Fourlis (FRLr.AT) Outperform

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Piraeus SecuritiesFourlisFourlis' IKEA franchise (continued)EUR mn FY05 FY06 FY07e FY08f FY09f FY10f FY11f FY12fSales1st IKEA in Thessaloniki, Greece (4Q2001) 56.22 63.00 72.56 76.83 81.34 84.15 87.06 90.072nd IKEA in Athens, East (2Q2004) 122.38 137.86 160.34 116.09 120.09 124.22 128.50 132.923rd IKEA in Nicosia, Cyprus (3Q2007) 0.00 0.00 20.79 55.68 64.18 68.28 72.62 77.204th IKEA in Athens, West (4Q2007) 0.00 0.00 15.59 124.83 141.41 156.34 115.10 119.105th IKEA in Giannena, Greece (4Q2008) 0.00 0.00 0.00 3.87 35.85 41.20 44.38 47.736th IKEA in Sofia, Bulgaria (4Q2008) 0.00 0.00 0.00 3.84 35.65 41.00 44.18 47.537th IKEA in Larisa, Greece (1Q2009) 0.00 0.00 0.00 0.00 29.34 37.09 42.62 45.918th IKEA in Crete, Greece (4Q2009) 0.00 0.00 0.00 0.00 4.55 39.50 42.79 46.259th IKEA /2nd in Bulgaria (1Q2010) 0.00 0.00 0.00 0.00 0.00 20.20 25.55 29.3610th IKEA /3rd in Athens (4Q2010) 0.00 0.00 0.00 0.00 0.00 13.64 112.87 121.4111th IKEA /3rd in Bulgaria (4Q2011) 0.00 0.00 0.00 0.00 0.00 0.00 2.85 26.4312th IKEA /4th in Greek province (4Q2011) 0.00 0.00 0.00 0.00 0.00 0.00 3.61 31.31IKEA sales 178.60 200.86 269.28 381.14 512.40 625.61 722.10 815.23y-o-y 42% 12% 34% 42% 34% 22% 15% 13%Same stores sales 178.60 200.86 232.90 373.43 478.51 591.77 715.64 815.23Same stores sales growth 262% 12% 16% 60% 28% 24% 21% 14%EBITDA1st IKEA in Thessaloniki, Greece (4Q2001) 11.81 13.23 15.24 16.14 17.08 17.67 18.28 18.912nd IKEA in Athens, East (2Q2004) 23.05 26.77 31.13 22.54 23.32 24.12 24.95 25.813rd IKEA in Nicosia, Cyprus (3Q2007) 0.00 0.00 3.95 10.58 12.19 12.97 13.80 14.674th IKEA in Athens, West (4Q2007) 0.00 0.00 2.49 19.97 22.63 25.02 18.42 19.065th IKEA in Giannena, Greece (4Q2008) 0.00 0.00 0.00 0.73 6.81 7.83 8.43 9.076th IKEA in Sofia, Bulgaria (4Q2008) 0.00 0.00 0.00 0.58 5.35 6.15 6.63 7.137th IKEA in Larisa, Greece (1Q2009) 0.00 0.00 0.00 0.00 5.57 7.05 8.10 8.728th IKEA in Crete, Greece (4Q2009) 0.00 0.00 0.00 0.00 0.86 7.50 8.13 8.799th IKEA /2nd in Bulgaria (1Q2010) 0.00 0.00 0.00 0.00 0.00 3.03 3.83 4.4010th IKEA /3rd in Athens (4Q2010) 0.00 0.00 0.00 0.00 0.00 2.18 18.06 19.4311th IKEA /3rd in Bulgaria (4Q2011) 0.00 0.00 0.00 0.00 0.00 0.00 0.43 3.9612th IKEA /4th in Greek province (4Q2011) 0.00 0.00 0.00 0.00 0.00 0.00 0.69 5.95IKEA EBITDA 34.85 40.00 43.81 64.54 87.81 107.52 123.73 145.90y-o-y 76% 15% 10% 47% 36% 22% 15% 18%Start-up costs 0.00 0.70 9.00 6.00 6.00 6.00 6.00 0.00IKEA EBITDA ex-start up costs 34.85 40.70 52.81 70.54 93.81 113.52 129.73 145.90EBITDA margin1st IKEA in Thessaloniki, Greece (4Q2001) 21% 21% 21% 21% 21% 21% 21% 21%2nd IKEA in Athens, East (2Q2004) 19% 19% 19% 19% 19% 19% 19% 19%3rd IKEA in Nicosia, Cyprus (3Q2007) 19% 19% 19% 19% 19% 19%4th IKEA in Athens, West (4Q2007) 16% 16% 16% 16% 16% 16%5th IKEA in Giannena, Greece (4Q2008) 19% 19% 19% 19% 19%6th IKEA in Sofia, Bulgaria (4Q2008) 15% 15% 15% 15% 15%7th IKEA in Larisa, Greece (1Q2009) 19% 19% 19% 19%8th IKEA in Crete, Greece (4Q2009) 19% 19% 19% 19%9th IKEA /2nd in Bulgaria (1Q2010) 15% 15% 15%10th IKEA /3rd in Athens (4Q2010) 16% 16% 16%11th IKEA /3rd in Bulgaria (4Q2011) 15% 15%12th IKEA /4th in Greek province (4Q2011) 19% 19%IKEA EBITDA margin 19.5% 19.9% 16.3% 16.9% 17.1% 17.2% 17.1% 17.9%IKEA EBITDA margin ex-start up costs 19.5% 20.3% 19.6% 18.5% 18.3% 18.1% 18.0% 17.9%Please read important disclosures at the end of the report Page 6
Piraeus SecuritiesFourlisValuationWe value Fourlis through a sum-of-the-parts model, separately accounting for the group’s: a) IKEA franchise, b) wholesale activities, c) Intersportbrand license, d) parent activities, e) land in Piraeus Avenue (previously targeted to ‘host’ the second IKEA store in Athens), and, f) remainingstake in Kotsovolos (10%).Our notional fair value for the group stands at EUR24.20 per share and together with the expected dividend distributions suggests a total expectedreturn of 15.4%. We believe that Fourlis will continue to outperform the market and thus reinstate an Outperform medium-term rating on the stock.Apart from being the only listed franchisee of the Swedish IKEA globally, we consider that Fourlis portrays high visibility on earnings and a uniquegrowth outlook. Moreover, we consider risk on our estimates and valuation lying on the upside (we are below consensus estimates) – especially inthe longer-term horizon (above consensus at the moment).Fourlis Group, Sum-of-the-Parts Valuation ModelEquity Value Value/Share ValuationPart EUR mn % of total EUR MethodIKEA 1,063.89 86.29% 20.88 DCFWholesale 38.57 3.13% 0.76 10x 2008f EPSIntersport 83.78 6.80% 1.64 2007 PEG of 1.0Parent -5.21 -0.42% -0.10 Net debt & OpExReal estate (land) 29.55 2.40% 0.58 Book value10% stake in Kotsovolos 22.30 1.81% 0.44 based on last trancheImplied fair value 1232.88 100.00% 24.20No. of shares 50.95Current price (EUR) 21.44Upside 12.9%2006 Dividend yield 1.5%2007 Dividend yield 1.0%Total expected return 15.4%Source: Piraeus Sec.IKEAOn our estimates, IKEA accounts for 86% of the group’s valuation. We value IKEA through a DCF model with explicit forecasts up to 2012f and aperpetuity stage. On a total of 12 IKEA stores by end 2011 in Greece (8), Cyprus (1) and Bulgaria (3), we expect the IKEA franchise to post a 31%EPS CAGR over 2006-2012f. We discount IKEA’s FCFF with a WACC of 8.50% on a beta of 1.0x, a market risk premium of 7.0% (high enough toaccount for execution risks relating to new store rollouts) and a risk free rate of 4.0%. We apply a target debt/equity ratio of 35%/65%. To err onthe conservative side, we assume 0% growth going forward to perpetuity.IKEA franchise - DCF Valuation ModelEUR mn FY05 FY06 FY07e FY08f FY09f FY10f FY11f FY12fSales 178.60 200.86 269.28 381.14 512.40 625.61 722.10 815.23EBIT 30.19 35.52 38.87 56.40 77.74 96.83 111.07 132.97EBIT margin 16.9% 17.7% 14.4% 14.8% 15.2% 15.5% 15.4% 16.3%Depreciation 4.66 4.47 4.95 8.14 10.08 10.68 12.66 12.93Working capital change -9.24 -4.65 3.26 0.56 0.84 0.80 0.57 0.69Tax paid -3.03 -15.24 -9.66 -8.35 -11.61 -16.59 -24.77 -24.19CAPEX 0.06 -2.73 -39.00 -84.00 -21.45 -16.00 -52.00 -7.00FCFF 22.64 17.37 -1.59 -27.25 55.58 75.73 47.53 115.39Discounted Free Cash Flows 51.23 64.33 37.21 83.27PV of Free Cash Flows 236.03PV of Horizon Value 979.60Enterprise Value 1,215.63Minus:Minorities -0.07PV of additional minorities (Bulgaria) 51.27Net debt 84.03PV of additional debt (Bulgaria) 19.46Plus:Non-core assets 2.95Equity value 1,063.89 …. or EUR 20.88 per Fourlis' shareImplied P/E 31.40 21.60 16.91 14.80 12.24Implied PEG 0.69 0.78 1.19 0.71Source: Piraeus Sec.Please read important disclosures at the end of the report Page 7
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Fourlis (FRLr.AT) Outperform

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