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Metso<br />
Finland/Industrial Engineering Analyser<br />
Metso (Accumulate)<br />
Accumulate<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 />
30.20<br />
38.00<br />
MEO1V.HE/MEO1V FH<br />
Market capitalisation (EURm) 4,519<br />
Current N° of shares (m) 150<br />
Free float 90%<br />
Daily avg. no. trad. sh. 12 mth 830,952<br />
Daily avg. trad. vol. 12 mth (m) 26<br />
Price high 12 mth (EUR) 40.35<br />
Price low 12 mth (EUR) 20.12<br />
Abs. perf. 1 mth -3.91%<br />
Abs. perf. 3 mth -11.02%<br />
Abs. perf. 12 mth -24.18%<br />
Key financials (EUR) 12/11 12/12e 12/13e<br />
Sales (m) 6,646 7,081 6,020<br />
EBITDA (m) 743 775 788<br />
EBITDA margin 11.2% 10.9% 13.1%<br />
EBIT (m) 572 602 608<br />
EBIT margin 8.6% 8.5% 10.1%<br />
Net Profit (adj.)(m) 360 389 402<br />
ROCE 14.9% 15.0% 14.3%<br />
Net debt/(cash) (m) 359 398 390<br />
Net Debt/Equity 0.2 0.2 0.2<br />
Debt/EBITDA 0.5 0.5 0.5<br />
Int. cover(EBITDA/Fin. int) 11.4 16.2 15.8<br />
EV/Sales 0.7 0.7 0.8<br />
EV/EBITDA 5.9 6.0 5.9<br />
EV/EBITDA (adj.) 5.9 6.0 5.9<br />
EV/EBIT 7.7 7.7 7.6<br />
P/E (adj.) 11.9 11.6 11.2<br />
P/BV 2.0 2.0 1.9<br />
OpFCF yield 12.3% 12.4% 12.9%<br />
Dividend yield 5.6% 5.0% 5.0%<br />
EPS (adj.) 2.40 2.60 2.69<br />
BVPS 14.13 15.00 16.17<br />
DPS 1.70 1.50 1.50<br />
45 vvdsvdvsdy<br />
40<br />
35<br />
30<br />
25<br />
20<br />
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 />
METSO Stoxx Industrial Engineering (Rebased)<br />
Shareholders: Solidium Oy 10%; Ilmarinen Mutual<br />
Pension Insurance Company 3%; Varma<br />
Mutual Pension Insurance Company 3%;<br />
Analyst(s):<br />
Pekka Spolander, Pohjola<br />
pekka.spolander@pohjola.fi<br />
+358 10 252 4351<br />
Notes from our meeting with CFO Nikunen<br />
The facts: We met with Metso‟s CFO, Harri Nikunen, yesterday.<br />
Mining investment – Metso has given thought to what mining companies said<br />
last week about investment curtailments and concludes that these were owners‟<br />
signals to management rather than a sign of a trend change. According to Metso,<br />
equipment represents 30% of mining investments. Thus, if the intention is to cut<br />
total investments, the natural choice would be to focus on equipment in existing<br />
mines rather than on opening new mines. In our opinion, Nikunen‟s comments had<br />
a somewhat precautionary tone, similar to the end of last summer: the real<br />
economy has not changed, but uncertainties were brought up just in case.<br />
Automation’s weak Q1 profitability disappointed Metso as well. EBITA slid some<br />
EUR 10m from the same period last year. Half of this drop was due to low-margin<br />
projects (product mix), in addition to which there were some extra costs from last<br />
year and general costs have risen due to determined investments in Automation.<br />
Nikunen did not comment on the developments so far in Q2. We believe caution is<br />
justified with respect to the Q2 margin.<br />
The pricing and competition situation is tight and it is not easy to improve<br />
margins/prices through costs. Nikunen observed that this applies to capital goods<br />
manufacturers in general. Construction equipment in China is a minor area for<br />
Metso and construction. What Caterpillar and the other manufacturers have said<br />
about the market‟s softness is not essential for Metso. Temporary layoffs at paper<br />
machines had a smaller negative impact on the Q1 margin than feared as some of<br />
the personnel could be employed at other divisions.<br />
According to Nikunen, consensus for 2012 sales of EUR 7.3bn seems correct<br />
and plausible. We forecast nearly EUR 7.1bn. Visibility into the year is good and<br />
sales for the coming quarters will be higher than in Q1. Nikunen did not directly<br />
comment on the possibility of an extraordinary dividend, but he feels that<br />
payment of stable, good dividends is important. Based on the figures, we believe<br />
an extra dividend is quite possible.<br />
Conclusion & Action: The Q1 message was complemented with remarks about<br />
mining investments after last week‟s news – we believe this was mainly to be on<br />
the safe side. The real economy is looking favourable. Nikunen highlighted<br />
Metso‟s stable, good performance on a number of occasions, so a profit fall is not<br />
likely, but significant profitability leap will not be easy to come by, either. Highmargin<br />
services account for nearly half of Metso‟s sales and we find the share<br />
price reaction to mining investments (the value of which tends to be<br />
overestimated) as excessive.<br />
Page 31 of 80 European Securities Network<br />
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