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Research: Industrials
Faced with an unprecedented set of global circumstances arising from the coronavirus pandemic, management has taken pre-emptive action with respect to potential supply chain issues. Of course, demand effects are more difficult to predict. The good news is that Stefan Pierer, the CEO, can apply his experience from managing the financial crisis, when the group saw volumes fall by around 25–30%. Any forward-looking estimates need monitoring, but we are cutting our volume expectation across the group by 15%, with a drop-through impact on EBITDA of €45m.
Written by
PIERER Mobility |
Proactive mitigation measures |
Pandemic response |
Automobiles & parts |
20 March 2020 |
Share price performance
Business description
Next events
Analyst
PIERER Mobility is a research client of Edison Investment Research Limited |
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Faced with an unprecedented set of global circumstances arising from the coronavirus pandemic, management has taken pre-emptive action with respect to potential supply chain issues. Of course, demand effects are more difficult to predict. The good news is that Stefan Pierer, the CEO, can apply his experience from managing the financial crisis, when the group saw volumes fall by around 25–30%. Any forward-looking estimates need monitoring, but we are cutting our volume expectation across the group by 15%, with a drop-through impact on EBITDA of €45m.
Year end |
Revenue* (€m) |
EBIT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
1,462 |
128.7 |
1.82 |
0.30 |
14.8 |
1.1 |
12/19 |
1,520 |
132.0 |
2.42 |
0.30 |
11.2 |
1.1 |
12/20e |
1,431 |
72.8 |
1.01 |
0.30 |
26.7 |
1.1 |
12/21e |
1,698 |
132.3 |
2.07 |
0.30 |
13.0 |
1.1 |
Note: *Revenues, EBIT and EPS are continuing business, excluding amortisation of acquired intangibles, exceptional items and share-based payments. FY19 preliminary figures
Early production break in Europe
In anticipation of potential supply chain disruption, emanating mainly from northern Italy, the company has decided to suspend production at its main Mattighofen facility in Austria for two weeks, pulling forward the usual summer break. Management indicates that it has manufactured sufficient stock to keep demand satisfied across its global dealer network and we expect it to build component stocks as a temporary buffer during this period. In India, the production at joint venture partner Bajaj Auto currently proceeds as normal.
Reducing our forecast for FY20
While the moves are not expected to affect the availability of product to the global dealership network, markets are likely to be at least temporarily depressed by the lockdown measures currently underway around the world. The overall medium- to long-term macroeconomic detriment to motorcycle demand is difficult to assess at present. Our assumption is that if the virus fades over the summer, then a v-shaped recovery is possible in FY21. In the meantime, we are assuming a 15% volume decline in the core business for FY20, with a 14% impact on revenues and a 16% or €76m drop in gross profit. We assume some saving in operating expenses from reduced marketing, travel, lower numbers of agency workers and other overhead controls. The resultant cut of €45m in EBITDA (-18%) drops directly into EBIT and PBT, although it is mitigated at the EPS level by the minority share. Of course, things may deteriorate further, requiring deeper rationalisation of fixed costs.
Valuation: Not rated for a recovery
The share price has halved in the face of the pandemic, and a P/E rating of just 13.0x in FY21e is discounting a far worse demand environment than we are currently assuming. If conditions normalise in the next few months, the rating is not reflecting a likely recovery in demand and profitability in FY21. It also fails to reflect expected medium-term growth from the entry into urban e-mobility markets.
Proactive measures
In the face of the global pandemic, PIERER Mobility last week announced a two-week production halt at its main facility in Austria. It was seen as a pre-emptive strike to avoid supply chain shortages from northern Italian suppliers as restrictions increased. Management says it has sufficient inventory to meet demand in its dealership network to facilitate pulling forward the normal summer break, and has also built component inventory buffers to allow production to proceed normally once the break is over. However, with many main markets in lockdown in Europe and North America, it seems likely that further production stoppages may be required over the next several months. At present, the Indian production is proceeding normally, but all operations are vulnerable to demand reductions
In the year to August 2009, the lowest point of the cycle, KTM Power Sports accounts show that revenues fell by 25% or just over €150m on the prior year to €454m, and EBITDA dropped by €11m to €39.5m from €50.4m. Management responded by cutting costs and restructuring, including a temporary cut in the workforce of 26%. Demand, sales and earnings started to recover from 2010.
Earnings revisions
Management has cancelled guidance. We are making an assumption that the impact on demand will be severe for a short period, and now assume sales volumes in the core business will be down 15% in FY20, although this needs to be monitored depending on how the pandemic develops, especially measures to counter it. To a degree, we are trying to show an element of sensitivity of financials to a downturn, of which PIERER management has previous experience from the financial crisis in 2008/09.
It should be noted that the structural changes of adding GASGAS motorbike sales and e-bikes initial consolidation partially mitigate the year-on-year impact on revenues
Exhibit 1: PIERER Mobility earnings estimates revisions
Year to Dec |
2020e |
2021e |
||||
€m |
Prior |
New |
Change |
Prior |
New |
Change |
Core Motorcycle business |
1558.1 |
1330.8 |
-14.6% |
1636.7 |
1577.8 |
-3.6% |
E-motorcycles |
0.0 |
0.0 |
0.0 |
0.0 |
||
E-bikes |
100.0 |
100.0 |
0.0% |
120.0 |
120.0 |
0.0% |
Total revenues |
1658.1 |
1430.8 |
-13.7% |
1756.7 |
1697.8 |
-3.4% |
Core Motorcycle business |
463.4 |
387.1 |
-16.5% |
484.4 |
460.9 |
-4.9% |
E-motorcycles |
0.0 |
0.0 |
0.0 |
0.0 |
||
E-bikes (PEXCO) |
15.0 |
15.0 |
0.0% |
21.6 |
21.6 |
0.0% |
Total gross profit |
478.4 |
402.1 |
-15.9% |
506.0 |
482.5 |
-4.6% |
Operating expenses |
233.4 |
202.0 |
-13.5% |
226.6 |
212.4 |
-6.2% |
EBITDA |
245.0 |
200.1 |
-18.3% |
279.5 |
270.1 |
-3.4% |
D&A |
-129.5 |
-127.2 |
-1.8% |
-137.4 |
-137.8 |
0.3% |
EBIT |
115.5 |
72.8 |
-36.9% |
142.1 |
132.3 |
-6.9% |
PBT |
100.0 |
57.3 |
-42.6% |
128.2 |
118.1 |
-7.8% |
Net Income |
39.5 |
22.7 |
-42.6% |
50.7 |
46.7 |
-7.8% |
EPS (€) |
1.75 |
1.01 |
-42.6% |
2.25 |
2.07 |
-7.8% |
Dividend (€) |
0.30 |
0.30 |
0.0% |
0.3 |
0.30 |
0.0% |
Adjusted net debt |
378 |
385 |
2.0% |
324 |
368 |
13.7% |
Source: Edison Investment Research estimates
In terms of cost of goods sold (COGS), the company is able to reduce the number of temporary staff, which should help to alleviate some of the fixed cost nature of production staff, which account for approximately 11% of COGS. The materials bill and purchased services account for around 85% of COGS, which should vary with production volumes and these should fall. However, we note that management says it has built near-term component buffer stocks to mitigate any supply shortages that may emerge, and these would need to be worked off during the remainder of 2020. The remainder is largely depreciation of property, plant and equipment and amortisation of capitalised development costs.
In the overhead, we expect marketing costs to fall and, with the sporting calendar curtailed, racing budgets should also decline. R&D investment is likely to be maintained. Administrative cost may be relatively more fixed, although there may be some agency workers who can be flexed.
Assuming the pandemic is controlled by 2021, we would expect a recovery. The overall financial impact on the global economy is hard to predict at present, but will be negative. Our assumption includes a view that some sales are deferred from 2020 to 2021. We assume the move into urban e-mobility markets through e-bikes and eventually e-motorcycles continues as expected, and near break-even for e-bikes operating performance in FY20.
Exhibit 2: Financial summary
Accounts: IFRS, year-end: December, €m |
|
|
2017 |
2018 |
2019 |
2020e |
2021e |
2022e |
INCOME STATEMENT |
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,354 |
1,462 |
1,520 |
1,431 |
1,698 |
1,872 |
Cost of sales |
|
|
(945) |
(1,029) |
(1,066) |
(1,029) |
(1,215) |
(1,338) |
Gross profit |
|
|
409 |
433 |
454 |
402 |
482 |
534 |
SG&A (expenses) |
|
|
(128) |
(166) |
(150) |
(136) |
(143) |
(155) |
R&D costs |
|
|
(34) |
(27) |
(33) |
(35) |
(36) |
(38) |
Other income/(expense) |
|
|
(28) |
(29) |
(30) |
(31) |
(33) |
(34) |
Depreciation and amortisation |
|
|
(97) |
(82) |
(109) |
(127) |
(138) |
(144) |
Reported EBIT |
|
|
122 |
129 |
132 |
73 |
132 |
163 |
Finance income/(expense) |
|
|
(11) |
(15) |
(13) |
(15) |
(14) |
(13) |
Other income/(expense) |
|
|
(2) |
(1) |
(1) |
(1) |
0 |
0 |
Reported PBT |
|
|
109 |
112 |
118 |
57 |
118 |
149 |
Income tax expense |
|
|
(30) |
(27) |
(22) |
(14) |
(28) |
(36) |
Minorities |
|
|
(39) |
(44) |
(41) |
(21) |
(43) |
(55) |
Reported net income (post-minorities) |
|
|
40 |
41 |
54 |
23 |
47 |
59 |
Basic average number of shares, m |
|
|
225 |
23 |
23 |
23 |
23 |
23 |
Basic EPS (€) |
|
|
1.98 |
2.99 |
2.42 |
1.01 |
2.07 |
2.62 |
Dividend per share (€) |
|
|
0.30 |
0.30 |
0.30 |
0.30 |
0.30 |
0.35 |
Adjusted EBITDA |
|
|
219 |
211 |
241 |
200 |
270 |
307 |
Adjusted EBIT |
|
|
122 |
129 |
132 |
73 |
132 |
163 |
Adjusted PBT |
|
|
109 |
112 |
118 |
57 |
118 |
149 |
Adjusted EPS (€) |
|
|
1.77 |
1.82 |
2.42 |
1.01 |
2.07 |
2.62 |
Adjusted diluted EPS (€) |
|
|
1.77 |
1.82 |
2.42 |
1.01 |
2.07 |
2.62 |
BALANCE SHEET |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
357 |
283 |
380 |
413 |
435 |
451 |
Goodwill |
|
|
117 |
96 |
146 |
146 |
146 |
146 |
Intangible assets |
|
|
280 |
327 |
345 |
345 |
345 |
345 |
Other non-current assets |
|
|
28 |
39 |
17 |
17 |
17 |
17 |
Total non-current assets |
|
|
782 |
745 |
888 |
921 |
943 |
959 |
Cash and equivalents |
|
|
169 |
89 |
161 |
151 |
149 |
192 |
Inventories |
|
|
297 |
287 |
324 |
313 |
351 |
367 |
Trade and other receivables |
|
|
216 |
220 |
235 |
226 |
253 |
271 |
Other current assets |
|
|
1 |
13 |
8 |
8 |
8 |
8 |
Total current assets |
|
|
683 |
609 |
728 |
698 |
761 |
838 |
Non-current loans and borrowings |
|
|
373 |
339 |
477 |
457 |
437 |
417 |
Other non-current liabilities |
|
|
89 |
95 |
110 |
110 |
110 |
110 |
Total non-current liabilities |
|
|
461 |
435 |
587 |
567 |
547 |
527 |
Trade and other payables |
|
|
178 |
191 |
205 |
198 |
234 |
257 |
Current loans and borrowings |
|
|
171 |
73 |
80 |
80 |
80 |
80 |
Other current liabilities |
|
|
125 |
104 |
116 |
116 |
116 |
116 |
Total current liabilities |
|
|
475 |
368 |
401 |
394 |
430 |
453 |
Equity attributable to company |
|
|
318 |
297 |
334 |
343 |
369 |
403 |
Non-controlling interest |
|
|
211 |
253 |
295 |
316 |
359 |
414 |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
|
Profit for the year |
|
|
84 |
114 |
96 |
44 |
90 |
114 |
Taxation expenses |
|
|
33 |
29 |
22 |
14 |
28 |
36 |
Net finance expenses |
|
|
4 |
(16) |
(16) |
16 |
14 |
13 |
Depreciation and amortisation |
|
|
86 |
91 |
109 |
127 |
138 |
144 |
Movements in working capital |
|
|
(23) |
(83) |
70 |
13 |
(30) |
(10) |
Interest paid / received |
|
|
(13) |
(15) |
(12) |
(16) |
(14) |
(13) |
Income taxes paid |
|
|
(10) |
(36) |
(10) |
(14) |
(28) |
(36) |
Cash from operations (CFO) |
|
|
161 |
85 |
258 |
184 |
198 |
248 |
Capex |
|
|
(182) |
(167) |
(165) |
(160) |
(160) |
(160) |
Acquisitions & disposals net |
|
|
28 |
70 |
0 |
0 |
0 |
0 |
Other investing activities |
|
|
0 |
(6) |
(1) |
0 |
0 |
0 |
Cash used in investing activities (CFIA) |
|
|
(154) |
(102) |
(166) |
(160) |
(160) |
(160) |
Movements in debt |
|
|
(96) |
(38) |
0 |
(20) |
(20) |
(20) |
Dividends paid |
|
|
(20) |
(19) |
(20) |
(14) |
(21) |
(25) |
Other financing activities |
|
|
(2) |
(6) |
(1) |
0 |
0 |
0 |
Cash from financing activities (CFF) |
|
|
(118) |
(63) |
(21) |
(34) |
(41) |
(45) |
Currency translation differences and other |
|
|
(4) |
0 |
0 |
0 |
0 |
0 |
Increase/(decrease) in cash and equivalents |
|
|
(115) |
(80) |
72 |
(10) |
(3) |
43 |
Cash and equivalents at end of period |
|
|
169 |
89 |
161 |
151 |
149 |
192 |
Net (debt)/cash |
|
|
(375) |
(323) |
(396) |
(385) |
(368) |
(305) |
Movement in net (debt)/cash over period |
|
|
(375) |
52 |
(73) |
10 |
17 |
63 |
Source: Company accounts, Edison Investment Research
|
|
Research: Metals & Mining
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