Automobiles & Parts PIAGGIO S.p.A. Politecnico Student Research Global Investment Research Challenge 2011
Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Company Overview • Wide brand portfolio • Wide brand portfolio • Premiumisation strategy • Largest European producer of 2w and LCVs by revenues Young Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Company Overview • Internationalization strategy Production Facilities Distribution Network Joint Venture Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Company Overview • Latest results From Revenues to Earnings: Unit Sold Vs Management Guidelines: Actual Guidelines Delta Revenues € 1,485M € 1,500M -1% Revenues Breakdown European Revenues ( €’000) 1 Europe India Vietnam Ebitda Margin 13.3% 13.3% 0% EPS € 0.115 € 0.118 -2.5% 360,000 335,000 2Ws 220,000 197,000 2Ws LCVs LCVs 48,000 60,000 2Ws 2Ws +11.7% +25% -7.5% Source: Company Data Source: Company Data, Politecnico Estimates Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Company Overview • Latest results From Revenues to Earnings: • Efficiency Improvements • Financial Savings • One-off Fiscal Items • Higher Materials Costs Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Company Overview • Our Rating 2010 financial results Indian sales report HOLD BUY Price (03/31/11): € 2.41 12 M Target Price: € 2.8 Upside: 16.2% Rating: BUY Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Why invest in Piaggio 1. Launch of new products in India 2. Expansion in South-Eastern Asia 3. Consolidation in Europe Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Why invest in Piaggio: New products in India 3w Market volumes : 1M u (2010) 10% 25% Market growth: 8% (2011E) 18% Launch of Vespa: 2012E Piaggio volumes: 75,000 u (2013E) Piaggio volumes: 220,000 u (2010) Piaggio growth: 13.5% (2011E) 24% 23% 4w Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Why invest in Piaggio: Expansion in Asia Vietnam Indonesia Malaysia Potential Market: 3M vehicles Potential Market: Thailand Taiwan 11M vehicles Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Why invest in Piaggio: Consolidation in Europe Eco Friendly Solutions: European +155bps EBITDA by 2013 Piaggio Market Share: 20% Margin Piaggio Volumes: 335,000 units (2010) • Improvement of global sourcing position • Production plants rationalisation • Synergies in the distribution network Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Financial Analysis Income Statement 2010 E 2011 E 2012 E 2013 E Balance Sheet 7.6% Revenue CAGR 10-13 2010 2011 E 2012 E 2013 E € 1485M € 1615M € 1745M € 1850M Debt € 528M € 500M € 470M € 440M Div. & Capex OCF ∆NWC ∆NFP + 160bps EBITDA margin Cash&other € 155M € 148M € 147M € 147M 3.3% From DMs 14.8% From EMs Buy Back NFP € 350M € 342M € 318M € 288M 11.9% EBITDA CAGR 10-13 € 197M € 218M € 249M € 276M Equity € 443M € 467M € 499M € 537M ~ € 310M Lower D&A and Financial Charges CAGR Ability to meet short and long term obligations Deleveraging while Improving ROE 2010 2013 24.3% EPS CAGR 10-13 ~ € 530M € 0.11 € 0.14 € 0.18 € 0.22 ~ € 15M Higher than Revenue CAGR ~ € 65M Cash Flow Statement ~ € 140M 8.8% OCF CAGR 10-13 € 153M € 155M € 181M € 197M Source: Politecnico Estimates Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Valuation: Discounted Cash Flow • Sum-of-the-part approach Two-Stage model Three-Stage model Analytical Period + Perpetuity Analytical Period + Convergence Stage + Perpetuity Source: Politecnico Estimates Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Valuation: Discounted Cash Flow TP DCF EU + US India Vietnam € 133M Sales 2010 € 963M € 963M € 389M € 133M € 0.95 13.5% Sales CAGR 10-15 2.5% 2.5% 12.9% 13.5% EBITDA margin 2010 19.5% 20.5% 20.5% 9.75% 9.75% € 2.90 € 1.30 Tax Rate 42% 7.5% 7.5% 30% 30% FCFF 2010 € 13M € 10M € 10M € 33M € 33M € 0.65 10.72% WACC 7.63% 7.63% 9.31% 10.72% Source: Politecnico Estimates Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Valuation: Multiple Analysis • Piaggio’s Indian and Vietnamese businesses are comparable to its Indian peers Sales growth rate (2009-11E) Average EBITDA% (2010E-11E) • Using the median EV/EBITDA multiple 35% 30% 25% Median Hero Mahindra Bajaj Tata 20% 2011 E 9.35 x 10.60 x 8.10 x 11.12 x 5.46 x 15% 10% 5% EV Piaggio Asia DCF EV 0% 13% discount Piaggio-Asia Hero Honda Mahindra & Mahindra Bajaj Auto Tata Motors Piaggio-Asia Hero Honda Mahindra & € 1,114M Bajaj Auto Tata Motors € 970.5M Mahindra Initiation Why invest Financial Financial Company Company Why Invest Risk Risk Data and Valuation Valuation Coverage in Piaggio Analysis Analysis Overview Overview in Piaggio Analysis Analysis Charts
Valuation: Multiple Analysis As regards the whole Piaggio Group (EV/EBITDA multiple): Sales growth rate (2009-2011) Average EBITDA % (2010-11) 9.3x 4.4x EMs multiple DMs multiple 30% 30% - for the Asian Business: - for the non-Asian Business: 20% 20% 10% 10% 0% 0% Geographical exposure to EMs Business exposure to 2w market to LCVs market 100% 100% 67% 67% 33% Target Price: € 2.62 33% 0% 0% Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Valuation: Target Price • € 2.90 DCF Analysis: 70% weight • Multiple Analysis: € 2.62 30% weight • Year-end Target Price: € 2.80 (upside > 15%) Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Risk analysis: Risks from Asia Risk analysis: Risk matrix • Unsuccessful Probable • Stronger competition product launches • Exchange rate risk • Instable Vietnam • Tighter regulations • GDP growth rates • Unsuccessful Possible • Labour market Likelihood • Increase in energy, product launches • Credit risk • Stronger competition raw materials and • Supply Chain risk • Increase in interest rates components costs • Intellectual Property Unlikely • Strikes • De-premiumisation • Liquidity risk • Exchange rate risk Rare • Machinary failure • Vehicles defects Marginal Minor Intermediate Major Impact Source: Politecnico Estimates Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Risk analysis: Risks from Asia Risk analysis: Risk matrix • Unsuccessful • Unsuccessful product launches product launches • Stronger competition • Stronger competition • Exchange rate risk • Exchange rate risk Source: Politecnico Estimates Source: Pacific Exchange Rate Service Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
Risk analysis: Risk matrix Risk analysis: Global risks Probable • Stronger competition • GDP growth rates • Exchange rate risk • Instable Vietnam • Tighter regulations • GDP growth rates • Unsuccessful Possible • Labour market Likelihood • Increase in energy, product launches • Credit risk raw materials and • Supply Chain risk • Increase in interest rates • Increase in energy, components costs • Intellectual Property raw materials and Unlikely • Strikes • De-premiumisation • Liquidity risk components costs Rare • Machinary failure • Vehicles defects Marginal Minor Intermediate Major Impact Source: Politecnico Estimates Why invest Financial Company Risk Data and Valuation in Piaggio Analysis Overview Analysis Charts
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