SILVER BULLETS - Espirito Santo Investment Bank incorporating ...

THIRD QUARTER 2010
Reed Elsevier (PLC)
Valuation Metrics 2008A 2009A 2010E 2011E 2012E
Recommendation: HOLD Execution P/E 12.2 11.8 12.6 13.4 13.3
Fair Value: GBp 480 Reported P/E 22.8 29.2 19.0 19.8 18.5
EV / Sales 3.2 2.6 2.7 2.6 2.5
Share Price: GBp 499 EV / EBITDA 12.6 10.1 9.3 9.3 8.8
Upside / Downside -3.8% EV / EBITA 12.2 9.9 10.4 10.7 10.4
FCF Yield 8.0% 6.8% 7.9% 7.7% 8.5%
Previous Fair Value GBp 350 Dividend yield 3.8% 3.8% 3.8% 3.8% 3.8%
% change to fair value 37.1%
Bloomberg: REL LN Key ratios 2008A 2009A 2010E 2011E 2012E
T-One: REL-LN
Model Published On: 05 July 2010 EBITDA margin 19.7% 16.4% 22.2% 21.8% 21.9%
EBIT margin 16.6% 12.7% 17.9% 17.3% 17.3%
Capex / Revenue 3.2% 4.0% 5.0% 5.0% 5.0%
Shares In Issue (Less Treasury) 1,141 Capex / Depreciation 1.03 1.09 1.16 1.11 1.08
Market Cap 5,696 Net Debt / Adj. EBITDA 4.3 2.6 2.2 1.9 1.5
Net Debt 3,673 EBITDA / Net Interest 3.7 2.8 4.9 5.4 6.7
Adjustments 816 ROE 25% 11% 17% 16% 16%
Enterprise Value 10,185
Net Pension Deficit -380
P&L Summary 2008A 2009A 2010E 2011E 2012E
Forthcoming Catalysts Revenue 5,334 6,071 5,939 6,075 6,360
% change 16.4% 13.8% -2.2% 2.3% 4.7%
Interim management statement 20 April 2010 EBITDA 1,050 995 1,319 1,324 1,394
AGM 21 April 2010 % change 2.9% -5.2% 32.5% 0.4% 5.3%
Half year results 29 July 2010 % margin 19.7% 16.4% 22.2% 21.8% 21.9%
Interim management statement 18 November 2010 Depreciation & Amortisation -167 -223 -255 -273 -295
Full year results expected 18 February 2011 EBIT 883 772 1,063 1,050 1,099
% change 1.3% -12.6% 37.7% -1.2% 4.7%
% margin 16.6% 12.7% 17.9% 17.3% 17.3%
Associates 18 15 15 16 16
Execution Analyst Operating Profit 901 787 1,078 1,066 1,116
Giasone Salati Net Financials -284 -352 -268 -247 -207
+44 20 7456 1163 Other Pre-tax Income 0 0 0 0 0
giasone.salati@execution-noble.com Pre Tax Profit 617 435 811 819 908
Income Tax Expense -155 -40 -186 -188 -219
Minority Interests -4 -4 -4 -4 -4
Revenue Breakdown Net Income (PLC) 241 195 316 319 349
International
Legal
Execution Net Income (PLC) 486 519 511 503 518
Reported EPS 21.90 17.07 26.22 25.19 26.95
Execution EPS 44.22 45.51 42.40 39.78 39.97
DPS 20.30 20.40 20.44 20.05 20.14
Payout Ratio 45.5% 44.4% 47.8% 50.0% 50.0%
Shares In Issue (Less Treasury) 1,100 1,141 1,204 1,265 1,296
Cash Flow Summary 2008A 2009A 2010E 2011E 2012E
EBITDA 1,340 1,540 1,699 1,704 1,774
Taxes Paid -215 -120 -124 -128 -141
Operating Profit Breakdown Interest Paid / Received -179 -293 -268 -247 -207
Margin Trends
Margin
Exhibitions
11%
Business
information
12%
Exhibitions
10%
International
Legal
7%
25%
20%
15%
10%
5%
0%
North
American
Legal
32%
9%
Scientific
34%
Business
information
5%
North
American
Legal
34%
Scientific
46%
2008A 2009A 2010E 2011E 2012E
EBITDA margin EBIT margin
Change in Working Capital 69 59 7 -7 -14
Associate & Minority Dividends 23 23 15 16 16
Other Operating Cash Flow -2 -164 -63 -32 18
Operating cash flow 1,036 1,045 1,266 1,305 1,446
Capital Expenditure -172 -242 -297 -304 -318
Free Cash Flow 864 803 969 1,001 1,128
Acquisitions & Disposals -2,152 -95 50 0 0
Dividends Paid To Shareholders -418 -457 -486 -512 -517
Equity Raised / Bought Back -40 834 0 0 0
Other Financing Cash Flow -343 -895 -235 0 0
Net Cash Flow -2,089 190 299 489 612
Balance Sheet Summary 2008A 2009A 2010E 2011E 2012E
Cash & Equivalents 375 734 734 734 734
Tangible Fixed Assets 329 292 334 364 387
Goodwill & Intangibles 9,305 7,971 7,591 7,211 6,831
Associates & Financial Investments 194 176 176 176 176
Other Assets 2,663 2,161 2,363 2,346 2,310
Total Assets 12,866 11,334 11,197 10,830 10,438
Interest Bearing Debt 6,142 4,706 4,407 3,918 3,307
Other Liabilities 5,743 4,869 4,892 4,896 4,943
Total Liabilities 11,885 9,575 9,300 8,815 8,250
Shareholders' Equity 953 1,732 1,866 1,980 2,148
Minority Interests 28 27 31 36 40
Total Equity 981 1,759 1,898 2,016 2,188
Net Debt 5,767 3,972 3,673 3,184 2,573
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