2011 September, 7 Equity Update Sector: Waste Management Rating: BUY BIANCAMANO Year Sales EBITDA EBIT Net Adj. DPS EV/ EV/ P/E P/BV Dividend m m m Profit EPS EBITDA EBIT Yield m m x x x x % 2010 265,8 29,4 13,0 3,0 0,088 0,04 5,6 12,7 15,4 1,1 2,9 2011F 283,0 32,5 18,0 5,8 0,172 0,04 5,2 9,4 7,9 1,0 2,9 2012F 312,0 40,0 24,1 9,0 0,266 0,04 4,1 6,8 5,1 0,8 2,9 2013F 324,5 45,1 28,9 11,9 0,351 0,04 3,5 5,4 3,9 0,7 2,9 Old New Rating BUY BUY Risk Rating Low Low Target ( ) 3,0 2,6 Market Data ( ) Target Price ( ) 2,60 Close Price ( ) 1,36 Share Outstanding (m) 34 Market Cap. ( /m) 46,2 Market Float (%) 35,6 Avg daily Vol. (000s) 59 Past 12 Months Max 2,06 Min 1,28 Performance 3 M 12 M Absolute -26,8-3,5 Relative 3,2 26,2 150 140 130 120 110 100 90 80 70 60 5/09/10 19/09/10 FTSE MIB Biancamano 1H11 EBITDA is slightly lower than our forecast; in line revenues. 1H11 EBITDA declined by 3.1% to 15.6 mln ( 16.3 mln our forecast), mainly due to the increase in the cost of fuel (+ 1.8 mln compared to 1H10) that will be partially reabsorbed in future revisions of annual waste management service fees, and the continued closure of Ponticelli disposal plant. Consequently EBITDA margin declined to 11.1% (from 12.4%). Revenues rose by 8.6% to 140.8 mln ( 140 mln our forecast). Net debt was 123.2 mln ( 119.2 mln at FY10), lower than 1Q11 ( 136.6 mln), confirming that the NFP historically recorded much higher values during 1Q and 3Q of the year. 2011-12F downgrade. Unchanged Fy13F. 1H11 lower than expected results allow us reduce our 2011-12F EBITDA by 12% and 6% respectively. Our forecasts are slightly lower than Biancamano s 2010-2012 business plan. We would stress that Biancamano s business continue to has a good visibility compare to the industrial companies. We calculate that the average contracts duration is close to 4 years, meaning that large part of 2012F are visible. Valutation: BUY, TP 2.6 (from 3.0), risk low. Biancamano operates in a non cyclical sector. For this reason we believe the yield/risk business mix is similar to companies that operate in the utilities sector, especially in term of business visibility. We value Biancamano through two methodologies (50% each): DCF (unchanged main data input) and ratio analysis (including for the first time market consensus FY13F forecast). Biancamano value resulting from the ratio analysis is 2.9 per share ( 3.1 the previous one), higher than the equity value calculated through the DCF analysis. This is particularly positive because during the recent months markets prices dramatically collapse. Thus, companies like Biancamano demonstrated lower volatility (meaning lower risks) than the market as a whole. We confirm our Buy rating, and we downgrade the TP to 2.6 per share (from 3.0), and low risk. At our target price Biancamano ratios would be in line with the average ratios of our sample. We do not apply a discount versus the big cap companies, taking into account higher than peers possibilities to growth in the domestic market (Biancamano has only 10% of Italian private market in terms of volume of waste collected). 3/10/10 17/10/10 31/10/10 14/11/10 28/11/10 12/12/10 26/12/10 9/01/11 23/01/11 6/02/11 20/02/11 6/03/11 20/03/11 3/04/11 17/04/11 1/05/11 15/05/11 29/05/11 12/06/11 26/06/11 10/07/11 24/07/11 7/08/11 21/08/11 4/09/11 Antonio Tognoli +39 02 7862 5303 antonio.tognoli@integrae.it
1H11 Results Biancamano 1H11 revenues rose by 8.6% YoY to 140.8 mln in line with our forecast ( 141 mln) and management expectation. The increase in revenues is exclusively due to waste management services (award of the tender for the half-year period equal to Euro 36,000 thousand), the core business of the Group. Disposal was affected by the shut-down of the proprietary plant in Imperia, which has now gone on for over a year, while operations at the Mondovì plant for the recycling and handling of waste electric and electronic equipment only started up at the end of June, following mainly bureaucratic delays with respect to the originally expected schedules. During 1H11 Biancamano, finalized many project started some months ago. Among these: WEEE plant comes into operation at Mondovì (Cn). In June Biancamano, through its subsidiary company Ponticelli Srl, started the WEEE (Waste of Electric and Electronic Equipment) treatment and recycling plant, located at Mondovì in the Province of Cuneo. The plant will handle approximately 10,000 metric tons/year of this type of waste with high expected Ebitda margin. The plant will contribute to consolidated operating margins starting from the second semester 2011. Transfer of the Hospital Waste Business Unit. Biancamano Spa, through its controlled company Aimeri Ambiente, on 28 April 2011 signed the closing of the transfer of the Hospital Waste Business Unit to Eco Eridania Srl, a company located in Arenzano (GE). The consideration agreed for the sale amounts to Euro 5 million, corresponding to an Enterprise Value of 5.5 mln. The transaction is effective from 1th July 2011. The consolidated EBITDA declined by 3.1% YoY to 15.6 mln, so that the EBITDA margin declined to 11.1% (12.4% in 1H10). The EBITDA reduction is mainly due to: the increase in the cost of fuel that accounted for about 1,8 mln more in the income statement compared to 30 June 2010, mainly due to the sharp increase in motor fuel prices. The increase will be partially reabsorbed in future revisions of annual waste management service fees; the increase in service costs related to the Temporary Joint Ventures (A.T.I.) which was 12 mln compared to 8.2 mln on 30 June 2010, following the entry into operation of tenders awarded in A.T.I. in the previous year with the subsidiary Aimeri Ambiente acting as lead agent in charge of invoicing the customer the entire fee and not just its part; the increase in leasing costs, mainly due to the increase in costs for hiring industrial vehicles in order to meet temporary operational requirements which could not have been foreseen by management 2 Biancamano 2011, September 7 - pag. 2
and mainly due to delivery delays by the producers and/or the outfitters; the continued closure of the Ponticelli disposal plant, where the plant management costs of the plant were not reabsorbed from revenues, on a prudential basis, pending establishment with the Province of Imperia of the amount of reimbursement due for the higher charges incurred with respect to the business plan originally approved when establishing the disposal charges to apply to the conferring municipalities, as long as the plant remains shut down. As far as EBIT margin is concerned, it felt only by 0.5% (from 6.4% to 5.9%) despite the higher EBITDA reduction, thanks to lower impact of amortization / depreciation on revenues (which declined to 4.9% of 1H11 from 5.8% of 1H10). As far as the operating investments are concerned, they were 11.5 mln ( 22.7 mln in 1H10). Biancamano mainly addressed investments to cover operating assets, such as vehicles and waste containers. Part of investment ( 1.8 mln) has been addressed to completion of WEEE (waste of electric and electronic equipment) plant. Investments, as usual, Net debt amounted to 123.2 mln ( 119.2 mln at FY10), significantly lower than 1Q11 ( 136.6 mln), confirming that the net financial position has historically recorded much higher values in the first and third quarters of each year as an indirect result of a decrease in operations in the municipal treasuries (with respect to the stability pact and holiday time). Over the half-year period, Biancamano assigned trade receivables without recourse for a total of 92.8 mln ( 44 mln in 1H10), in line with management s expectation. The structure of group s debt, which features a low risk profile, is characterized by a significant use of financial leasing and advance invoicing (issued quite completely towards the Public Administration), which involve all-in-all 91% of the NFP. Fig. 1 - Debt structure Advance on invoice 48,9% Net debt 6,1% Leasing 45,0% Source: Biancamano 1H11 report 3 Biancamano 2011, September 7 - pag. 3
Fy11-13F Forecast Following 1H11 results, we fine tune our 2011-13F forecast, taking into account the current activity and new re-awarded tender. In particular: 18 February 2011 public tender announced by the Catanzaro Municipal Authority involving street cleaning and waste collection services for approximately 95,000 inhabitants. The contract is for 3 years and for a total value of 20 mln; 12 April 2011 public tender announced by Hera S.p.A. for the collection of municipal waste in the municipalities of Minebrio, Budrio and Molinella. The contract is for 8 months and for a total of 0.6 mln; 26 May 2011 public tender announced by the Cortina d Ampezzo (BL) Municipal Authority involving separated waste collection and mechanised cleaning services for approximately 7,000 inhabitants. The contract is for 5 years and for a total of 5.9 mln; 31 May 2011 public tender announced by ATO CT1 Joniambiente S.p.A. for waste management services. The contract is for 6 months and for a total of 8.2 mln; 2 mln of extraordinary items coming from non strategic hospital assets divestment. In particular, we reduce both our 2011-12F EBITDA forecast by 12% and by 6% respectively. Unchanged our FY13F forecast. Our forecast are in line with Biancamano s business plan. We would stress that Biancamano s business has a good visibility compare to the industrial companies. We calculate that the average contract duration is close to 4 years, meaning that large part of 2012F are visible. In other words, Biancamano business has by far lower risk than industrial companies, we believe for following reasons: Non cyclical sector that is waiting to growth at a 2011-2014 CAGR of 9-10% in Italy; Biancamano Italian private market share is 10% (volume of waste collected) in a market that accounted for 2.5-2.6 bn; Under steady state expectation (meaning not sign new contracts during the period 2011-13) and according to our forecast, we calculate that 2011-13F Biancamano s ROI would be 10.8% on average. 4 Biancamano 2011, September 7 - pag. 4
Fig. 2 Profit & Loss mln Data 2007 2008 2009 2010 2011F 2012F 2013F Sales of Goods and Services 73,5 95,6 121,2 265,8 283,0 312,0 324,5 Raw Materials and Supplies Consumptions 6,3 8,9 8,8 23,7 26,0 26,4 25,6 Selling, Administrative and General 15,9 23,4 33,0 75,6 79,2 87,0 89,6 Personnel Expenses 36,8 47,6 60,7 130,6 138,1 151,1 156,7 Rent, Royaltes, Fees 2,2 2,7 4,1 5,7 6,2 6,6 6,8 Other Expenses 2,0 1,6 1,5 0,8 0,8 0,9 0,6 EBITDA 10,2 11,4 13,1 29,4 32,5 40,0 45,1 Ebitda margin 13,9% 11,9% 10,8% 11,1% 11,5% 12,8% 13,9% Depreciation and Amortization 4,6 5,8 7,9 15,2 14,6 15,9 16,2 Provision and Write-Off 0,0 0,0 0,5 1,2 0,0 0,0 0,0 EBIT 5,6 5,6 4,7 13,0 18,0 24,1 28,9 Ebit margin 7,6% 5,9% 3,9% 4,9% 6,4% 7,7% 8,9% Interest Expense -3,3-4,2-3,1-6,9-8,0-7,0-6,0 Interest Income 2,7 2,7 1,4 2,4 1,0 1,0 1,0 Net Extraordinary Items 0,0 0,0 0,0 0,0 2,0 0,0 0,0 Other non Operating Items 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Income Before Taxes 5,0 4,1 3,0 8,5 13,0 18,1 23,9 Taxes 2,0 0,8-0,5 5,5 7,1 9,0 11,9 Tax rate 40,2% 19,8% -16,7% 64,7% 55,0% 50,0% 50,0% Income Before Minority Interest 3,0 3,3 3,5 3,0 5,8 9,0 11,9 Income Applicable to Minority Interest 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Net Income 3,0 3,3 3,5 3,0 5,8 9,0 11,9 Net adjusted income 3,0 3,3 3,5 3,0 5,5 9,0 11,9 Source: Biancamano and Integrae SIM forecast 5 Biancamano 2011, September 7 - pag. 5
Fig. 3 Assests & Liabilities mln Data 2007 2008 2009 2010 2011 2012 2013 Net Working Capital 14,0 29,1 34,2 31,7 33,5 35,0 36,0 Fixed Assets 45,1 49,9 132,3 151,9 157,7 160,1 164,1 Personal Service and Tax Fund 9,3 7,7 6,3 20,7 21,0 22,0 24,0 Net Capital Employed 49,8 71,3 160,1 162,9 170,2 173,1 176,1 Shareholders Equity 42,6 38,4 42,4 43,6 47,9 55,5 65,9 Minority Interest 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Total Shareholders Equity 42,6 38,4 42,4 43,6 47,9 55,5 65,9 Net Financial Position -7,2-32,9-117,7-119,3-122,3-117,6-110,2 Covered 49,8 71,3 160,1 162,9 170,2 173,1 176,1 Source: Biancamano and Integrae SIM forecast Fig. 4 Cash flow model mln Data 2007 2008 2009 2010 2011 2012 2013 NFP at Beginning of Year -26,7-7,2-32,9-117,7-119,3-122,3-117,6 Gross Cash Flow 7,6 9,1 11,4 18,2 20,4 25,0 28,2 Change in Working Capital -7,4-15,1-5,1 2,5 1,8 1,5 1,0 Others 0,6-1,6-1,4 7,6 0,4 0,3 0,0 Cash Flow from Operating Activities 0,8-7,6 4,9 28,3 22,6 26,8 29,2 Capital Expenditures -14,0-10,7-41,7-20,3-23,0-20,0-20,0 Sales of Fixed Assets 0,0 0,2 0,0 0,0 0,0 0,0 0,0 Investment Securities 0,0 0,2 0,0 0,0 0,0 0,0 0,0 Other Financial 0,0 0,0 0,0-8,0-1,1-0,6-0,3 Cash Flow from Investing Activities -14,0-10,6-41,7-28,3-24,1-20,6-20,3 Free Cash Flow to Firm -13,2-18,2-36,8 0,0-1,5 6,2 8,9 Dividends 0,0-1,5-0,5-1,5-1,5-1,5-1,5 Cgh. in Equity 32,7-5,9 0,0 0,0 0,0 0,0 0,0 Other 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Cgh. in NFP 19,5-25,7-37,3-1,5-3,0 4,7 7,4 Acquisitions 0,0 0,0-47,6 0,0 0,0 0,0 1,0 NFP at End of Year -7,2-32,9-117,7-119,3-122,3-117,6-110,2 Source: Biancamano and Integrae SIM forecast 6 Biancamano 2011, September 7 - pag. 6
The valuation Biancamano works in a non cyclical sector. For this reason, we believe its industrial risk could be in line with the utilities one, thanks to the good business visibility. Visibility and associated risks are important elements in the valuation model. We value Biancamano through two methodologies: DCF and ratios analysis. As far as DCF is concerned, considered our 2011-13F forecast and estimate a 2% sales increase until 2016F, that we believe match the non business cyclicality. Following our input data: Risk free rate of 3%, as of 10 years BTP yield; Risk premium of 5% (source Bloomberg); Beta of 0.77x (source Bloomberg) Long term growth rate of 2%, in line with business cyclicality, and taking into account the expecting inflation rate increase. Wacc is 6.4% Following our DCF model Fig. 5 DCF Model mln Data 2011F 2012F 2013F 2014F 2015F 2016F TV Ebit 18,0 24,1 28,9 29,5 30,1 33,2 Taxes 9,0 12,0 14,4 14,7 15,0 16,6 NOPAT 9,0 12,0 14,4 14,7 15,0 16,6 Depreciation and Amortisation 14,6 15,9 16,2 16,5 16,9 18,6 Change in WC 1,8 1,5 1,0-1,0 1,0-1,0 Capex and investments -23,0-18,5-18,2-21,3-18,4-18,4 FCF 2,4 11,0 13,4 9,0 14,5 15,8 283,8 Discounted FCF 2,2 9,7 11,1 7,0 10,6 8,4 150,6 Cumulated Discounted FCF 2,2 11,9 23,0 29,9 40,5 48,9 199,5 Source: Integrae SIM Our model result is 2.4 per share ( 2.9 previously) Following the sensitivity analysis between LT growth and WACC. 7 Biancamano 2011, September 7 - pag. 7
Fig. 6 Sensitivity Analysis WACC Long Term Growth Rate 2,4 1,0% 1,5% 2,0% 2,5% 3,0% 3,5% 5,5% 2,8 3,4 4,2 5,3 6,8 9,0 6,0% 2,1 2,6 3,2 3,9 5,0 6,4 6,5% 1,5 1,9 2,4 2,9 3,7 4,6 7,0% 1,0 1,3 1,7 2,1 2,7 3,4 7,5% 0,6 0,9 1,2 1,5 1,9 2,5 Source: Integrae SIM As we argued before, we also compare Biancamano s ratios with the average of companies sample ratios that have the same mix between risk and yield. Most of the companies of our sample have big market capitalization than Biancamano and operate in a different sectors that we believe have the same risk/yield business mix. Fig. 7 Peers analysis Company Market EV/EBITDA EV/EBIT PER Cap mln 2011 2012 2013 2011 2012 2013 2011 2012 2013 Transpacific Industries Group 40,3 5,23 4,94 4,73 8,69 7,87 7,50 10,77 8,01 6,44 Waste Management Inc 1.869,3 6,85 6,30 5,84 10,95 9,87 8,95 14,28 12,35 10,74 Leader Environmental Technologies Ltd. 162,7 1,50 1,34 1,37 2,64 2,46 2,46 Progressive Waste Solutions Ltd 7.685,9 7,10 6,56 6,15 13,91 12,69 12,22 19,37 16,78 14,00 Tox Free Solutions Ltd. 507,6 5,70 5,23 4,94 8,70 7,88 7,49 12,57 11,39 10,57 Republic Services Inc 68,1 6,90 6,59 6,14 10,74 10,01 9,30 15,38 13,68 12,18 Shanks Group 5.435,6 6,04 5,40 5,05 12,24 10,88 9,48 15,14 12,14 10,47 Veolia Environnement SA 25,6 6,72 6,29 5,95 12,67 11,52 10,75 11,57 9,52 8,24 Seche Environnement 58,0 5,50 5,23 5,01 8,16 7,88 7,56 10,19 9,27 8,44 Biancamano 45,6 5,32 4,21 3,57 9,64 7,00 5,58 8,73 5,64 4,27 Average 6,26 5,82 5,48 9,73 8,88 8,29 12,44 10,62 9,28 Source: Infinancials Starting in FY11F, Biancamano ratios are significantly lower than the average of our sample. Biancamano value resulting from the ratio analysis is 2.9 per share ( 3.1 the previous one), higher than the equity value calculated through the DCF analysis. This is particularly positive because during the recent months markets prices dramatically collapse. In other words, companies like Biancamano demonstrated lower volatility (meaning lower risks) than the 8 Biancamano 2011, September 7 - pag. 8
market as a whole. Biancamano has the lowest ratios of our sample (a part Leader Environmental Tech, that operates in a different sector). Our target price is the average (50% each) of DCF and ratios analysis, meaning 2.6 per share (from 3.0). 9 Biancamano 2011, September 7 - pag. 9
Disclosure Pursuant to Article 69 ET SEQ. of Consob (Italian Securities % Exchange Commission) Regulation No. 11971/1999 Analyst/s certification The analyst(s) which has/have produced the following analyses hereby certifies/certify that the opinions expressed herein reflect their own opinions, and that no direct and/or indirect remuneration has been, nor shall be received by the analyst(s) as a result of the above opinions or shall be correlated to the success of investment banking operations. INTEGRAE SpA is comprised of the following analysts who have gained significant experience working for INTEGRAE SIM SpA and other intermediaries: Antonio Tognoli. Neither the analysts nor any of their relatives hold administration, management or advising roles for the Issuer. Antonio Tognoli is current Vice President of Associazione Italiana Analisti Finanziari AIAF and Vice President of Associazione Nazionale Private Investment Banking ANPIB. Disclaimer This publication was produced by INTEGRAE SIM SpA. INTEGRAE SIM SpA is licensed to provide investment services pursuant to Italian Legislative Decree n. 58/1998, Resolution n. 17725 of March 29 th 2011. INTEGRAE SIM SpA performs the role of corporate broker for the financial instruments issued by the company covered in this report. INTEGRAE SIM SpA shall distribute this report in Italian and in English, starting from the date indicated on the document, to approximately 300 qualified institutional investors by post and/or via electronic media, and to nonqualified investors through the Borsa Italiana website and through the leading press agencies. Unless otherwise indicated, the prices of the financial instruments shown in this report are the prices referring to the day prior to publication of the report. INTEGRAE SIM SpA will continue to cover this share on a continuing basis, according to a schedule which depends on the circumstances considered important (corporate events, changes in recommendations, etc.), or useful to its role as specialist. The table below, shows INTEGRAE SIM s recommendation, target price and risk issued during the last 12 months: Date Recommendation Target Price Risk Comment 27/8/10 Buy 3,1 Low 1H10 results 8/10/10 Buy 3,1 Low Equity update 12/11/10 Buy 3,1 Low 9M10 results 29/3/11 Buy 3,0 Low FY10 results 17/5/11 Buy 3,0 Low 1Q11 results The information and opinions contained herein are based on sources considered reliable. INTEGRAE SIM SpA also declares that it takes all reasonable steps to ensure the correctness of the sources considered reliable; however, INTEGRAE SIM SpA shall not be directly and/or indirectly held liable for the correctness or completeness of said sources. The most commonly used sources are the periodic publications of the company (financial statements and consolidated financial statements, interim and quarterly reports, press releases and periodic presentations). INTEGRAE SIM SpA also makes use of instruments provided by several service companies (Bloomberg, Reuters, Infinancials Etc.), daily newspapers and press in general, both national and international. INTEGRAE SIM SpA generally submits a draft of the analysis to the Investor Relator Department of the company being analysed, exclusively for the purpose of verifying the correctness of the information contained therein, not the correctness of the assessment. This document is provided for information purposes only. Therefore, it does not constitute a contractual proposal, offer and/or solicitation to purchase and/or sell financial instruments or, in general, solicitation of investment, nor does it constitute advice regarding financial instruments. INTEGRAE SIM SpA does not provide any guarantee that any of the forecasts and/or estimates contained herein will be reached. The information and/or opinions contained herein may change without any consequent obligation of INTEGRAE SIM SpA to communicate such changes. Therefore, neither 10 Biancamano 2011, September 7 - pag. 10
INTEGRAE SIM SpA, nor its directors, employees or contractors, may be held liable (due to negligence or other causes) for damages deriving from the use of this document or the contents thereof. Conflicts of interest, including potential conflicts and related organizational measures are set forth in this disclaimer section. Rating system The BUY, HOLD and SELL ratings are based on the expected total return (ETR absolute performance in the 12 months following the publication of the analysis, including the ordinary dividend paid by the company), and the risk associated to the share analyzed. The degree of risk is based on the liquidity and volatility of the share, and on the rating provided by the analyst and contained in the report. Due to daily fluctuations in share prices, the expected total return may temporarily fall outside the proposed range. Expected Total Return ETR (for different risk categories) Rating Low Risk Medium Risk High Risk BUY ETR >= 7.5% ETR >= 10% ERT >= 15% HOLD -5% < ETR < 7.5% -5% < ETR < 10% 0% < ETR < 15% SELL ETR <= -5% ETR <= -5% ETR <= 0% U.R. N.R. Rating e/o target price Under Review Stock Not Rated The methods that INTEGRAE SIM SpA prefers to use for value the company under analysis and the Expected Total Return are those which are generally used, such as the market multiples method which compares average multiples (P/E, EV/EBITDA, and other) of similar shares and/or sectors, and the traditional financial methods (DCF, DDM, EVA etc). For financial securities (banks and insurance companies) INTEGRAE SIM SpA tends to use methods based on comparison of the ROE and the cost of capital (embedded value for insurance companies). Any copying and/or redistribution, in full or in part, directly or directly, of this document are prohibited, unless expressly authorized. Price, target price and rating history (also see table above) in the last 12 months: 3,300 3,100 2,900 2,700 2,500 2,300 2,100 1,900 1,700 1,500 1,300 31/08/2010 31/10/2010 31/12/2010 28/02/2011 30/04/2011 30/06/2011 31/08/2011 11 Biancamano 2011, September 7 - pag. 11