Rosenbauer confirmed at HOLD, TP EUR 37.5 - Model update: Top line resilience but earnings estimates cut
Rosenbauer started off well into FY 20, with 1Q (though being the seasonally least important quarter) ahead of estimates. In the effort to incorporate an earnings curve reflecting the Covid-19 framework we have reduced our forecasts. We have lowered top line forecasts in the magnitude of 5-6% and EBIT estimates by 20-21% (details on p. 2). Coupled with slightly higher debt assumptions, our target price drops to EUR 37.5 from EUR 44, while the HOLD recommendation remains in place. The outlook of revenue resilience in the current year bodes well, though we argue that the top line development never was an issue for the group. We stand by our view that for the shares to re-rate it is necessary to structurally bring down working capital consumption and thus enable a material net debt reduction. As regards NWC (continuously on the rise as % of sales in recent years) we have pencilled in quite a release over the course of the year as especially the inventory position should come down. In this respect we point out that the YE 19 figure was inflated by delayed deliveries and 1Q saw some safety stock piling that drove it to EUR 484 mn. However, in absence of tangible evidence we did not yet pencil in a structural decline. We acknowledge that the groups valuation does not look demanding at face value (especially on P/E, which, however, does not mirror the elevated financial leverage) with current FY 21-22e EV/EBITDA multiples of 7.6x and 6.8x a bit below the 7-year medians of 8.2x and 7.2x, respectively. Our target price implies a FY 21e EV/EBITDA multiple of ~8.5x, i.e. the valuation is about in line with the long-term median.Rosenbauer International is a holding company. Co. through its subsidiaries is engaged in the manufacture, sale and distribution of mobile fire protection and civil defense solutions. Co. maintains five business segments: vehicles, aerials, fire and safety equipment, service and spare parts/others, fire fighting components. Co.'s product portfolio includes a range of municipal fire fighting vehicles and aerials built to both European and the United States standards, series of aircraft rescue and fire fighting vehicles, industrial fire fighting vehicles, fire and safety components and equipment. Co. provides services and spare parts, instruction and training programs for its products.
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