USG People reported weak 4Q12 results with sales down 11% and REBITA down 31% versus 4Q11. The REBITA margin dropped 80bps to 2.7% with a very weak -1.4% in Germany and 0.3% in France. They also booked an impairment of € 217m, the bulk of which being ~€ 100m in Germany, ~€ 60m in France and ~€ 40m in Italy.
We keep our net profit forecast for FY13 unchanged as lower sales and REBITA are offset by lower financing costs. We maintain our Buy rating and our target price of € 9 based on our DCF valuation. We are encouraged by the fact that USG is closing the gap with the market in 1Q13 in its core region the Benelux and we expect the stock to continue to gain momentum ahead of the Investor Day.
Closing the gap in the Benelux in 1Q.In the Netherlands, USG’s growth per working day amounted to -9% in 4Q12 versus -3% for the market, and improved to -3.8% in January while the decline in the Dutch market remained virtually stable. In Belgium, organic growth per working day reached -10% in January versus -5% for the market. Thanks to some nice contract wins, USG should be able to close the gap in the course of 1Q13.
USG Energy sold for € 80m.The evening before the 4Q results release the company announced the sale of the professional business USG Energy for € 80m. USG Energy realised € 60m sales and € 9m EBITA, implying a strong 15% margin. The deal makes sense as USG lacks the financial resources to continue growing this offshore business. The proceeds will be used to deleverage the balance sheet and to execute the growth strategy. An eventual bolt-on acquisition in Professionals would probably take place in the Benelux.
Strategic update in May-June.The company will provide a strategic update during an Investor Day in May-June. A specific date has not yet been set but we would be pleased to see news of divestments in the weak parts of the portfolio and the non-core businesses where USG lacks scope. This would concern France, Germany, Austria, Spain, Italy, Poland and Switzerland.