Earlier today we published a report on Vopak in which we look backat earnings growth of the past, the prospects for future earnings growth and its composition, the ROIC of Vopak’s expansion programme, and the ROIC of the group as a whole. We maintain our neutral stance as our target price implies limited upside, based on the outcome of our DCF-model and a multiple approach.
Neutral stance maintained:
Following the 1H11 results, we have made minor changes to our model and we lift our TP to € 37 from € 36. This implies limited upside, hence we maintain our neutral stance.However, we do not recommend shorting the stock; Vopak offers stability and predictability in an uncertain economic climate, raising the possibility of a relative outperformance.
Do not let be fooled by the figures:
We expect future earnings growth to be lower than over 2005-2010, while ROIC has been in decline since 2007. These fundamentals normally justify a de-rating, but taken alone we think they are misleading since there are other factors to consider.
Myth 1: The growth profile has weakened:
Although we do not expect future growth to reach the average 20% p.a. of 2005-2010 (based on a CAGR of 6.8% in capacity, 3% LFL growth, and limited margin expansion), 20% growth was never seen as achievable in the past, especially not on a LFL basis. Hence, the perception of Vopak’s growth profile should not have changed.
Myth 2: ROIC (post-tax) is in decline since 2007:
Adjusting for assets-under-construction and maturity, shows ROIC has been flat at peak levels.