Today we publish a flash note on USG People following the 1Q13 results with the following highlights:
No slowdown in top-line decline. The sales decline in the French, Dutch and Belgian activities has stabilised but we see no improvement yet. Revenue per working day in the Netherlands was -4% in Jan. and -5% in March, in Belgium -10% in Jan. and March and in France, -8% in Jan. and March. Only in Germany did the sales decline ease from -20% in January 2013 to -13% in March.
New cost cutting plan, harming core business? USG announced a new € 25m cost cutting plan of but the details of this will only be communicated in July. Cost savings will start to filter through as from 3Q13 with 50% materializing in 2H13 and 50% in 1H14. Although we don’t know any detail yet, we fear that these new measures will hurt the core business. USG has been underperforming the Benelux market for a few quarters and this plan might hinder a further catch up with the market and weaken the company’s competitive position.
Unfortunate sale of USG Energy. Excluding the € 69m cash received from the divestment of USG Energy, the net debt/EBITDA ratio would have risen to 2.7x by end-1Q13, approaching its covenant of 3.0x. We regret that the positive impact on the REBITA margin from the divestment of the non-core general staffing businesses is offset by the USG Energy sale that was aimed at deleveraging the balance sheet.
Slashed forecasts trigger target price revision. Although USG’s balance sheet strengthens thanks to the two recently-announced divestments, USG’s underlying business deteriorated further in 1Q, the pro-forma figures were below expectations and the cost cutting plan increases in our view the risk that USG’s competitive position will weaken further. We lowered our adj. EPS forecast for FY13 and FY14 by 35-40%, and we therefore lower our DCF-based target price from € 9 to € 7.5. Although we fail to see any short-term stock price trigger, we keep our Buy rating as USG is increasingly becoming a take-over target in our view.