Stock price: €82.2 ($117.75)
Conclusion: Recent stock weakness offers a good entry point. The discount to luxury peers has widened to 30%. Notwithstanding the dilution related to CFAO listing, we expect further portfolio restructuring.
CFAO launches its IPO - Entreprise value range €1750-2050m
CFAO valued between 7x and 8.1x EBITDA estimates for 2009.
PPR (OTCPK:PPRUF) is selling 31m shares representing 50.39% of the capital of CFAO. The price range (€24.8-€29 per share) implies an equity value of €1.5bn-€1.8bn and an entreprise value of €1750-2050m, including $250m of net debt.
CFAO management is looking for €210-220m EBIT this year, which implies around €250m EBITDA.
We think that management has been conservative, as according to forecast EBIT should deteriorate at a much faster rate in H2 (-32%) than in the first six months of the year (-12%). As to the valuation, we feel that the high end of the range looks probable in light of the strong fundamentals of CFAO and the expected return to double digit growth next year.
Implications for PPR.
Net debt should decrease from €5.4bn in 2009 to around €4.3bn by the end of 2009 (2.2x EBITDA). We estimate that the listing will dilute PPR’s EPS by around -4.5% in 2010 (based on the high end of the CFAO valuation range). However, we believe that it should help PPR to regain some room for manoeuvre and possibly take the full control of Puma.
PPR trades at a 30% discount to peers (12.3x 2010) in the luxury sector, based on 2010 estimates (post CFAO IPO), which provides a a good entry point. We raise our valuation range to €92-€95 per share.
