Substantial upside in the event of m&a
​KBC is a leading independent provider of simulation software (70% of FY14 profits) and consultancy (30%) to the oil/gas sector. Its sophisticated technology enables customers to optimise their capital and operational spend - effectively allowing them to get more 'bang for their buck'. For investors in the energy sector the decline of the crude price has been a major irritation, triggering a slew of profit warnings. However, not all oil/gas companies are alike, with high-tech software consultant KBC bucking the trend. Indeed its shares have actually increased >30% YTD on the back of solid trading, even in the face of challenging conditions. Given management's shrewd positioning, it came as no surprise this morning when the company said that its H1'15 results were on track. Meaning that with good pipeline visibility too, the Board are confident of hitting consensus PBTA of £10.5m for 2015. Consequently we retain our forecasts and thus reiterate our target price of 162p/share, compared to the current 120p level. We also note that Schneider Electric is set to acquire a 53.5% stake in Aveva (worth £1,665m at £22.50/share) in return for making a cash payment of £550m and injecting its Invensys software unit (ie rival to KBC's Petro-SIM) into the enlarged entity for an implied £1,115m - representing exit multiples of 3.3x sales and 15.7x EBITA. This deal highlights that there is considerable upside in the event of future sector consolidation, which if enacted could attract bids for KBC of >200p.
KBC Group is a bank-insurance group engaged in providing products and services mainly to retail, private banking, SME and mid-cap clients. Co. focuses on its primary markets of Belgium, the Czech Republic, Slovakia, Hungary and Bulgaria. Co. is also present in Ireland and, to a limited extent, in several other countries to support corporate clients from its primary markets. Co.'s main brands are KBC and CBC in Belgium, CSOB in Czech Republic and Slovakia, K&H in Hungary, CIBANK and DZI Insurance in Bulgaria, and KBC Bank Ireland in Ireland. As of Dec 31 2014, Co. had 1,601 bank branches. In addition, Co. had total assets of Euro245.17 billion.
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