Team Leader - Università degli Studi di Pavia
Objective of the competition: writing an initiation of coverage report on the listed Italian company
Autogrill S.p.A.
CFA Research Challenge - Autogrill SpA - UniPV Team
1. AUTOGRILL S.p.A.
CFA Institute Research Challenge
Milan, 11 March 2013
Universita degli
Studi di Pavia
Liechtenstein Stock Exchange
Alessandro Greppi ,Fitria, Kinga Karkus, Alberto Scarioni, Leyla Tanzi
2. INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATION
FINANCIAL
ANALYSIS
RISK ANALYSIS
HIGHLIGHTS RECOMMENDATION: BUY TARGET PRICE: EUR 11.4 (20.1% upside)
W H Y I S A B U Y ?
Value through diversification
Expectations for the two division (CAGR):
F&B: 1%; TR&DF: 7.2%
YTD: 14.4%
Last 3 years performance: 17.5%
M A C R O E C O N O M I C R I S K S :
Short-term: raw material costs ↑
Long-term: concession costs and airport rents ↑
VA L U AT I O N = > Ta r g e t P r i c e 1 1 . 4 €
50%: DCF valuation
40%: Peers comparison (industrial & financial)
10%: Real option
WHY IS A BUY? MACROECONOMIC RISKS:
VALUATION => Target Price EUR 11.4
3. INVESTMENT SUMMARY AGL IM Equity
Price range
(last 52 weeks)
EUR 6.5 – 9.5
Price
(1/2/2013)
EUR 9.45
Price target
EUR 11.4
(20.1% upside)
P/E 21.1x
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATION
FINANCIAL
ANALYSIS
RISK ANALYSIS
R E L E VA N T E V E N T S 2 0 1 2 :
Spanish concession renewal (100% retention rate)
New and renewed TR&DF in Jamaica, Germany,
Mexico, Brazil, Amsterdam, Atlanta
Entrance into Turkey and United Arab Emirates
4. COMPANY OVERVIEW
Italian multinational company
Deals with people on the move
Two main business channels: Food & Beverage and Travel
Retail & Duty Free
Operates mainly in airports and motorways (also present
at railway stations, museums, shopping centers, high
street, trade fairs)
Present in 37 countries through more than 5,300 POS
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
Strong
cash flow
generation
Flexible cost
structre
High
retention
rates
Long-lasting
concessions
5. BUSINESS ANALYSIS & COMPETITIVE POSITIONING
A world leader in the concession industry that serves travellers around the world.
DISTRIBUTION CHANNELSGEOGRAPHICAL PRESENCE BRANDS & PRODUCTS
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
6. BUSINESS ANALYSIS & COMPETITIVE POSITIONING
FOOD & BEVERAGE
EUR 15-20 bln
AGL SALES (2011):
44% US
35% Italy
21% Other European
Competitors:
TRAVEL RETAIL & DUTY FREE
EUR 34-40 bln
AGL SALES (2011):
75% Europe
25% US
Competitor:
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
7. INDUSTRIAL ANALYSIS
Role of GDP
62 % of business is in Europe
=> GDP of Euro area
Flexible cost structure and
financial solidity
Main engine of growth
Slowing economic recovery
High fuel prices
Airport Council International
forecast (ACI) : 4.5% p.a
international traffic growth
High impact on F&B’s
performance
Recession and high fuel price
Italy will decrease, but US
contributes to growth
Airport traffic Motorway traffic
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
Italian Motorway traffic vs AGL SalesAGL vs NA Traffic GrowthAGL vs Euro GDP Growth
8. EXPLOITING NEW MARKETS
50
75
100
125
150
175
200
225
250
275
300
0
100
200
300
400
500
600
700
800
900
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Passengers
mln$
Revenues (mln $) Fees and Maintenance Costs (mln $) Passengers (mln)
WHY TURKEY?
May 2013: Istanbul 3rd international hub (2017, 90mln passengers)
Geographical & economical bridge
Up to 118 mln tourists in 2011
Corporate taxation: 20%
9. FINANCIAL ANALYSIS
Growth and Profitability
AGL Sales and Ebitda Margin Evolution
FY2009: Hurricane years => Sales: -6%
Flat sales in 2010-12:
o F&B down by 2.5%
o Tremendous growth
of TR&D +5.4%
Sales CAGR 2012-18E : 3.4%
Historical outperformance of the group
EBITDA margin 2012E : 9.6%
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
10. FINANCIAL ANALYSIS
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
AGL TR&DF Sales and EBITDA margin evolution AGL F&B Sales and EBITDA margin evolution
Upward trends from airport traffic:
New emerging markets
Presence at European hubs
Sales CAGR: 7.2 % Sales CAGR: 1 %
Stable Ebitda margin and growth:
Struggling European markets
Growth after 2014 (post-crisis)
11. FINANCIAL ANALYSIS
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
Debt Evolution and Maturity Profile
Covenants : ND/EBITDA < 3.5x
EBITDA interest coverage ratio > 4.5x
FCFF
Acc. operating profit 2012-18e : EUR 1.9 bio
Acc. operating cash flow 2012-18e : EUR 3.9 bio
Cash Conversation rate : 50%
12. VALUATION
I.
III.
II.
50%: DCF valuation
40%: Peers comparison (Industrial & Financial)
10%: Real option
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
13. VALUATION
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
DCF ANALYSIS
WACC Assumptions
Risk Free Rate 3.4 % Implicit risk related to the geographical areas where AGL is present at
Market Risk Premium 6.7 % Implicit risk related to the geographical areas where AGL is present at
Beta 0.83 Regressed weekly returns of AGL stock against FTSE MIB INDEX
Cost Of Debt 5.45 % (4.7 %) Cost of debt equals to 5.45%, later expected to reduce to 4.7%
Debt/Equity 220% Renewal of Spanish contracts wil increase it to 230%, from 2014:166%
Tax Rate 31.4 % Weighted average of enterprise tax rates according to sales relevance
TWO-STAGES DCF:
Target price: EUR 11.3 (19.6% upside)
Period: 2012-2018
Long term growth rate: 1.5%
Long run WACC: 8.2%
FCFF
14. CENTRAL SCENARIOBEAR CASE
VALUATION
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
EUR 10.0
Upside of 6.3%
BULL CASE
EUR 11.3
Upside of 19.7%
EUR 12.6
Upside of 33.1%
15. VALUATION
REAL OPTION: to capture information and opportunities and to strengthen DCF analysis.
Estimate assets’ market values by:
DCF at weighted cost of capital
Using prices from the market
Application to valuation
Debt over Equity ratio 69 %
Enterprise Value EUR 3,944 million
Maturity of the debt 3.59
Risk free rate 3.4 %
Long term growth rate 1.5 %
Long term Wacc 8.1 %
TARGET PRICE:
EUR 11.7
REAL OPTION
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
16. Very similar to AGL in terms of overall business
I. INDUSTRIAL PEERS
P/E multiple
PEERS COMPARISONVALUATION
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
SW
DUFN
AGL CPG
R² = 0.9443
0.00
5.00
10.00
15.00
20.00
25.00
0% 5% 10% 15% 20%
P/E frw 2013 vs. EPS GROWTH
P/E forward '13 Linear (P/E forward '13)
18. INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
Very similar to AGL in terms of
overall business
I. INDUSTRIAL PEERS
PEERS COMPARISONVALUATION
Different business model
BUT listed in the same financial
segment: Restaurant
Shares investors’ preferences
II. FINANCIAL PEERS
P/E multiple EV/EBITDA multiple
TARGET PRICE:
EUR 11.2
20. RISK ANALYSIS I.
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
FINANCIAL RISKS
INTEREST RATE RISK FOREIGN CURRENCY CREDIT RISK LIQUIDITY RISK
EFFECTS
40% fixed-rate debt
60% floating-rate debt
Sales:
32%: North-America
15% : UK
95% of sales comes
from concessions
AGL’SPOLICY
Duration of
concession portfolio
= duration of the
debt
Interest rate swaps
Matching assets &
liabilities in
currencies
Forward FX
End consumers‘
transactions are made
in cash
Invoiced trade
receivables => bank
guarantees
Long contracts
duration & high
retention rates
Strong CF generation
& flexibility on costs
and capital
expenditure
21. RISK ANALYSIS II.
STRATEGIC RISKS
TRAFFIC FLOWS MACROECONOMY
EFFECTS
High impact of
traffic on sales
Effects traffic and
well-being of
people
AGL’SPOLICY
Channel diversification
Constant innovation of products &
customer services
Cost cutting to limit impacts on CF
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
22. RISK ANALYSIS III.
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
OPERATING RISKS
REPUTATION
CONSUMPTION
HABITS
CONCESSION FEES
CUSTOMER
SATISFACTION
SHOP
EFFECTIVENESS
RISKS
Not being able to
satisfy contractual
commitments
(effects on
retention rate &
new contracts)
Effects of changes
Influence on
profitability
False predictions
of performance
Fail to keep service
standards and
products in line
with customers’
expectations
Challenge to
provide modern &
appealing
assortment
AGL’SPOLICY
Monitoring
procedures &
processes
Trainings to keep
high standards
Review of
methods &
procedures
Wide range of
products &
brands
High flexibility to
respond to
changes
High importance
on appraising &
negotiating
contracts
Constant R&D
Quality control
(services & raw
materials)
Effective &
efficient supply
chain
management
23. FINAL REMARKS
Recommendation:
BUY
(EUR 11.4)
Upside of +20%
Market leadership
Strong cash flow generation
Business diversification
Wide range of brand portfolio
INVESTMENT SUMMARY
COMPANY &
INDUSTRY OVERVIEW
VALUATIONFINANCIAL ANALYSIS RISK ANALYSIS
26. SWOT ANALYSIS
STRENGTHS WEAKNESSES
T&R presence is strategically positioned around the world in order
to catch the most of air traffic
AGL works with a lot of brands, specially in the USA
T&R is performing well despite the world economic crisis
High concessions retention rate (80-85%), the losses are covered
by the new winnings
Cash generated from AGL activities is instantly received and is used
for investments
AGL invest on products and machineries innovation, collaborating
directly with the producers
AGL is present in 37 countries and manages more than 5300 points
of sale in over 1200 locations
AGL invests only after winning a concession: the company can
forecast in advance its returns
AGL is a value company
AGL T&R won new concessions in 2012, Spanish concessions 100%
retention rate
AGL margins depend on commoditires trends
AGL F&B sensitive to electricity price
Passengers flows, both in airports and motorways, are linked to oil
price F&B is sensitive to electricity price commodities trend
AGL businesses are very exposed to uncontrollable macro-shocks
A consistent part of AGL businesses is in ITA and SPA that have a
sluggish recover from crisis
Bad performances on Italian motorways will last in the future
Licensing strategy in the USA make the business subject to
increasing price of raw materials
AGL does not hedge from the risk connected to oil price and raw
material increases
OPPORTUNITIES THREATS
New concession contracts or concessions expiring around the
world
Potential expansion on high speed railways network
Fairs and events around the world will make a lot of people travel
Emerging markets growth could create new travelers flows
The spin-off between F&B and T&R division could unleash the T&R
hidden value
If economic cycle is negative, AGL cut dividends meanwhile the
competitors do not
Terrorism could negatively affect traffic, specially in airports
Travelers trends became more volatile from 2008 onwards
In 2016 we have the most, EUR 1,350 mln, of AGL debt reaching
maturity
Crisis could be longer and heavier than expected in Italy and Spain
Emerging markets law suit are different from western countries
and sometimes less transparent
AGL is exposed to credit, market (cash flow future fluctuations)
and liquidity risks
AGL is exposed to the changes in consumer tastes and their
consumption behavior
AGL T&R division is exposed to changes in the cost of rents
T&R in UK could suffer of exchange rate risk
27. AUTOGRILL
Food & Beverage Retail
Situation Italian-listed company
Product mix
Food & beverage, confectionary/food
and other ancillary consumer goods
(books, CD, lottery) sold in the little store
beside the bars and restaurants
Perfumes, wines and spirits, tobacco,
confectionary/foods
Geographical mix
2011 Sales 44.2% were generated in US,
35% in Italy and the rest coming from
other European counties
2011 sales EUR1820m of which around
75% generated in Europe. T&R has been
benefiting from the launch of Terminal 5
at Heathrow UK(47% of T&R sales)
Well-positioned in western countries. Indirect exposure to emerging market
through European hubs (London, Madrid and Barcelona)
Channel mix
Present in airports (63%), motorways (30%), railways (2%), Others - high streets,
trade fair, museums and shopping centers(5%)
Capex 3.4% - 4.8% of sales 1.8% - 5.4% of sales
Growth CAGR 2012-18E 1% CAGR 2012-18E 7.4%
Focus on organic growth
Contract average 10-25 years 5-10 years
Sales share 69% 31%
Sales FY12e EUR 4088mio EUR 2000mio
EBITDA FY12e EUR 334.6mio EUR 252.6mio
EBITDA margin 8.20% 12.60%
Competitors
Compass, Sodexo, Restaurant Group,
IMC, Cremonini, Farmi, Elior, SSP
Dufry
28. BENCHMARKING WITH COMPETITORS
TR&DF FOOD SERVICE
Benchmarking with Dufry Compass Sodexo
Listed public company located in Switzerland.
British multinational contract food service and
support services
France company focus on quality of life
services
Higher exposure to luxury items (watches,
jewellery,fashion and leather) perfumes &
cosmetics. Low-margin products such as
newspapers, books and confectionary
Food service, facility management, service
vouchers. Brands : Bon appetit management,
canteen vending, all leisure hospitality,
rastaurant
On-site services 96% of group revenue:
Flagship product in Meal & Food : Cheque
restaurant (France, Belgium and Chile).
Alimentacao Pass (Brazil), Passlunch (Italy),
Meal Card (India), Restaurant Pass (Romania),
Ramadan Gift Pass (Turkey)
Strong presence in America (75% of its
revenues). Strong leadership in Brazil. Direct
exposure to emerging market in South, North
and Central America
NA 43%, Continental Europe 24%, UK & Ireland
12%, RoW 21%.
Core business : Food
Present in North America 37%, Continental
Europe 32%, RoW 19%, UK & Ireland 8%.
Strategy: food services, non-food vouchers,
support services
Little exposure to motorways. 90% of its
revenues coming from airports
Business and industry (41%), Education (16%),
Healtchcare & Seniors (19%), Sports and
Leisure (11%), Defence (13%)
Corporate (50%), Healthcare & seniors (27%),
Education (23%)
3-4% of sales 1.5%-2% of sales 2% of sales
Proactive approach in new concessions and
acquisitions (Hudson Group, Brasif and
InterBaires and Folli Follie)
Focus on expanding presence in the fast
growing & emerging economies (currently 20%
of business) and cost efficiency. 2011: 9.2%
revenue growth on a constant currency basis
Organic revenue driver : focus on large clients
and integrated contracts. 2012e: revenue
growth target 7% p.a (JPM estimates)
Concession length 2009 : 3-5 years 41%, 6-9
years 24%, 10+ years 24%, 1-2 years 11%
94% group retention rate Client retention : 94%
8% share of the global travel
Largest global food service operator (4% of its
addressable market, of which only 42% has
shifted to outsourcing)
Second largest global food service operator
CHF 3182.8mio EUR 16095 EUR 16729mio
CHF482mio EUR 1452mio EUR 1210mio
Higher EBITDA margin due to lower concession
rents
8-9% 6-7%
Autogrill Sodexo, AGL and Aramark OSS : Compass group, AGL; MS :Edenred
47. BOARD OF DIRECTORS & SHAREHOLDERS STRUCTUREExecutive
NonExecutive
Independentfor
Code
Independentfor
T.U.F.
Board of directors
Internalcontrol
&Corp.Gov.
Commitee
Humanresources
Committee
Strategy
&Investments
Committee
Related-party
Transaction
Commitee
X
Benetton Gilberto
Chairman
X
Tondato Da Ruos
Gianmario
Chief Executive Officer
X
Benetton Alessandro
Director
X X X
Barracco Alessandro
Director
X
X X X
Camuffo Arnaldo
Director
X
X X X Giavazzi Francesco Director X
X X X
Jesi Marco
Director
X
X X X
Malguzzi Alfredo
Director
X X X
X X X
Mangiagalli Marco
Lead Director
X X
X
Mion Gianni
Director
X
X X X
Orlando Stefano
Director
X X
X
Roverato Paolo
Director
X X