Ca’ Foscari Student Research
CFA Italian Investment Research Challenge 2012
Target Price
HIGH
QUALITY
PRODUCT
PRODUCT
INNOVATION
VERTICAL
INTEGRATION
LEADERSHIP
POSITIONING
COST
CONTROL
IMPROVE
EFFICIENCY AND
INCREASE IN
REVENUES
INVESTMENT
AND
RESEARCH
GROWTH
Recommendation
Hold
Target price
25.08 €
Price
24.69 €
Upside
1.6%
2
1. Business
Description
3
50 years of excellence
4
Business Description
EUROPE
NORTH
AMERICA
ASIA & PACIFIC
REST of the
WORLD
20% of total sales
60% of total sales
13% of total sales
7% of total sales
161 stores
(2,5% of total
Group’s stores)
4,811 stores
(75,8% of total
Group’s stores)
1,234 stores (19,4%
of total Group’s
stores)
145 stores (2,3% of
total Group’s stores)
WHOLESALE
PRESENCE
21 subsidiaries
(50% of total
Group’s direct
subsidiary)
6 subsidiaries
(14.3% of total
Group’s direct
subsidiary)
9 subsidiaries
(21.4% of total
Group’s direct
subsidiary)
6 subsidiaries (14.3%
of total Group’s
direct subsidiary)
OPERATIONS
6 manufacturing
facilities (Agordo,
Sedico, Pederobba,
Lauriano, Rovereto,
Cencenighe)
9.600 headcounts
(15.49% of total
Luxottica
headcounts)
5 OneSight product
centers
2 manufacturing
facilities (Foothill
Ranch and Dayton)
2 factories in China
and a small plant in
India
38.399 headcounts
(61.69% of total
Luxottica
headcounts)
7 OneSight product
centers
13.102 headcounts
(21.14% of total
Luxottica
headcounts)
3 OneSight product
centers
FINANCIAL
HIGHLIGHTS
RETAIL PRESENCE
HUMAN
RESOURCES
ONESIGHT
878 headcounts
(1.42% of total
Luxottica
headcounts)
5
Business Description
Brand portfolio (as a percentage of
total unit sales)
Designer brands
House brands
26%
74%
Source: company data
Brand portfolio (as a percentage
of total sales of frames and lenses)
Prescription frames and lenses
Sunglasses
49.80%
50.20%
Source: company data
6
Business Description
Sales (mln) breakdown (principal
markets)
Sales (mln) and EBITDA Margin
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
3250
3000
2750
2500
2250
2000
1750
1500
1250
1000
750
500
250
0
Retail
Wholesale
European
Asia-Pacific
25%
20%
15%
10%
5%
0%
2005
2006
2007
2008
Sales
North America
Other
2009
2010
2011
Ebitda/Sales
Source: Luxottica financial statements
Retail distribution
Source: company data
16%
Quality
Vertical
integration
Successful
Strategy
76%
Acquisition
North America
Asia-Pacific
China/Hong Kong
Europe
Africa and Middle East
South Africa
Central and South America
Source: company data
7
2. Industry
Overview and
Competitive
Positioning
8
Industry Overview…
OPPORTUNITIES
Acquisitions
Changes in lifestyle
THREATS
Increasing fashion content
of frames
Improvement in eye
surgery
Population and GDP growth
Contact lenses
OneSight
License loss
New Techologies
Web
STRENGHTS
Vertical integration
Dedicated distribution
channel (SAP)
WEAKNESSES
Dinamic brand portfolio
Luxury eyewear based
Quality
Presence in fragile
economies
11 Plants
STARS
9
… and Competitive Positioning
GDP forecast
12.0
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
Millions of people visual impaired and
with low vision
285.389
300
246.024
250
200
150
2009
2010e
2011f
2012f
124.264
161.121
100
2013f
50
Euro Area
East Asia and Pacific
World
United States
Latin America and Caribbean
0
2002
Low Vision (millions)
2010
Visual impairment
Source: World Health Organization
Source: World Bank
Italy
Europe
Asia
Safilo
Fielmann
Formosa
Optical
Marcolin
Essilor
St. Shine
Optical
10
3. Valuation
- DCF
- Multiple Analysis
11
DCF and Financial Highlights
Net sales
EBITDA
Working
capital
Terminal
growth rate
Tax rate
Financial
leverage
Risk Premium
Split the total
net sales
growth by
region on the
basis of the
expected
growth rate
Based on
historical
value of
Ebitda
Margin and
global
expansion
strategy
Working
capital
change
to sales:
0.5%
2%
in line with
World Bank
GDP growth
rate
forecast
35%
in line
with
company
estimate
Net Debt to
Ebitda ratio
1,74x
Market risk
premium weighted
for the percentage
of the geographical
sales of Luxottica on
the total volume
Second stage
First stage
Year
Sales
WACC
Pv FCFO
2011
6,222.21
6.57%
2012
6,805.14
6.54%
504.32
7,000.00
6,000.00
5,000.00
4,000.00
3,000.00
2,000.00
1,000.00
0.00
2013
7,453.44
6.57%
495.65
2014
7,851.27
6.61%
499.07
0.25
0.2
0.15
0.1
0.05
0
2005200620072008200920102011
Net Debt to
Enterprise
Value 13,24%
Sales
Ebitda/Sales
2015
8,191.29
6.65%
497.15
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2016
8,449.40
6.68%
489.45
2017
8,666.48
6.69%
479.02
2018
2019
Tv
8,872.69 9,066.98 9,248.32
6.70%
6.70%
6.71%
467.89
456.02 10,317.81
Net Sales CAGR 2010-2013
24.03%
9.01%
Europe
7.47%
4.34%
North
Asian and
America
Pacific
8.73%
Others
Total
Source: CISE estimates
12
DCF and Financial Highlights
PRICE
25.95
Target price
Enterprise Value
14,206.38
Net debt
-2,078.53
Equity Value
12,127.86
Shares outstanding
467.35
Target Price
25.95
TERMI NAL
VALUE
72.6%
Year
Risk Free rate
Market Risk Premium
Beta Levered
Cost of Equity
Risk Free rate
Bond Spread
Cost of Debt
Tax Rate
Tax Shield
Net cost of Debt
Debt to EV
WACC
2011
2.1%
5.5%
0.94
7.19%
2.1%
2.5%
4.6%
35.0%
-1.6%
3.0%
14.75%
6.57%
13
DCF: Sensitivity analysis
Terminal
WACC
€ mln
12,128
6.21%
6.46%
6.71%
6.96%
7.21%
1.60%
11,585.3
11,403.1
11,224.8
11,050.1
10,879.1
Terminal Growth Rate
1.80%
2.00%
12,034.6 12,522.9
11,844.0 12,323.3
11,657.5 12,127.9
11,474.8 11,936.5
11,296.0 11,749.1
2.20%
13,055.7
12,846.2
12,641.1
12,440.2
12,243.5
2.40%
13,639.3
13,419.0
13,203.2
12,991.9
12,785.1
18.39%
11,883.9
11,461.9
11,039.8
10,617.7
10,195.7
Ebitda Margin
18.89% 19.39%
12,428.2 12,971.5
12,006.2 12,549.7
11,584.3 12,127.9
11,162.3 11,706.1
10,740.4 11,284.3
19.89%
13,513.9
13,092.2
12,670.6
12,248.9
11,827.3
20.39%
14,055.5
13,634.1
13,212.6
12,791.1
12,369.6
Working
Capital
Chg/Sales
€ mln
12,128
0.00%
0.25%
0.50%
0.75%
1.00%
Source: CISE estimates
14
Multiple Analysis
Trailing
P/TBV
Best P/S
2012
Best EV/S
2012
Best P/E
2012
2.498
Best
EV/Ebitda
2012
11.964
Essilor
8.436
2.614
19.513
Safilo
1.263
0.268
5.120
0.503
14.714
St Shine
6.618
4.374
10.872
4.285
14.290
Marcolin
2.531
0.917
6.100
0.957
10.272
Fielmann
6.480
2.757
12.008
2.585
21.544
Formosa
3.762
2.090
12.043
2.104
15.081
max
8.436
4.374
12.043
4.285
21.544
min
1.263
0.268
5.120
0.503
10.272
Source: consensus
Great changeability in consensus multiples
Use of a linear regression for the calculation
15
Multiple Analysis
4.5
25
Lux BB
y = 17.206x - 0.5342
R² = 0.7998
Lux Regr
20
y = 11.537x - 0.3555
R² = 0.8792
4.0
St Shine
3.5
3.0
Fielmann
10
EV/Sales
P/TBV
15
Essilor
Fielmann
St Shine
Safilo
Formosa
2.0
Formosa
Marcolin
Essilor
Lux Regr
Lux BB
1.5
1.0
5
0
10%
2.5
Marcolin
0.5
Safilo
0.0
30%
50%
70%
90%
110%
130%
150%
0%
5%
10%
15%
Rote
20%
25%
30%
35%
40%
45%
Ebitda Margin
Source: CISE estimates
5.0
13
y = 13.304x + 0.249
R² = 0.8695
4.5
12
4.0
Fielmann
Essilor
11
St Shine
3.5
Lux regr
10
3.0
Fielmann
Essilor
2.5
2.0
EV/Ebitda
P/S
Formosa
y = 64.328x - 2.0471
R² = 0.747
Formosa
Lux BB
Lux Regr
1.5
1.0
7
Marcolin
5
0.5
Safilo
Safilo
0.0
5%
8
6
Marcolin
0%
Lux BB
9
10%
15%
Ros
20%
25%
30%
35%
4
10%
12%
14%
16%
18%
20%
22%
24%
Ebitda Margin
16
Multiple Analysis
Multiples
P/TBV
EV/Sales
P/Sales
EV/EBITDA
Target Price
21.9 x
1.9 x
1.3 x
10.4 x
21.00 €
24.25 €
20.50 €
26.39 €
23.04 €
Source: CISE estimates
DCF
25.95 €
Final TP
25.08 €
Multiples
23.04 €
17
4. Investment
Risks
18
Main risks to our Target Price
Unsuccessful management of
license agreements
GDP growth rate
0.6
0.4
0.2
0
Difficulties in integration of
strategic acquisitions
-0.2
2005
2006
2007
2008
2009
2010
-0.4
Euro area
Asia and Pacific
Source: World Bank
Unsuccessful product launch
Sales growth rate
15
10
5
0
GDP growth rate
-5
2003 2004 2005 2006 2007 2008 2009 2010
-10
Euro area
North America
East Asia & Pacific
World
Source: Luxottica financial statements
19
Exchange rate risk
Monte Carlo simulation
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
13.16
14.53
15.90
17.27
18.64
20.02
21.39
22.76
24.13
25.50
26.87
28.24
29.61
30.98
32.36
33.73
35.10
36.47
37.84
39.21
0.00%
Source: CISE estimates
-10000 simulations
- st. dev. = 5.5 %
- mean = 25.9, median = 25.6
With 8.5% probability, our target price is lower than 20.76 €
(decrease of 20% of DCF TP)
20
THANK YOU FOR
YOUR ATTENTION
21
4. APPENDIX
22
Forecast Summary
Net Sales (€mnl)
Ebitda (€mnl)
Net Income (€mnl)
2008
5,201.61
1,014.70
379.72
2009
5,094.32
856.53
299.12
2010
5,798.04
1,034.22
402.19
2011E
6,222.21
1,199.01
481.62
2012E
6,805.14
1,319.42
553.46
2013E
7,453.44
1,445.12
620.19
ROE
ROI
ROS
15.10%
4.65%
7.30%
10.93%
10.19%
5.87%
12.82%
9.78%
6.94%
14.68%
9.64%
7.74%
15.43%
9.46%
8.13%
15.80%
9.35%
8.32%
Source: CISE estimates
Ratios
P/E
P/B
P/S
EV/S
EV/Ebitda
EV/Ebit
2012E
21.2 x
3.3 x
1.7 x
2.0 x
10.5 x
14.1 x
2013E 2014E
18.9 x 17.7 x
3.0 x 2.7 x
1.6 x 1.5 x
1.9 x 1.8 x
9.5 x 9.1 x
12.9 x 12.2 x
Market Data
Market Cap
11538.91
Shares Outstanding
467.350
52 Week Range
24,69-18,73
23
Performance
Luxottica
MS World
MS World Con Dis
6M
1Y
11.68% 11.73%
-6.84% -7.47%
-5.13% -2.83%
115
110
105
100
95
90
Luxottica
85
80
31/12/10
Morgan Stanley World
11/02/11
25/03/11
06/05/11
17/06/11
29/07/11
09/09/11
21/10/11
02/12/11
13/01/12
24
2000-2010 evolution of number of stores
Source:CISE estimate
25
Luxottica Acquisitions
26
WACC Details
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
Tv
Risk Free rate
Market Risk
Premium
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
5.5%
5.5%
5.5%
5.5%
5.5%
5.5%
5.5%
5.5%
5.5%
5.5%
Beta Levered
0.94
0.93
0.92
0.92
0.92
0.92
0.92
0.92
0.91
0.91
Cost of Equity
7.19%
7.14%
7.11%
7.09%
7.08%
7.07%
7.06%
7.05%
7.05% 7.04%
Risk Free rate
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
Bond Spread
2.5%
2.2%
2.0%
1.9%
1.9%
1.8%
1.8%
1.7%
1.7%
1.7%
Cost of Debt
4.6%
4.3%
4.1%
4.0%
3.9%
3.9%
3.8%
3.8%
3.8%
3.7%
Tax Rate
35.0%
35.0%
35.0%
35.0%
35.0%
35.0%
35.0%
35.0%
35.0% 35.0%
Tax Shield
-1.6%
-1.5%
-1.4%
-1.4%
-1.4%
-1.4%
-1.3%
-1.3%
-1.3%
-1.3%
Net cost of Debt
3.0%
2.8%
2.7%
2.6%
2.5%
2.5%
2.5%
2.5%
2.4%
2.4%
Debt to EV
14.75% 13.19% 12.02% 11.42% 11.00%
10.71%
10.48% 10.27% 10.08% 9.92%
6.57%
6.58%
6.58%
WACC
6.57%
6.57%
6.58%
6.58%
6.58%
6.58% 6.59%
Source: CISE estimates
27
Sales Forecast
Year
RETAIL
European Retail
Growth Rate
North America Retail
Growth Rate
Asia and Pacific Retail
Growth Rate
Others Retail
Growth Rate
Total
Growth Rate
2010
2011
103.59
103.59
0%
2942.01 3115.59
5.90%
495.08 519.84
5.00%
20.96
25.15
20.00%
3561.63 3764.16
5.69%
Year
WHOLESALES
European Wholesale
Growth Rate
North America Wholesale
Growth Rate
Asian and Pacific Wholesale
Growth Rate
OthersWholesale
Growth Rate
Total
Growth Rate
2010
2012
2013
2014
2015
2016
2017
103.59
0%
3299.41
5.90%
545.83
5.00%
30.18
20.00%
3979.00
5.71%
103.59
0%
3494.07
5.90%
573.12
5.00%
36.21
20.00%
4206.99
5.73%
104.62
1%
3598.89
3.00%
596.05
4.00%
43.09
19.00%
4342.65
3.22%
105.67
1%
3670.87
2.00%
613.93
3.00%
49.56
15.00%
4440.02
2.24%
106.72
1%
3707.58
1.00%
626.21
2.00%
54.51
10.00%
4495.02
1.24%
107.79
1%
3744.66
1.00%
638.73
2.00%
58.87
8.00%
4550.05
1.22%
2012
2013
2014
2015
2016
2017
1179.72
5%
752.99
10.00%
265.28
3.00%
628.15
18.00%
2826.32
14.97%
1403.70
5%
828.29
10.00%
273.24
3.00%
741.22
18.00%
3246.63
14.87%
1459.85
4%
902.84
9.00%
278.71
2.00%
867.22
17.00%
3508.62
8.07%
1503.64
3%
966.04
7.00%
284.28
2.00%
997.31
15.00%
3751.27
6.92%
1533.72
2%
1033.66
7.00%
289.97
2.00%
1097.04
10.00%
3954.38
5.41%
1564.39
2%
1085.34
5.00%
292.86
1.00%
1173.83
7.00%
4116.43
4.10%
2011
1059.94 1123.54
6%
539.92 620.90
15.00%
250.05 257.56
3.00%
386.49 456.06
18.00%
2236.40 2458.30
9.92%
Source: CISE estimates
28
Sales Forecast
Year
WHOLESALES
European Wholesale
Growth Rate
North America Wholesale
Growth Rate
Asian and Pacific Wholesale
Growth Rate
OthersWholesale
Growth Rate
Total
Growth Rate
2010
2011
1059.94 1123.54
6%
539.92 620.90
15.00%
250.05 257.56
3.00%
386.49 456.06
18.00%
2236.40 2458.30
9.92%
2012
2013
2014
2015
2016
2017
1179.72
5%
752.99
10.00%
265.28
3.00%
628.15
18.00%
2826.32
14.97%
1403.70
5%
828.29
10.00%
273.24
3.00%
741.22
18.00%
3246.63
14.87%
1459.85
4%
902.84
9.00%
278.71
2.00%
867.22
17.00%
3508.62
8.07%
1503.64
3%
966.04
7.00%
284.28
2.00%
997.31
15.00%
3751.27
6.92%
1533.72
2%
1033.66
7.00%
289.97
2.00%
1097.04
10.00%
3954.38
5.41%
1564.39
2%
1085.34
5.00%
292.86
1.00%
1173.83
7.00%
4116.43
4.10%
Source: CISE estimates
29
Debt focus
Group total indebtness USD vs Euro
sep 30, 2011 - Euro data
net dollar debt
net euro debt
43%
57%
Source: Luxottica financial statements
Source: company data
30