Wolford raised to BUY, TP EUR 7.70 - Easier to steer with an improved balance sheet

We update our operating forecasts for Wolford and raise our recommendation to BUY from HOLD with a 12m TP of EUR 7.70 (EUR 12.0). We have incorporated FY 19/20 results, the sale of the property in Bregenz and implemented the IFRS 16 standard into our model. We view the sale and lease-back of the property in Bregenz positively, as it addressed the challenges of Wolfords significant indebtedness and ongoing refinancing needs. Importantly, it also freed management to focus on operational restructuring measures and provided a cash cushion which should help the company to navigate through Covid-19 challenges. We expect the PITBOLI (Program for Immediate Top and Bottom Line Impact) program to help achieve an EBIT break-even in FY 21/22e, in line with company guidance. Further ahead we assume a gradual improvement of the EBIT margin from 1.3% in FY 21/22e to 5.5% in our TV estimate. We set our 12m TP at EUR 7.70 based on a 50/50 blended price from our DCF fair value of EUR 6.90 per share and a fair value of EUR 8.50 derived from applying an EV/EBITDA target multiple of 4.2x (based on a peer group average adjusted by a 20% discount for Wolfords prolonged restructuring efforts) to our FY 21/22e EBITDA estimate. Our valuation implies a 35% upside.