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GEA Group<br />
Germany/Industrial Engineering Analyser<br />
GEA Group (Hold)<br />
Hold<br />
Recommendation unchanged<br />
Share price: EUR<br />
closing price as of 07/05/2012<br />
Target price: EUR<br />
Target Price unchanged<br />
Reuters/Bloomberg<br />
23.98<br />
26.00<br />
G1<strong>AG</strong>.DE/G1A GY<br />
Market capitalisation (EURm) 4,772<br />
Current N° of shares (m) 199<br />
Free float 92%<br />
Daily avg. no. trad. sh. 12 mth 710,947<br />
Daily avg. trad. vol. 12 mth (m) 16<br />
Price high 12 mth (EUR) 26.28<br />
Price low 12 mth (EUR) 16.33<br />
Abs. perf. 1 mth -5.22%<br />
Abs. perf. 3 mth -7.41%<br />
Abs. perf. 12 mth 1.18%<br />
Key financials (EUR) 12/11 12/12e 12/13e<br />
Sales (m) 5,417 5,750 5,900<br />
EBITDA (m) 681 690 804<br />
EBITDA margin 12.6% 12.0% 13.6%<br />
EBIT (m) 545 540 650<br />
EBIT margin 10.1% 9.4% 11.0%<br />
Net Profit (adj.)(m) 313 408 473<br />
ROCE 10.0% 9.7% 10.9%<br />
Net debt/(cash) (m) 475 317 (112)<br />
Net Debt/Equity 0.2 0.1 0.0<br />
Debt/EBITDA 0.7 0.5 -0.1<br />
Int. cover(EBITDA/Fin. int) 9.0 14.7 21.7<br />
EV/Sales 0.9 1.0 0.9<br />
EV/EBITDA 7.4 8.2 6.5<br />
EV/EBITDA (adj.) 6.9 7.6 6.3<br />
EV/EBIT 9.3 10.5 8.1<br />
P/E (adj.) 12.8 11.7 10.1<br />
P/BV 1.9 2.0 1.7<br />
OpFCF yield 4.8% 5.9% 12.0%<br />
Dividend yield 2.3% 2.5% 2.9%<br />
EPS (adj.) 1.70 2.05 2.38<br />
BVPS 11.77 12.27 14.05<br />
DPS 0.55 0.60 0.70<br />
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Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12<br />
Source: Factset<br />
GEA GROUP MDAX (Rebased)<br />
Shareholders: Kuwait Investment Office 8%;<br />
Analyst(s):<br />
Holger Schmidt, CEFA, Equinet Bank<br />
holger.schmidt@equinet-ag.de<br />
+49 69 58 99 74 32<br />
Final 1Q 12 results in line with preliminaries<br />
Facts: Today GEA announced final 1Q12 results which are in line with preliminary<br />
results. Both, order and sales growth beat expectations, whereas profitability failed<br />
to match expectations. This was mainly the results of an unforeseen loss<br />
(operating + one-off effect) in the new Food Systems division.<br />
Analysis: 1Q 12 profitability weaker than expected, also burdened by one offs:<br />
Orders rose +25% yoy (+17% like for like). This was based on a continuously<br />
prospering demand out of the global food &beverage end market (i.e. food >+35%<br />
yoy, dairy orders +23% yoy) but also from Oil/Gas +36% yoy and Power +14%<br />
yoy. Sales jumped +22% yoy (+17% l-f-l). EBIT 1Q 12e ex the acquired Food<br />
Solutions (operating loss of up to EUR10m in 1Q 12) should have risen by +20%<br />
yoy and thus be around EUR84m which compares to our EBIT estimate of<br />
EUR89.2m (or EUR83.2m by stripping out our EBIT forecast for Food Solutions).<br />
Including Food Solutions EBIT pre ppa and restr. was EUR74.9m implying an<br />
EBIT pre ppa and restr. margin 1Q 12 of 5.9% vs. our estimate of 7.4%. Hence<br />
profitability fell short of expectations. Incremental cost savings in the reorganized<br />
HX business were offset by ongoing price pressure induced by competitors from<br />
Korea and China. Overall this has clearly dampened recent speculations about a<br />
potentially stronger improvement in profitability.<br />
Food Solutions (FS) with sound future prospects but responsible for some hick<br />
ups and confusion : Food Solutions (previously known as Convenience Food<br />
Systems) was acquired in 1H 11. In Feb „12, GEA replaced management of the<br />
FS segment. As a consequence of a review of the operations by new m‟ment, oneoff<br />
effects totalling ~EUR35m (i.e. turning back of too positive POC accounting of<br />
the old FS m‟ment, legal issues, and redundancy payments for the old m‟ment)<br />
burdened 1Q results of FS and thus GEA. Besides, the operating business in FS<br />
(operating loss of ~EUR10m) suffered from inefficiencies in the production set up<br />
(too high workload in the Netherlands due to closure of a factory in Denmark which<br />
caused penalties and too low CU in another plant). We did not foresee both<br />
effects. This caused hick ups. Yet, we think this will not repeat in next quarters.<br />
Due to sound future prospects for FS (target of raising margin to >10% over the<br />
mid-term, but not for 12e) a goodwill impairment is not necessary.<br />
Conclusion: Overall 1Q results provided a mixed picture in our view. The weaker<br />
than expected profitability was at least partially offset by stronger orders. Yet, 1Q<br />
results should have dampened to eliminated hopes for a stronger improvement in<br />
profitability towards the mid-term EBIT margin target of 12% already in the current<br />
year. GEA fared better than one its main competitors (Alfa Laval reporting 1Q like<br />
for like orders of +6.6% yoy and like for like sales of +3.6% yoy coupled with an<br />
adj. EBITA margin decline of ~270bps to 16.5%). To conclude we think that upside<br />
for the shares from here now remains limited. Shares are trading in line with the<br />
sector. For the moment we stick to Hold with a new PT of EUR 26 whereas we<br />
see substantial upside in the mid-term once demand from Power / Energy end<br />
markets improve and thus provides sufficient economies of scale in the<br />
reorganised HX activities to more than offset current price pressure.<br />
Page 21 of 80 European Securities Network<br />
Please refer to important disclaimer on the last page
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