SILVER BULLETS - Espirito Santo Investment Bank incorporating ...

More documents

Recommendations

Info

THIRD QUARTER 2010 Credit Suisse Valuation Metrics 2008 2009 2010E 2011E 2012E Recommendation: BUY PER (adjusted) (x) -5.7 7.2 8.1 7.2 6.3 Fair Value: CHF 60.00 Price/Pre Provis Profit per share (x) -4.7 4.7 4.9 4.4 3.9 P/NAV (adjusted) (x) 2.12 1.87 1.65 1.44 1.24 Share Price: CHF 40.90 RoE (%) (adjusted) -29.2 28.6 22.2 21.9 21.7 Upside / Downside RoRWA (%) -2.85 2.75 2.48 2.49 2.67 Implied cost of equity (curve) (%) 17.0 14.5 14.9 14.8 Bloomberg: CSGN Yield (net) (%) 0.2 4.9 4.9 4.9 4.9 Key ratios 2008 2009 2010E 2011E 2012E Core tier 1 ratio 7.9 10.0 9.8 10.9 12.0 Shares In Issue 1,155 Leverage ratio 52.2 40.3 38.2 34.6 31.5 Market Cap 47,235 Cost income ratio 205.9 67.8 68.5 67.1 66.0 Free Float 90% Loan loss charges / loans -0.34 -0.21 -0.07 -0.10 -0.11 RoE (%) (adjusted) -29.2 28.6 22.2 21.9 21.7 NAV 2010E 28,598 RoA (stated) -0.65 0.60 0.56 0.60 0.65 NAV per share 2010 24.8 RoRWA -2.85 2.75 2.48 2.49 2.67 Forthcoming Catalysts P&L Summary 2008 2009 2010E 2011E 2012E Q2 results 22 July 2010 Net interest income 8,349 6,760 6,860 7,360 7,361 Total non interest income 1,241 24,649 23,865 25,165 28,375 Total gross operating income 9,590 31,409 30,725 32,525 35,736 Costs -19,744 -21,284 -21,053 -21,830 -23,590 Pre Provision Net Operating Income -10,154 10,125 9,672 10,695 12,146 Execution Noble Analysts Loan loss charges -813 -506 -164 -240 -270 Post provision profit -10,967 9,619 9,508 10,455 11,877 Fiona Swaffield Pre Tax Profit -12,223 8,269 8,558 9,505 10,927 (44) 20 7456 1693 Net profit -8,278 6,593 5,974 6,684 7,648 fiona.swaffield@execution-noble.com EPS adj. -7.14 5.67 5.02 5.65 6.46 Growth rates % 2008 2009 2010E 2011E 2012E Operating income -70 228 -2 6 10 Pre provision profit -201 -200 -4 11 14 EPS adj. -202 -179 -11 12 14 NAV (adjusted)/share -33 14 13 15 16 Balance Sheet Summary 2008 2009 2010E 2011E 2012E Total adj assets 1,170,350 1,031,427 1,091,427 1,135,084 1,203,189 Goodwill & Intangibles 9,753 9,595 9,797 9,797 9,797 Shareholders' Equity (adjusted) 22,433 25,584 28,598 32,832 38,168 NAV (adjusted)/share 19.3 21.9 24.8 28.4 33.0 NAV per share 27.7 30.1 33.2 36.9 41.5 RWA 257,467 221,609 261,041 276,704 296,073 Tier 1 equity 34,208 36,207 39,624 43,998 49,334 Core tier 1 equity 20,367 22,267 25,684 30,058 35,394 http://www.execution-noble.com Page 12 of 44
THIRD QUARTER 2010 Finmeccanica Ready to rebound Finmeccanica has market leading positions, under-recognised cyclical recovery upside, and potential asset disposal upside. The stock is trading at 10 year lows on EV/Sales or on P/E relative, which we attribute to market fears of further earnings downgrades. We argue that the EPS downgrade cycle has in fact played out, and we would buy ahead of Farnborough airshow and H1 results in July. Earnings bottom The share price underpeformance in Finmeccanica in the past 2 years has been driven by falling earnings expectations. Consensus 2010e EPS stood at €1.48 a year ago (Bloomberg June 30 th 2009) compared with €1.15 now. The stock has derated in P/E terms due to market loss of confidence in the EPS outlook, and Finmeccanica now trades on a 2010e PE of 7.7x, at the bottom of its historic range and the bottom of our A&D coverage universe. We believe that the company’s high visibility for the remainder of 2010 means it is unlikely that earnings will fall below our €1.12 forecast. We believe the downgrade cycle is over, and the stock will rerate significantly when the market recognises this. Recovery In 2011 we believe that earnings will recover materially, based on groupwide cost savings, the ramp-up of the Boeing 787 programme benefitting Aeronautics, ongoing growth in the US part of Defence Electronics, and a recovery in some of the cyclical businesses. In particular, we believe that demand is now bottoming in the 30% civil portion of Helicopters. Portfolio change We believe Finmeccanica may be close to announcing a partner for Ansaldo Energia (AE), probably a developing world player, as a preliminary step to a 2011 IPO. A recent report in Milano Finanza suggested that the Russian group OAO Power Machines will take a 20% stake in AE as a first step. We believe that AE could be worth over €1bn, and any step towards crystalising this value would be positive for the share price. Catalysts The Farnborough airshow, July 19-23 rd , is the main industry event of the year, and often serves as a catalyst for share price moves in the sector. The following week Finmeccanica will report H1 results, July 28 th . We believe that if the company is able to confidently reaffirm 2010 guidance then this could begin to convince the market that the downgrades are over. Finally, at any time during the coming months the company could reveal a partner for the Ansaldo Energia exit strategy, which we believe would be positive for the shares. Valuation In addition to P/E near its 10 year low on an absolute or relative basis, the stock is also trading at a 10 year low on EV/Sales. Although the defence sector generally is trading at a discount to historic levels, we believe that in the case of Finmeccanica the extent of the discount implies further declines in earnings, which we do not believe will happen. Our fair value of €11.50 would apply a 2011e P/E of 9x, which is the midpoint of the valuations of BAE Systems and Thales, which are Finmeccanica’s closest peers. http://www.execution-noble.com BUY 34.1% upside Fair Value € 11.50 RIC, Bloomberg Code SIFI.MI, FNC IM Share Price € 8.57 Market Capitalisation € 4,954m Free Float 70% Eur m (unless stated) 2009 2010E 2011E 2012E Sales 18176 18119 18740 19185 Ebitda 2146 2214 2305 2352 Adj. EPS (Eur) 1.31 1.12 1.29 1.39 Dividend (Eur p/s) 0.41 0.45 0.45 0.45 FCF 489 231 733 893 EV adjustments 0.0 0.0 0.0 0.0 Net Debt 5014 5020 4547 3914 X (unless stated) 2009 2010E 2011E 2012E EV/Sales 0.55 0.55 0.53 0.52 EV/Ebitda 4.65 4.50 4.33 4.24 PE 6.53 7.68 6.65 6.16 Dividend Yield (%) 4.78 4.78 5.25 5.25 FCF Yield (%) 4.90 2.32 7.35 8.95 Net Debt/Ebitda 2.34 2.27 1.97 1.66 Analysts Edward Stacey +44 20 7456 9135 edward.stacey@execution-noble.com Rob Virdee +44 20 7456 9222 rob.virdee@execution-noble.com Page 13 of 44
Page 1 and 2: SILVER BULLETS Q 3 2010
Page 3 and 4: THIRD QUARTER 2010 Q3 Silver Bullet
Page 5 and 6: THIRD QUARTER 2010 ABB Right end ma
Page 7 and 8: THIRD QUARTER 2010 Aviva Turning th
Page 9 and 10: THIRD QUARTER 2010 Cable&Wireless C
Page 11 and 12: THIRD QUARTER 2010 Centrica Oasis i
Page 13: THIRD QUARTER 2010 Credit Suisse Pa
Page 17 and 18: THIRD QUARTER 2010 Hennes & Mauritz
Page 19 and 20: THIRD QUARTER 2010 Lloyds Banking G
Page 21 and 22: THIRD QUARTER 2010 Mitchells and Bu
Page 23 and 24: THIRD QUARTER 2010 Prysmian Order b
Page 25 and 26: THIRD QUARTER 2010 Reed Elsevier Tr
Page 27 and 28: THIRD QUARTER 2010 Unilever King of
Page 29 and 30: THIRD QUARTER 2010 Vodafone VZW con
Page 31 and 32: THIRD QUARTER 2010 BBVA Uncompellin
Page 33 and 34: THIRD QUARTER 2010 Deutsche Telekom
Page 35 and 36: THIRD QUARTER 2010 Electrolux Squee
Page 37 and 38: THIRD QUARTER 2010 Home Retail Grou
Page 39 and 40: THIRD QUARTER 2010 Reckitt Benckise
Page 41 and 42: THIRD QUARTER 2010 Rolls Royce Chal
Page 43 and 44: THIRD QUARTER 2010 RWE Time To Bite
Page 45 and 46: THIRD QUARTER 2010 Wolters Kluwer S
Page 47 and 48: IMPORTANT INFORMATION Analyst Certi

SILVER BULLETS - Espirito Santo Investment Bank incorporating ...

Create successful ePaper yourself

Delete template?

Save as template?