXS LN 12/2009e 715.5 101.3 77.3 0.67 8.2 2.5 13.7 8.5 3.1 22.6 1.6 

Reuters 

SXS.L 


64

Mid cap 



abc 


Spectris 

Process Technology Electronic Controls In-line instrumentation 

Products/ activities 

Particle measuring systems, x-ray analysis 

equipment, materials analysis, transducers, sound 

meters, vibration measurement. 

Load cells, transducers, strain gauges, signal 

conditioning, data acquisition systems, weighing 

systems, barcode scanning and decoding 

Infra-red, x-ray and microwave sensors, gas 

analysers, condition monitoring 

Businesses 

Bruel & Kjaer, Fusion UV, Malvern Instruments, 

PANalytical, PMS 

HBM, Microscan, Red Lion Controls 

BETA Lasermike, Bruel & Kjaer Vibro, BTG, 

NDC, Servomex 

Source: HSBC, Spectris 

Valuation – Attractive entry point 

In our view, Spectris shares remain inexpensive 

trading on 14.8x 2008e EPS. This represents a 5% 

valuation premium to its UK sector peers, but a 

30% discount against its major US competitor 

peer group. We feel that with the imminent 

accomplishment of its medium-term targets, the 

strategy will shift from margin recovery to the 

balance of organic and acquisitive growth and 

consequently we think there is scope for a further 

re-rating of the shares. 


Spectris is involved in the development and 

manufacture of a range of precision testing and 

inspection instrumentation and control equipment, 

which assists customers in improving the 

efficiency, quality and cost-effectiveness of their 

production process. 

The group’s niche focus gives rise to a fairly 

diverse competitor base, with rival players 

ranging from subsidiaries of large industry 

conglomerates, such as GE (in condition 

monitoring), Rockwell (electronic controls, UW, 

ROR US, USD71.7) and Siemens (OW, SIE GR, 

EUR98) and ABB (in gas analysis, OW, ABBN 

VX, CHF32.9), to niche players in the high-tech 

end of the analytical product range such as Horiba 

(Japan), Dionex, Danaher and Roper Industries, 

Perkin Elmer (all US) and Gefran (Italy). 


With underlying trading strong, H1 2007 organic 

sales growth reached nearly 8%. Given the growth 

in volume sales, we believe there is further scope 

to improve margins, as the benefits of operational 

gearing materialise and our model assumes a 40% 

rate of profit drop-through. Additionally, we 

remain comfortable that (EUR and USD) currency 

headwinds can be offset through the benefits of 

restructuring emerging over the next 18 months. 

Finally, impressive cash generation within 

Spectris: sales by end-market (2007e) 

Spectris: sales by region (H12007) 

Electronics 

5% 

R&D 

7% 

Energy & utilities 

7% 

Semicons 

3% 

Print and pack. 

4% 

Manuf. 

6% 

Pulp and paper 

9% 

Other 

20% 

Transport 

15% 

Pharma/Chem. 

12% 

Metals & mining 

12% 

Rest of world UK 

Rest of Asia 6% 4% 

10% 

China 

8% 

Japan 

8% 

North America 

24% 

Continental Europe 

40% 


Source: Spectris 

65

Mid cap 



abc 

management’s target of 90-100% conversion 

should keep borrowing costs low in the absence of 

any acquisitions. As a result, we are forecasting a 

double-digit CAGR in EPS over 2007-10e. 

Catalysts 

Forthcoming potential catalysts include: 

Addressing the company’s inefficient capital 

structure – Spectris remains relatively 

undergeared, with a net debt-to-EBITDA ratio 

of

Mid cap 



abc 

Financials & valuation: Spectris 

Overweight 



Profit & loss summary (GBPm) 

Revenue 643 656 687 716 

EBITDA 99 112 121 127 

Depreciation & amortisation -16 -16 -14 -13 

Operating profit/EBIT 83 100 108 115 

Net interest -7 -5 -4 -1 

PBT 86 113 102 111 

HSBC PBT 79 95 105 114 

Taxation -24 -29 -33 -36 

Net profit 22 49 49 50 

HSBC net profit 55 67 71 77 

Cash flow summary (GBPm) 

Cash flow from operations 42 68 67 61 

Capex -11 -18 -12 -12 

Cash flow from investment -11 -19 18 -12 

Dividends -18 -20 -23 -24 

Change in net debt -41 -12 -25 -48 

FCF equity 61 63 70 72 

Balance sheet summary (GBPm) 

Intangible fixed assets 215 217 219 221 

Tangible fixed assets 83 105 109 112 

Current assets 296 294 297 311 

Cash & others 51 63 78 93 

Total assets 632 649 656 667 

Operating liabilities 204 198 205 205 

Gross debt 113 109 112 103 

Net debt 78 66 41 -7 

Shareholders funds 294 319 320 341 

Invested capital 340 355 343 346 




EV/sales 1.8 1.8 1.6 1.5 

EV/EBITDA 11.8 10.3 9.3 8.5 

EV/IC 3.4 3.2 3.3 3.1 

PE* 20.7 16.6 14.8 13.7 

P/NAV 3.8 3.3 3.3 3.1 

FCF yield (%) 5.6 5.8 6.5 6.6 




Share price (GBPp) 908 Target price (GBPp) 1,010 Potent'l tot rtn (%) 11.2 

Reuters (Equity) SXS.L Bloomberg (Equity) SXS LN 

Market cap (USDm) 2,215 Market cap (GBPm) 1,088 

Free float (%) 100 Enterprise value (GBPm) 1154 

Country United Kingdom Sector Electronic Equipment 

Analyst Gary Murphy Contact 44 20 7991 6749 


1006 

906 

806 

706 

606 

506 

406 

306 

Source: HSBC 

2005 2006 2007 2008 

Spectris Rel to FTSE ALL-SHARE 

1006 

906 

806 

706 

606 

506 

406 

306 



Revenue -2.0 2.1 4.8 4.1 

EBITDA 14.9 13.7 7.8 4.5 


PBT 68.2 31.6 -9.0 8.7 

HSBC EPS 22.4 25.1 12.2 8.2 

Ratios (%) 

Revenue/IC (x) 1.9 1.9 2.0 2.1 

ROIC 18.4 20.1 21.1 22.6 

ROE 19.9 21.8 22.3 23.4 

ROA 5.1 9.0 8.6 8.4 

EBITDA margin 15.4 17.1 17.6 17.7 



Net debt/equity 26.4 20.5 12.8 -2.0 

Net debt/EBITDA (x) 0.8 0.6 0.3 -0.1 

CF from operations/net debt 54.1 103.8 163.2 

Per share data (GBPp) 



DPS 17.50 20.00 21.80 22.80 

NAV 236.60 271.41 277.33 295.71 



67

Mid cap 



abc 

Teleperformance 

The company’s strong position worldwide, coupled with faultless 

management should allow its results to continue growing (2006- 

09e sales CAGR +10.5% pa, EPS +15.0%) 

Acquisitions paid in cash and the resulting financial leverage on 

balance sheet should be the main catalyst for the stock 

The recent fall in the share price leaves significant upside 

potential. DCF target price of EUR38 (potential 38% return). 

Overweight 


Teleperformance is the second-ranking player 

globally in the outsourced call centre market. The 

group has increased its market share (3.2%) through 

average organic growth of 9.5% in each of the past 

six years vs +7.0% for the market (IDC). This strong 

organic growth is combined with an active external 

growth policy, aiming at improving the group’s 

geographical coverage. At the same time, in our 

view the company managed its profitability 

perfectly, with an average operating margin of 8.6% 

over the past six years (lowest level of 7.7% in 

2003), despite the economic slowdown during 2001- 

03. The company notably managed its productivity 

through network rationalisation, focus on high valueadded 

niches and the relocation of resources to lowcost 

regions. For the next three years, we expect 

organic growth of 6% per year and an operating 

margin above 10%. 

We think the present price and valuation ratios 

(2008e EV/sales 0.8x, EV/EBITDA 5.7x, PE 

14.2x) offer an opportunity to invest in the stock, 

taking into account: 1) the expected 2006-09e 

average annual growth of EPS before accretive 

acquisitions (+15% pa), 2) positive net cash 

position, excluding any refinancing or debt 

problems, 3) good regional distribution of client 

sectors, 4) a steady global performance and 

limited variation in operating margin. 


Analyst: Antonin Baudry 


Tel: +33 (0) 1 56 52 43 25 


Email: antonin.baudry@hsbc.fr 


(x) (x) 

(x) 

Current price (EUR) 27.5 12/2006a 1,385.2 194.6 76.1 1.59 -12.2 1.5 20.1 7.1 1.5 9.9 1.3 



Bloomberg RCF FP 12/2009e 1,866.2 263.3 115.8 2.10 5.7 1.9 13.1 4.7 0.9 8.6 0.9 

Reuters 

ROCH.PA 


68

Mid cap 



abc 

Key performance indicators over the 2001-06 period compared with our expectations for 2007 

2001 2002 2003 2004 2005 2006 CAGR 2001-06 2007e 

Total growth 29.5% 16.4% -7.6% 10.3% 25.2% 15.9% 15.0% 11.0% 

Organic growth 11.0% 10.0% -1.2% 11.6% 12.6% 11.7% 9.5% 8.0% 

EBIT margin 8.3% 9.0% 7.7% 8.1% 9.3% 9.5% 8.6% 10.0% 

Change (bp) +0.7 -1.3 +0.4 +1.2 +0.2 +0.5 

Acquisitions carried out by the group since November 2006 

Date Company Country Stake Centres Stations Sales (EURm) Price (EURm) 

21-nov-06 SCMG (Extratel/libertycall) Switzerland 68% 2 500 22 

13-march-06 Twenty4help Germany 100% 12 3000 100 85 

14-may-07 Phone House Services France 62% 5 1200 45 

02-aug-07 Alliance One United States 100% 12 2200 82 82 

Total 31 6900 249 212 

Source: Teleperformance, HSBC estimestes 

Our target price of EUR38 implies a potential 

return of 38%, leading to our Overweight rating. 


A worldwide leader 

IDC values the outsourced call centre market 

(telemarketing, integrated CRM programmes, 

Technical assistance) at EUR42.8bn in 2006 (18% 

of the overall call centre market), growing by 7%. 

With 2006 sales of EUR1,385m, ie, 3.2% market 

share, Teleperformance is the second-ranking 

player in the world after Convergys (US). The 

group has increased its market share through 9.5% 

organic growth per annum over the past six years. 

Even if Teleperformance is second in terms of 

revenues, it is No.1 in terms of geographical 

coverage, with 56,482 work stations in 263 call 

centres located in 42 countries. 

The market is still highly fragmented, but it is 

currently undergoing consolidation to cope with 

expectations of clients searching for operators that 

are solid, covering several regions, capable of 

integrating technological changes rapidly and 

offering the lowest prices, with the objective of 

cost optimisation. 

Teleperformance is clearly positioned as a 

predator. Its strong organic growth is combined 

with an active external growth policy, aimed at 

improving the group’s geographical coverage and 

presence in countries targeted for strategic 

expansion (US, UK, France, Germany). The 

cumulative sales of companies acquired over the 

past three years account for more than 25% of the 

total sales we expect this year. 

Teleperformance: sales by activity (FY 2006) Teleperformance: sales by client sector (FY 2006) 

Customer 

acquisition 

22% 

Debt 

collection 

2% 

Technical 

assistance 

16% 

Other 

6% 

Customer 

value growth 

54% 

Retail 

2% 

Public sector 

4% 

Insurance 

8% 

Techno/ 

Medias 

7% 

F inancial 

services 

11% 

Other 

12% 

Telecoms 

56% 

Source: Teleperformance 

Source: Teleperformance 

69

Mid cap 



abc 

Strong management of margins 

Given the sector’s high fixed-cost structure that is 

faced with client pricing pressure, call centre 

companies must strive to improve cost and 

performance. Teleperformance has managed its 

profitability well in the past, with an average 

operating margin of 8.6% over the past six years 

(lowest level of 7.7% in 2003), despite the 

economic slowdown in 2001-03 and the negative 

effect of the ‘do not call’ list in the US in 2003. 

For 2007, management guides for an operating 

margin of 10.0%, which represents for us its 

normative level. We believe the company no longer 

has any immediate and substantial opportunities at 

the operating level that could enhance profitability, 

although it possesses some long-term opportunities, 

including: 1) the integration of more profitable 

companies (acquisitions), 2) the growing 

contribution of higher-margin niche activities, such 

as technical support, 3) the increased reliance on 

offshore resources, 4) the development of new 

teleworking techniques. 

We think the gradual effect of profitability drivers 

should allow the company to maintain its margin 

above 10% over the next three years. We forecast 

average net profit growth of 15% pa over 2006-09. 


Teleperformance is a defensive stock. Over the 

past six years, its average organic growth reached 

9.5% per year (total growth, +15% per year), with 

an average operating margin of 8.6% (lowest level 

of 7.7% in 2003), despite the economic slowdown 

over 2001-03. Its positive net cash position, 

excluding any refinancing problems, and the 

distribution of sales are secured by it having the 

right distribution of client sectors, with a strong 

position in telecoms (51% of sales) and only 11% 

of revenues coming from financial services. The 

company’s exposure to the US dollar accounts for 

30% of revenues, but we don’t think this should 

affect margins. 

Catalysts 

After the capital increase in November 2006 

(EUR260m), the company’s external growth – paid 

in cash – and the resulting financial leverage on the 

balance sheet is the main value driver for the 

company, in our view. Intrinsically unpredictable, 

we believe the execution of this acquisition 

programme, and hence its effect on the company’s 

balance sheet and, therefore, on its share price, 

should be considered from a medium-term 

perspective. 

Ever since it carried out its cash call, the group 

has spent EUR210m on four acquisitions, 

representing sales of EUR250m, or an average 

ratio of 0.85x sales (see the ‘Key performance 

indicators’ table above). 

Once the last acquisition of Alliance One in the 

US has been paid, Teleperformance should still 

have net cash of EUR120m at year-end. Based on 

a maximum gearing of 30%, we think that the 

group can still invest EUR390m. On the basis of 

the average ratio of EV/sales already recorded, it 

represents the acquisition of EUR450m in sales, 

implying a new increase of 25% of sales and EPS 

(at constant margin) with no additional dilution. 

Valuation 

Our target price of EUR38 is derived from a DCF 

valuation (WACC of 8.9%, risk-free rate of 4.4%, 

and a beta of 1). It implies a potential return of 38% 

and leads to our Overweight rating. 

70

Mid cap 



abc 

We believe the current price and valuation ratios 

(2008e EV/sales 0.8x, EV/EBITDA 5.7x, PE 14.2x) 

represents an investment opportunity taking into 

account: 1) our expected 2006-09 average annual 

EPS growth (+15% pa) before acquisitions, 2) the 

net cash position, excluding any refinancing 

problems, 3) the good distribution of client sectors, 

4) a steady global performance and limited 

variation in operating margin. 


The following risks could prompt us to change 

our rating: 1) the setting up of ‘do not call’ lists in 

new areas, 2) anti-relocation legislation in Europe 

and the US, a major factor behind growth in group 

margins, 3) currency fluctuations, mainly the 

EUR/USD and EUR/BRL exchange rate, 4) 

significant delays in the execution of the 

acquisition programme. 

71

Mid cap 



abc 

Financials & valuation: Teleperformance 




Revenue 1385.2 1590.0 1777.3 1866.2 

EBITDA 194.6 211.7 241.9 263.3 



Net interest -15.4 -1.5 1.9 2.5 

PBT 124.0 147.7 174.5 191.1 

HSBC PBT 124.0 147.7 174.5 191.1 

Taxation -41.9 -58.5 -66.1 -69.8 

Net profit 78.9 85.3 103.1 115.8 




Capex -62.5 -66.7 -71.1 -74.6 


Dividends -14.5 -19.6 -24.8 -27.4 


FCF equity 75.3 46.5 87.8 112.5 





Cash & others 469.3 389.0 389.0 389.0 

Total assets 1332.4 1528.1 1579.8 1603.4 


Gross debt 341.2 266.7 203.7 118.6 

Net debt -128.0 -122.3 -185.4 -270.4 




Overweight 


EV/sales 1.0 0.9 0.7 0.7 

EV/EBITDA 7.1 6.5 5.5 4.7 

EV/IC 1.5 1.0 1.0 0.9 

PE* 20.1 15.3 13.8 13.1 

P/NAV 1.8 1.6 1.4 1.3 

FCF yield (%) 5.0 3.1 5.8 7.4 





Reuters (Equity) ROCH.PA Bloomberg (Equity) RCF FP 



Country France Sector Media 

Analyst Antonin Baudry Contact 33 1 56 52 43 25 


37 

37 

35 

35 

33 

33 

31 

31 

29 

29 

27 

27 

25 

25 

23 

23 


Teleperformance Rel to SBF-120 




Revenue 15.8 14.8 11.8 5.0 

EBITDA 22.7 8.8 14.2 8.8 


PBT 29.9 19.2 18.1 9.6 

HSBC EPS -7.8 31.6 10.6 5.7 

Ratios (%) 

Revenue/IC (x) 1.5 1.4 1.3 1.3 

ROIC 9.9 7.9 7.8 8.6 

ROE 13.2 11.7 10.9 10.6 

ROA 7.7 6.3 7.0 7.6 

EBITDA margin 14.1 13.3 13.6 14.1 


EBITDA/net interest (x) 12.6 137.9 

Net debt/equity -17.3 -12.5 -17.4 -23.4 

Net debt/EBITDA (x) -0.7 -0.6 -0.8 -1.0 

CF from operations/net debt 




DPS 0.41 0.45 0.50 0.53 

NAV 15.17 17.55 18.97 20.57 

Source: HSBC 



72

Mid cap 



abc 

HSBC European small and 

mid-cap coverage universe 

HSBC European small and mid-cap coverage universe 

Name Reuters Bloomberg Country Analyst Phone Rating Target price Last close* 

A.S. Creation Tapeten ACWG.DE ACW GR GERMANY Burkhard Weiss 49 211 910 3722 Overweight EUR 53.00 EUR 46.99 

A-B Vassilopoulos ABVr.AT BASIK GA GREECE Spiros Tsangalakis 30 210 6965 212 Overweight EUR 35.50 EUR 29.94 

Aberdeen Asset Mgmt ADN.L ADN LN UNITED KINGDOM Martin Cross +44 20 7991 6748 Overweight GBP 2.20 GBP 1.93 

adidas-Salomon ADSG.DE ADS GR GERMANY Erwan Rambourg 44 20 7991 6793 Neutral EUR 48.00 EUR 43.80 

Aixtron AIXG.DE AIX GR GERMANY Thorsten Zimmermann 49 211 9102852 Underweight EUR 3.80 EUR 7.97 

Aker Kvaerner AKVER.OL AKVER NO NORWAY David Phillips 44 207 991 2344 Overweight NOK 200.00 NOK 189.50 

Alleanza ALZI.MI AL IM ITALY Kailesh Mistry 44 20 7991 6756 Underweight EUR 9.10 EUR 9.28 

Alliance & Leicester ALLL.L AL/ LN UNITED KINGDOM Robin Down 44 20 7991 6926 Underweight GBP 8.85 GBP 7.54 

Altamir ALMP.PA LTA FP FRANCE Pierre Bosset +33 1 5652 4310 Overweight EUR 14.30 EUR 11.04 

Alten LTEN.PA ATE FP FRANCE Antonin Baudry 33 1 56 52 43 25 Underweight EUR 27.00 EUR 26.22 

Altran Technologies ALTT.PA ALT FP FRANCE Antonin Baudry 33 1 56 52 43 25 Neutral EUR 6.70 EUR 5.23 

Arques Industries AQUG.DE AQU GR GERMANY Thomas Teetz 49 211 9102353 Overweight EUR 36.50 EUR 31.67 

Arriva ARI.L ARI LN UNITED KINGDOM Tommy Bryson 44 20 7991 6799 Overweight GBP 9.90 GBP 8.15 

Assa Abloy ASSAb.ST ASSAB SS SWEDEN Colin Gibson 44 20 7991 6592 Underweight SEK 150.00 SEK 140.25 

Assystem ASY.PA ASY FP FRANCE Antonin Baudry 33 1 56 52 43 25 Underweight EUR 13.50 EUR 12.26 

Atos-Origin ATOS.PA ATO FP FRANCE Antonin Baudry 33 1 56 52 43 25 Neutral EUR 49.50 EUR 43.65 

Aubay AUBT.PA AUB FP FRANCE Antonin Baudry 33 1 56 52 43 25 Overweight EUR 10.00 EUR 7.96 

Autoroutes Paris-Rhin-Rho APRR.PA ARR FP FRANCE Eric Lemarie 44 20 7991 6706 Neutral EUR 75.00 EUR 73.34 

AWD Holding AWDG.DE AWD GR GERMANY Jesko Mayer-Wegelin +49 211 910 3719 Overweight EUR 40.00 EUR 22.84 

Baader Wertpapierhandelsb BLMG.DE BWB GR GERMANY Thomas Teetz 49 211 9102353 Neutral EUR 4.65 EUR 4.91 

Banca CR Firenze SpA CFI.MI CFI IM ITALY Carlo Digrandi 44 20 7991 6843 Underweight EUR 3.83 EUR 6.62 

Banca Generali Spa BGN.MI BGN IM ITALY Kailesh Mistry 44 20 7991 6756 Overweight EUR 11.22 EUR 8.91 

Banca Pop.Verona Novara BPVN.MI BPVN IM ITALY Carlo Digrandi 44 20 7991 6843 Overweight EUR 28.30 EUR 21.34 

Banca Popolare di Milano PMII.MI BPM IM ITALY Carlo Digrandi 44 20 7991 6843 Neutral EUR 12.10 EUR 10.47 

Banco de Sabadell SA SABE.MC SAB SM SPAIN Carlo Digrandi 44 20 7991 6843 Neutral EUR 7.20 EUR 7.00 

Basler BSLG.DE BSL GR GERMANY Richard Schramm +49 211 910 2837 Neutral EUR 13.30 EUR 13.50 

Bastide Le Confort Medica BATD.PA BLC FP FRANCE Murielle Andre-Pinard 33 1 56 52 43 16 Neutral EUR 74.00 EUR 70.50 

Biffa BIFF.L BIFF LN UNITED KINGDOM Verity Mitchell 44 20 7991 6840 Overweight GBP 2.80 GBP 2.48 

Biomerieux BIOX.PA BIM FP FRANCE Murielle Andre-Pinard 33 1 56 52 43 16 Overweight EUR 77.00 EUR 73.16 

Boliden BOL.ST BOL SS SWEDEN Paul McTaggart 44 20 7991 6798 Underweight SEK 144.00 SEK 129.50 

Bradford&Bingley BB.L BB/ LN UNITED KINGDOM Robin Down 44 20 7991 6926 Overweight GBP 5.15 GBP 2.63 

Brisa BRIS.IN BRISA PL PORTUGAL Eric Lemarie 44 20 7991 6706 Neutral EUR 10.10 EUR 9.53 

British Land Co BLND.L BLND LN UNITED KINGDOM John Fraser-Andrews 44 20 7991 6732 Overweight GBP 15.25 GBP 10.77 

Brixton Plc BXTN.L BXTN LN UNITED KINGDOM John Fraser-Andrews 44 20 7991 6732 Overweight GBP 4.25 GBP 3.76 

buch.de BUEG.DE BUE GR GERMANY Burkhard Weiss 49 211 910 3722 Neutral EUR 4.00 EUR 4.01 

Bulgari BULG.MI BUL IM ITALY Antoine Belge +331 5652 4347 Overweight EUR 12.75 EUR 11.30 

Bull BUL.PA BULL FP FRANCE Antonin Baudry 33 1 56 52 43 25 Neutral EUR 5.50 EUR 5.20 

Burberry Group BRBY.L BRBY LN UNITED KINGDOM Erwan Rambourg 44 20 7991 6793 Neutral GBP 6.50 GBP 6.66 

Cable & Wireless CW.L CW/ LN UNITED KINGDOM Steve Scruton 44 20 7991 6819 Underweight GBP 1.36 GBP 1.84 

Capgemini CAPP.PA CAP FP FRANCE Antonin Baudry 33 1 56 52 43 25 Overweight EUR 70.00 EUR 46.95 

Carl Zeiss Meditec AFXG.DE AFX GR GERMANY Christian Packebusch +49 0 211 9102446 Overweight EUR 19.00 EUR 15.18 

cash.life SGSG.DE SGS GR GERMANY Jesko Mayer-Wegelin +49 211 910 3719 Neutral EUR 16.40 EUR 11.55 

Central African Mining & CFM.L CFM LN UNITED KINGDOM Paul McTaggart 44 20 7991 6798 Overweight GBP 0.35 GBP 0.24 

Centrosolar C3OG.DE C30 GR GERMANY Burkhard Weiss 49 211 910 3722 Underweight EUR 10.20 EUR 9.25 

Centrotec CEVG.DE CEV NM GERMANY Burkhard Weiss 49 211 910 3722 Overweight EUR 21.00 EUR 13.88 

CGGVeritas GEPH.PA GA FP FRANCE David Phillips 44 207 991 2344 Neutral EUR 200.00 EUR 230.26 

Clarins CLRP.PA CLR FP FRANCE Sandy Beebee +1 212 525 5152 Underweight EUR 54.00 EUR 57.47 

Clipper Windpower CWPR.L CWP LN UNITED KINGDOM Robert Clover 44 20 7991 6741 Overweight GBP 9.00 GBP 6.46 

73

Mid cap 



abc 



Club Mediterranee CMIP.PA CU FP FRANCE Emmanuelle Vigneron 33 1 56 52 43 19 Underweight EUR 39.00 EUR 46.81 

COLT COLT.L COLT LN UNITED KINGDOM Steve Scruton 44 20 7991 6819 Underweight [GBP 1.09 EUR 1.74 

Conergy CGYG.DE CGY GR GERMANY Burkhard Weiss 49 211 910 3722 Underweight EUR 52.00 EUR 52.00 

Cosmote COSr.AT COSMO GA GREECE Vangelis Karanikas 30 210 6965 211 Overweight EUR 26.00 EUR 24.40 

Couach YACHT.PA GUY FP FRANCE Emmanuelle Vigneron 33 1 56 52 43 19 Overweight EUR 17.40 EUR 15.56 

Credito Emiliano EMBI.MI CE IM ITALY Carlo Digrandi 44 20 7991 6843 Neutral EUR 11.70 EUR 9.38 

Cumerio CUMR.BR CMR BB BELGIUM Thorsten Zimmermann 49 211 9102852 Underweight EUR 23.00 EUR 29.39 

Delhaize DELB.BR DELB BB BELGIUM Mark Husson 1 212 525 3134 Overweight EUR 78.00 EUR 67.87 

Deutsche Beteiligungs AG DBAG.DE DBA GR GERMANY Thomas Teetz 49 211 9102353 Overweight EUR 28.50 EUR 24.73 

Deutz DEZG.DE DEZ GR GERMANY Juergen Siebrecht +49 211 910 3350 Overweight EUR 11.00 EUR 9.25 

Devoteam DVTM.PA DVT FP FRANCE Antonin Baudry 33 1 56 52 43 25 Overweight EUR 42.00 EUR 30.80 

Dragerwerk DRWG_p.DE DRW3 GR GERMANY Christian Packebusch +49 0 211 9102446 Overweight EUR 75.00 EUR 68.50 

Drillisch DRIG.DE DRI GR GERMANY Dominik Klarmann 49 211 910 3720 Neutral EUR 6.60 EUR 7.55 

DSV A/S DSV.CO DSV DC DENMARK Robin Byde 44 20 7991 6816 Overweight DKK 130.00 DKK 132.25 

Durr DUEG.F DUE GR GERMANY Juergen Siebrecht +49 211 910 3350 Overweight EUR 35.00 EUR 34.70 

Eiffage FOUG.PA FGR FP FRANCE Pierre Bosset +33 1 5652 4310 Neutral EUR 80.00 EUR 76.73 

Elexis EEXG.DE EEX GR GERMANY Sebastian Satz +49 211 910 2373 Overweight EUR 30.00 EUR 23.10 

Elisa Corporation ELI1V.HE ELI1V FH FINLAND Stephen Howard 44 20 7991 6820 Overweight EUR 24.00 EUR 22.42 

Elmos ELGG.DE ELG GR GERMANY Thorsten Zimmermann 49 211 9102852 Overweight EUR 10.20 EUR 8.00 

ELRINGKLINGER ZILGn.DE ZIL2 GR GERMANY Thorsten Zimmermann 49 211 9102852 Neutral EUR 70.10 EUR 77.00 

Emporiki Bank CBGr.AT TEMP GA GREECE Sophia Skourti 30 210 6965214 Neutral EUR 22.40 EUR 20.26 

Eurazeo EURA.PA RF FP FRANCE Pierre Bosset +33 1 5652 4310 Overweight EUR 130.00 EUR 105.50 

F&C Asset Management FCAM.L FIS LN UNITED KINGDOM Martin Cross +44 20 7991 6748 Underweight GBP 1.50 GBP 2.04 

Fastweb FWB.MI FWB IM ITALY Luigi Minerva 44 20 7991 6928 Overweight EUR 47.00 EUR 42.06 

FFP FFPP.PA FFP FP FRANCE Pierre Bosset +33 1 5652 4310 Neutral EUR 140.00 EUR 110.50 

Finmeccanica SIFI.MI FNC IM ITALY Edward Stacey 44 20 7991 6837 Neutral EUR 23.00 EUR 20.75 

FirstGroup FGP.L FGP LN UNITED KINGDOM Tommy Bryson 44 20 7991 6799 Overweight GBP 8.10 GBP 7.28 

Folli-Follie FOLr.AT FOLLI GA GREECE Paris Mantzavras 30 210 6965 210 Underweight EUR 29.50 EUR 30.40 

Forthnet Sa FORr.AT FORTH GA GREECE Vangelis Karanikas 30 210 6965 211 Overweight EUR 14.00 EUR 10.78 

Fourlis FRLr.AT FOYRK GA GREECE Spiros Tsangalakis 30 210 6965 212 Overweight EUR 31.30 EUR 26.52 

Freenet FNTG.DE FNT GR GERMANY Dominik Klarmann 49 211 910 3720 Neutral EUR 21.00 EUR 19.02 

Friends Provident FP.L FP/ LN UNITED KINGDOM Shane Gallagher 44 20 7991 6723 Neutral GBP 1.88 GBP 1.75 

Frigoglass FRIr.AT FRIGO GA GREECE Paris Mantzavras 30 210 6965 210 Neutral EUR 22.00 EUR 24.20 

Frontline Ltd FRO.N FRO US NORWAY Robin Byde 44 20 7991 6816 Underweight USD 35.69 USD 43.59 

Fuchs Petrolub FPEG.DE FPE GR GERMANY Sebastian Satz +49 211 910 2373 Overweight EUR 80.00 EUR 67.31 

Fugro FUGRc.AS FUR NA NETHERLANDS David Phillips 44 207 991 2344 Neutral EUR 50.00 EUR 58.77 

Gamesa Corp Tecnologica S GAM.MC GAM SM SPAIN Robert Clover 44 20 7991 6741 Overweight EUR 37.50 EUR 31.41 

GEA Group G1AG.DE G1A GR GERMANY Juergen Siebrecht +49 211 910 3350 Underweight EUR 21.00 EUR 26.40 

GEK Holding & Real Estate HRMr.AT GEK GA GREECE Vangelis Karanikas 30 210 6965 211 Overweight EUR 14.40 EUR 13.56 

Generale de Sante GDSF.PA GDS FP FRANCE Murielle Andre-Pinard 33 1 56 52 43 16 Underweight EUR 28.00 EUR 28.90 

Gerry Weber International GWIG.DE GWI1 GR GERMANY Burkhard Weiss 49 211 910 3722 Overweight EUR 27.00 EUR 21.67 

Gesco GSDG.DE GSC GR GERMANY Thomas Teetz 49 211 9102353 Overweight EUR 60.00 EUR 53.73 

GFI Informatique GFIP.PA GFI FP FRANCE Antonin Baudry 33 1 56 52 43 25 Neutral EUR 8.00 EUR 7.33 

Gildemeister GILG.F GIL GR GERMANY Juergen Siebrecht +49 211 910 3350 Neutral EUR 17.00 EUR 22.10 

Go-Ahead Group GOG.L GOG LN UNITED KINGDOM Tommy Bryson 44 20 7991 6799 Underweight GBP 23.95 GBP 25.22 

Goldenport Holdings Inc GPRT.L GPRT LN UNITED KINGDOM Robin Byde 44 20 7991 6816 Overweight GBP 4.80 GBP 4.88 

Greek Postal Savings Bank GPSr.AT TT GA GREECE Joanna Telioudi 30 210 6965209 Neutral EUR 17.00 EUR 15.54 

Grenkeleasing GKLG.DE GLJ GR GERMANY Jesko Mayer-Wegelin +49 211 910 3719 Overweight EUR 36.00 EUR 29.15 

Groupe Beneteau CHBE.PA BEN FP FRANCE Emmanuelle Vigneron 33 1 56 52 43 19 Underweight EUR 18.00 EUR 20.11 

H&R Wasag WASG.DE WAS GR GERMANY Sebastian Satz +49 211 910 2373 Overweight EUR 28.00 EUR 22.90 

Hammerson HMSO.L HMSO LN UNITED KINGDOM John Fraser-Andrews 44 20 7991 6732 Underweight GBP 13.95 GBP 11.37 

Hannover Re HNRGn.DE HNR1 GR GERMANY John Russell +852 2822 4321 Neutral EUR 37.00 EUR 35.54 

Heidelberger Druck HDDG.DE HDD GR GERMANY Richard Schramm +49 211 910 2837 Overweight EUR 40.00 EUR 30.09 

Hellenic Duty Free Shops HDFr.AT HDF GA GREECE Spiros Tsangalakis 30 210 6965 212 Overweight EUR 14.10 EUR 13.30 

Hellenic Exchanges SA EXCr.AT EXAE GA GREECE Spiros Tsangalakis 30 210 6965 212 Overweight EUR 20.46 EUR 22.96 

Hellenic Petroleum Group HEPr.AT ELPE GA GREECE Vangelis Karanikas 30 210 6965 211 Neutral EUR 12.00 EUR 11.58 

Hellenic Technodomiki HELr.AT ELTEX GA GREECE Vangelis Karanikas 30 210 6965 211 Overweight EUR 11.00 EUR 10.34 

Henderson Group HGI.L HGI LN UNITED KINGDOM Martin Cross +44 20 7991 6748 Neutral GBP 1.55 GBP 1.76 

Hermes HRMS.PA RMS FP FRANCE Antoine Belge +331 5652 4347 Underweight EUR 74.00 EUR 90.29 

HMV Group HMV.L HMV LN UNITED KINGDOM Paul Smiddy 44 20 7991 6757 Underweight GBP 1.14 GBP 1.20 

Hochschild Mining HOCM.L HOC LN UNITED KINGDOM Paul McTaggart 44 20 7991 6798 Neutral USD 3.65 USD 4.25 

Hochtief HOTG.DE HOT GR GERMANY Thomas Teetz 49 211 9102353 Overweight EUR 108.00 EUR 92.10 

Home Retail Group HOME.L HOME LN UNITED KINGDOM Paul Smiddy 44 20 7991 6757 Underweight GBP 3.30 GBP 3.84 

IFI IFPI_p.MI IFP IM ITALY Pierre Bosset +33 1 5652 4310 Overweight EUR 35.50 EUR 28.50 

IFIL Investments IFLI.MI IFL IM ITALY Pierre Bosset +33 1 5652 4310 Neutral EUR 8.50 EUR 7.99 

Iliad ILD.PA ILD FP FRANCE Nicolas Cote-Colisson 44 20 7991 6826 Overweight EUR 80.00 EUR 72.59 

74

Mid cap 



abc 



IMS ITMT.PA IMS FP FRANCE Pierre Bosset +33 1 5652 4310 Neutral EUR 34.00 EUR 31.70 

Inchcape INCH.L INCH LN UNITED KINGDOM Paul Smiddy 44 20 7991 6757 Overweight GBP 5.30 GBP 4.60 

Ingenico INGC.PA ING FP FRANCE Christophe Quarante +33 1 56 52 43 12 Overweight EUR 26.00 EUR 21.65 

Inter Parfums IPAR.PA ITP FP FRANCE Emmanuelle Vigneron 33 1 56 52 43 19 Overweight EUR 39.00 EUR 35.55 

InterContinental Hotels IHG.L IHG LN UNITED KINGDOM Mark Julio 44 20 7991 6753 Overweight GBP 14.55 GBP 10.38 

Interhyp IYPGn.DE IYP GR GERMANY Jesko Mayer-Wegelin +49 211 910 3719 Overweight EUR 90.00 EUR 58.00 

Interseroh INSG.DE ITS GR GERMANY Burkhard Weiss 49 211 910 3722 Neutral EUR 52.00 EUR 48.02 

Intertek Group ITRK.L ITRK LN UNITED KINGDOM Pierre Bosset +33 1 5652 4310 Overweight GBP 10.50 GBP 10.00 

Intralot INLr.AT INLOT GA GREECE Paris Mantzavras 30 210 6965 210 Neutral EUR 27.50 EUR 29.90 

Invensys ISYS.L ISYS LN UNITED KINGDOM Gary Murphy 44 20 7991 6749 Overweight GBP 3.90 GBP 3.18 

Invesco Plc IVZ.L IVZ LN UNITED KINGDOM Martin Cross +44 20 7991 6748 Neutral USD 6.10 USD 7.08 

ITV ITV.L ITV LN UNITED KINGDOM Steve Scruton 44 20 7991 6819 Underweight GBP 0.85 GBP 1.02 

J&P Avax AVAr.AT AVAX GA GREECE Vangelis Karanikas 30 210 6965 211 Overweight EUR 9.30 EUR 7.80 

Jenoptik JENG.DE JEN GR GERMANY Thorsten Zimmermann 49 211 9102852 Neutral EUR 8.40 EUR 6.80 

Jumbo BABr.AT BABY GA GREECE Spiros Tsangalakis 30 210 6965 212 Overweight EUR 26.00 EUR 23.10 

Jungheinrich JUNG_p.DE JUN3 GR GERMANY Richard Schramm +49 211 910 2837 Neutral EUR 34.50 EUR 34.00 

K+S SDFG.DE SDF GR GERMANY Richard Schramm +49 211 910 2837 Underweight EUR 118.00 EUR 132.01 

Kelda Group KEL.L KEL LN UNITED KINGDOM Verity Mitchell 44 20 7991 6840 Neutral GBP 9.88 GBP 9.23 

Kingfisher KGF.L KGF LN UNITED KINGDOM Paul Smiddy 44 20 7991 6757 Overweight GBP 2.35 GBP 1.82 

Kloeckner & Co KCOGn.DE KCO GR GERMANY Juergen Siebrecht +49 211 910 3350 Overweight EUR 68.00 EUR 37.32 

Kloeckner-Werke KLKG.DE KLK GR GERMANY Richard Schramm +49 211 910 2837 Underweight EUR 14.40 EUR 15.38 

Koenig & Bauer SKBG.DE SKB GR GERMANY Richard Schramm +49 211 910 2837 Neutral EUR 27.50 EUR 24.50 

Korian KORI.PA KORI FP FRANCE Murielle Andre-Pinard 33 1 56 52 43 16 Underweight EUR 29.50 EUR 33.82 

KRONES KRNG.F KRN GR GERMANY Richard Schramm +49 211 910 2837 Neutral EUR 60.00 EUR 59.92 

Kuehne & Nagel KNIN.S KNIN SW SWITZERLAND Robin Byde 44 20 7991 6816 Neutral CHF 125.00 CHF 124.50 

KUKA IWKG.DE IWK GR GERMANY Richard Schramm +49 211 910 2837 Neutral EUR 29.00 EUR 29.38 

Ladbrokes Plc LAD.L LAD LN UNITED KINGDOM Mark Julio 44 20 7991 6753 Overweight GBP 5.00 GBP 4.12 

Lafuma LAFU.PA LAF FP FRANCE Emmanuelle Vigneron 33 1 56 52 43 19 Overweight EUR 70.00 EUR 52.10 

Lanxess LXSG.DE LXS GR GERMANY Sebastian Satz +49 211 910 2373 Overweight EUR 47.00 EUR 34.91 

Le Noble Age LNA.PA LNA FP FRANCE Murielle Andre-Pinard 33 1 56 52 43 16 Overweight EUR 22.40 EUR 21.50 

Legrand LEGD.PA LR FP FRANCE Colin Gibson 44 20 7991 6592 Neutral EUR 26.50 EUR 24.25 

LEONI LEOGn.DE LEO GR GERMANY Thorsten Zimmermann 49 211 9102852 Neutral EUR 39.60 EUR 45.38 

Les Nouveaux Constructeur NVC.PA LNC FP FRANCE Eric Lemarie 44 20 7991 6706 Overweight EUR 25.00 EUR 16.50 

Liberty International LII.L LII LN UNITED KINGDOM John Fraser-Andrews 44 20 7991 6732 Underweight GBP 10.65 GBP 11.22 

Lonmin LMI.L LMI LN UNITED KINGDOM Paul McTaggart 44 20 7991 6798 Neutral USD 36.50 USD 36.25 

Lupus Capital PLC LUP.L LUP LN UNITED KINGDOM Gary Murphy 44 20 7991 6749 Overweight GBP 0.25 GBP 0.14 

LVL Medical Groupe LVLM.PA LVL FP FRANCE Murielle Andre-Pinard 33 1 56 52 43 16 Overweight EUR 26.50 EUR 22.49 

Marfin Popular Bank MRBr.AT MARFB GA GREECE Sophia Skourti 30 210 6965214 Neutral EUR 10.10 EUR 10.34 

Masterflex MZXG.F MZX GR GERMANY Burkhard Weiss 49 211 910 3722 Overweight EUR 26.00 EUR 21.74 

Mediaset MS.MI MS IM ITALY Luigi Minerva 44 20 7991 6928 Underweight EUR 7.40 EUR 7.26 

Mediolanum MED.MI MED IM ITALY Kailesh Mistry 44 20 7991 6756 Neutral EUR 5.57 EUR 5.24 

Metka MTKr.AT METTK GA GREECE Vangelis Karanikas 30 210 6965 211 Overweight EUR 20.50 EUR 18.50 

Metso MEO1V.HE MEO1V FH FINLAND Colin Gibson 44 20 7991 6592 Neutral EUR 47.00 EUR 48.24 

Millennium & Copthorne MLC.L MLC LN UNITED KINGDOM Mark Julio 44 20 7991 6753 Neutral GBP 6.35 GBP 5.25 

MLP MLPG.DE MLP GR GERMANY Jesko Mayer-Wegelin +49 211 910 3719 Overweight EUR 17.00 EUR 10.42 

Mobistar MSTAR.BR MOBB BB BELGIUM Nicolas Cote-Colisson 44 20 7991 6826 Neutral EUR 68.00 EUR 61.93 

Motor Oil Hellas MORr.AT MOH GA GREECE Vangelis Karanikas 30 210 6965 211 Overweight EUR 20.50 EUR 18.68 

MPC Capital MPCG.DE MPC GR GERMANY Jesko Mayer-Wegelin +49 211 910 3719 Neutral EUR 64.00 EUR 60.30 

MTU Aero Engines MTXGn.DE MTX GR GERMANY Richard Schramm +49 211 910 2837 Neutral EUR 47.00 EUR 44.44 

Mytilineos Group MYTr.AT MYTIL GA GREECE Vangelis Karanikas 30 210 6965 211 Overweight EUR 42.70 EUR 43.00 

National Express Group NEX.L NEX LN UNITED KINGDOM Tommy Bryson 44 20 7991 6799 Overweight GBP 13.55 GBP 12.80 

Neuf Cegetel NEUF.PA NEUF FP FRANCE Nicolas Cote-Colisson 44 20 7991 6826 Overweight EUR 36.00 EUR 32.80 

New Star Asset Mgt NSAM.L NSAM LN UNITED KINGDOM Martin Cross +44 20 7991 6748 Neutral GBP 4.10 GBP 3.65 

Nexity NEXI.PA NXI FP FRANCE Eric Lemarie 44 20 7991 6706 Overweight EUR 73.00 EUR 46.50 

Next NXT.L NXT LN UNITED KINGDOM Paul Smiddy 44 20 7991 6757 Underweight GBP 18.60 GBP 20.85 

Nikanor PLC NKR.L NKR LN UNITED KINGDOM Paul McTaggart 44 20 7991 6798 Neutral GBP 6.40 GBP 6.14 

Norddeutsche Affinerie NAFG.DE NDA GR GERMANY Thorsten Zimmermann 49 211 9102852 Underweight EUR 20.00 EUR 31.48 

Nordex NDXGk.DE NDX1 GR GERMANY Burkhard Weiss 49 211 910 3722 Neutral EUR 34.50 EUR 37.22 

Northern Rock NRK.L NRK LN UNITED KINGDOM Robin Down 44 20 7991 6926 Neutral GBP 3.24 GBP 2.16 

OHB Technology OHBG.DE OHB GR GERMANY Richard Schramm +49 211 910 2837 Overweight EUR 16.30 EUR 13.20 

OnVista Group ONVG.DE ONV GR GERMANY Dominik Klarmann 49 211 910 3720 Overweight EUR 14.70 EUR 20.70 

OPAP OPAr.AT OPAP GA GREECE Paris Mantzavras 30 210 6965 210 Overweight EUR 31.00 EUR 28.16 

Oriflame Cosmetics SA ORIsdb.ST ORI SS SWEDEN Sandy Beebee +1 212 525 5152 Neutral SEK 353.00 SEK 398.50 

Orpea ORP.PA ORP FP FRANCE Murielle Andre-Pinard 33 1 56 52 43 16 Underweight EUR 39.50 EUR 43.75 

Osiatis OSA.PA OSA FP FRANCE Antonin Baudry 33 1 56 52 43 25 Overweight EUR 8.20 EUR 6.33 

OVB Holding O4BG.DE 04B GR GERMANY Jesko Mayer-Wegelin +49 211 910 3719 Overweight EUR 32.00 EUR 21.30 

75

Mid cap 



abc 



Paddy Power PAP.I PWL ID IRELAND Mark Julio 44 20 7991 6753 Underweight EUR 24.75 EUR 25.30 

Panalpina Welt Transport PWTN.S PWTN SW SWITZERLAND Robin Byde 44 20 7991 6816 Neutral CHF 215.00 CHF 194.70 

Parsytec PAQGk.DE PAQ3 GR GERMANY Richard Schramm +49 211 910 2837 Neutral EUR 5.60 EUR 5.67 

Pennon Group PNN.L PNN LN UNITED KINGDOM Verity Mitchell 44 20 7991 6840 Neutral GBP 6.50 GBP 6.33 

Peter Hambro Mining plc POG.L POG LN UNITED KINGDOM Victor Flores +1 212 525 3053 Neutral GBP 13.00 GBP 13.76 

Petro-Geo Services (USD) PGS.OL PGS NO NORWAY David Phillips 44 207 991 2344 Neutral NLK 150.00 NLK 163.50 

Pfeiffer Vacuum PV.DE PFV GR GERMANY Thorsten Zimmermann 49 211 9102852 Neutral EUR 80.00 EUR 67.08 

Pfleiderer PFDGn.F PFD4 GR GERMANY Juergen Siebrecht +49 211 910 3350 Overweight EUR 25.00 EUR 18.08 

Phoenix SonnenStrom PS4G.DE PS4 GR GERMANY Burkhard Weiss 49 211 910 3722 Neutral EUR 20.00 EUR 23.75 

Pierre et Vacances PVAC.PA VAC FP FRANCE Emmanuelle Vigneron 33 1 56 52 43 19 Overweight EUR 128.00 EUR 100.00 

Piraeus Bank SA BOPr.AT TPEIR GA GREECE Sophia Skourti 30 210 6965214 Overweight EUR 31.50 EUR 26.40 

Public Power Corporation DEHr.AT PPC GA GREECE Paris Mantzavras 30 210 6965 210 Underweight EUR 16.00 EUR 28.28 

Puma PUMG.DE PUM GR GERMANY Erwan Rambourg 44 20 7991 6793 Neutral EUR 360.00 EUR 301.76 

PWO PWOG.DE PWO GR GERMANY Thorsten Zimmermann 49 211 9102852 Overweight EUR 42.40 EUR 37.30 

QSC QSCG.DE QSC GR GERMANY Dominik Klarmann 49 211 910 3720 Overweight EUR 5.20 EUR 3.55 

R. Stahl RSLG.DE RSL1 GR GERMANY Sebastian Satz +49 211 910 2373 Overweight EUR 37.50 EUR 38.66 

RAB Capital Plc RAB.L RAB LN UNITED KINGDOM Matthew Czepliewicz 44 20 7991 6709 Overweight GBP 1.46 GBP 1.06 

Randgold Resources GOLD.O GOLD US UNITED KINGDOM Victor Flores +1 212 525 3053 Neutral USD 32.00 USD 35.26 

Rank RNK.L RNK LN UNITED KINGDOM Mark Julio 44 20 7991 6753 Overweight GBP 2.40 GBP 1.10 

Rational RAAG.DE RAA GR GERMANY Richard Schramm +49 211 910 2837 Overweight EUR 169.00 EUR 156.00 

Rautaruukki RTRKS.HE RTRKS FH FINLAND Alan Coats 44 20 7991 6764 Underweight EUR 30.00 EUR 41.06 

Repower System RPWGn.DE RPW GR GERMANY Burkhard Weiss 49 211 910 3722 Overweight EUR 140.00 EUR 126.98 

Rexel RXL.PA RXL FP FRANCE Pierre Bosset +33 1 5652 4310 Overweight EUR 17.00 EUR 13.52 

Rezidor Hotel Group AB REZT.ST REZT SS SWEDEN Mark Julio 44 20 7991 6753 Overweight EUR 76.50 EUR 51.00 

Rheinmetall RHMG.DE RHM GR GERMANY Richard Schramm +49 211 910 2837 Overweight EUR 69.00 EUR 61.27 

Rodriguez Group RDGP.PA ROD FP FRANCE Emmanuelle Vigneron 33 1 56 52 43 19 Underweight EUR 35.00 EUR 33.58 

Rotork ROR.L ROR LN UNITED KINGDOM Gary Murphy 44 20 7991 6749 Neutral GBP 8.50 GBP 10.94 

SAF HOLLAND SFQN.DE SFQ GR GERMANY Thorsten Zimmermann 49 211 9102852 Overweight EUR 18.60 EUR 14.50 

Safilo SPA SFLG.MI SFL IM ITALY Antoine Belge +331 5652 4347 Overweight EUR 4.60 EUR 3.52 

Safran SAF.PA SAG FP FRANCE Edward Stacey 44 20 7991 6837 Overweight EUR 19.80 EUR 17.44 

Saft Groupe SA S1A.PA SAFT FP FRANCE Pierre Bosset +33 1 5652 4310 Overweight EUR 35.00 EUR 32.86 

Salzgitter SZGG.DE SZG GR GERMANY Juergen Siebrecht +49 211 910 3350 Neutral EUR 140.00 EUR 147.46 

Sarantis Cosmetics SRSr.AT SAR GA GREECE Joanna Telioudi 30 210 6965209 Overweight EUR 12.90 EUR 12.50 

SBM Offshore SBMO.AS SBMO NA NETHERLANDS David Phillips 44 207 991 2344 Overweight EUR 35.00 EUR 28.34 

Schroders SDR.L SDR LN UNITED KINGDOM Martin Cross +44 20 7991 6748 Overweight GBP 15.50 GBP 14.73 

Scor SCOR.PA SCR FP FRANCE John Russell +852 2822 4321 Neutral EUR 19.50 EUR 18.76 

Seadrill Ltd SDRL.OL SDRL NO NORWAY David Phillips 44 207 991 2344 Overweight NLK 160.00 NLK 131.75 

SEB SA SEBF.PA SK FP FRANCE Emmanuelle Vigneron 33 1 56 52 43 19 Overweight EUR 162.00 EUR 131.00 

Seche Environnement CCHE.PA SCHP FP FRANCE Murielle Andre-Pinard 33 1 56 52 43 16 Overweight EUR 138.00 EUR 123.99 

Segro SGRO.L SGRO LN UNITED KINGDOM John Fraser-Andrews 44 20 7991 6732 Overweight GBP 5.80 GBP 5.00 

Severn Trent SVT.L SVT LN UNITED KINGDOM Verity Mitchell 44 20 7991 6840 Neutral GBP 14.50 GBP 14.35 

SGL Carbon SGCG.DE SGL GR GERMANY Juergen Siebrecht +49 211 910 3350 Overweight EUR 41.00 EUR 44.30 

SGS SA SGSN.VX SGSN VX SWITZERLAND Pierre Bosset +33 1 5652 4310 Overweight CHF 1710.00 CHF 1524.00 

Singulus SNGG.DE SNG GR GERMANY Thorsten Zimmermann 49 211 9102852 Neutral EUR 12.30 EUR 8.65 

SKF SKFb.ST SKFB SS SWEDEN Colin Gibson 44 20 7991 6592 Neutral SEK 155.00 SEK 141.00 

Smith (WH) Group SMWH.L SMWH LN UNITED KINGDOM Paul Smiddy 44 20 7991 6757 Neutral GBP 4.00 GBP 3.91 

Smiths Group SMIN.L SMIN LN UNITED KINGDOM Edward Stacey 44 20 7991 6837 Neutral GBP 11.00 GBP 11.00 

Solarworld AG SWVG.DE SWV GR GERMANY Burkhard Weiss 49 211 910 3722 Overweight EUR 44.00 EUR 43.47 

Sopra SOPR.PA SOP FP FRANCE Antonin Baudry 33 1 56 52 43 25 Neutral EUR 75.00 EUR 64.65 

Spectris SXS.L SXS LN UNITED KINGDOM Gary Murphy 44 20 7991 6749 Overweight GBP 10.10 GBP 9.03 

Spirax-Sarco SPX.L SPX LN UNITED KINGDOM Gary Murphy 44 20 7991 6749 Neutral GBP 10.50 GBP 10.37 

SSAB SSABa.ST SSABA SS SWEDEN Alan Coats 44 20 7991 6764 Neutral SEK 274.51 SEK 248.50 

STADA Arzneimittel STAGN.DE SAZ GR GERMANY Christian Packebusch +49 0 211 9102446 Overweight EUR 58.00 EUR 43.21 

Stagecoach Group SGC.L SGC.LN UNITED KINGDOM Tommy Bryson 44 20 7991 6799 Underweight GBP 2.10 GBP 2.41 

Steria TERI.PA RIA FP FRANCE Antonin Baudry 33 1 56 52 43 25 Overweight EUR 51.00 EUR 37.08 

Surteco SURG.DE SUR GR GERMANY Juergen Siebrecht +49 211 910 3350 Overweight EUR 40.00 EUR 36.90 

Süss MicroTec SMHG.DE SMH GR GERMANY Thorsten Zimmermann 49 211 9102852 Overweight EUR 10.90 EUR 7.10 

Symrise SY1G.DE SY1 GR GERMANY Sebastian Satz +49 211 910 2373 Overweight EUR 23.00 EUR 21.08 

TA Triumph-Adler TWNG.DE TWN GR GERMANY Burkhard Weiss 49 211 910 3722 Overweight EUR 2.50 EUR 1.68 

Techem TNHG.DE TNH GR GERMANY Burkhard Weiss 49 211 910 3722 Neutral EUR 48.00 EUR 48.90 

Technip TECF.PA TEC FP FRANCE David Phillips 44 207 991 2344 Overweight EUR 77.00 EUR 67.62 

technotrans TTRG.DE TTR GR GERMANY Richard Schramm +49 211 910 2837 Overweight EUR 25.50 EUR 19.64 

Tele2 TEL2b.ST TEL2B SS SWEDEN Stephen Howard 44 20 7991 6820 Overweight SEK 145.00 SEK 142.00 

Telecinco TL5.MC TL5 SQ SPAIN Luigi Minerva 44 20 7991 6928 Neutral EUR 22.00 EUR 18.10 

Telekom Austria TELA.VI TKA AV AUSTRIA Nicolas Cote-Colisson 44 20 7991 6826 Neutral EUR 21.00 EUR 18.85 

Telenet TNET.BR TNET BB BELGIUM Nicolas Cote-Colisson 44 20 7991 6826 Neutral EUR 25.30 EUR 25.62 

76

Mid cap 



abc 



Teleperformance ROCH.PA RCF FP FRANCE Antonin Baudry 33 1 56 52 43 25 Overweight EUR 38.00 EUR 27.96 

Terna SA TERr.AT TERR GA GREECE Vangelis Karanikas 30 210 6965 211 Overweight EUR 15.50 EUR 15.42 

TGS Nopec Geophysical TGS.OL TGS NO NORWAY David Phillips 44 207 991 2344 Overweight NLK 145.00 NLK 90.40 

Thales TCFP.PA HO FP FRANCE Edward Stacey 44 20 7991 6837 Overweight EUR 47.00 EUR 43.67 

Thus Group THUS.L THUS LN UNITED KINGDOM Steve Scruton 44 20 7991 6819 Overweight GBP 2.00 GBP 1.46 

Titan Cement TTNr.AT TITK GA GREECE Joanna Telioudi 30 210 6965209 Neutral EUR 40.00 EUR 35.30 

TOD'S TOD.MI TOD IM ITALY Erwan Rambourg 44 20 7991 6793 Overweight EUR 73.00 EUR 63.95 

Travis Perkins TPK.L TPK LN UNITED KINGDOM Paul Smiddy 44 20 7991 6757 Overweight GBP 17.60 GBP 15.12 

Trigano TRIA.PA TRI FP FRANCE Emmanuelle Vigneron 33 1 56 52 43 19 Underweight EUR 31.00 EUR 33.85 

United Internet UTDI.DE UTDI GR GERMANY Dominik Klarmann +49 211 910 3720 Neutral EUR 16.50 EUR14.80 

Vedanta VED.L VED LN UNITED KINGDOM Paul McTaggart 44 20 7991 6798 Overweight GBP 27.00 GBP 22.07 

Vivartia SA VIVr.AT VIVART GA GREECE Paris Mantzavras 30 210 6965 210 Underweight EUR 25.00 EUR 26.10 

Vossloh VOSG.DE VOS GR GERMANY Juergen Siebrecht +49 211 910 3350 Overweight EUR 91.00 EUR 78.47 

Wacker Chemie WCHG.DE WCH GR GERMANY Sebastian Satz +49 211 910 2373 Neutral EUR 139.54 EUR 156.84 

WashTec WSUG.DE WSU GR GERMANY Burkhard Weiss 49 211 910 3722 Overweight EUR 18.00 EUR 13.90 

Weir Group WEIR.L WEIR LN UNITED KINGDOM Gary Murphy 44 20 7991 6749 Neutral GBP 8.60 GBP 8.29 

William Hill WMH.L WMH LN UNITED KINGDOM Mark Julio 44 20 7991 6753 Neutral GBP 6.80 GBP 6.24 

Wincor Nixdorf WING.DE WIN GY GERMANY Richard Schramm +49 211 910 2837 Underweight EUR 57.00 EUR 64.76 

X5 NV PJPq.L FIVE LI NETHERLANDS Paul Smiddy 44 20 7991 6757 Underweight USD 25.00 USD 35.05 

*prices as at 15 October 2007 


77

Mid cap 



abc 

Notes 

78

Mid cap 



abc 

Notes 

79

Mid cap 



abc 

Disclosure appendix 

Analyst certification 

The following analyst(s), who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject 

security(ies) or issuer(s) and any other views or forecasts expressed herein accurately reflect their personal view(s) and that no 

part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained 

in this research report: Burkhard Weiss, Thomas Teetz, Christian Packebusch, Sebastian Satz, Juergen Siebrecht, Gary 

Murphy, Pierre Bosset, Joanna Telioudi, Murielle Andre-Pinard, Christophe Quarante, Antonin Baudry, Vangelis Karanikas, 

Spiros Tsangalakis, Tommy Bryson, Kevin Gardiner and Mathilde Lemoine 

Important disclosures 

Stock ratings and basis for financial analysis 

HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which 

depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. 

Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities 

based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; 

and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, 

technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. 

HSBC has assigned ratings for its long-term investment opportunities as described below. 

This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when 

HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at 

www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this 

website. 

HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's 

existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating 

systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research 

report. In addition, because research reports contain more complete information concerning the analysts' views, investors 

should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not 

be used or relied on in isolation as investment advice. 

Rating definitions for long-term investment opportunities 

Stock ratings 

HSBC assigns ratings to its stocks in this sector on the following basis: 

For each stock we set a required rate of return calculated from the risk free rate for that stock's domestic, or as appropriate, 

regional market and the relevant equity risk premium established by our strategy team. The price target for a stock represents 

the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a 

stock to be classified as Overweight, the implied return must exceed the required return by at least 5 percentage points over the 

next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the 

stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 

percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral. 

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility 

status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, 

expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily 

triggering a rating change. 

80

Mid cap 



abc 

*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 

months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, 

stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past 

month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, 

however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change. 

Prior to this, from 7 June 2005 HSBC applied a ratings structure which ranked the stocks according to their notional target 

price vs current market price and then categorised (approximately) the top 40% as Overweight, the next 40% as Neutral and 

the last 20% as Underweight. The performance horizon is 2 years. The notional target price was defined as the mid-point of the 

analysts' valuation for a stock. 

From 15 November 2004 to 7 June 2005, HSBC carried no ratings and concentrated on long-term thematic reports which 

identified themes and trends in industries, but did not make a conclusion as to the investment action that potential investors 

should take. 

Prior to 15 November 2004, HSBC's ratings system was based upon a two-stage recommendation structure: a combination of 

the analysts' view on the stock relative to its sector and the sector call relative to the market, together giving a view on the 

stock relative to the market. The sector call was the responsibility of the strategy team, set in co-operation with the analysts. 

For other companies, HSBC showed a recommendation relative to the market. The performance horizon was 6-12 months. The 

target price was the level the stock should have traded at if the market accepted the analysts' view of the stock. 

Rating distribution for long-term investment opportunities 

As of 16 October 2007, the distribution of all ratings published is as follows: 

Overweight (Buy) 50% (25% of these provided with Investment Banking Services) 

Neutral (Hold) 31% (23% of these provided with Investment Banking Services) 

Underweight (Sell) 19% (14% of these provided with Investment Banking Services) 

81

Mid cap 



abc 

HSBC & Analyst disclosures 

Disclosure checklist 

Company Ticker Recent price Price Date Disclosure 

DEUTZ DEZG.F 9.25 15-Oct-2007 1, 3, 4, 5, 6 

FIRSTGROUP FGP.L 7.30 16-Oct-2007 2, 3, 5, 6, 7 

HOCHTIEF AG HOTG.DE 92.10 15-Oct-2007 2, 3, 4, 5, 6, 7 

LANXESS LXSG.F 34.91 15-Oct-2007 3, 4 

METKA MTKr.AT 18.50 15-Oct-2007 5 

SPECTRIS SXS.L 8.90 16-Oct-2007 4 

SR TELEPERFORMANCE ROCH.PA 27.96 15-Oct-2007 1, 6 

Source: HSBC 

1 HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months. 

2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 

3 months. 

3 At the time of publication of this report, HSBC is a market maker in securities issued by this company. 

4 As of 30 September 2007 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 

5 As of 31 August 2007, this company was a client of HSBC or had during the preceding 12 month period been a client of 

and/or paid compensation to HSBC in respect of investment banking services. 


and/or paid compensation to HSBC in respect of non-investment banking-securities related services. 


and/or paid compensation to HSBC in respect of non-securities services. 

8 A covering analyst/s has received compensation from this company in the past 12 months. 

9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as 

detailed below. 

10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this 

company, as detailed below. 

Analysts are paid in part by reference to the profitability of HSBC which includes investment banking revenues. 

For disclosures in respect of any company, please see the most recently published report on that company available at 

www.hsbcnet.com/research. 

* HSBC Legal Entities are listed in the Disclaimer below. 

Additional disclosures 

1 This report is dated as at 17 October 2007. 

2 All market data included in this report are dated as at close 12 October 2007, unless otherwise indicated in the report. 

3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its 

Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research 

operate and have a management reporting line independent of HSBC's Investment Banking business. Chinese Wall 

procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or 

price sensitive information is handled in an appropriate manner. 

4 As of 30 September 2007, HSBC beneficially owned 2% or more of a class of common equity securities of the following 

company(ies) : LANXESS , HOCHTIEF AG , DEUTZ 

5 HSBC Trinkaus & Burkhardt acts as a designated sponsor to the following companies, and as such has an agreement with 

such companies to engage in market making activities and/or to publish research in connection with the securities of the 

following company(ies) : HOCHTIEF AG , DEUTZ 

82

Mid cap 



abc 

Disclaimer 

* Legal entities as at 22 August 2007 

'UAE' HSBC Bank Middle East Limited, Dubai; 'HK' The Hongkong and Shanghai Banking 

Corporation Limited, Hong Kong; 'TW' HSBC Securities (Taiwan) Corporation Limited; 'CA' 

HSBC Securities (Canada) Inc, Toronto; HSBC Bank, Paris branch; HSBC France; 'DE' HSBC 

Trinkaus & Burkhardt AG, Dusseldorf; 000 HSBC Bank (RR), Moscow; 'IN' HSBC Securities 

and Capital Markets (India) Private Limited, Mumbai; 'JP' HSBC Securities (Japan) Limited, 

Tokyo; 'EG' HSBC Securities Egypt S.A.E., Cairo; 'CN' HSBC Investment Bank Asia Limited, 

Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, 

Singapore branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities 

Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; 'GR' HSBC Pantelakis 

Securities S.A., Athens; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv, 'US' 

HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler A.S., Istanbul; HSBC 

México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, HSBC Bank Brasil S.A. - 

Banco Múltiplo. 

Issuer of report 


Königsallee 21/23 

D-40212 Düsseldorf 

Germany 

Telephone: +49 211 910-0 

Fax: +49 211 910 33 20 

Website: www.hsbcnet.com/research 

This document has been issued by HSBC Trinkaus & Burkhardt AG (“HSBC”) for the information of its customers only. If it is received by a 

customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such 

affiliate. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any 

investment. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently 

verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. 

Expressions of opinion are those of the Research Division of HSBC only and are subject to change without notice. The information and 

opinions contained within the research reports are based upon publicly available information at the time of publication which are subject to 

change from time to time. Past performance is not necessarily a guide to future performance. The value of any investment or income may go 

down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local 

currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that 

investment. In case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to 

obtain reliable information about its value or the extent of the risk to which it is exposed. 

HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All U.S. 

persons receiving and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC 

Securities (USA) Inc. in the United States and not with its non-US foreign affiliate, the issuer of this report. 

In the UK this report may only be distributed to persons of a kind described in Article 19(5) of the Financial Services and Markets Act 2000 

(Financial Promotion) Order 2001. The protections afforded by the UK regulatory regime are available only to those dealing with a 

representative of HSBC Bank plc in the UK. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking 

Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 

304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions 

specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in 

whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary 

Authority of Singapore. In Australia, this publication has been distributed by HSBC Stockbroking (Australia) Pty Limited (ABN 60 007 114 

605) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). It makes no representations that the 

products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or 

appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or 

particular needs of any recipient. In Japan, this publication has been distributed by HSBC Securities (Japan) Limited. In Hong Kong, this 

document has been distributed by The Hongkong and Shanghai Banking Corporation Limited in the conduct of its Hong Kong regulated 

business for the information of its institutional and professional customers; it is not intended for and should not be distributed to retail 

customers in Hong Kong. The Hongkong and Shanghai Banking Corporation Limited makes no representations that the products or services 

mentioned in this document are available to persons in Hong Kong or are necessarily suitable for any particular person or appropriate in 

accordance with local law. All inquiries by such recipients must be directed to The Hongkong and Shanghai Banking Corporation Limited. It 

may not be further distributed in whole or in part for any purpose. HSBC Trinkaus & Burkhardt AG is regulated by the Federal Financial 

Supervisory Authority ("BaFin"). 

© Copyright. HSBC Trinkaus & Burkhardt AG 2007, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a 

retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the 

prior written permission of HSBC Trinkaus & Burkhardt AG. MICA (P) 316/06/2007 

83

abc 

European small & mid-cap team 

Small and mid-cap research 

David May 

Head of Equity Research, EMEA 

+44 207 991 6781 david.may@hsbcib.com 

Product Coordinator Small and Mid Caps 


Analyst, Product Coordinator S/M Cap Research 

+49 211 910 3722 burkhard.weiss@hsbc.de 

France 

Pierre Bosset 

Analyst, Head of Equity Research 

+33 1 5652 4310 pierre.bosset@hsbc.com 

Murielle Andre-Pinard 

Analyst 

+33 1 5652 4316 murielle.andre.pinard@hsbc.com 

Antonin Baudry 

Analyst 

+33 1 5652 4325 antonin.baudry@hsbc.fr 

Christophe Quarante 

Analyst 

+33 1 5652 4312 christophe.quarante@hsbc.com 

Emmanuelle Vigneron 

Analyst 

+33 1 5652 4319 emmanuelle.vigneron@hsbc.com 

Germany 

Thomas Teetz 


+49 211 910 2353 thomas.teetz@hsbc.de 

Dominik Klarmann 

Analyst 

+49 211 910 3720 dominik.klarmann@hsbc.de 

Jesko Mayer-Wegelin 

Analyst 

+49 211 910 3719 jesko.meyer-wegelin@hsbc.de 

Christian Packebusch 

Analyst 

+49 211 910 2446 christian.packebusch@hsbc.de 

Sebastian Satz 

Analyst 

+49 211 910 2373 sebastian.satz@hsbc.de 

Richard Schramm 

Analyst 

+49 211 910 2837 richard.schramm@hsbc.de 

Juergen Siebrecht 

Analyst 

+49 211 910 3350 juergen.siebrecht@hsbc.de 


Analyst 

+49 211 910 3722 burkhard.weiss@hsbc.de 

Thorsten Zimmermann 

Analyst 

+49 211 910 2852 thorsten.zimmermann@hsbc.de 

Greece 

Joanna Telioudi 


+30 21 0696 5209 joanna.telioudi@hsbc.gr 

Vangelis Karanikas 

Analyst 

+30 21 0696 5211 vangelis.karanikas@hsbc.gr 

Paris Mantzavras 

Analyst 

+30 21 0696 5210 paris.mantzavras@hsbc.gr 

Yiannis Sinapis 

Analyst 

+30 21 0696 5215 yiannis.sinapis@hsbc.gr 

Spiros Tsangalakis 

Analyst 

+30 21 0696 5212 spiros.tsangalakis@hpss.hsbc.gr 

UK 

Sandy Beebee 

Analyst 

+1 212 525 5152 sandy.beebee@us.hsbc.com 

Tommy Bryson 

Analyst 

+44 20 7991 6779 tommy.bryson@hsbcib.com 

Robin Byde 

Analyst 

+44 20 7991 6816 robin.byde@hsbcib.com 

Robert Clover 

Analyst 

+44 20 7991 6741 robert.clover@hsbcib.com 

Matthew Czepliewicz 

Analyst 

+44 20 7991 6709 matthew.czepliewicz@hsbcib.com 

John Fraser-Andrews 

Analyst 

+44 20 7991 6732 john.fraser-andrews@hsbcib.com 

Mark Julio 

Analyst 

+44 20 7991 6753 mark.julio@hsbcib.com 

Paul McTaggart 

Analyst 

+44 20 7991 6798 paul.mctaggart@hsbcib.com 

Verity Mitchell 

Analyst 

+44 20 7991 6840 verity.mitchell@hsbcib.com 

Gary Murphy 

Analyst 

+44 20 7991 6749 gary.murphy@hsbcib.com 

Erwan Rambourg 

Analyst 

+44 20 7991 6793 erwan.rambourg@hsbcib.com 

Paul Rossington 

Analyst 

+44 20 7991 6734 paul.rossington@hsbcib.com 

Steve Scruton 

Analyst 

+44 20 7991 6891 steve.scruton@hsbcib.com 

Paul Smiddy 

Analyst 

+44 20 7991 6757 paul.smiddy@hsbcib.com 

Small and Mid-Cap Sales 

Head of Sales 

Justin Shinebourne 

+44 20 7991 5354 justin.shinebourne@hsbcib.com 

Paris Sales Team 

Laurent Kieffer 

+33 1 56 52 40 03 laurent.kieffer@hsbc.com 

David Rideau 

+33 1 56 52 40 25 david.rideau@hsbc.com 

Athens Sales Team 

Luca Focardi 

+30 210 6965 128 luca.focardi@hsbc.gr 

Sakis Michalarakos 

+30 210 6965 129 sakis.michalarakos@hsbc.gr 

London Sales Team 

Mark van Lonkhuyzen 

+44 20 7991 1329 mark.van.lonkhuyzen@hsbcib.com 

Binoy Malde 

+ 44 20 7991 5517 binoy.malde@hsbcib.com 

Katen Patel 

+44 20 7991 5082 katen.patel@hsbcib.com 

Giles Wadman 

+44 20 7991 5393 giles.wadman@hsbcib.com 

Duesseldorf Sales Team 

Michael Busch 

+49 211 910 4806 michael.busch@hsbctrinkaus.de 

Tim Juskowiak 

+49 211 910 4452 tim.juskowiak@hsbctrinkaus.de 

Sonja Kimmeskamp 

+49 211 910 4854 sonja.kimmeskamp@hsbctrinkaus.de 

Samir Kops 

+49 211 910 4483 samir.kops@hsbctrinkaus.de 

Ines Struck 

+49 211 910 4807 ines.struck@hsbctrinkaus.de

European small and mid caps-Stock picks Q4 2007-Q1 2008 - Fourlis

Create successful ePaper yourself

Delete template?

Save as template?