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USG People - Improvement in 3Q, stick to Buy & upping TP

USG People - Improvement in 3Q, stick to Buy & upping TP

22.10.2013 9:23

Today we send out a preview for the 3Q results of USG People. USG People will release its 3Q results on 25 October followed by a conference call at 9:30am. We estimate 3Q13 sales at € 591m, down 4% y/y. Gross profit is set at € 121m, implying a margin of 20.5%. Operational expenses of € 99m and € 4.2m depreciations lead to REBITA of € 17.9m, up from € 10m in 2Q13. Bottom-line, we are looking for a net result of € 0.6m. Our forecast is in line with consensus. We reiterate our Buy rating but raise our target price from € 7.5 to € 10 to reflect the upgrade of our FY14-FY15 forecasts by about 30%. However we do not expect any major positive surprise after the +35% rally in the stock over the last 2 months.

Buy maintained, TP up to € 10. Since the stock has enjoyed a strong rally (+35% since the end of August), we believe the improvement we expected to be visible in the 3Q13 results is now reflected in the share price. We expect however the share to maintain its momentum in anticipation of a better FY14: the top-line should return to growth and the € 38m cost savings from the restructurings will gradually filter through in the course of next year. We upgrade our EPS forecasts for FY14 from € 0.33 previously to € 0.48 and for FY15 from € 0.43 to € 0.54. To reflect this, we keep our Buy rating and upgrade our target price from € 7.5 to € 10.

Update plan UNITED.In June management already announced its plan to start an additional cost cutting program of € 38m. They will give some colour to the content of this plan during the 3Q13 conference call.

Closing the gap with market in the core Benelux. USG has been underperforming the Benelux market, its core region, for a few quarters, but we expect to see an improvement on this front in the 3Q13 release.

Blank sheet in Germany.Firstly, a decision on the pending fine in the AMP case is expected on 25 October. We remind that USG already took a € 21m provision and we expect a fine in the € 5-10m range. We count on € 58m sales in Germany in 3Q13, down 4% y/y compared to -9% in 2Q13 and -25% in 3Q12. We hope the new CEO (in place since May) will show that the business is back on track. Also important to take into account is the fact that Q3 does not include any holiday.This has positive impact on REBITA, which is expected to come in at € 1.3m.

French outperformance continues. After a good 2Q, we expect the market outperformance to continue in France. USG has been winning market share with -8% sales in 2Q, -7% in June and -2.5% at the end of July, while peers were still seeing declines of about -10%. We count on -3.5% sales in 3Q. On the back of these positive trends, we don’t expect a sale of the French business in the short term.

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