INDITEX_(ITX.SM)_OW:PRICED_FOR_PERFECTION_OR_PRIMED_FOR_GROWTH?-2012-10-11.ppt
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1、,Hiba Ali*,Associate,Bangalore,Company report,Consumer&RetailSpecialty RetailEquity SpainInditex(ITX SM),abcGlobal Research,Overweight,OW:Priced for perfection,or primed for growth?,Targetprice(EUR)Share price(EUR),115.0099.96,We see potential to near triple the existing global store basevia a diver
2、sified and low risk brand strategy,Potential return(%)15.0Note:Potential return equals the percentagedifference between the current share price andthe target priceJan 2012 a 2013 e 2014 e,Expansion via EM,and superior demand pullretail/sourcing model,underpin+ive short-and long-termupgrade momentum,
3、HSBC EPS,3.10,3.99,4.45,HSBC PEPerformanceAbsolute(%)Relative(%),32.01M9.45.4,24.93M23.410.5,22.312M59.172.9,Raise FY13-15e PBT by 7-4%;increase long-term sales andmargin assumptions;raise TP to EUR115(from EUR100);OW,Note:(V)=volatile(please see disclosure appendix)Global growth story:Inditex is on
4、e of few retailers to have achieved global,mass-marketcross-border appeal,in turn facilitating rapid expansion into International Developed andhigher growth EM markets,the latter now accounting for 52%of sales.We forecast thiswill rise to 63%by FY15e,with Asia and China key to that expansion.With le
5、ss than 1%share in the 85 markets in which it operates except Spain(c12%across all brands),we seepotential,even under our cautious analysis,to near triple the existing global store base.,8 October 2012Paul Rossington*AnalystConsumer and Retail ResearchHSBC Bank plc+44 207 991 View HSBC Global Resear
6、ch at:http:/*Employed by a non-US affiliate ofHSBC Securities(USA)Inc,and is notregistered/qualified pursuant to FINRAregulationsIssuer of report:HSBC Bank plcDisclaimer&DisclosuresThis report must be readwith the disclosures andthe analyst certifications inthe Disclosure appendix,and with the Discl
7、aimer,which forms part of it,Best practice operator:Inditex operates a highly sophisticated demand pull retailmodel based on superior market awareness,a superior sourcing model(includingintegrated manufacturing),and centralised inventory management.Lower product risk andimproved speed of response to
8、 changing market conditions,an enhanced ability tomaximise local market potential via dynamic pricing and increased stock utilisation,results in a structurally higher ratio of full price sales(or reduced markdowns)relative tothe peer group,and sustainably higher EBIT margins,on a par with luxury goo
9、ds retailers.Short-term catalyst:Given a strong start to Q3,weak comps for the rest of the quarter,gross margin support via lower input cost prices and superior execution,we see risk to theupside for HSBC/consensus FY13-15e EPS/FCF estimates.Sustainably higher long-term cash generation:We increase l
10、ong-term revenue andgross margin assumptions on rising exposure to EM,the development of online sales,andthe increasing structural benefit to group revenues/gross margins of dynamic pricing.Valuation:Our new TP of EUR115(up from EUR100)is based on APV analysis.Ournew TP implies a potential return of
11、 15.0%and places the group on a CY2013e PE of26.1,a justifiable premium to the wider sector given that we expect it to deliver earningsgrowth commensurate with that of the global peer group,but with lower risk and potentialfor upside surprise.Risks:A major de-rating of European consumer stocks;renew
12、edSouthern European sovereign default risk;a protracted slowdown in global growth.Index MADRID SE Enterprise value(EURm)57482Index level 787 Free float(%)35RIC ITX.MC Market cap(USDm)80,426Bloomberg ITX SM Market cap(EURm)61,834,Source:HSBC,Source:HSBC,Inditex(ITX SM)Specialty Retail8 October 2012Fi
13、nancials&valuationFinancial statements,Valuation data,abc,Year to,01/2012a,01/2013e,01/2014e,01/2015e,Year to,01/2012a,01/2013e,01/2014e,01/2015e,Profit&loss summary(EURm),EV/sales,4.2,3.6,3.2,2.8,RevenueEBITDADepreciation&amortisationOperating profit/EBITNet interestPBT,13,7933,258-7362,522372,559,
14、16,0314,117-8193,298503,348,17,8434,599-9243,675593,734,19,8215,141-1,0164,125694,194,EV/EBITDAEV/ICPE*P/Book valueFCF yield(%)Dividend yield(%),17.914.832.08.32.11.8,14.013.524.97.23.92.4,12.213.122.36.34.42.6,10.712.919.95.55.13.0,HSBC PBTTaxationNet profitHSBC net profit,2,559-6141,9321,932,3,348
15、-8462,4842,484,3,734-9442,7712,771,4,194-1,0603,1123,112,Note:*=Based on HSBC EPS(fully diluted)Price relative,Cash flow summary(EURm),166,166,Cash flow from operationsCapex,2,506-1,204,3,381-1,000,3,766-1,040,4,207-1,082,146126,146126,Cash flow from investmentDividendsChange in net debtFCF equity,-
16、1,349-1,004-381,274,-1,192-1,288-9262,406,-1,040-1,539-1,2112,750,-1,082-1,744-1,4063,149,1068666,1068666,InditexRel to MADRID SE,Balance sheet summary(EURm),4626,4626,Intangible fixed assets,832,868,900,926,2010,2011,2012,2013,Tangible fixed assets,4,063,4,400,4,484,4,524,Current assetsCash&othersT
17、otal assetsOperating liabilitiesGross debtNet debtShareholders fundsInvested capital,5,4473,46710,9593,1722-3,4657,4153,958,6,6414,39312,5263,5252-4,3908,6114,246,8,0775,60414,0783,8252-5,6029,8444,286,9,7277,01015,7944,1502-7,00711,2124,271,Source:HSBCNote:price at close of 05 Oct 2012,Ratio,growth
18、 and per share analysis,Year to,01/2012a,01/2013e,01/2014e,01/2015e,Y-o-y%change,RevenueEBITDAOperating profitPBTHSBC EPS,10.19.810.110.211.5,16.226.430.730.828.6,11.311.711.511.511.5,11.111.812.212.312.3,Ratios(%),Revenue/IC(x)ROICROEROAEBITDA marginOperating profit margin,3.954.828.018.923.618.3,3
19、.960.131.021.325.720.6,4.264.430.021.025.820.6,4.672.029.621.025.920.8,EBITDA/net interest(x),Net debt/equityNet debt/EBITDA(x),-46.5-1.1,-50.6-1.1,-56.5-1.2,-62.0-1.4,CF from operations/net debtPer share data(EUR),EPS reported(fully diluted)HSBC EPS(fully diluted)DPSBook value,3.103.101.8011.90,3.9
20、93.992.3313.82,4.454.452.6215.79,5.005.002.9717.99,2,Inditex(ITX SM)Specialty Retail8 October 2012Investment Summary Exposure to high growth Emerging Markets(now over 50%of sales)should outweigh any further deterioration in the domestic economy Diversified and low risk multi-brand,multi-channel grow
21、thpotential supported by structurally advantaged sourcing andlogistics platforms Maximisation of local market revenue opportunity via demand pullbusiness model and best practice,to the benefit of cash generation,abc,Accessing global growthInditex/H&M:Best in classThe bulk of our Pan-euro/UK General
22、Retail sectorcoverage consists of ultimately structurallychallenged,largely UK-centric,companies withlimited success in overseas markets.The exceptionsto this rule are Inditex and H&M,both of whichhave demonstrated successful cross-borderexpansion,superior business execution and,bydefault,sector lea
23、ding rates of growth and returns.We have an Overweight rating on Inditex and aNeutral rating on H&M(HMB SS,TP SEK250).We expect both to deliver above-sector-averagerates of space/top-line growth.However,whilelower input costs will in theory benefit the widerapparel sector in the short term,ongoing m
24、argininvestment in price and product at H&M bothlimits the beneficial impact on earnings whilereducing visibility on the longer-term margins(see our recent note:Hennes&Mauritz(HMBSS):Downgrade to N:Not the visibility we werelooking for,8 October 2012).,Inditex is our preferred long-term playIf we fo
25、cus on the long term,and the potential fordelivery of lower risk,sustainable,consistentgrowth in all of revenues,earnings and cash-generation then Inditex is our preferred play.Investment caseLow risk sustainable growthOut investment case is predicated on thefollowing factors,against a back drop of
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