interpump group buy2 3 consistent growth in revenues huge m&a opportunities strong resilience and...
TRANSCRIPT
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Diletta Francesco Marco Patrizio Stefania
Interpump Group
BUYRECOMMENDATION
The Black Lily
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2
3
Consistent Growth in Revenues
Huge M&A Opportunities
Strong Resilience and High Diversification
BUY
52-Weeks Target Price
€34.17 +24.62%
34.17
27.42
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27
29
31
33
35
feb-17 may-17 sep-17 dec-17 apr-18 aug-18 dec-18 apr-19 dec-19
MARKET DATA
Market Cap (€mln) 3.076
Free float 68%
No. of shares outst. (mln) 107
Average daily volume 186.372
52-week low/high 24.16/30.80
Dividend frequency Annual
Dividend yield 0.80%
Target Price
MAIN REASONS TO BUY
1
Upside Potential
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High and Very-High Pressure PlungerPumps (HPP/VHPP)
Flow Handling for Food, Cosmetics & Pharma
▪ Worldwide leader▪ 40% market share▪ Mark-up (up to 25%)▪ 30% revenues from
after-sale services
Sales by Application Field Main Product Lines
▪ IPG a young player▪ Huge growth
opportunities
▪ High potential for further diversification
▪ New applications for HPP technology
▪ Reputable brands▪ No big competitors▪ Geographic expansion
18%
17%
13%
7%
6%
5%
4%
3%
3%
3%2%
19%
Food/ Pharma/ Cosmetics
Cleaning
Contractors
Construction
Automotive
OtherIndustries
Oil&Gas
Steel
Vehicles
Marine
Chemical
Other
COMPANY OVERVIEW INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
WATER-JETTING: Leader in a Mature Market but still Profitable Opportunities
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Valves, Cylinders and Other Components
Power Take-Offs (PTOs)
7%
44%
18%
10%
7%
6%
6%2%
▪ Worldwide leader▪ Unparalleled
products range
Truck
Construction
Lifting
Tunnelling/Mining
Industry
Other
Earth Moving
Agriculture
▪ GS-Hydro a worldwide leader in non-welded piping systems
▪ Fast-growing global player even outside EU
▪ Widespread network of distributors
▪ Efficient customer services
HYDRAULICS: Growing Footprint in a Huge Market
Sales by Application Field Main Product Lines
COMPANY OVERVIEW INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
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81 subsidiariespresent in 26 countries.
Expansion of product range through M&A.
Increasing market share and competitive positioning
All customers are directly serviced througha local subsidiary or distributor
>20,000 customers over 130 countries.
Efficient value chainwith the parentmonitoring everyactivity
Continuously Expanding Global Presence
COMPANY OVERVIEW INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
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53
59
62
65
64
2013
2014
2015
2016
2017
Water-Jetting
Hydraulics
Group’s Sales by Division
66
2018
Huge market with countlessapplication fields
Lower margins offset by cross-sellingopportunities
End-market cyclicality dampened by diversification and M&A
Higher competition but continuousexpansion of product range and competitive position through M&A
Hydraulics Industry
Always Catching New Growth Opportunities
COMPANY OVERVIEW INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
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844
1,094
2018 2021E
435539
2018 2021E
Hydraulics Sales Water-Jetting Sales
Huge Benefits from Heavy
Trucks Registration’s
growth
Replacement Cycle in
Agricultural Equipment
Recovery of Construction
Activities from the Bottom
LevelHyd
rau
lics
Impressive 8.2% CAGR for Water-
Jet Cutting Systems Market
Supportive Long-Term
Trends for Flow Handling Market
Low Cyclicality
Wat
er-
Jett
ing
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
Units Evolution (€ mln) Keys to Success
The Group’s Main Businesses still Exhibit Impressive Growth Rates
COMPANY OVERVIEW
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0
5
10
15
20
25
30
10.80x2018
0
5
10
15
20
25
2019
0
5
10
15
20
25
0
5
10
15
20
25
10.50x12.3x
13.3x
0
10
20
30
40
17.7x
0
10
20
30
40
17.2x
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
EV / EBITDA EV / EBIT P / E
Interpump’s P/E pretty much in line among the Main Peers
12.05x
11.20x
14.95x
13.85x
17.65x
16.25x
COMPANY OVERVIEW
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Rivalry within industry
Threat of substitutes Threats of entrants
Bargaining power of suppliers Bargaining power of buyers
1-very low, 2-low, 3-moderate, 4-high, 5-very high
1
2
3
4
5
Water-Jetting
High Technology Barriers
Long-Lasting Relationship Between Customers and Producer
Market Price up to 20% to Thwart new Entrants
No Substitutes for Pumps and Water-Jet Systems
Hydraulics
High Necessity of Economies of Scale
High Substitutability among Products
Wide Range of Distribution Channels
No Substitutability of Current Technologies
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
Multi-Strategic Positioning with Different Dimensions
Porter’s Five Forces
COMPANY OVERVIEW
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Acquired Company Sector Year EV/EBITDA
Inoxpa Water-Jetting 2017 7.8x
Teknotubi Hydraulics 2016 2.9x
Inoxihp Water-Jetting 2015 4.5x
Bertoli Water-Jetting 2015 1.6x
Walvoil Hydraulics 2015 5.5x
Osper Hydraulics 2015 3.3x
IMM Hydraulics 2014 3.6x
Hydrocontrol Hydraulics 2013 3.3x
Galtech Hydraulics 2012 3.9x
MTC Hydraulics 2012 3.5x
Contarini Hydraulics 2008 5x
NLB Water-Jetting 2007 7.1x
Hammelmann Water-Jetting 2005 5.6x
Historical Acquisitions Optimal Synergies and Diversification Strategies
Purchasing at Discounted Prices
Increasing Presence in Promising Markets
Taking a Significant Competitive Advantage
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
The Group's Historical M&A...
COMPANY OVERVIEW
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Interpump’s Screening Mechanism
Countryof Risk
Market Cap.
($ Mln)
EV/ EBITDA
EBITDA Margin(%) Debt/ EBITDA
1 Extremely risky 15-25 >7.0x 13.1 < 0.75x
Weight 30% 20% 20% 20% 10%
Score
Metrics
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
...through a Well-Proven Algorithm
COMPANY OVERVIEW
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Countryof Risk
Market Cap.($ Mln) EV/ EBITDA
EBITDA Margin(%)
Debt/ EBITDA Score
Wpil Ltd. India $104.1 6.8x 11.2 1.83x 4.0
LOT Vacuum Co. Ltd. South Korea $83.2 5.5x 16.4 0.87x 3.6
Maezawa KyusoIndustries Co. Ltd. Japan $172.9 3.2x 12.7 0.60x 3.6
DMW Corp. Japan $82.9 3.4x 11.5 0.11x 3.4
Yoshitake Inc Japan $55.4 5.5x 15.6 0.37x 3.2
Model’s parameters
Can
did
ate
s
5-Highly Attractive
4-Attractive
3-Average
2-Unattractive
1-Very Unattractive
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
Our Model Found a Potential Target: Wpil Ltd.
COMPANY OVERVIEW
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1/2
Forecast 3Y CAGR: 9%
Historical 10Y CAGR: 12.5%
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
Revenues
COGS
An Impressive Track Record of Growth…
Hydraulics
Water-Jetting
2013 2014 2015 2016 2017 2018 2019E 2020E 2021E0
40
80
120
160
200
12%
14%
16%
18%
20%
22%
▪ Consistent Revenues Growth▪ Solid Gross Margin
Strong Performance
SG&A (€ mln)
Revenues & COGS (€ mln)
2013 2014 2015 2016 2017 2018 2019 E 2020E 2021E200
400
600
800
1000
1200
1400
1600
1800
COMPANY OVERVIEW
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10%
15%
20%
25%
30%
2013 2014 2015 2016 2017 2018 2019E 2020E 2021E
2/2
0%
5%
10%
15%
20%
25%
30%
2013 2014 2015 2016 2017 2018 2019E 2020E 2021E
ROE ROIC ROA
2%
3%
4%
5%
6%
2013 2014 2015 2016 2017 2018 2019 E 2020E 2021E0
20
40
60
80
100CAPEX (€mln) CAPEX/Sales
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
Profitability
EBITDA Margin
Capital Expenditures
…with Strong Persistence in Profitability…
COMPANY OVERVIEW
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2/2
CFO covers CAPEX and Dividends
The Lowest Indebted Company compared to Peers Easy access to debt financing in case of acquisitions
15%
18%
21%
24%
27%
30%
33%
0
10
20
30
40
50
60
2013 2014 2015 2016 2017 2018 2019E 2020E 2021E
Interest Coverage Debt Ratio
Strong Ability to Pay Interest Expenses
CFO Breakdown 2019E (€ mln) Debt Ratio and Interest Coverage
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
…and High Cash Flow Generation
COMPANY OVERVIEW
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DCF-Gordon growth Inputs
Forecasts of FCFO until 2028
• WACC 8.73%• Terminal growth rate 4%
DCF Valuation (EUR mln)
PV FCFOPV Terminal value
1,3242,695
Enterprise Value 4,019
Net debt and oth. liab.(.) Non controlling interests
(289)(1)
Implied Market Cap 3,729
N° Shares Outstanding (mln) 107,317
DCF target price 34.75
DCF-Gordon Model± 0.5% WACC
27.42Current price
24 26 28 30 32 34 36 38 40 42 44
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
DCF Valuation Yields Positive Upside
COMPANY OVERVIEW
31.14 39.15
34.75
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Top Competitor EV/EBITDA EV/EBIT P/E
2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E
Eaton 9.6 9.7 9.5 12.5 12.6 12.1 12.7 13 11.9
Parker-Hannifin 9.6 9.6 9.4 11.5 11.7 11.3 13.6 13.5 13.1
Rotork 13.7 13.8 12.7 14.8 14.8 13.7 20 20 18.2
Deere 16.9 17.1 16.7 20.7 21.3 19.6 14.4 14.2 12.7
Alfa Laval 11.8 10.5 10 15.1 13.1 12.4 17.6 15.3 14.4
Flowserves 12.3 11.9 10.6 15.8 14.6 12.7 21.7 20.3 17.4
Gea 8.2 7.3 6.8 9.9 9,3 8.5 14.5 11.9 10.6
Bosch 24.5 20.1 19.3 29.7 23.5 22.5 37.5 30.7 26.5
Graco 15.3 15.3 14.4 16.9 17.1 16.2 22.3 21.9 20.2
Interpump 10.8 10.5 9.9 13.3 12.3 11.2 17.7 17.2 16
Average 12.59 15.02 17.7
29.68 34.22
Multiples Approach± Max-Min Multiples
34.17
Target Price
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
Interpump is a Good Investment
Multiples target price €32.80
24 26 28 30 32 34 36 38 40 42 44
32.80
DCF-Gordon Model± 0.5% WACC
27.42Current price
COMPANY OVERVIEW
31.14 39.15
34.75
-
29.68 34.22
Multiples Approach± Max-Min Multiples
34.17
Target Price
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
Interpump is a Good Investment
24 26 28 30 32 34 36 38 40 42 44
32.80
DCF-Gordon Model± 0.5% WACC
27.42Current price
COMPANY OVERVIEW
31.14 39.15
34.75
€32.80€34.75
70%DCF-Gordon
Growth
+
30%Multiples Approach
=
BUY24.62%Upside
€34.17
Target Price
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Montecarlo Simulation
Variables Exp. Dev.
Revenues Growth 10% 8%
COGS Incidence 67% 2%
SG&A Incidence 10% 1%
Tax Rate 30% 2%
Change in Wk. Cap. 3% 1%
Depreciation 2.5% 2.5%
WACC 8.73% 0.5%
Tornado Chart
Sensitivity Analysis
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
Reinforcing Our Recommendation
COMPANY OVERVIEW
27.42Current Price
HOLDSELL BUY
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Tornado chart
Most sensitive variables:
• Revenues Growth• COGS Incidence• CAPEX Growth• Tax rate• Oth. Expenses Incidence• Depreciation• Change in Working Capital
Sensitivity Analysis
Montecarlo Simulation
Revenues Growth ±4%
COGS Incidence ±4%
CAPEX Growth ±2%
Tax Rate ±3%
Oth. Expenses Incidence ±4%
Depreciation ±2.5%
Change in Working Capital ±1%
24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
Understanding the Most Sensitive Variables
Tornado Chart
COMPANY OVERVIEW
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Sensitivity Analysis
Tornado Chart
Montecarlo Simulation
2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00%
6.73% 38.14 40.60 43.71 47.79 53.35 61.42 74.14 97.21 151.90
7.23% 35.17 37.08 39.43 42.41 46.32 51.66 59.39 71.59 93.71
7.73% 32.73 34.24 36.06 38.32 41.18 44.92 50.04 57.46 69.16
8.23% 30.67 31.89 33.33 35.08 37.25 39.99 43.59 48.49 55.61
8.73% 28.93 29.92 31.09 32.47 34.17 36.22 38.86 42.31 47.02
9.23% 27.42 28.24 29.20 30.31 31.64 33.78 35.24 37.77 41.08
9.73% 26.12 26.80 27.59 28.50 29.57 30.85 32.39 34.31 36.73
10.23% 24.97 25.55 26.21 26.96 27.84 28.87 30.09 31.58 33.41
10.73% 23.96 24.45 25.00 25.63 26.36 27.20 28.19 29.36 30.78
Sell < -10%
Buy > +10%
Hold [-10% , +10%]
INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
Sensitivity Analysis Reveals Consistent Upside
Perpetuity Growth Rate
W A
C C
∈
COMPANY OVERVIEW
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Macro risks
Strategic risks
Financial risks
Regulatory risks
Global Trade &
GDP
IncreasingCompetition
CommoditiesVolatility
Exchange Rate
Credit exposure
M&A
TaxCompliance
Top MgmtChange
InterestRate
Low Medium High
Low
Me
diu
m
H
igh
L i k e l i h o o d
Imp
ac
t
Risk-Reward Analysis Shows Limited Downside
COMPANY OVERVIEW INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
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MAIN INVESTMENT RISKS
Macro Risk
Strategic Risk
Financial Risk
SOURCE OF RISK : Potentially global GDP slowdown could negatively affect IPG Hydraulics’ revenues given the end-marketscyclicality.MITIGATION STRATEGY : Business diversification by geographical areas and application fields.
SOURCE OF RISK : Competitors’ acquisitive strategy could threat IPG ‘s market share
SOURCE OF RISK : Increasing volatility of commodities price could threat the Group’sCOGS and EBIT stability.
MITIGATION STRATEGY : Contracting tecniques to pass on risk to customers & diversification of customers base.
MITIGATION STRATEGY : Significant M&A activities aimed at penetrating newermarkets & expand customer and productbase
Manageable Risks Prove Resilience
COMPANY OVERVIEW INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
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Board of Directors
✓ Borsa Italiana’s Corporate Governance Code
✓ Six Indipendent Directors out of nine
✓ Highly effective remuneration policy
✓ Environmental sustainability and social responsibility
✓ Full Compliance with the OECD Best Pratice
Excellent Quality of Interpump Corporate Governance
COMPANY OVERVIEW INDUSTRY & COMPETITORS FINANCIAL ANALYSIS VALUATION RISK ANALYSIS
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15
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35 34.17Target Price
27.42
Pump Up your Investments
feb-17 may-17 sep-17 dec-17 apr-18 aug-18 dec-18 apr-19 dec-19
Buy Interpump!
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Diletta Francesco Marco Patrizio Stefania
Q&AThe Black Lily