SILVER BULLETS - Espirito Santo Investment Bank incorporating ...

THIRD QUARTER 2010
ABB
Valuation Metrics 2008 2009 2010E 2011E 2012E
Recommendation: BUY Execution P/E 16.3 13.1 18.4 13.7 13.2
Fair Value: 24 Reported P/E 16.3 13.1 18.4 13.7 13.2
EV / Sales 1.4 1.1 1.1 1.0 0.9
Share Price: CHF 24 EV / Ex. EBITDA 9.3 7.2 8.5 6.6 6.1
Upside / Downside -1.8% EV / Ex. EBITA 10.6 8.3 10.7 7.8 7.2
FCF Yield 6.8% 9.5% 3.8% 8.0% 8.1%
Previous Fair Value CHF 24 Dividend yield 2.0% 2.1% 1.6% 2.2% 2.3%
% change to fair value -1.8%
Bloomberg: ABBN VX Key ratios 2008 2009 2010E 2011E 2012E
T-One: ABB.VX
Model Published On: 02 July 2010 Ex. EBITDA margin 15.0% 15.1% 13.4% 15.3% 15.3%
Ex. EBITA margin 13.1% 13.1% 10.6% 13.0% 13.0%
Capex / Revenue 3.4% 2.4% 2.7% 2.7% 2.7%
Shares In Issue, mn 2,289.4 Capex / Depreciation -1.77 -1.15 -0.97 -1.16 -1.16
Market Cap 54,946 Net Debt / Ex. EBITDA -1.0 -1.5 -1.8 -1.9 -2.2
Net Debt -10,086 Ex. EBITDA / Net Interest 153.7 -41.8 -363.0 -85.0 -43.5
Adjustment for Minorities 4,661 ROE 28% 21% 15% 17% 16%
Nuclear provisions 155
Unrecognised tax losses/deferred tax assets -867
Power Transformer EU fine 300 P&L Summary 2008 2009 2010E 2011E 2012E
SEC/DoJ Suspect payments fine 300
HV DC Cable fine 300 Revenue 34,912 31,795 32,280 34,707 35,839
Enterprise Value (2011E) 48,810 % change 19.3% -8.9% 1.5% 7.5% 3.3%
Execution EBITDA 5,227 4,812 4,321 5,318 5,477
% change 14.6% -7.9% -10.2% 23.1% 3.0%
Forthcoming Catalysts % margin 15.0% 15.1% 13.4% 15.3% 15.3%
AGM 26 April 2010 Depreciation 661 655 896 810 835
2Q10 results 27 April 2010 Execution EBITA 4,566 4,157 3,425 4,509 4,642
Execution Investor Trip 25 May 2010 % change 15.3% -9.0% -17.6% 31.6% 3.0%
3Q10 results 28 October 2010 % margin 13.1% 13.1% 10.6% 13.0% 13.0%
Execution EBIT 4,566 4,157 3,425 4,509 4,642
Net Financials -34 115 12 63 126
Execution Analyst Other Pre-tax Income 0 0 0 0 0
Nick Paton, CFA Pre Tax Profit 4,518 4,120 3,406 4,540 4,736
(44) 20 7456 1190 Income Tax Expense -1,119 -1,001 -962 -1,282 -1,337
nick.paton@executionlimited.com Minority Interests -260 -235 -194 -259 -270
Net Income 3,139 2,884 2,250 2,999 3,129
Execution Net Income 3,155 2,884 2,250 2,999 3,129
Revenue Breakdown
Reported EPS 1.47 1.38 1.06 1.41 1.47
Execution EPS 1.46 1.35 1.03 1.38 1.44
DPS 0.48 0.51 0.39 0.52 0.55
Payout Ratio 32.6% 37.0% 36.8% 36.8% 37.3%
Shares In Issue (mn) 2,287 2,289 2,289 2,289 2,289
Cash Flow Summary 2008 2009 2010E 2011E 2012E
Net Income 3,139 2,884 2,250 2,999 3,129
Discontinued operations -21 17 18 18 19
Depreciation & Amortisation 661 655 896 810 835
Change in Working Capital -94 339 -629 -370 -22
EBIT Breakdown Increase in Provisons 720 78 -317 458 0
Other Operating Cash Flow 230 332 194 259 270
Operating cash flow 4,635 4,305 2,412 4,174 4,231
Capital Expenditure -1,171 -756 -872 -937 -968
Free Cash Flow 3,464 3,549 1,540 3,237 3,263
Acquisitions & Disposals -513 -157 0 0 0
Dividends Paid To Shareholders -1,060 -1,027 -1,075 -835 -1,110
Equity Raised / Bought Back -621 0 0 0 0
Other Financing Cash Flow -1,263 -589 0 0 0
Net Cash Flow 7 1,776 465 2,401 2,153
Balance Sheet Summary 2008 2009 2010E 2011E 2012E
Margin Trends Cash & Equivalents 7,806 9,552 9,251 10,890 12,239
Margin
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Automation
Technology
49%
Automation
Technology
42%
Power Technology
51%
Power Technology
58%
2007 2008 2009 2010E 2011E 2012E
Ex. EBITDA margin Ex. EBIT margin
Tangible Fixed Assets 3,562 4,072 4,048 4,175 4,308
Goodwill & Intangibles 3,228 3,469 3,469 3,469 3,469
Associates & Financial Investments 3,797 3,398 3,398 3,398 3,398
Other Assets 14,788 14,237 15,088 16,570 17,110
Total Assets 33,181 34,728 35,254 38,502 40,524
Interest Bearing Debt 2,363 2,333 1,567 804 0
Other Liabilities 19,048 17,922 17,827 19,397 19,915
Total Liabilities 21,411 20,255 19,394 20,201 19,915
Shareholders' Equity 11,158 13,790 14,983 17,165 19,202
Minority Interests 612 683 877 1,136 1,406
Total Equity 11,770 14,473 15,860 18,301 20,609
Net Debt / (Cash) -5,443 -7,219 -7,684 -10,086 -12,239
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