MATELAN Research Intelligent Transportation Systems

MATELAN Research
Sector Report
Intelligent Transportation Systems
 MEGATRENDS DRIVE MARKET GROWTH
 FINANCIALS ACCELERATING
 IVU AND INIT SHOW HIGHEST UPSIDES
MATELAN Research
Sector Report
05 May 2014
Sector
Recommendation
Intelligent Traffic Systems
Buy
Mobility
(Initiation)
Still on the growth track
Share price performance
Key Story
250
200
150
100
50
Init
Companies
Init
IVU
Kapsch
PSI
IVU
KTC
Rating
Buy
Str. Buy
Neutral
Neutral
02/05/14
02/03/14
02/01/14
02/11/13
02/09/13
02/07/13
02/05/13
02/03/13
02/01/13
02/11/12
02/09/12
02/07/12
02/05/12
0
PSI
FV
28.8
3.8
42.5
14.2
The ITS market is driven by a number of megatrends and
should grow at a rate of 8% for the coming years. The companies under review hold leading positions in their respective
markets and although 2013 has been somewhat disappointing, we expect financials to accelerate gradually from 2014
onwards. Based on conservative estimates, we still arrive at
strong upsides for Init and in particular IVU. We thus initiate
coverage of IVU with a Strong Buy and Init with a Buy
rating. We rate Kapsch and PSI Neutral for the time being.
 MEGATRENDS DRIVE MARKET GROWTH
Megatrends such as global population growth and urbanisation but
also increasing mobility and environmental concerns generate an
increasing need for systems intelligently managing traffic flows.
The ITS market has reached a volume of around USD14bn in
2012 and is expected to increase by a CAGR of 8% up to 2018.
 STRONG COMPETITIVE POSITIONS
Next Events
Init
IVU
Kapsch
PSI
Event
Q1
Q1
FY
Q2
Analysts
Adriana Leite
Tel.: +49 171 478 6009
[email protected]
Hartmut Moers
Tel.: +49 228 227 99 238
[email protected]
Date
09/05
30/05
25/06
31/07
Most companies under review count among the leaders in their
respective markets with a strong presence along the value chain
and numerous prestigious projects successfully finished in various
regions of the world.
 FINANCIALS ACCELERATING AGAIN
While the year 2013 has been somewhat disappointing for many
companies in the market, we expect growth to accelerate and
margins to improve gradually from 2014 onwards. The companies
show sound balance sheets and in most cases generate positive free
cash flows.
 IVU AND INIT SHOW HIGHEST UPSIDES
Based on our still conservative estimates we find interesting upsides at Init and even more so at IVU. We thus start coverage of
IVU with a Strong Buy and Init with a Buy rating. PSI and Kapsch
appear to be rather fairly valued based on our estimates, though
the transformation process on the one hand and Russia on the
other could yield an additional upside.
For additional disclosures please refer to the appendix
Intelligent Transportation Systems
Sector Report
TABLE OF CONTENTS
Executive Summary........................................................................................ 4
Valuation .......................................................................................................... 6
Market Structure & Developments ............................................................ 10
Major drivers of growth ......................................................................... 10
Broad range of applications ................................................................... 13
Solid growth prospects ........................................................................... 15
Market increasingly competitive............................................................ 18
Financial Analysis ......................................................................................... 20
Init innovations in traffic ............................................................................. 24
IVU Traffic Technology .............................................................................. 29
Kapsch TrafficCom...................................................................................... 34
PSI................................................................................................................... 39
ADDITIONAL DISCLOSURES ........................................................................ 44
DISCLAIMER ................................................................................................... 45
CONTACT DATA ............................................................................................ 45
-3-
Intelligent Transportation Systems
Sector Report
05 May 2014
Closing prices as of 02/05/14: €2.50
Company / Sector
IVU Traffic Technology
Mobility: Intelligent Transportation Systems
Fair Value
Recommendation
3.8
Strong Buy
(Initiation)
(Initiation)
Driving growth and profitability
Share price performance
Investment case
700
600
500
400
300
200
100
0
3.0
2.5
2.0
1.5
1.0
0.5
Volume (000,l.s.)
02/03/14
02/01/14
Close (r.s.)
Key data
Reuters
Bloomberg
No. of shares
Daily turnover (3M)
Free Float
Market Cap.
EV
Sales CAGR 11-15e
EPS CAGR 11-15e
Valuation
EV/Sales
EV/EBITDA
EV/EBIT
PER
Price/book
Div. Yield
FCF Yield
RoCE
RoE
02/11/13
02/09/13
02/07/13
02/05/13
02/03/13
02/01/13
02/11/12
02/09/12
02/07/12
02/05/12
0.0
IVUG.DE
IVU
17.72
33,884
63.5%
44.3
33.7
5.5%
7.2%
2014e
0.7
6.5
8.0
10.9
1.2
3.2%
11.8%
13.4%
11.1%
Analysts
Adriana Leite
Tel.: +49 171 478 6009
[email protected]
Hartmut Moers
Tel.: +49 228 227 99 240
[email protected]
2015e
0.6
5.7
6.9
10.2
1.1
3.6%
11.5%
14.3%
11.0%
IVU is well positioned to participate in sustained market growth in the
ITS market. In fact, the company is currently improving its sales
efforts and expanding its regional presence, which could drive growth
and profitability further. Even based on a rather prudent scenario for
the coming years, we arrive at an upside of around 50% from the
current share price. Beating estimates would yield an additional
upside. Against this background, we initiate coverage of IVU with a
Strong Buy recommendation.
 BENEFITTING FROM LONG-TERM MARKET GROWTH
Though the project business can be volatile, the underlying market
development is characterised by sustained growth. With a number of top
tier references and a competitive product offering, IVU is well positioned
to participate in this market growth. This is supported by a solid order
backlog covering 75% of our 2014 sales forecast.
 RAISING GROWTH AND PROFITABILITY
After solid developments in 2012 and 2013, we expect business to gain
traction in 2014. Driven by a strengthened sales organisation and an
increasing presence in overseas markets, sales growth is set to accelerate
over the next years. In addition, a higher degree of standardisation and the
higher profitability in foreign markets should drive margins.
 STRONG FOURTH QUARTER
With 14% sales growth and a 20% EBIT margin in the fourth quarter, IVU
not only exceeded its full year sales and gross profit guidance but also
delivered a surprisingly strong profitability despite the weak start of the
year.
 50% UPSIDE DESPITE PRUDENT ESTIMATES
Based on rather conservative assumptions for growth and margin
development going forward, we already arrive at an upside of around 50%
from the current share price. We thus initiate coverage of IVU with a
Strong Buy recommendation.
Forecasts
Sales
EBITDA
EBIT
Adj. EPS
Dividend
Oper. CF
Free CF
2012
2013
2014e
2015e
2016e
44.4
46.3
48.6
51.5
55.1
4.3
4.8
5.2
5.6
6.0
3.4
3.9
4.2
4.6
5.0
0.20
0.22
0.23
0.25
0.27
0.00
0.00
0.08
0.09
0.10
5.4
5.8
4.6
4.5
5.0
4.6
5.4
4.0
3.7
4.0
For additional disclosures please refer to the appendix
-4-
Intelligent Transportation Systems
Sector Report
Company view
Company positioning
Strategic targets
Financial targets
Other topics

IVU has a portfolio of IT solutions that support different fields of application
with public transport being by far the dominant one

The company has established customer relationships with prime clients
throughout Europe

Increase sales efforts in emerging markets to benefit from their higher growth

Focus markets for global expansion are Asia and Latin America, in particular
Vietnam, Columbia, Argentina and Chile

Raising EBT from EUR3m to EUR5m over the next 3-4 years

For 2014 IVU guides for EUR48m in sales and EUR36m in gross profit

Strong financial position with no debt on the balance sheet

Tax-loss-carry forward of roughly EUR30m
SWOT Analysis
Strengths

Integrated IT Solutions covering all needs of public
transport companies

Strong planning tool, development of IVU.suite as
standard solution

Established track record with major clients mainly
in Europe

Recurring maintenance sales accounting for 25% of
total sales

First projects in the attractive rail market
Opportunities

Strengthening of sales organisation may lead to an
accelerating top line development


Weaknesses

Still high portion of European business, which
tends to generate lower margins than business in
America or Asia
Threats

Increasing gross profit per employee through
selling a higher portion of standardised products
Building up a profitable business in South
America involves some risks, i.e. upfront
investments and reliability of the partners

Increasing share of overseas business with higher
profitability
Competition still focused on price, which weighs
on margins

New larger players might come to the market
Source: Matelan Research
-5-
Intelligent Transportation Systems
Sector Report
DCF Valuation
EURm
2011
Sales
39.9
Growth
EBIT
2.9
Margin
7.4%
Depreciation
1.1
Other non cash items
0.6
Cash taxes
-0.4
Change in NWC
-3.6
Capex
-1.0
Free Cash Flow
-0.3
PV of Free Cash Flows (EV)
- Net financial debt
- Pension provisions
- Minorities
+ Participations
Equity Value
No of shares
Fair Value per share
2012
44.4
11.4%
3.4
7.6%
1.0
0.4
-0.2
1.2
-0.8
4.9
2013
46.3
4.1%
3.9
8.3%
1.0
-0.4
0.2
1.1
-0.4
5.4
60.2
10.7
-3.8
0.0
0.0
67.1
17.7
3.8
2014
48.6
5.0%
4.2
8.7%
1.0
0.0
0.1
-0.7
-0.6
4.0
3.7
2015
51.5
6.0%
4.6
8.9%
1.0
-0.2
0.0
-0.9
-0.8
3.7
3.4
2016
55.1
7.0%
5.0
9.1%
1.0
0.2
0.0
-1.1
-1.0
4.0
3.7
Risk free rate
Credit spread
Cash tax rate
Share of debt
WACC
2017
58.6
6.3%
5.2
8.9%
1.1
0.2
-0.2
-1.4
-1.1
3.8
3.5
2018
61.9
5.6%
5.4
8.7%
1.2
0.1
-0.4
-1.3
-1.2
3.8
3.5
2019
64.9
4.9%
5.5
8.5%
1.2
0.1
-0.6
-1.3
-1.2
3.7
3.4
2020
67.7
4.3%
5.6
8.3%
1.3
0.1
-0.8
-1.2
-1.3
3.6
3.3
1.5%
TV:
3.0% Risk premium
30.0% Beta
2.0% Share of equity
8.6%
TV:
5.0%
8.0%
0.9
98.0%
12.1%
2021
70.1
3.6%
5.7
8.1%
1.4
0.1
-1.1
-1.1
-1.4
3.5
3.3
2022
72.1
2.9%
5.7
7.9%
1.4
0.1
-1.3
-1.0
-1.4
3.4
3.2
2023
73.7
2.2%
5.7
7.7%
1.5
0.0
-1.5
-0.9
-1.5
3.3
3.0
TV
74.8
1.5%
5.6
7.5%
1.5
0.0
-1.7
-0.8
-1.5
3.2
26.3
TV growth rate
TV EBIT margin
TV depr. ratio
TV NWC ratio
TV capex ratio
1.5%
7.5%
2.0%
35.0%
2.0%
Scenario Analysis
Bear Case
€2.5
 Linear decline in growth rate implies
Base Case
 Linear decline in growth rate
slower growth than market average
for period 2017-2023
implies slower growth than
market average for period 20172023
 Competition driving margins to 5%
 NWC rising again to 40% of sales
€3.8
 1.5pp margin of safety in TV
EBIT margin
Bull Case:
€5.1
 Growth in line with the market
(~7%) for period 2017-2023.
 EBIT margin stable at 2016e level of
around 9%
 Stable NWC at 2013 level of around
30%
 Slight increase in NWC from
2013 level to 35%.
Risk Return Profile
Potential catalysts
Volume (000,l.s.)
 Ongoing over-delivery on targets
 Increasing share of overseas business
 Accelerating sales growth
 Increasing productivity
02/05/15
02/02/15
02/11/14
02/08/14
02/05/14
02/02/14
02/11/13
02/08/13
02/05/13
02/02/13
02/11/12
02/08/12
6.0
5.0
4.0
3.0
2.0
1.0
0.0
02/05/12
700
600
500
400
300
200
100
0
Close (r.s.)
Where we differ from the market
Main risks to our valuation
 There appears to be no other view in the market
 Project business is always subject to
delays, which can have a material
impact on profitability
 Building up a franchise in Latin
America and Asia involves upfront
costs, which might not necessarily be
recovered
Source: Matelan Research
-6-
Intelligent Transportation Systems
Sector Report
Sales and EBIT margin
Adj. EPS and DPS
60
18.0%
0.30
50
15.0%
0.25
40
12.0%
0.20
30
9.0%
0.15
20
6.0%
0.10
10
3.0%
0
0.05
0.0%
2012
0.00
2013 2014e 2015e 2016e
Sales
2012
Adj. EBIT margin (r.s.)
2013
2014e
Adj. EPS
In EURm
In EUR
Cash Flow
RoCE
2015e
2016e
DPS
8
6
35
17.5%
6
5
30
15.0%
4
4
25
12.5%
20
10.0%
2
3
15
7.5%
0
2
10
5.0%
5
2.5%
-2
2012
2013
2014e
2015e
2016e
-4
1
0
Capex
Cash Earnings
0
0.0%
2012
Change in NWC
Free Cash Flow (r.s.)
2013 2014e 2015e 2016e
Intangibles
NWC
In EURm
In EURm
Balance Sheet
Shareholder structure
50
PPE
RoCE (r.s.)
Intangibles
45
25.0%
Tangibles
40
Working Cap.
35
30
Other Assets
25
Cash
20
Equity
15
Pensions
10
Financial debt
5
Working Cap.
0
Assets
Liabilities
Other Liab.
2.8%
72.2%
Founders
Institutional Inv.
Other
In EURm
-7-
Intelligent Transportation Systems
Sector Report
P&L
EURm
Sales
Growth
Material costs
Gross profit
Gross margin
Other operating costs
EBITDA
Margin
Depreciation
EBIT
Margin
Financial result
EBT
Taxes
Net profit
Minorities
Net profit a.m.
Growth
No of shares
EPS
Adj. EPS
Growth
Dividend
Balance Sheet
2012
44.4
11.4%
-12.6
31.8
71.6%
-27.5
4.3
9.8%
-1.0
3.4
7.6%
-0.3
3.1
0.5
3.6
0.0
3.6
49.2%
17.7
0.20
0.20
49.2%
0.00
2013
46.3
4.1%
-11.5
34.8
75.2%
-29.9
4.8
10.5%
-1.0
3.9
8.3%
-0.3
3.6
0.2
3.8
0.0
3.8
6.6%
17.7
0.22
0.22
6.6%
0.00
2014e
48.6
5.0%
-12.1
36.4
75.0%
-31.2
5.2
10.7%
-1.0
4.2
8.7%
-0.3
4.0
0.1
4.1
0.0
4.1
6.0%
17.7
0.23
0.23
6.0%
0.08
2015e
51.5
6.0%
-12.9
38.6
75.0%
-33.0
5.6
10.9%
-1.0
4.6
8.9%
-0.3
4.3
0.0
4.3
0.0
4.3
7.1%
17.7
0.25
0.25
7.1%
0.09
2016e
55.1
7.0%
-13.8
41.3
75.0%
-35.3
6.0
10.9%
-1.0
5.0
9.1%
-0.3
4.7
0.0
4.7
0.0
4.7
9.0%
17.7
0.27
0.27
9.0%
0.10
Cash Flow
EURm
EBIT
Depreciation
Other non-cash items
Cash taxes
Cash earnings
Change in NWC
CF from operations
Capex
Other investm./divestm.
CF from investing
CF from fin. and other
Change in cash
2012
11.8
1.7
0.0
1.1
14.6
2.1
24.0
5.2
3.6
49.6
49.6
29.6
0.0
29.6
0.0
3.2
0.5
3.7
0.0
8.7
7.6
16.3
49.6
2013
11.6
1.5
0.0
3.5
16.5
2.6
25.0
10.7
4.3
59.0
59.0
32.6
0.0
32.6
0.0
3.8
0.4
4.1
0.0
13.2
9.0
22.2
59.0
2014e
11.6
1.1
0.0
3.6
16.3
2.7
26.3
14.4
4.5
64.1
64.1
36.7
0.0
36.7
0.0
3.8
0.4
4.2
0.0
13.9
9.3
23.2
64.1
2015e
11.6
0.9
0.0
3.7
16.2
2.8
27.8
16.4
4.6
67.8
67.8
39.6
0.0
39.6
0.0
3.9
0.4
4.3
0.0
14.7
9.2
23.9
67.8
2016e
11.6
0.9
0.0
3.8
16.3
3.0
29.8
18.6
4.7
72.4
72.4
42.8
0.0
42.8
0.0
4.0
0.4
4.3
0.0
15.7
9.5
25.3
72.4
2012
43.5
5.3
-4.3
44.4
11.4%
9.5
21.8%
-0.1
-2.4%
-6.0
3.4
7.6%
2013
42.1
5.8
-1.7
46.3
4.1%
10.6
25.3%
1.7
28.7%
-8.5
3.9
8.3%
2014e
44.3
5.8
-1.5
48.6
5.0%
11.1
25.0%
1.2
20.0%
-8.0
4.2
8.7%
2015e
46.9
5.9
-1.3
51.5
6.0%
11.7
25.0%
1.2
20.0%
-8.3
4.6
8.9%
2016e
50.2
6.0
-1.1
55.1
7.0%
12.5
25.0%
1.2
20.0%
-8.8
5.0
9.1%
2014e
57.3%
0.0
3.0
31.0%
104.3
197.3
16.3
15.1
31.3
11.1%
6.6%
13.4%
75.0%
10.7%
8.7%
8.4%
2015e
58.4%
0.0
3.2
31.0%
104.3
197.3
16.2
16.0
32.1
11.0%
6.8%
14.3%
75.0%
10.9%
8.9%
8.4%
2016e
59.1%
0.0
3.4
31.0%
104.3
197.3
16.3
17.1
33.4
11.1%
6.9%
15.0%
75.0%
10.9%
9.1%
8.6%
Segments
2012
3.0
1.0
0.4
-0.2
4.1
1.2
5.4
-0.8
0.0
-0.8
1.7
6.3
2013
3.9
1.0
-0.4
0.2
4.7
1.1
5.8
-0.4
0.0
-0.4
0.0
5.4
2014e
4.2
1.0
0.0
0.1
5.3
-0.7
4.6
-0.6
0.0
-0.6
-0.3
3.7
2015e
4.6
1.0
-0.2
0.0
5.4
-0.9
4.5
-0.8
0.0
-0.8
-1.7
2.0
2016e
5.0
1.0
0.2
0.0
6.2
-1.1
5.0
-1.0
0.0
-1.0
-1.8
2.2
Valuation multiples
Share price
x No of shares
Market Capitalisation
+ Net financial debt
+ Pension provision
+ Minorities
- Participations
Enterprise Value
Sales
Adj. EBITDA
Adj. EBIT
Adj. Net profit a.m.
EV / Sales
EV / EBITDA
EV / EBIT
PE
EURm
Intangible assets
Tangible assets
Participations
Other non-current assets
Non-current assets
Inventories
Receivables
Cash
Other current assets
Current Assets
Total assets
Equity
Minorities
Total equity
LT financial liabilities
Pension provisions
OtherLT liabilities
Non-current liabilities
ST financial liabilities
Payables
Other ST liabilities
Current liabilities
Total liabilities
EURm
Public Transport
Logistics
Admin./Consol.
Sales
Growth
Public Transport
Margin
Logistics
Margin
Admin./Consol.
EBIT
Margin
Key operational indicators
2012
1.19
17.7
21.1
-5.2
3.2
0.0
0.0
19.0
44.4
4.3
3.4
3.6
0.4
4.4
5.6
5.9
2013
1.50
17.7
26.6
-10.7
3.8
0.0
0.0
19.7
46.3
4.8
3.9
3.8
0.4
4.1
5.1
6.9
2014e
2.50
17.7
44.3
-14.4
3.8
0.0
0.0
33.7
48.6
5.2
4.2
4.1
0.7
6.5
8.0
10.9
2015e
2.50
17.7
44.3
-16.4
3.9
0.0
0.0
31.8
51.5
5.6
4.6
4.3
0.6
5.7
6.9
10.2
2016e
2.50
17.7
44.3
-18.6
4.0
0.0
0.0
29.7
55.1
6.0
5.0
4.7
0.5
5.0
5.9
9.3
Equity ratio
Gearing
Asset turnover
NWC / sales
Payable days outst.
Receivable days outst.
Fix operating assets
NWC
Capital employed
RoE
RoA
RoCE
Gross margin
EBITDA margin
EBIT margin
Net profit margin
2012
59.7%
0.0
3.0
39.0%
71.7
197.2
14.6
17.3
32.0
12.1%
6.8%
10.6%
71.6%
9.8%
7.6%
8.1%
2013
55.3%
0.0
2.8
31.0%
104.3
197.3
16.5
14.3
30.9
11.7%
6.5%
12.5%
75.2%
10.5%
8.3%
8.3%
Source: Matelan Research
-8-
Intelligent Transportation Systems
Sector Report
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9.1%
45.5%
45.5%
0.0%
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(5) Recommendation history
Stock ratings for the company covered in this report have developed as follows:
05/05/2014
Init
Buy
IVU
Strong Buy
Kapsch TC
Neutral
PSI
Neutral
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Intelligent Transportation Systems
Sector Report
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