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PIAGGIO S.p.A.Politecnico Student Research
ICFAS Investment Research Challenge 2011
Automobiles & Parts
Company OverviewInitiation Coverage
Why Invest in PiaggioFinancial Analysis
ValuationRisk Analysis
COMPANY OVERVIEW
Company Overview
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
• Largest European producer of 2w and LCVs
• Wide brand portfolio
• Successful turnaround
• Ability to manage business in hard times• Ability to manage business in hard times• Internationalization strategy
Company Overview
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
Revenue Breakdown (Q3 2010)
As of 01.21.2011:
Historical Price: € 2.40Target Price: € 2.65Upside potential: 10.42%Rating: Accumulate
Initiation Coverage
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
WHY INVEST IN PIAGGIO
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
1. Launch of new products in India
2. Expansion in South-Eastern Asia
3. Efficiency gains in Europe
Why invest in Piaggio
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
Why invest in Piaggio: new products in India
3w
4w
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
Why invest in Piaggio: expansion in Asia
Vietnam
Malaysia Indonesia
Thailand Taiwan
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Why invest in Piaggio: Consolidation in Europe
EBITDA Margin
CompanyOverview
FINANCIAL ANALYSIS
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
~ €40M
~ €100M
~ €60M
~ €300M
~€500M
• 11.6% OCF CAGR 10-13
OCF Capex ∆NWC ∆NFP Div.19.2% From EMs 2.6% From DMs
• 7.8% Revenue CAGR 10-13
• 12.1% EBITDA CAGR 10-13
• 24.3% EPS CAGR 10-13
Financial Analysis
2010 2013
+ 165bps EBITDA margin
Limited D&A and Financial Charges CAGR
In line with EBITDA CAGR
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
Source: Politecnico Estimates
VALUATION
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
• Sum-of-the-part approach
Two-Stage model Three-Stage model Analytical Period + Perpetuity Analytical Period + Convergence Stage + Perpetuity
Valuation: Discounted Cash Flow
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
Source: Politecnico Estimates
FCFF 2010E
FCFF CAGR 10-15
WACC
Tax Rate
EBITDA margin 2010E
PRICE
Valuation: Discounted Cash Flow
€22M
11.3%
7.63%
30%
10.15%
€0.93
€13M
26.2%
9.31%
42%
21.05%
€1.08
€3.6M
49.1%
10.72%
7.5%
22.75%
€0.72 Source: Politecnico Estimates
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
• Piaggio’s Indian and Vietnamese businesses compared to the Indian peers…
• …with the EV/EBITDA multiple:
EV Piaggio Asia
€ 1,014.5 M
Median Hero Mahindra Bajaj Tata
2011 E 9.67 x 12.19 x 8.89 x 10.45 x 5.55 x
Piaggio Asia Hero Mahindra Bajaj Tata
0%
10%
20%
30%
40%
50%
60%
70%
Avg. Sales Growth Avg. EBITDA% Avg. EBIT%
DCF EV
€ 895.6M11.7% discount
Valuation: Multiple Analysis
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
Target Price: € 2.48
EMs multiple- for the Asian Business:
DMs multiple- for the non-Asian Business:
9.7 x 3.8 x
Valuation: Multiple Analysis
As regards the whole Piaggio Group (EV/EBITDA multiple):
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
• DCF Analysis:
• Multiple Analysis:
• Year-end Target Price: (upside: 10.42%)
€ 2.48
€ 2.73
€ 2.65
70% weight
30% weight
Valuation: Target Price
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
RISK ANALYSIS
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
• Unsuccessful product launches
• Stronger competition
• Exchange rate risk
Risk analysis: Risks coming from Asia
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
ValuationCompanyOverview
Risk Analysis
• GDP growth rates
• Increase in energy, raw materials and component costs
• Tighter regulations
Risk analysis: Global risks
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
ValuationCompanyOverview
Risk Analysis
• Price Confidence Interval: € 2.57 - € 2.74
• 80% of risk comes from Asia
0.64
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0
50
100
150
200
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Price of ASEAN operations Price of European operations Price of Indian operations
Num
bers
of i
tera
tions
Risk analysis: Montecarlo Simulation
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
CompanyOverview
Questions
Company Overview
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
PIAGGIO S.p.A.Politecnico Student Research
ICFAS Investment Research Challenge 2011
Automobiles & Parts
Company OverviewInitiation Coverage
Why Invest in PiaggioFinancial Analysis
ValuationRisk Analysis
Data and Charts
Balance Sheet
Income Statement
Cash Flow Statement India
Cash Flow Statement Europe
Cash Flow Statement South Eastern Asia
Volatility AnalysisWACC
Adj. Tax Rates
Ratios
Comparable Companies 1
Corporate Governance
SWOT analysis
Product LaunchesTerminal Value
Company Overview
InitiationCoverage
Why Invest in Piaggio
Financial Analysis
Valuation Risk Analysis
Comparable Companies 2
Terminal Value Data and Charts
High Medium Low
Strongly developing 3-5% 2-3% 0-1%
Moderately developing 1.5 - 2.5% 1-2% 0%
Stable 0-1% 0% 0%
Decadent 0% 0% 0%
Industry Cash flow growth capability of the company
Source: Guatri (1998)
Long term growth rate = long term population growth + long term productivity growth
Balance Sheet Data and Charts
Source: Company Data, Politecnico Estimates
Data and Charts
Source: Company data, Politecnico Estimates
Cash Flow Statement IndiaData and Charts
Source: Politecnico Estimates
Cash Flow Statement Europe and USData and Charts
Source: Politecnico Estimates
Cash Flow Statement South Eastern Asia
Data and Charts
Source: Politecnico Estimates
Ratios
Data and Charts
Source: Company data, Politecnico Estimates
Comparable Companies
Data and Charts
HeroMahindraBajajTata
YamahaHarleyKtmHondaSuzukiPeugeot
-5% 5% 15% 25% 35% 45% 55% 65%
Avg. Profit% vs. Piaggio Avg. Sales Growth vs. Piaggio
Comparable Companies
Data and Charts
Basic Assumptions:• EBITDA margin is 50% higher in EMs• Markets’ exposure is equal to the percentage of
Sales in EMs
EV/EBITDA multiple for the whole Company:
EMs multiple:• Equal to the Indian peers’ multiple = 9.7 x
DMs multiple:• Mkt_Multiple = (EBITDA_DMs x Multiple_DMs) + (EBITDA_EMs x Multiple_EMs)
known estimated estimated 9.7 x3.8 x
Volatility Analysis
Data and Charts
Source: Politecnico Estimates
WACC
Data and Charts
Source: Politecnico Estimates
Adjusted Tax Rates
Data and Charts
Source: Politecnico Estimates
SWOT Analysis
Data and Charts
Product Launches
Data and Charts
Corporate Governcance Data and Charts
PIAGGIO S.p.A.Politecnico Student Research
ICFAS Investment Research Challenge 2011
Automobiles & Parts
Company OverviewInitiation Coverage
Why Invest in Piaggio
Financial Analysis
Valuation
Questions
Risk Analysis