Summary. Investment criteria Ahlers AG Vz

Transcription

1 Current price ( , 12:54, Ffm.): 8.07 EUR Rating: Hold (Hold) Target price 12 months: 9.00 (9.00) EUR Industry: Apparel Country: Germany ISIN: DE Reuters: AAHG_p.F Bloomberg: AAH3:GR High Low Price 12 months: Current price: Num. of shares: Free float: ,681, % Market cap.: million Summary The Ahlers AG is an international company in the apparel industry. The brand portfolio includes several well-known brands such as Baldessarini, Otto Kern, Pierre Cardin and Pioneer. Investment criteria Growth according to plan in the third quarter A few days ago Ahlers presented its financial results for the first nine months of 2014/15 (through ). At this time it can be stated that growth during the last three months continues to reflect the trend of the first half of the year. However, Ahlers still has not benefited from any momentum created by the market. The German retail clothing sector did not gain from the overall positive consumer sentiment. After the positive months of June and July, the industry experienced a significant 16 percent drop in sales in August, which was mainly due to the very hot weather. This resulted in a year to date loss of 3 percent over the previous year. This company which operates throughout Europe has also been burdened by the developments in Russia, where retail sales have been fairly stable in the local currency, but clothing imports have decreased significantly due to the nearly to 50 percent devaluation of the ruble. Figures 12/13 13/14 14/15e 15/16e Sales EBIT Net profit Prof/share Dividend P/E ratio Div. yield 6.2% 5.6% 2.5% 6.2% Figures in millions of euros Profit per share an Dividends in euros Analyst: Alexander Langhorst Tel.: +49 (0) 211 / Fax: +49 (0) 211 / a.langhorst@gsc-research.de In addition to the reduction of goods purchased by the last major private label customer, the loss in revenue from Russia and the Ukraine has led to a 5.3 percent decrease in Group revenue to million euros in the nine-month period. After factoring out the two special effects previously mentioned, stable to slightly higher revenues were still achieved based on the figures available. On a positive note therefore, and apart from these two special effects, the company has most likely gained market shares. On the earnings side, the 5.5 percent or 5.6 million euros of missing sales resulted in a reduction of 95.5 million euros of gross profit at an otherwise stable gross profit margin. Additional expenses for the new sales territories of France, Belgium and Spain could be offset by the savings measures at Gin Tonic, which were initiated in previous periods. Consequently, the operating result (EBIT) before special costs, decreased by approx. 5.7 million euros to just 8.1 million euros during which time other costs were fairly stable. It should be noted, however, that in both periods under consideration, gains are included from the sale of artwork in the amount of 0.5 million euros. This was not declared as a special effect by Ahlers but recorded under the segment of miscellaneous income. The reported special costs relate to the complete discontinuation of the business segment Gin Tonic (see our research from ) which had been previously announced and totaled to date 0.9 million euros. Here, the management had initially specified a maximum amount of 2 million euros. After considering these factors as well as the slightly reduced financing costs and tax expenses, the reported profit for the period was 4.5 million euros compared to 7.5 million euros in the previous year, at which time special expenditures totaling 2.4 million euros were incurred. Correspondingly, the net profit per preferred share decreased from 0.57 to 0.35 euros. Page 1

2 Revenue and earnings forecast unchanged Given the expected growth in the third quarter, the company confirmed the lowered guidance contained in the half-year figures for the rest of the current fiscal year. According to the guidance the decrease in sales should be at least 5 percent, thereby continuing the trend of the first three quarters. The greatest uncertainty remains the Russian market, which includes certain risks not only in terms of deliveries but also in terms of payments. For the remaining European markets, the management board expects stable to slightly rising clothing sales, bearing in mind however, that the previous year with a weak winter season provides a rather low basis for comparison. Initial reports from the industry indicate a very positive month for September. This trend appears to have continued in the first few weeks of October so that in spite of the Russia risk we can assume that the decline in Ahlers revenue will not fall significantly below the 5-percent mark for the entire year. Management continues to expect a sharp decline in group earnings primarily as a result of low profit contributions and the special costs arising from the discontinuation of the Gin Tonic unit. In addition, the management board confirms its intention of paying a satisfying dividend, which we expect to be 0.20 euros, based on the positive cash flow that it expects. Retail and ecommerce continue to grow Furthermore, and despite the prevailing difficult environment, the own retail activities continue to develop in a positive direction. This Ahlers segment grew in the first nine months by 5.9 percent. The share of total group sales amounted to 11.2 percent after 10.0 percent in the previous year. In the long run, the rate should not exceed 25 percent of total revenues. In the coming months the company plans to open more stores and outlets in Germany and selected European countries. Even the number of Elsbach Denim Library stores will be increased by the end of 2016 to six or seven locations. At this time there are outlets in Hamburg (Kaufmann House Bleichenbrücke), Oldenburg (Achternstraße) and Potsdam (Brandenburger Straße). Two locations in southern Germany and a store in the former East Germany are planned. The ecommerce activities of Ahlers are generating more dynamics and turnover achieved there was up by 26 percent. Meanwhile, the profitability of the business has improved, which probably has to do with important competitors such as Zalando (a listed company) having to pay more attention to these new dynamics. Besides its presence on various multi-brand platforms the planned opening of Pierre-Cardin-Online-Shops for 2015/16 should also produce more growth. As was explained at the analyst conference of the Q3 figures, the Ahlers management believes online sales equaling its own retail activities can be achieved as early as 2015/16. Curated Shopping as a trend The trend toward Curated shopping will most likely be the success factor for the future in both the online and stationary clothing stores. Assisted shopping most closely describes this trend in which customers are provided with outfit recommendations depending on their shopping preferences. This approach not only constitutes an interesting alternative for the cliché-type male customer otherwise known as the shopping grump, but has quite a bit of charm as well. Page 2

3 Online vendors such as OUTFITTERY have already been successful with this method, but the existing advisory expertise of the fiercely competitive specialized retail trade should also generate opportunities for moving ahead. Bonus programs and customer purchasing behavior analyzes can generate such opportunities here. This strategy may not seem very innovative at first glance, on the other hand a specialized advice geared toward customer needs has been the recipe for success for centuries in retail trade. Therefore Curated shopping ultimately represents only an adaptation of this successful strategy to the opportunities of today. GSC forecasts unchanged Because the third quarter 2014/15 was in line with our expectations, and the company did not change its guidance, we currently see no need to modify our estimates which were reduced based on the last six-months figures. At the same time a little Upside exists for the current fiscal year related to the special costs for discontinuation of the Gin Tonic segment which up until now included the specified maximum amount of 2 million euros. Should this result in a lower total than expected after the year to date third quarter, the annual profit could turn out somewhat higher than we currently anticipate. However, we prefer to error on the side of conservatism to protect against any additional costs from the Russian business segment. In the coming fiscal year 2015/16 the operating costs and the restructuring expenses of Gin Tonic, with the exception of follow-up costs for which no provisions can be made, should be virtually eliminated. Given the current consumer sentiment in a low interest rate environment, which we feel will continue, the retail clothing sector should take off again in 2016 after a disappointing year in Germany. Ahlers should benefit from this along with the self-initiated measures to improve the sales and earnings situation such as those with Pierre Cardin and Baldessarini. With regard to the Russian crisis, we still do not assume that the current situation will rectify itself in the coming year, and it will likely continue to affect the income statement of Ahlers. Nevertheless, we anticipate an increase in profit and therefore once again predict an increase in earnings of 0.14 euros in 2014/15 to 0.56 euros in 2015/16 on preferred shares of stock. For the first time we also include estimates for the fiscal year 2016/17. Here we expect further improvements in margins based on the measures we have introduced. Likewise, we expect a further growth in sales and earnings but also a certain relaxing of the markets in Russia and Ukraine. Therefore, our initial profit forecast shows earnings of 0.61 euros per share. Evaluation and conclusion The figures provided by the Ahlers AG for the first three quarters of 2014/15 (through ) were in line with our expectations but we were also disappointed with the half-year figures and the forecast reduction made there. We remain optimistic that the 2014/15 financial year will be the last transition year and aside from the geopolitical pressures from the Russian crisis, profits and consequently dividends will restart the growth engine for the next financial year. Even after the unpleasant forecasts the investment story of a profitable and bond-like asset remains intact. Because of this and the fact that a dividend, albeit lower, has already been promised for the current fiscal year, we maintain our Hold recommendation for the Ahlers preferred share. We also confirm our target price of 9.00 euros. Page 3

4 Income statement Page 4

5 Shareholder structure Common shares (7,600,314): WTW-Beteiligungsgesellschaft mbh 76.32% Estate Jan A. Ahlers 0.31% Free float 23.37% Preferred shares (6,081,206): WTW-Beteiligungsgesellschaft mbh 20.71% Estate Jan A. Ahlers 0.07% Free float 79.22% Schedule 10. March 2016 Annual accounts press conference 12. April 2016 Interim report first Quarter 2015/ April 2016 Analysts conference in Frankfurt/Main 03. May 2016 Annual shareholders meeting in Düsseldorf 14. July 2016 Half-year report 2015/ October 2016 Interim report third Quarter 2015/ October 2016 Analysts conference in Frankfurt/Main Contact Address Ahlers AG Elverdisser Straße 313 D Herford Internet: Contact person investor relations: Dr. Karsten Kölsch (CFO) Tel.: +49 (0) 5221 / Fax: +49 (0) 5221 / investor.relations@ahlers-ag.com Page 5

6 Disclosures Shares are rated based on the expectation of the analyst(s) regarding the performance of the shares during the following twelve months. The rating "Buy" means that a return of at least 15% is expected. "Hold" means an increase in value between 0% and 15%. "Sell" means that the expected performance is negative. Unless otherwise indicated, the stated upside targets are based on a discounted cash flow valuation and/or on a comparison of the performance ratios of companies that are comparable in view of the respective analyst(s). The result of this fundamental valuation is adjusted by the analyst(s) based on the mood of the market. Summary of our recommendations for the share over the last 12 months: Release date Price at recommendation Rating Target price Hold Hold The distribution of recommendations in our investment universe currently looks like this (status ): Rating Basis: all analyzed companies companies with customer relationships Buy 55.9% 60.0% Hold 35.3% 40.0% Sell 8.8% 0.0% Possible conflicts of interest among companies referred to in this research report: Company Disclosure Ahlers AG 1; 5 1. GSC Research and/or its affiliated companies have created research reports on behalf of the company in the last two years. 2. GSC Research and/or its affiliated companies have provided consulting services to the company in the last two years. 3. GSC Research and/or its affiliated companies have been involved with the transfer of company shares in the last two years. 4. GSC Research and/or its affiliated companies as (sub)consultants and supervised investors hold shares in the company. 5. The author or other employees of GSC Research directly hold shares in the company or related derivatives (value >500 euros). 6. Institutions and/or substantial shareholders of this company participate directly in the GSC Holding AG as the parent of GSC Research GmbH. 7. According to the information of GSC Research investors who participate with 2.5% or more in the GSC Holding AG as the parent of GSC Research GmbH (see directly hold shares in the company or related derivatives. Declaration of liability The information contained in this study is taken from public sources, which hold the GSC Research GmbH for trustworthy and reliable. However, no liability can be accepted for the accuracy and completeness as well as for errors of any other kind. The company is responsible for the accuracy of any documents and information it provides for preparation of the study. All expressions of opinion reflect the current and subjective assessment of the analyst(s) and can be changed at any time without prior notice. This study is intended solely for investors with a registered office in the Federal Republic of Germany. The study is for information purposes only and is not an invitation to buy or sell shares or other financial instruments. All investors are hereby requested to obtain detailed and comprehensive information as well as consult a qualified expert before making any investment decisions. Investing in shares or other financial instruments is associated with risk and can lead to a total loss in the worst case scenario. Neither the GSC Research GmbH nor its affiliates, legal representatives or employees are liable for any losses or damage in connection with the contents of this study. The production and distribution of this study is subject to the law of the Federal Republic of Germany. Distribution of this study in other jurisdictions may be restricted by applicable laws or other legal provisions. Persons who reside outside of the Federal Republic of Germany and who come into possession of this study must inform themselves about and follow any restrictions that apply to them. This study may not be wholly or partially reproduced or stored in any form without the prior written consent of the GSC Research GmbH. The GSC Research GmbH, Tiergartenstr. 17, D Dusseldorf, is responsible for the preparation of this study. Page 6