Trevi Group Italy Capital goods

Transcription

1 30 August 2013 Trevi Group Italy Capital goods Buy (Hold) Target price EUR6.90 Current price EUR6.22 Matteo Bonizzoni, CFA Sound delivery and business prospects Trevi reported a steep acceleration in Q2, driven by its Drillmec, Trevi and Petreven divisions, which more than offset enduring troubles at Soilmec. All in all, we raise our FY 2013/15E EBITDA estimates by 8% on average. EPS rises by 17%. We see the guidance (FY 2013 EBITDA up 5% 10% YOY) as quite prudent at this stage (we now estimate +21% YOY) and believe it could well be revised up with the Q3 results. Our DCF-based TP rises from EUR6.5 to EUR6.9. Upgrade from Hold to Buy. Q2 results significantly above our estimates Q2 results were strong: at EUR42m, EBITDA was up 75% YOY and up 31% sequentially versus EUR33m in Q1. This was driven by revenues up 30% YOY in Q2, an unexpected reversal versus Q1, down 5% YOY. Strong acceleration at Drillmec/Petreven, sound group margins We were impressed by the booming Drillmec in Oil&Gas rigs (revenues +119% in Q2, +37% in H1), which benefited from execution of sound intake. Petreven (Oil&Gas services) was also strong (revenues +61% YOY in Q2 and +41% in H1), benefiting from higher activity in LatAm. The core Trevi division (foundation services) posted 6% revenues growth in Q2 (+5% in H1) with higher margins. Only Soilmec (foundation machinery) continued to disappoint: enduring weak demand, high competition drove a sharp (-36% YOY in Q2, -22% in H1) revenue decline. We raise our FY 2013/15 EBITDA estimates by 8% on average We revise up FY 2013E EBITDA by 14% to EUR136m (from EUR120m), which incorporates a reasonable run-rate of c EUR30m in Q3 and Q4. We are now positioned 9% above consensus. While management confirmed FY 2013 EBITDA guidance at +5%/ +10% YOY, pointing to a EUR m range, we believe it is conservative and might be increased at the Q3 results. On average, our FY 2013E/15E EBITDA rises by 8% (EPS +17%). Upgrade from Hold to Buy, TP raised from EUR6.5 to EUR6.9 Following improved estimates, our DCF-based TP rises to EUR6.9 (from EUR6.5). We upgrade our rating from Hold to Buy. The stock is trading at 7.0/6.6/5.9x EV/EBITDA 2013E/14E/15E, which we believe is moderately attractive in light of an 11% EBITDA CAGR. Business prospects are particularly positive for Drillmec, which might increasingly benefit from the recent entry into offshore and growing penetration of key clients with its innovative HH product offer, from a still low starting base. Reuters TFI.MI Bloomberg TFI IM Index DJ Stoxx 600 Market data Market cap (EURm) 437 Free float 51% No. of shares outstanding (m) 70 Avg. daily trading volume('000) 114 YTD abs performance 54.0% 52-week high (EUR) week low (EUR) Aug 12 Nov 12 Feb 13 May 13 Price DJ Stoxx 600 (rebased) FY to 31/12 (EUR) 2013E 2014E 2015E Sales (m) 1, , ,338.7 EBITDA adj (m) EBIT adj (m) Net profit adj (m) Net fin. debt (m) FCF (m) EPS adj. and fully dil Consensus EPS Net dividend FY to 31/12 (EUR) 2013E 2014E 2015E P/E (x) adj and ful. dil EV/EBITDA (x) EV/EBIT (x) FCF yield (%) na 10.4% 9.9% Dividend yield (%) 2.1% 2.1% 2.2% Net debt/ebitda (x) Gearing (%) 100.8% 93.3% 86.2% ROIC (%) 4.5% 4.6% 5.3% EV/IC (x) IMPORTANT. Please refer to the last page of this report for Important disclosures and analyst(s) certifications keplercheuvreux.com

2 Summary Company profile The Trevi Group is active in four businesses 1) Trevi - foundations services (core business). In this division, Trevi operates in tunnel excavation, soil consolidation, recovery of polluted sites; 2) Petreven - drilling services; 3) Soilmec - foundation machinery, 4) Drillmec - drilling machinery. The company has a well-diversified geographical presence. Management structure Davide Trevisani Stefano Trevisani Daniele Forti Chairman CEO CFO Key shareholders Trevisani family 48.7% EPS and PE FCF and Gearing Balance sheet structure, 2013E E 14E 15E EPS adj. P/E (x) E 14E 15E FCF LS Gearing RS 160% 140% 120% 100% 80% 60% 40% 20% 0% 100% 80% 60% 40% 20% 0% Goodwill Other assets Cash Shareholders equity Other liabilities Financial debt Valuation Base case We derive a EUR6.9ps TP through our DCF (WACC: 8.3%, TG: 2%), which is based on terminal EBIT margin (2022) = 8.5%, up from 5.6% 2013E Best case Assuming a steeper margin recovery with terminal EBIT margin of 10% (from 5.6% 2013E), we would derive a EUR8.4 FV Worst case In case of lower margin recovery and assuming a terminal 6.5% EBIT margin (from 5.6% in 2013E), we would derive a EUR4.5FV Target price DCF SOP Target price Base case Current price Best case Worst case Risk to our rating Main risks: 1) lower-than-expected margin recovery, driven by better/worse conditions in the reference markets; 2) lower-than-expected deleverage, mainly deriving from working capital dynamics 2 keplercheuvreux.com

3 Contents Sound delivery and business prospects Q2 results significantly above our estimates 4 Acceleration at Drillmec/Petreven, sound group margins 4 We raise our FY 2013/15E EBITDA estimates by 8% on average 5 Upgrade from Hold to Buy, TP raised from EUR6.5 to EUR6.9 6 Research ratings and important disclosures Legal and disclosure information 3 keplercheuvreux.com

4 Sound delivery and business prospects Trevi Group reported a steep acceleration in Q2, driven by its Drillmec, Trevi and Petreven divisions, which more than counterbalanced enduring troubles at Soilmec. All in all, we raise our FY 2013/15 EBITDA estimates by 8% on average. EPS rises by 17% (on low absolute figures). We see the guidance (FY 2013 EBITDA up 5% 10% YOY) as quite prudent at this stage (we now estimate +21% YOY) and believe it could well be revised up with the Q3 results. Following higher estimates, our DCF-based TP rises from EUR6.5 to EUR6.9. We upgrade our rating from Hold to Buy. Q2 results significantly above our estimates Q2 results were strong: at EUR43m, EBITDA was up 75% YOY and up 31% sequentially verus EUR32m in Q1. This was driven by revenues up by 30% YOY in Q2, with an unexpected reversal vs Q1, which was down 5% YOY. All in all, EBITDA grew by a sound 35% YOY in H1. Steep acceleration in Q2, well above estimates EBITDA margin was up 300bp in Q2, leading to a 180bps margin expansion in H1. The bottom line (H1-9% YOY) was dented by forex losses mainly related to Bolivar. NFP was up 8% YOY to EUR462, as higher turnover and still high stock at Solimec drove working capital absorption. It was slightly better than our EUR470m estimate. Table 1: Trevi Group Interim results EURm H1 12 H1 13 YOY Q2 12 Q2 13 YOY Q2 13E Act/est Revenues % % % EBITDA % % % Margin 9.6% 11.4% +180bps 8.8% 11.8 % +300bps 9.9% EBIT % % % Margin 4.8% 6.4% +160bps 3.5% 7.1% 7.1% Net profit % % % NFP % % 470-2% Source: Company data, Kepler Cheuvreux Acceleration at Drillmec/Petreven, sound group margins We were impressed by booming Drillmec in Oil&Gas rigs (revenues +119% in Q2, +37% in H1), which benefited from execution of sound intake. Petreven (Oil&Gas services) was also strong (revenues +61% YOY in Q2 and +41% in H1), benefiting from higher activity in LatAm. The core Trevi division (foundation services) posted 6% revenues growth in Q2 (+5% in H1) with higher margins. Only Soilmec (foundation machinery) continued to disappoint: enduring weak demand and high competition drove a sharp revenue decline (-36% YOY in Q2, -22% in H1). Growth engines: Drillmec and Petreven Trevi: sound margins Soilmec continues to disappoint 4 keplercheuvreux.com

5 Table 2: Trevi Group divisional revenue breakdown acceleration driven by Drillmec and Petreven 1Q12 % 2Q12 % 1H12 % 1Q13 % 2Q13 % 1H13 TREVI % % % % % YoY 4% 6% 5% PETREVEN % % 45 8% % % 63 YoY 21% 61% 41% Elision TOTAL SERVICES % % % % % SOILMEC % % % % % 95.1 YoY -1% -36% -22% DRILLMEC % % % % % YoY -14% 119% 37% Elision TOTAL MACHINERY % % % % % Other TOTAL REVENUES % % % % % YoY -3% 30% 13% Source: Kepler Cheuvreux The breakdown analysis by division reveals that Services (Trevi+Petreven) improved EBITDA margins by 170bp in H1. In particular, Trevi performed above budget, with swift backlog execution. Margins up in both Services and Machinery Despite enduring troubles at Soilmec, EBITDA margin in Machinery was up 160bps in H1: this was driven by operating leverage at Drillmec, which benefited from booming revenues. Table 3: Trevi Group - EBITDA by division Q1 12 Q2 12 H1 12 Q1 13 Q2 13 H1 13 EBITDA margin - Services 18.5% 14.2% 16.4% 18.8% 17.5% 18.1% EBITDA margin - Machinery 3.4% 5.3% 4.3% 3.3% 7.7% 5.9% EBITDA Services EBITDA Machinery Other EBITDA total EBITDA margin 10.3% 8.8% 9.6% 10.9% 11.8% 11.4% Source: Kepler Cheuvreux We raise our FY 2013/15 EBITDA estimates by 8% on average We revise up FY 2013 EBITDA by 14% to EUR136m (from EUR120m), which incorporates a reasonable (or possibly conservative) run-rate of c EUR30m in Q3 and Q4. We are now 9% above consensus (EUR124m). While management confirmed its FY 2013 EBITDA guidance at up 5% 10% YOY, pointing to a EUR m range, we believe it is conservative and might be increased at the Q3 results. In fact, during the conference, reference was made to an expectation for EBITDA of EUR60m in H2, bang in line with our estimate. There was some disappointment from the worse NFP guidance: in fact, management now expects NFP FY 2013 quite in line with H1 (EUR462m), having previously indicated it would improve vs. the FY 2012 level (EUR413m). This is due to a higher working capital requirement related to higher turnover and from continuing overstocking/unfavourable payment terms from clients at Soilmec, given enduring troubles in the foundation machinery segment. We have taken into account the new, worse NFP guidance, increasing our FY 2013 NFP estimate to EUR451m (from EUR403m), +12%. We revise up our FY 2013/15 EBITDA estimates by 8% on average Guidance (confirmed) is conservative Some disappointment from NFP 5 keplercheuvreux.com

6 On average, our FY 2013/15 EBITDA forecasts rise by 8% (EPS +17% on low absolute figures) while NFP worsens by 7%. Table 4: Trevi Group Revised FY 2013/14/15 estimates New Old chg YOY New Old chg YOY New Old chg YOY Avg. 13/15 chg CAGR 12/15 Total revenues % 10% % 3% % 6% 2% 6% EBITDA % 21% % 3% % 10% 8% 11% Margin 10.1% 11.1% 10.1% 11.1% 10.7% 11.6% 11.1% EBIT % 45% % 3% % 13% 12% 19% Margin 4.3% 5.6% 4.8% 5.6% 5.2% 6.0% 5.7% Net profit % 59% % 22% % 35% 17% 38% NFP % 9% % -6% % -5% 7% -1% NFP/EBITDA 3.68x 3.32x 3.36x 3.03x 3.02x 2.62x 2.66x Source: Kepler Cheuvreux We believe our new EUR136m FY 2013 EBITDA estimates enjoy fairly good visibility, as they imply a less bullish H2 vs. the very strong H1. In particular, we expect some lower margins at Trevi and lower activity levels at Drillmec, as large contracts that entered backlog in Q have already been largely executed. Table 5: Trevi Group - Our upgraded FY 2013 estimates imply ceur60m EBITDA in H2 H1 12 H1 13 YOY H2 12 H2 13 implied YOY Total revenues % % EBITDA % % Margin 9.6% 11.4% 10.5% 10.5% EBIT % % Margin 5.0% 6.5% 3.4% 4.4% Net profit % n.m. Source: Company data, Kepler Cheuvreux Upgrade from Hold to Buy, TP raised from EUR6.5 to EUR6.9 Following improved estimates, our DCF-based TP rises from EUR6.5 to EUR6.9 and we upgrade our rating from Hold to Buy. The stock is trading at 7.0/6.6/5.9x EV/EBITDA 2013E/14E/15E, which we believe is moderately attractive in light of an 11% EBITDA CAGR. The prospects are particularly positive for Drillmec, which might increasingly benefit from the recent entry into offshore and growing penetration of key clients with its innovative HH product offer, from a still low starting base. We believe Drillmec could benefit from the high potential for customisation and flexibility embedded in its solutions, which might help it to grab market share from big established players focused on a more traditional and standardised approach. Given the high numbers of negotiations on this front, we believe sizeable order intake might be finalised in H2, as confirmed by management during the conference call, possibly generating good momentum for FY As for the Trevi division (foundation services), several negotiations are under way for infrastructure jobs in the US, mainly dam repairs. If finalised, this might provide a positive surprise on the order intake in H2 2013/Q Upgraded to Buy, with a new EUR6.9 DCF-based TP Potential catalysts from large orders acquisition at Drillmec, led by the new offshore product offer and dam repairs in the US (Trevi division) 6 keplercheuvreux.com

7 Valuation FY to 31/12 (EUR) E 2014E 2015E Per share data EPS adjusted % Change 33.8% 10.0% -43.6% -49.5% -58.0% 58.7% 22.2% 35.0% EPS adjusted and fully diluted % Change 33.8% 10.0% -43.6% -49.5% -58.0% 58.7% 22.2% 35.0% EPS reported % Change 33.8% 10.0% -43.6% -49.5% -58.0% 58.7% 22.2% 35.0% EPS Consensus Cash flow per share Book value per share DPS Number of shares, YE (m) Number of shares, fully diluted, YE (m) Share price Latest price / year end week high (Year high) week low (Year low) Average price (Year) Enterprise value (EURm) Market capitalisation Net financial debt Pension provisions Market value of minorities Market value of equity affiliates (net of tax) Others Enterprise value 1, , , , Valuation P/E adjusted P/E adjusted and fully diluted P/E consensus P/BV P/CF na na 6.8 na Dividend yield (%) 1.0% 1.4% 1.1% 1.5% 2.8% 2.1% 2.1% 2.2% Dividend yield preference shares (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% FCF yield (%) na na 7.6% na 3.8% na 10.4% 9.9% ROE (%) 37.4% 29.8% 13.6% 6.4% 2.5% 3.9% 4.6% 6.1% ROIC (%) 20.4% 14.3% 7.3% 4.6% 3.1% 4.5% 4.6% 5.3% EV/Sales EV/EBITDA keplercheuvreux.com

8 Income statement FY to 31/12 (EURm) E 2014E 2015E Sales 1, , , , , , ,338.7 % Change 27.0% -3.1% -8.0% 11.4% 5.1% 9.8% 3.2% 5.9% EBITDA reported % Change 24.1% 9.3% -24.5% -13.3% -5.6% 21.1% 3.3% 10.3% Depreciation and amortisation Goodwill impairment Other financial result and associates EBIT reported % Change 22.7% -8.0% -28.1% -17.8% -31.5% 44.6% 3.1% 13.3% Net financial items Associates Others Earnings before tax % Change 27.1% -4.2% -32.9% -26.9% -59.1% 67.7% 20.1% 31.2% Tax Net profit from continuing operations % Change 33.8% 8.9% -45.7% -40.7% -57.6% 71.4% 22.2% 33.5% Net profit from discontinuing activities Net profit before minorities Minorities Net profit reported % Change 33.8% 10.0% -43.6% -44.6% -58.0% 58.7% 22.2% 35.0% Adjustments Net profit adjusted % Change 33.8% 10.0% -43.6% -44.6% -58.0% 58.7% 22.2% 35.0% Gross profit EBITDA adjusted EBIT adjusted Gross profit margin (%) 30.3% 33.5% 32.5% 29.4% 30.1% 29.4% 29.7% 30.0% EBITDA margin (%) 15.6% 17.6% 14.4% 11.2% 10.1% 11.1% 11.1% 11.6% EBIT margin (%) 11.9% 11.3% 8.8% 6.5% 4.3% 5.6% 5.6% 6.0% Net profit margin (%) 7.0% 7.9% 4.9% 2.4% 1.0% 1.4% 1.7% 2.1% Tax rate (%) 29.1% 19.5% 34.9% 47.2% 45.2% 44.0% 43.0% 42.0% Payout ratio (%) 11.3% 10.3% 9.3% 19.7% 35.5% 84.5% 53.2% 43.6% EPS reported (EUR) % change 33.8% 10.0% -43.6% -49.5% -58.0% 58.7% 22.2% 35.0% EPS adjusted (EUR) % change 33.8% 10.0% -43.6% -49.5% -58.0% 58.7% 22.2% 35.0% EPS adj and fully diluted(eur) % change 33.8% 10.0% -43.6% -49.5% -58.0% 58.7% 22.2% 35.0% DPS (EUR) % change 20.0% 0.0% 8.3% 0.0% 0.0% 0.0% 0.0% 5.4% DPS,preference shares (EUR) % Change na na na na na na na na Consensus Sales (EURm) 1, , ,348.9 Consensus EBITDA (EURm) Consensus EBIT (EURm) Consensus EPS (EUR) Consensus DPS (EUR) keplercheuvreux.com

9 Cash flow statement FY to 31/12 (EURm) E 2014E 2015E Net profit before minorities Depreciation and amortisation Goodwill impairment Change in working capital Others Cash Flow from operating activities % Change na na na -94.9% % -46.9% 145.9% 2.4% Capex Free cash flow % Change na na na na na na na -5.1% Acquisitions Divestments Dividend paid Share buy back Capital increases Others Change in net financial debt Change in cash and cash equivalents Attributable FCF Cash flow per share (EUR) % Change na na na -95.3% % -46.9% 145.9% 2.4% FCF per share (EUR) na na 0.86 na 0.17 na % Change na na na na na na na -5.1% Capex / Sales (%) 11.4% 7.8% 5.4% 6.8% 6.6% 5.4% 5.2% 5.3% Capex / D&A (%) 377.1% 190.6% 114.5% 156.2% 148.7% 120.3% 110.7% 109.7% Cash flow / Sales (%) -3.6% -1.9% 11.2% 0.5% 7.7% 3.7% 8.8% 8.5% FCF / Sales (%) -15.0% -9.7% 5.8% -6.3% 1.1% -1.7% 3.6% 3.2% FCF Yield (%) na na 7.6% na 3.8% na 10.4% 9.9% Unlevered FCF Yield (%) na na 3.9% na 3.1% na 4.7% 4.6% 9 keplercheuvreux.com

10 Balance sheet FY to 31/12 (EURm) E 2014E 2015E Cash and cash equivalents Inventories Accounts receivable Other current assets Current assets , , , , ,148.5 Tangible assets Goodwill Other Intangible assets Financial assets Other non-current assets Non-current assets Short term debt Accounts payable Other short term liabilities Current liabilities Long term debt Pension provisions Other long term provisions Other long term liabilities Non-current liabilities Shareholders' equity Minority interests Total equity Balance sheet total 1, , , , , , , ,592.7 % Change 52.2% 6.4% 0.9% 24.9% -6.0% 7.1% 0.1% 1.8% Book value per share (EUR) % Change 44.7% 33.5% 17.2% 9.6% -1.5% 1.1% 1.4% 2.4% Net debt Net financial debt Trade working capital Working capital Inventories/sales 30.1% 33.6% 24.6% 27.6% 23.7% 24.7% 24.7% 24.1% Invested capital Net debt / EBITDA (x) Net debt / FCF (x) na Gearing (%) 136.9% 140.5% 108.1% 92.4% 95.7% 100.8% 93.3% 86.2% Goodwill / Equity (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 10 keplercheuvreux.com