Dynamics change but net debt continues to rise

Transcription

1 EQUITIES IT SERVICES INDRA UNDERPERFORM EUR12.2 TARGET PRICE EUR9 (DOWNSIDE 26%) TARGET PRICE EPS 13e EPS 14e unchanged -16% -14% Dynamics change but net debt continues to rise 1 NOVEMBER 2013 Brice Prunas (+44) brice.prunas@exanebnpparibas.com itservices&software@exanebnpparibas.com Specialist sales Nav Sheera (+44) Spain (40% of Indra) is bottoming out in Q3 There are early signs the key Spanish business is bottoming out: 1) Q3 sales growth in Spain at -8% (vs -12% in H1 13 and -18% in 2012); 2) Q3 order intake up 3% y/y (mainly driven by Spain). precisely when International operations are seeing a sharp fall in momentum From double-digit growth in H1 13, International operations have slowed to being flat following the collapse of a public healthcare project that was not previously disclosed. This loss in momentum came despite another surprise in Q3: stellar growth in Europe attributable to a multicountry defence project (explaining the equally surprising +9% in Q3 for security & defence). 2013e and 2014e EPS cut mainly on mounting financial charges We cut our EPS13e by 16% and EPS14e by 14% on: 1) mounting financial charges amid evergrowing net debt (see fig.3), rising financing costs and adverse FX; 2) rising tax rate (23.5% in Q3 13 vs. 21% in Q3 12); 3) lower recurring EBIT margin for 2013e and 2014e (after 7.9% in 9M13). Poor FCF generation in Q3 but Indra flags a solid Q4 in the offing Indra had its second straight quarter of poor FCF generation in Q3 as cash collection was very challenging in the quarter and cash-out for cost of financing had risen. With net debt now at a fresh record high (at EUR707m), Indra has flagged an expected improvement in Q4 thanks to: 1) a disposal cash-in of EUR27m in Q4 (for a stake in an online broker); and 2) a law that has just been passed requiring regional governments to make payments for their receivables more rapidly. We believe it could bring a one-off boost of EUR30m-50m to FCF in either Q4 13 or H1 14. For that reason, we forecast a net debt of EUR650m at the end of 2013 (at 2.5x reported EBITDA 13e). Underperform rating and EUR9.0 TP reiterated Indra has been a concept stock to play Spain through a leveraged quality name, leading to a 41% rise in its price over 12 months. However, on our restated multiples (for capitalised R&D), valuation is off-putting (EV/EBITA 14e at 12.5x). Our DCF of EUR9 gives the same conclusion. Price (31 October 2013) EUR12.2 Performance (1) 1w 1m 3m 12m Market cap (EURbn) 2.0 Absolute(%) Free float (EURbn) 1.3 Rel. IT Services(%) (1) EV (EURbn) 2.7 Rel. MSCI SMID(%) m avg volume (EURm) 8.3 Reuters / Bloomberg IDR.MC / IDR SM Country Spain Please refer to important disclosures at the end of this report Financials 12/12 12/13e 12/14e 12/15e Valuation metrics (2) 12/12 12/13e 12/14e 12/15e EPS, Adjusted (EUR) P/E (x) EPS, IBES (EUR) Net yield (%) Net dividend (EUR) FCF yield (%) EV/Sales (x) Sales (EURm) 2,941 2,928 2,952 2,993 EV/EBITDA (x) EBITA, Adj. (EURm) EV/EBITA (x) Net profit, Adj.(EURm) EV/CE (x) ROCE (%) Net Debt/EBITDA, Adj. (x) Source: Exane BNPP (estimates), Thomson Reuters (consensus) (1) In listing currency, with dividend reinvested (2) Yearly average price for FY ended 12/12

2 Q3 Financial Highlights Figure 1: Q3 13 Financial Highlights Q3 13 Q3 12 Var y/y Order Intake % Revenues % Backlog 3,448 3,543-3% Recurrent Operating Profit % Recurrent Operating Margin 7.8% 8.6% -87bp Extraordinary costs % Net Operating Profit (EBIT) % EBIT margin 6.8% 7.6% -79bp Attributable Profit % Net debt position % Source: Indra, Exane BNP Paribas estimates Figure 2: The decline in Spain has started to slow down Q3 top-line performance by geography Q3 13 Q3 12 % change Spain % Europe & North America % Latin America % Asia, Pacific, Africa % Total Revenues % Source: Indra, Exane BNP Paribas estimates Figure 3: Net debt continued to increase in Q3 13 Net debt since Q m 514m 549m 587m 661m 633m 634m 649m 707m m 344m Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 Source: Indra Exane BNP Paribas Research Indra 1 November 2013 page 2

3 Analyst certification: I hereby certify that all of the views expressed in this report accurately reflect my personal and independent views about the subject theme(s), company or companies, and its or their securities. Brice Prunas, Exane Ltd. No part of the research analyst's compensation was, is, or will be, directly, or indirectly, related to the specific recommendations or views expressed by the research analyst in this research report. This document contains material that has been prepared by the Exane entity, or entities, identified in the Analyst Certification above. Exane SA is regulated by the Autorité des Marchés Financiers (AMF). Exane Limited is authorised and regulated by the Financial Conduct Authority (FCA). Commitment of transparency (see for details. Complete disclosures available on including a specific disclaimer concerning analysts location. Exane is independent of BNP Paribas (BNPP) and the agreement between the two companies is structured to guarantee the independence of Exane's research, published under the brand name Exane BNP Paribas. Nevertheless, to respect a principle of transparency, we separately identify potential conflicts of interest with BNPP regarding the company/(ies) covered by this research document. Exane Amended Investment Equity stake Additional Liquidity Corporate Analyst s Disclosure to after Distributor material banking provider links personal interest company Disclosure US Law French Law conflicts to company NO NO NO NO NO NO NO NO NO NO Source: Exane BNP Paribas Potential conflicts of interest: None. Source: BNP Paribas Exane BNP Paribas Research Indra 1 November 2013 page 3

4 INDRA (Underperform) Price at 31 Oct. 13 / 12m Target Price EUR12.2 / EUR9-26% Reuters / Bloomberg: IDR.MC / IDR SM Analyst: Brice Prunas (+44) IT Services - Spain Company Highlights EURm 24.0 Enterprise value 2,712 Market capitalisation 1,996 Free float 1, m average volume 8.3 Performance (*) 1m 3m 12m 14.0 Absolute 10% 19% 42% Rel. Sector 5% 14% 25% 10.0 Rel. MSCI SMID 6% 9% 10% Target Price 12m Hi/Lo (EUR) : % / % CAGR 2002/ /2015 EPS restated (**) 3% 9% 5.8 CFPS 7% 1% Price 11.7*CFPS Relative to MSCI SMID Price (yearly avg from Dec. 02 to Dec. 12) PER SHARE DATA (EUR) Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13e Dec. 14e Dec. 15e No of shares year end, basic, (m) Avg no of shares, diluted, excl. treasury stocks (m) EPS, company definition EPS restated, fully diluted % change 40.0% 23.6% (7.2%) 24.5% 10.5% 22.2% 11.2% 5.3% 6.0% (17.8%) (19.5%) (13.1%) 7.3% 9.8% CFPS Book value (BVPS) (a) Net dividend STOCKMARKET RATIOS Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13e Dec. 14e Dec. 15e P / E (P/ EPS restated) 17.0x 14.4x 19.5x 22.1x 21.3x 19.8x 16.1x 14.3x 12.1x 13.3x 11.0x 18.1x 16.8x 15.3x P / E relative to MSCI Small Cap 82% 93% 106% 122% 114% 109% 85% 72% 13% 39% 54% 96% 114% P / CF 16.2x 12.2x 15.0x 16.4x 16.1x 17.2x 10.6x 9.9x 9.5x 9.4x 8.4x 11.4x 11.9x 11.3x FCF yield 6.1% 6.7% 5.3% 2.2% 4.0% 2.1% 4.0% 4.3% 0.3% (2.7%) 2.4% 1.8% 4.1% 6.4% P / BVPS 4.81x 3.84x 4.21x 7.97x 6.97x 4.41x 3.56x 2.78x 2.35x 2.01x 1.29x 1.75x 1.66x 1.56x Net yield 1.3% 1.9% 4.8% 2.5% 2.6% 2.7% 3.6% 4.2% 4.8% 5.3% 4.0% 2.9% 2.9% 2.9% Payout 22.3% 26.9% 92.8% 55.8% 55.7% 53.0% 58.1% 60.4% 58.0% 70.2% 43.9% 52.0% 48.5% 44.1% EV / Sales 1.47x 1.23x 1.49x 1.95x 1.85x 1.54x 1.25x 1.12x 1.02x 1.01x 0.71x 0.93x 0.92x 0.89x EV / Restated EBITDA 11.5x 9.5x 12.0x 14.7x 14.1x 12.5x 10.1x 9.0x 8.7x 9.7x 8.1x 10.7x 10.5x 9.9x EV / Restated EBITA 13.3x 11.1x 14.0x 16.6x 16.2x 14.5x 11.8x 10.6x 10.2x 11.4x 9.8x 12.9x 12.5x 11.7x EV / OpFCF 12.9x 10.6x 14.2x 30.0x 17.7x 24.5x 17.7x 14.2x 35.1x 59.2x 16.4x 20.2x 14.8x 11.6x EV / Capital employed (incl. gross goodwill) 6.5x 7.1x 10.7x 9.1x 5.9x 3.7x 3.2x 2.6x 2.1x 1.5x 1.1x 1.3x 1.3x 1.3x ENTERPRISE VALUE (EURm) 1,281 1,208 1,610 2,345 2,598 3,330 2,965 2,806 2,599 2,704 2,090 2,712 2,715 2,657 Market cap 1,227 1,293 1,689 2,272 2,368 3,025 2,710 2,539 2,302 2,084 1,389 1,996 1,996 1,996 + Adjusted net debt (37) (137) (205) (54) Other liabilities and commitments Revalued minority interests Revalued investments P & L HIGHLIGHTS (EURm) Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13e Dec. 14e Dec. 15e Sales , , , , , , , , , , , ,993.3 Restated EBITDA (b) Depreciation (15.4) (18.1) (19.5) (18.1) (23.4) (35.2) (41.2) (47.5) (43.4) (42.6) (46.2) (44.0) (42.4) (42.1) Restated EBITA (b) (**) Reported operating profit (loss) Net financial income (charges) (1.4) (12.7) (22.9) (24.5) (19.0) (37.7) (53.8) (65.2) (62.2) (56.3) Affiliates (0.6) 0.6 (6.3) (0.8) (0.1) (0.2) Other (12.2) (17.6) (1.9) (0.7) (0.5) (0.2) Tax (14.4) (18.8) (22.8) (37.9) (44.2) (57.4) (65.0) (62.7) (45.7) (52.2) (35.7) (31.4) (34.2) (37.4) Minorities (8.1) (2.1) (4.5) (3.4) (3.8) (7.0) (3.7) (2.4) 0.6 (0.1) 5.1 (0.8) (0.8) (0.8) Goodwill amortisation (3.6) (4.2) (3.7) Net attributable profit reported Net attributable profit restated (c) CASH FLOW HIGHLIGHTS (EURm) Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13e Dec. 14e Dec. 15e EBITDA (reported) EBITDA adjustment (b) (1.4) (3.4) 6.2 (19.2) (22.8) 1.6 (33.4) (9.5) (5.0) (8.9) (9.0) Other items (11.0) 4.4 (0.4) (12.9) (0.8) Change in WCR (5.4) (70.1) (11.4) (45.6) (77.5) (66.4) (144.6) (152.3) (56.0) (82.6) (15.2) 22.1 Operating cash flow Capex (28.1) (18.4) (15.1) (17.9) (38.0) (71.2) (67.2) (79.8) (91.9) (126.1) (74.4) (56.8) (70.3) (70.7) Operating free cash flow (OpFCF) Net financial items + tax paid (14.4) (18.8) (15.7) (23.6) (44.1) (68.9) (52.4) (82.6) (67.1) (102.4) (92.8) (97.6) (99.9) (99.7) Free cash flow (56.7) Net financial investments & acquisitions (73.3) (7.6) (9.3) (24.2) (148.8) (39.3) (15.1) (20.2) (46.5) (45.4) (52.9) 0.6 (26.4) (26.4) Other (31.8) (0.7) (10.8) (22.2) Capital increase (decrease) (4.0) (102.9) (21.5) 12.9 (6.4) (3.6) Dividends paid (13.5) (16.6) (26.6) (77.9) (56.2) (128.8) (82.4) (101.0) (106.8) (110.9) (109.3) (55.8) (57.5) (57.5) Increase (decrease) in net financial debt 37.5 (100.3) (67.8) (1.3) (14.6) (45.8) Cash flow, group share BALANCE SHEET HIGHLIGHTS (EURm) Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13e Dec. 14e Dec. 15e Net operating assets ,040 1,092 1,124 1,170 1,214 WCR Restated capital employed, incl. gross goodwill ,091 1,245 1,783 1,914 2,010 2,057 2,067 Shareholders' funds, group share ,046 1,089 1,144 1,206 1,280 Minorities Provisions/ Other liabilities Net financial debt (cash) (37) (137) (205) (54) FINANCIAL RATIOS (%) Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07 Dec. 08 Dec. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13e Dec. 14e Dec. 15e Sales (% change) 12.8% 12.3% 10.0% 11.4% 17.0% 54.1% 9.8% 5.6% 1.7% 5.1% 9.4% (0.4%) 0.8% 1.4% Organic sales growth 13.7% 12.6% 10.6% 9.4% 9.7% 10.9% 10.2% 6.3% 0.3% 0.9% 0.8% 3.4% 1.5% 1.4% Restated EBITA (% change) (**) 14.8% 13.6% 5.2% 22.9% 13.6% 43.7% 9.5% 4.7% (3.5%) (6.8%) (10.4%) (1.5%) 3.8% 4.3% Restated attributable net profit (% change) (**) 43.1% 25.9% (7.1%) 18.8% 7.8% 37.4% 10.3% 6.0% 7.0% (17.7%) (19.5%) (12.3%) 7.3% 9.8% Personnel costs / Sales 31.4% 29.7% 29.3% 29.3% 32.6% 38.8% 41.1% 40.1% 41.0% 44.4% 47.5% 47.5% 47.5% 47.5% Restated EBITDA margin 12.8% 13.0% 12.4% 13.2% 13.1% 12.2% 12.3% 12.4% 11.7% 10.4% 8.8% 8.7% 8.8% 9.0% Restated EBITA margin 11.0% 11.1% 10.6% 11.7% 11.4% 10.6% 10.6% 10.5% 10.0% 8.8% 7.2% 7.2% 7.4% 7.6% Tax rate 17.2% 19.4% 20.5% 26.2% 27.7% 27.2% 26.2% 24.6% 19.6% 22.4% 21.9% 22.0% 22.0% 22.0% Net margin 7.5% 7.5% 7.8% 8.9% 8.2% 7.1% 7.7% 7.7% 7.3% 6.7% 4.3% 3.8% 4.1% 4.4% Capex / Sales 3.2% 1.9% 1.4% 1.5% 2.7% 3.3% 2.8% 3.2% 3.6% 4.7% 2.5% 1.9% 2.4% 2.4% OpFCF / Sales 11.4% 11.6% 10.5% 6.5% 10.4% 6.3% 7.0% 7.8% 2.9% 1.7% 4.3% 4.6% 6.2% 7.7% WCR / Sales 2.2% 1.9% 0.8% 5.6% 9.4% 13.7% 12.8% 16.7% 19.3% 23.8% 24.2% 27.1% 27.4% 26.3% Capital employed (excl. gdw./intangibles) / Sales 8.0% 5.6% 6.6% 10.9% 15.7% 19.1% 17.4% 20.5% 22.2% 34.0% 33.6% 37.0% 39.0% 39.6% ROE 29.0% 27.7% 21.6% 36.4% 32.1% 21.9% 21.5% 19.1% 19.2% 15.0% 11.6% 9.7% 9.8% 10.2% Gearing (13%) (37%) (47%) (18%) 16% 20% 18% 14% 27% 48% 57% 56% 53% 47% EBITDA / Financial charges NC NC NC NC 127.4x 20.8x 12.8x 12.7x 15.7x 7.4x 4.8x 3.9x 4.2x 4.8x Adjusted financial debt / EBITDA NC NC NC NC 0.3x 0.6x 0.5x 0.4x 0.9x 1.8x 2.4x 2.6x 2.5x 2.3x ROCE, excl. gdw./intangibles NS NS NS 79.3% 52.5% 40.4% 44.9% 38.6% 36.0% 20.0% 16.4% 14.6% 14.2% 14.3% ROCE, incl. gross goodwill 39.8% 51.4% 60.1% 40.5% 26.4% 18.5% 19.8% 18.3% 16.4% 10.3% 8.5% 7.9% 7.9% 8.2% WACC 8.1% 8.2% 8.2% 7.3% 7.2% 7.4% 7.1% 9.0% 8.3% 9.8% 11.6% 10.7% 10.7% 10.7% Latest Model update: 01 Nov. 13 (a) Intangibles: EUR925.60m, or EUR6 per share. (b) adjusted for capital gains/losses, impairment charges, exceptional restructuring charges, capitalized R&D, pension charge replaced by service cost (c) adj.for capital gains losses, imp.charges, capitalized R&D, am. of intangibles from M&A, exceptional restructuring, (*) In listing currency, with div. reinvested, (**) also adjusted for am. of intangibles from M&A, or for am. of gwill for pre IFRS years Exane BNP Paribas Research Indra 1 November 2013 page 4

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