New target price and revised forecasts
We are publishing a Company Note on D’Ieteren today. We are lowering our target price from € 50 to € 46. The company guidance sees 2012 current pretax profits (group share) falling by about 25% to € 229m. We have revised our forecast downwards by 12.5% and are now counting on € 237m or 4% above the guidance. Note that until 2011 the group’s current pretax result included 100% of D’Ieteren Lease but from 2012 onwards, it will reflect 50% of the result of VDFin. For 2012, this change leads to an estimated 2% decrease in the group’s current pretax profit (group share). Our adjusted EPS forecasts for 2012 and 2013 have been revised downwards by respectively 13% and 10%.
Overly conservative 2012 guidance?
The 2012 guidance was a nasty surprise, pointing to a 25% fall in current pretax profits (group share). Note that during the last 7 years, in 5 out of 7 cases, the actual results far exceeded the initial guidance. We believe that management has opted for a very prudent stance because of the lack of visibility over the remainder of the year.
Restructuring imminent at Autoglass UK
Insurance Times mentions that Belron is about to cut jobs, close a 36-staff call centre in the UK and axe an estimated 16 out of 101 branches. Belron subsidiary Autoglass currently operates 2 call centres in the UK and the headcount (FTE) stood at 2,600 at YE11. As customers increasingly make appointments on line, capacity utilisation at the call centres has been declining. About 55% of Belron’s jobs worldwide are executed by mobile units. The share of jobs executed by mobile units as a % of total jobs is on the rise. This trend combined with lower miles driven by hard-pressed motorists prompts the closure of branches.
Conclusion:
The valuation of the put options that are granted to Belron’s minority shareholders implies an equity value of € 2.1bn for 100% of the shares or € 1,947m for D’Ieteren’s share. This valuation results in a P/E of 14.8x for 2012 and 13.4x for 2013. Note that 2012 will be a tough year but we’ve pencilled in a gradual recovery in 2013. If we apply a P/E of 10.0 for D’Ieteren Auto in 2013, we arrive at an equity value of € 618m. The above generates a value per D’Ieteren share of € 46. The share has fallen by 14% since the issue of the disappointing 2012 guidance, suggesting to us that the shock is fully reflected in the price. Moreover, the stock is trading at attractive multiples in spite of the downward revision of our estimates.