New management is driving an enhanced commercial focus. This was not wholly apparent in headline FY16 results, but was evident in strategic actions taken which are set to accelerate in FY17. Our sense is that the business will respond quickly to these initiatives. Eurocell’s share price has started to respond to the new corporate messaging and the delivery of profitable revenue growth is likely to attract further support.
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Eurocell |
Moving up a gear
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Construction & materials |
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16 March 2017 |
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New management is driving an enhanced commercial focus. This was not wholly apparent in headline FY16 results, but was evident in strategic actions taken which are set to accelerate in FY17. Our sense is that the business will respond quickly to these initiatives. Eurocell’s share price has started to respond to the new corporate messaging and the delivery of profitable revenue growth is likely to attract further support.
Preparing the ground for further progress
FY16 results (revenue +16% y-o-y, PBT norm +5%, EPS norm +7%) contained both organic growth and acquisition contributions. Solid gross margin management took our eye (particularly important given opex inflation, partly due to business development) as did the strong free cash flow performance. The renewed executive management team (CEO, Mark Kelly, ex Grafton, GB and CFO Michael Scott, ex Drax joined in May and September respectively) has hit the ground running. Faster new branch roll-out (+18 to 159 at year end), manufacturing capex (including recycling capacity) and expansion of the branch range offering are all early markers of strategic intent from the new team. FY17 has started positively, in-line with management expectations.
Stepping up market presence
A strategy review appears to have greater commercial intensity at its heart. Most obviously, increased branch roll-out momentum (+30 expected in FY17, long-term target 350 in total) and broadening the SKUs carried is aimed at growing revenue. An aspiration to increase new product development activity and add adjacent product lines (organically or through acquisition) continues the theme. This has pull-through benefits for profile manufacturing. Investment in capacity and operating efficiency and direct control over warehouse management are all designed to sharpen service capability to support expected growth. Eurocell’s balance sheet and cash flow characteristics can comfortably accommodate this expansion, as described, and absent significant acquisition spend, the company could move into a net funds position during FY18.
Valuation: Positive EPS, DPS and cash prospects
Apart from a post Brexit mark-down in the middle of last year that afflicted many in the sector, Eurocell’s share price traded around 180p for most of the past 12 months. The share price started to pick up a month ago and FY16 results were also well received. We believe that the positive earnings and dividend growth prospects and cash profile of the business are likely to continue to attract investor support.
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Consensus estimates
Source: Bloomberg (Company defined, post amortisation) |
EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Disclaimer
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Disclaimer
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PharmaMar is approaching two key milestones in H217: an approval decision for Aplidin for multiple myeloma in Europe; and Phase III results for lurbinectedin in ovarian cancer. The Chugai licence deal for lurbinectedin in Japan has strengthened the company’s financial position (pro forma net debt €32m) and seen it put increased emphasis on its preferred strategy to either self-commercialise or co-promote lurbinectedin in the US. Separately, a US manufacturing patent granted last year has extended IP protection for lurbinectedin until at least December 2032. These developments have prompted us to adopt co-promotion in the US in our base case valuation scenario and to extend our rNPV model to 2035 vs 2030 previously. Our base case valuation has increased by 29% to €1.29bn (vs €1.01bn), or €5.79/share (vs €4.55/share).