Morningstar | Minor Tweaks to Our Forecast and FVE, Samsonite Remains Attractive. See Updated Analyst Note from 17 Jul 2018
We lower our fair value estimate on Samsonite slightly to HKD 40 from HKD 40.50 as we reflect the company's debt refinancing. A one-off deferred debt write-off of USD 53 million reduces our 2018 net profit estimate to USD 244 million, but as this is a noncash flow item, it has no bearing on our discounted cash flow valuation of the company. However, we have adjusted Samsonite's estimated debt higher by around USD 100 million following its April refinancing of its term loans.Samsonite issued EUR 350 million secured notes in April, of which most proceeds were used to refinance previous term loans raised to finance its Tumi acquisition. The move serves to better match Samsonite's European revenue stream and also reduced its funding cost by around 30 basis points. As such, we expect Samsonite's average cost of debt to decline in 2019 to 2.9% assuming Libor, which has been hedged, remains at 1.31%. The company also increased its revolving credit line to USD 650 million from USD 500 million. However, this credit line which is used for working capital purposes is not always fully utilized.
The company will be releasing its interim results at end-August and we expect the inclusion of the one-off deferred debt write-off to make the as-reported bottom line comparison fairly ugly. However, since this is anticipated, there should be minimal negative market reaction. We will, however, be looking for a normalizing of Samsonite's inventory levels which had been raised ahead of its World Cup campaign. While we expect Samsonite to remain under scrutiny, concerns raised by short seller Blue Orca have been addressed. As mentioned previously, we do not expect a change in direction for the company following the departure of former CEO Ramesh Tainwala.
Samsonite International is active on the travel luggage market. Co. is engaged in the design, manufacture, sourcing and distribution of luggage, business and computer bags, outdoor and casual bags, and travel accessories throughout the world, primarily under the Samsonite® and American Tourister® brand names and other owned and licensed brand names. Co. sells its products through wholesale distribution channels and through Co.'s operated retail stores. Co.'s principal luggage wholesale distribution customers are department and specialty retail stores, mass merchants, catalog showrooms and warehouse clubs. Co. sells its products primarily in Asia, Europe, North America and Latin America.
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