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IMTECH: Estimates and target price slightly lowered

IMTECH: Estimates and target price slightly lowered

3.8.2011 10:09

Following the lower than expected 1H11 earnings, we have reduced our earnings estimates for 2011 and beyond by circa 5%, and we have lowered our TP to € 30 (from € 32). We stick to our Buy rating.
Group margin: a mix of good and bad trends:
The margin was flat y/y due to dilution from acquisitions and an organic rise (est.: +10/15bps). Dilution from Inviron (UK) was larger than expected as we assumed a 3.5% margin; the actual margin was 2-2.5%, which mgt. intends to improve to 4% in two years time. Furthermore, we had not expected a 50bps drop in the Benelux margin, partly due to price pressure and partly due to undercoverage of fixed costs as sales and order intake were down due to selective tendering. All of this is set to be repeated in 2H11.

Germany again outperforms, but should improve on WC:
Germany amazed once again with 17% sales growth (mainly organic) and a 10bps rise in margins. Mgt. mentioned the German business should grow to € 3-4bn to reach penetration similar to the Benelux, so there is much room for further organic growth vs. € 1.3bn sales in 2010 and € 1.5bn in 2011E. Margins should not expand further beyond current levels of 8%. The backlog rose 20% y/y (mainly organic) which is good for 2H11 and 2012. This is excluding the majority of the € 400m energy contract from Deutsche Post. The sole negative was growth in WC as especially German clients are focusing more on their working capital, pushing the burden to Imtech and now Imtech has to forward it to its suppliers, which should take some time to filter through. Furthermore, € 400m growth in the backlog implies organic growth in WC. The year-end target for the group remains 6-6.5% of sales.

Numbers on M&A look solid:
Imtech paid 6.9x EV/EBITA for 9 acquisitions made in 1H11, just above the long-term avg. of 6.5x but it includes earn-outs to be paid if earnings grow, so the multiple is actually lower. If mgt can indeed raise the Inviron margin, the multiple would become even more attractive. The margin on € 327m in acquired sales is 4.9%, so below the group avg. and not all of it was consolidated in 1H11 so there should be additional dilution in 2H11.

Our new estimates:
Following the 1H11 results, we have kept our sales estimates more or less unchanged, we have lowered our EBITA estimates by 1-3%, and we have raised our estimates for interest costs. This translates into a 5% reduction in our EPS forecasts for 2011 and beyond. Our model now reckons with flat EBITA margins in 2011 and beyond, compared to 2010, whereas we had initially expected a 20bps higher level. We have also adjusted our model to reflect working capital at 7% of sales, slightly above the 6-6.5% target range, as we assume it will take some time before the German management is able to fully pass on the burden to its suppliers.

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