Agfa’s 1Q results showed that the company coped better with the high silver prices than we had feared, prompting us to up our FY profit forecasts. Our Hold rating – mainly based on the expected negative impact from silver –was therefore too prudent, and we have upgraded to Accumulate and raised our target price to € 3.8, up from € 3.3 previously.
Our View:
1Q11 – REBIT down 25% y/y: mainly due to the higher silver price, Agfa’s 1Q REBIT was down 25% y/y to € 40m (5.4% margin versus 8% a year ago). This is nevertheless a much better performance than the € 12m REBIT we had forecast, as Agfa managed to mitigate the silver impact by further cost cutting, some price hikes and a favourable shift in the product mix.
FY profit forecasts upped: We have upped our estimates on the back of the better-than-expected 1Q profitability. We now arrive at € 126m REBIT for this year (down from € 266m in 2010), up from our previous € 105m estimate. Bottom-line, our net income forecast rises to a € 7m net loss from a € 23m net loss. Keep in mind that due to the rising silver prices, 2Q11 will be more difficult than 1Q (as already signalled by Agfa). In 2H11 Agfa should see more impact from the previously-announced price hikes. All this is reflected in our forecasts.
Conclusion:
We downgraded Agfa to Hold after the FY release due to worries over the impact of higher silver prices. But the 1Q release showed that these fears were unwarranted and that our downgrade was too cautious. We have therefore returned to Accumulate with a new € 3.80 target (up from € 3.30 previously). At our new target, Agfa would be trading at 6.8x EV/REBITDA11E and 5.4x EV/REBITDA12E, which we see as a fair valuation.