CEWE Stiftung & Co KGaAirpages2.equitystory.com/cewe/pdf/research/Berenberg20140328.pdf · CEWE...

CEWE Stiftung & Co KGaA Small/Mid-Cap: Internet

1

Investment in the past will lead to growth in the future

● CEWE’s FY 2013 reported results came in as expected, but recurring EBIT of EUR35m demonstrated impressive earnings improvement in the core Photofinishing division. We adjust our estimates to reflect better-than-expected Photofinishing profitability and increase our EBIT and EPS by 11-15% over 2014-2016E; we are now 19-22% ahead of consensus EPS. As a result, our new price target of EUR69 offers 25% upside potential, and we reiterate our Buy recommendation.

● Impressive FY 2013 results demonstrated an almost 2ppt margin expansion of the core Photofinishing segment and solid growth in the Online Printing division – a key future growth driver. Reported EBIT of EUR29m has been burdened by restructuring costs and goodwill impairment totalling EUR6m. However, as management does not foresee any further restructuring or impairments for 2014E, profitability should improve further, supported by diminishing losses in the Online Printing division.

● FY 2014E guidance is ultra-conservative in our view, with an EBIT range of EUR33m-36m. Our EUR38m estimate is ahead of guidance and 15% ahead of consensus as we factor in decreasing losses from the Online Printing segment and stable core earnings.

● Sustainable Photofinishing earnings: CEWE has posted steady margin expansion in the Photofinishing segment and we believe current market trends are beneficial for margins, as other players are also focusing on earnings.

● Improving online earnings: We expect losses in Online Printing segment to diminish, with break-even by 2015E and a more than 20% contribution to group EBIT by 2017E with an 8.7% EBIT margin. This assumption is supported by the profitability of other online printing players, as well as the company’s strong track record in the photofinishing division.

● Valuation still attractive despite a 27% ytd share price increase: A 12x PER 2015E and an 8% FCF yield for an 11.5% EPS CAGR 2013-2017E and close to 20% ROCE indicates the value on offer.

Buy Current price

EUR 55.13 Price target

EUR 69.00 28/03/2014 XETRA Close Market cap EUR 351 m Reuters CWCG.DE Bloomberg CWC GY

Changes made in this note Rating Buy (no change) Price target EUR 69.00 (63.00) Chg 2014E 2015E 2016E

old Δ% old Δ% old Δ%

Sales 550 -1.7 574 -1.4 602 -1.0

EBIT 33 15.0 36 14.9 42 11.1

EPS 3.50 12.7 3.82 15.6 4.49 12.3

Source: Berenberg estimates

Share data

Shares outstanding (m) 7 Enterprise value (EUR m) 372 Daily trading volume 19,927

Performance data

High 52 weeks (EUR) 56 Low 52 weeks (EUR) 32 Relative performance to SXXP SDAX 1 month 6.6 % 9.5 % 3 months 26.9 % 24.3 % 12 months 46.2 % 44.9 %

Key data

Price/book value 2.2 Net gearing 2.4 % CAGR sales 2013-2016 4.0 % CAGR EPS 2013-2016 9.6 %

Business activities: Photo services provider

Non-institutional shareholders: 27.4% Neumüller heirs 9.6% CEWE Color Holding AG 0.8% CEWE Management

31 March 2014

Anna Patrice, CFA Analyst +44 20 3207 7863 [email protected]

Y/E 31.12., EUR m 2010 2011 2012 2013 2014E 2015E 2016E

Sales 447 469 507 529 541 566 596

EBITDA 66 64 66 67 74 79 85

EBIT 28 30 29 29 38 42 47

Net profit 14 19 19 22 26 29 33

Y/E net debt (net cash) -3 -7 18 22 4 -13 -31

EPS (reported) 2.02 2.84 2.88 3.29 3.95 4.41 5.05

EPS (recurring) 2.18 2.84 2.88 3.84 3.95 4.41 5.05

CPS 6.92 8.58 7.27 9.16 9.37 0.71 10.96

DPS 1.25 1.40 1.47 1.50 1.80 1.98 2.18

Gross margin 62.6% 63.2% 63.6% 64.3% 65.1% 65.3% 65.2%

EBITDA margin 14.7% 13.6% 13.0% 12.7% 13.7% 14.0% 14.3%

EBIT margin 6.3% 6.4% 5.7% 5.6% 7.1% 7.4% 7.9%

Dividend yield 4.6% 4.5% 4.7% 2.8% 3.4% 3.7% 4.1%

ROCE 16.3% 17.4% 16.1% 14.8% 18.5% 19.7% 21.2%

EV/sales 0.4 0.4 0.5 0.7 0.7 0.6 0.6

EV/EBITDA 2.9 3.2 3.6 5.8 5.0 4.5 4.0

EV/EBIT 6.9 6.9 8.3 13.3 9.7 8.5 7.2

P/E 12.5 10.9 10.9 13.9 13.5 12.1 10.6

Cash flow RoEV 15.3% 12.3% 11.3% 7.0% 8.8% 9.9% 11.2%

Source: Company data, Berenberg


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Excellent 2013 results, conservative 2014 guidance

CEWE has reported strong 2013 underlying results, supporting our investment case of a stable Photofinishing segment with improving margins and an Online Printing segment which is the key future growth driver.

1) Improving earnings in the core Photofinishing segment: Production processes optimisation, favourable product mix and the return of the German consumer have supported a 1.9ppt EBIT margin expansion from 8.9% in 2012 to 10.8% in 2013.

2) Solid 30% underlying sales growth in the Online Printing segment: However, the company still faces losses at the EBIT level as it invests in market development, market share gains as well as expansion.

Last year, the company again demonstrated its increasing shift to Q4 sales and its increasing dependence on the Christmas and gift business, with Q4 sales accounting for 36% of annual sales and most annual profits generated in Q4. However, given the increasing share of photo gift products (which offer a higher value-add than single digital photo prints, the average selling price per print has increased by 6% to 15.53c. This increase has thus offset the 8% decline in the number of single digital prints ordered and the 4% decline in total prints in FY 2013.

Thus, overall CEWE has delivered strong results with improving recurring profitability at the group level, supported by the Photofinishing segment, and solid 30% underlying growth in the Online Printing division (including 39% reported sales growth due to the consolidation impact of Saxoprint). The only weakness has been in the Retail segment, due to poor market conditions in Norway and Poland as well as company-specific issues with management changes in Poland. However, along with an improving macro, changes in management in Poland and further investment in its online and store offering are set to support earnings improvements in this division.

CEWE Q4 and FY 2013 results versus estimates

Source: Company data, Bloomberg

CEWE STIFTUNG Q4 Q4 FY FY FY 2013 Reported vs

in EURm FY 12 FY 2013 2012 2013 Consensus Consensus

Sales 178.2 186.8 507.2 528.6 524.1 1%

yoy 10.7% 4.8% 8.1% 4.2% 3.3%

Photofinishing 133.4 145.3 359.2 367.7

yoy 5.3% 8.9% 0.0% 2.4%

Online printing 14.4 18.2 43.0 59.8

yoy 26.4% 39.1%

Retail 30.5 24.5 105.0 101.0

yoy -1.6% -19.7% -6.4% -3.8%

recurring EBIT 29.3 36.1 29.1 35.4 30.2 17%

margin 16.5% 19.3% 5.7% 6.7% 5.8%

yoy 13.9% 23.1% -3.5% 21.8% 3.9%

Photofinishing 28.8 35.8 32.2 39.5

margin 21.6% 24.6% 9.0% 10.7%

yoy 24.2% 22.7%

Online printing -1.2 -1.0 -4.8 -4.3

margin -8.2% -5.4% -11.2% -7.2%

yoy

Retail 1.5 1.3 1.7 0.1

margin 919.0% 655.6% 1.6% 0.1%

yoy -16.3%

Net profit - reported 22.2 28.1 18.8 21.6 20.3 7%

margin 12.4% 15.0% 3.7% 4.1% 3.9%

yoy 21.3% 26.7% 2.1% 14.9% 7.8%


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2014 guidance looks conservative

The company guides for -1%/+2% sales growth to EUR525m-540m, EBIT of EUR30m-36m and net profit of EUR19m-23m for FY 2014E. Consensus reflects the mid-range of guidance.

The sales guidance of EUR525m-540m (from EUR529m in 2013) is based on the following assumptions:

• a flat/slightly growing Photofinishing segment: including a 1-2% volume growth in the photobook segment and a 3-6% decline in the number of total prints, but a positive average selling price given the favourable product mix;

• at least EUR70m in sales in the Online Printing segment (which would equate to at least a 17% yoy increase);

• a decline in the Retail segment (given the company’s shift away from some consumers).

We believe there could be positive upside to both Photofinishing segment and Online Printing segment guidance, and expect higher-than-guided sales growth of 2% in Photofinishing and 25% in Online Printing for 2014E.

Moreover, we see significant upside to the company’s EBIT guidance of EUR30m-36m and consensus’s EUR33m EBIT estimates in 2014E, and we have modelled EUR38m of EBIT for the year. Recurring EBIT in 2013 stood at EUR35m and management continues to comment positively about stable/improving margins in the Photofinishing segment, improving earnings in the Retail division and diminishing losses in the Online Printing division. We expect only a moderate increase in Retail earnings, an improving Online Printing division despite losses of EUR2m, and 20bp margin dilution in the Photofinishing segment. Nevertheless, our estimates of EUR38m are 15% ahead of consensus and 15% ahead of mid-range company guidance.

In our view, risks to our estimates come from a) higher marketing spend in the Photofinishing segment (although as the company continues to expand in France and the UK but focuses tightly on costs, there may be significant growth acceleration in these markets which would thus be beneficial in the mid-term), and b) higher marketing spend in the Online Printing segment (although we are already at the top of the indicated marketing spend for the Online Printing division).

In light of the solid FY 2013 results, we adjust our estimates to reflect the significantly greater profitability of the Photofinishing segment (almost 2ppt ahead of our estimates), despite the decline in the low-margin Retail division. Thus, while we slightly reduce our top-line estimates by 1-2% for 2014-2017E, we increase EBIT on the back of improved profitability in Photofinishing and unchanged estimates for the Online Printing division. We increase EBIT by 9-15% for 2014-2017E and EPS by 10-16% over the same period.


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Change in estimates, 2014-2017E


Divisional breakdown, sales and EBIT, 2009-2017E


Change of estimates

old new Δ old new Δ old new Δ old new Δ

Sales 551 541 -1.9% 575 566 -1.6% 603 596 -1.2% 636 632 -0.7%

EBIT 33 38 15.0% 36 42 14.9% 42 47 11.1% 50 55 8.9%

EPS 3.50 3.95 12.7% 3.82 4.41 15.6% 4.49 5.05 12.3% 5.39 5.93 10.0%

Ch

ang

es

2016 20172014 2015

EUR m 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E

Divisional sales

Photofinishing 316.3 336.0 355.5 359.3 367.2 374.4 381.4 388.5 395.8

Retail 93.5 110.8 112.2 105.0 101.6 91.5 90.6 89.6 88.8

Online 0.0 0.0 1.4 43.0 59.8 74.7 93.8 117.6 147.0

TTL 409.8 446.8 469.0 507.2 528.6 540.6 565.8 595.8 631.6

Divisional sales shares

Photofinishing 77.2% 75.2% 75.8% 70.8% 69.5% 69.3% 67.4% 65.2% 62.7%

Retail 22.8% 24.8% 23.9% 20.7% 19.2% 16.9% 16.0% 15.0% 14.1%

Online 0.0% 0.0% 0.3% 8.5% 11.3% 13.8% 16.6% 19.7% 23.3%

TTL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Divisional sales growth

Photofinishing -2.5% 6.2% 5.8% 1.1% 2.2% 2.0% 1.9% 1.8% 1.9%

Retail -2.2% 18.5% 1.3% -6.4% -3.2% -10.0% -1.0% -1.0% -1.0%

Online na na na 2996.8% 39.1% 25.0% 25.4% 25.5% 25.0%

TTL -2.4% 9.0% 5.0% 8.1% 4.2% 2.3% 4.7% 5.3% 6.0%

EUR m 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E

Divisional EBIT

Photofinishing 26.5 28.5 30.5 32.0 39.5 39.7 41.0 41.1 41.9

Retail 1.7 1.8 2.4 1.7 0.1 0.7 0.3 0.1 0.1

Online 0.0 0.0 -2.8 -4.8 -4.3 -2.0 0.6 5.9 12.8

TTL 28.2 30.4 30.1 28.9 35.3 38.4 41.9 47.0 54.8

Divisional EBIT share

Photofinishing 93.9% 93.9% 101.4% 110.7% 111.9% 103.4% 97.7% 87.3% 76.6%

Retail 6.1% 6.1% 8.0% 5.8% 0.2% 1.7% 0.8% 0.2% 0.1%

Online 0.0% 0.0% -9.4% -16.5% -12.1% -5.1% 1.5% 12.4% 23.3%

TTL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Divisional EBIT margin

Photofinishing 8.4% 8.5% 8.6% 8.9% 10.8% 10.6% 10.7% 10.6% 10.6%

Retail 1.8% 1.7% 2.2% 1.6% 0.1% 0.7% 0.4% 0.1% 0.1%

Online 0.0% 0.0% -204.5% -11.1% -7.2% -2.6% 0.7% 5.0% 8.7%

TTL 6.9% 6.8% 6.4% 5.7% 6.7% 7.1% 7.4% 7.9% 8.7%

Divisional EBIT growth

Photofinishing 7.7% 7.1% 4.8% 23.4% 0.5% 3.2% 0.3% 2.1%

Retail 8.0% 31.3% -30.7% -95.5% 764.2% -49.3% -69.3% -22.8%

Online 68.3% -10.4% -54.4% -131.9% 839.5% 118.1%

TTL 7.8% -0.8% -4.0% 22.0% 8.8% 9.2% 12.2% 16.5%


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Berenberg versus consensus estimates – further upgrades to come

Source: Berenberg estimates, Bloomberg

Photofinishing – sustainable earnings

Management is guiding for flat to slight growth in Photofinishing sales in the mid-term. We believe that this reflects the company’s prudent approach and believe that at least a 2% sales CAGR over 2013-2017E is a reasonable assumption supported by the market data. Futuresource Consulting expects a 3% value CAGR 2013-2017E in the photo-merchandise market in western Europe and higher growth for the consumer photobook market, with an estimated 6% growth in western Europe in 2014E, and a market value CAGR 2013-2016E of above 4% for the combined photobook market in the US, western Europe and eastern Europe. If we assume a high-single-digit decline in single digital prints, but a steady growth of photobooks and photo gift products of 3-5% in value terms, this will lead to a sales CAGR 2013-2017E of above 2%. Our assumptions are more conservative – a 1.9% sales CAGR over 2013-17E for the Photofinishing segment.

Furthermore, we believe there is no risk to the current profitability of the Photofinishing segment and note several developments in the market:

• the number two photobook player in Western Europe, Albumprinter, owned by Vistaprint, is currently focusing on value and service rather than aggressive pricing, with the parent company targeting earnings rather than sales growth;

Last fiscal year Current Y Next fiscal year Next fiscal year +1

Sales 529 541 566 596

yoy 2.3% 4.7% 5.3%

EBITDA 67 74 79 85

yoy 10.5% 6.5% 8.0%

as % of sales 12.7% 13.7% 14.0% 14.3%

EBIT 29 38 42 47

yoy 30.7% 9.1% 12.2%

as % of sales 5.6% 7.1% 7.4% 7.9%

Net income 22 26 29 33

yoy 20.1% 11.7% 14.4%

EPS 3.29 3.95 4.41 5.05


Sales 529 548 569 583

yoy 3.8% 3.7% 2.5%

EBITDA 67 71 75 79

yoy 5.8% 5.0% 5.5%

as % of sales 12.7% 13.0% 13.1% 13.5%

EBIT 29 33 36 39

yoy 13.4% 9.0% 7.6%

as % of sales 5.6% 6.1% 6.4% 6.7%

Net income 22 22 24 27

yoy 1.1% 8.7% 14.2%


Sales 0.0% -1.4% -0.5% 2.2%

EBITDA 0.0% 4.4% 6.0% 8.5%

EBIT 0.0% 15.3% 15.4% 20.3%

Net income 0.0% 18.8% 22.1% 22.3%

Berenberg

FY

Consensus

Diff. vs. consensus


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• the leading player in the UK and France, Photobox, is also focusing on earnings growth and has reported some margin expansion, although still significantly lower profitability than CEWE;

• Infowerk, the number four photobook market player in western Europe, filed for insolvency at the end of 2013, and while it has now been bought out of insolvency by Unitedprint, we believe that its focus on aggressive pricing and on the low-value market segment is no more sustainable for the new owners than it was for the previous owners;

• Snapfish, a division of HP, has announced a market exit from certain countries (Belgium, the Netherlands, Spain), and in our view, this represents an opportunity for CEWE to further gain market share and consolidate its leading positioning in both the photofinishing segment (it has a 40% market share in western Europe) and the photobook market (it has a 24% market share in western Europe).

Key players focusing on profitability (market share in volume, %)

Source: Company data, Futuresource Consulting

CEWE has achieved best-in-class profitability in the Photofinishing segment and has reported steady EBIT margin expansion, as illustrated in the charts below. Both Photobox’s and Bistaprint’s margins are half the size of CEWE’s, and this is despite CEWE’s exposure to declining and less profitable single digital prints (c20-25% of its Photofinishing sales). We note that both Photobox and Vistaprint are focusing on profitable growth and earnings rather than just top-line and market share growth, and this is supportive of further EBIT margin expansion for all the players, including CEWE.


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Photobox sales (EURm) and EBIT margin development, 2009-2012

CEWE sales (EURm) and EBIT margin development, 2009-2013

Source: CEWE, Photobox

Vistaprint sales (EURm) and EBIT margin development, 2010-2014E

CEWE posts solid revenue increase in the Photofinishing segment despite the decline in single digital prints (EURm)

Source: Bloomberg Source: CEWE, Photobox

We note that CEWE stands out among its peers as it offers the biggest product range, has the highest-rated software for all devices (PC, tablets, smartphones) and has a strong focus on service. Thus, despite the price pressure in the market, CEWE has been able to keep its prices constant and, moreover, drive the premiumisation and increase in average selling prices by introducing new formats and new higher value add/price features for its photobooks. This is demonstrated in the chart below, which is taken from CEWE’s photobook website.

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400

2009 2010 2011 2012

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2009 2010 2011 2012 2013

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2010 2011 2012 2013 2014E

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Photobox CEWE

Moonpig acquisition mid 2011 (EUR>45m of sales)


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Increasing offer for the additional higher-quality/price features

Source: CEWE website

Conclusion

Market trends such as consumers’ increasing interest in photography, the increasing personalisation of photogift products, consumer education, and increasingly user-friendly software and technology applications (such as iPad and iPhone apps) are expected to lead to mid-single-digit growth in the photobook and photo merchandise industry in the mid-term.

We expect CEWE to post slightly lower growth (ie a 2% CAGR) over 2013-2017E in its Photofinishing segment due to declining single digital prints.

We believe that CEWE is in position to sustain and further improve its profitability in the Photofinishing segment as the key players are focusing on earnings rather than just market share gains and top-line growth. We model conservatively at around a 10.6% EBIT margin for this segment, 20bp down from its 2013 profitability to account for a possible increase in marketing spend to support its


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further growth outside Germany. Thus there is positive upside to our earnings estimate from the Photofinishing segment as management expects further margin expansion on the back of favourable product mix.

CEWE Photofinishing sales and EBIT margin, 2009-2017E

Source: Berenberg estimates, CEWE

Online Printing segment – towards a high-single-digit EBIT margin in the mid-term

The Online Printing segment accounts for 11% of group sales (2013) and we expect it to post a 25% sales CAGR over 2013-2017E. However, this division is still loss-making as the company invests in marketing and expansion to gain share in this new and structurally growing segment. Management has indicated that it could break even by 2015E and deliver a high-single-digit EBIT margin in the mid-term. In our view, these are reasonable assumptions based on the following:

• leading players in the German online printing segment already post high-single-digit EBIT margins;

Flyeralarm: sales (EURm) and EBIT margin, 2006-2012

Onlineprinters: sales (EURm) and EBIT margin, 2009-2012

Source: Company register Germany, Berenberg estimates

• pricing pressure is unlikely as the competition is coming mainly from offline players which have up to a 70% price disadvantage compared to online players;

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2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E

Sales EBIT margin

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2006 2007 2008 2009 2010 2011 2012

Sales EBIT margin

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Price comparison between offline and online printing companies

Source: companies websites, proposal from Haase-druck, Note: A6 flyers, price without VAT, data check offered for free apart for die druckerei (we included it in the table above, EUR.90), www.diedruckerei.de – is the website of Onlineprinters GmbH

• entry barriers are high due to the required investment in equipment, marketing and expertise in the online business (we note that the leading regional European players have annual turnovers of around/exceeding EUR50m, thus investment in state-of-the-art machines costing EUR7m-10m is a financial stretch for the numerous smaller players).

CEWE stands out with its financial power (cEUR30m free cash flow and an almost debt-free balance sheet by 2014E), its online expertise in its Photofinishing segment and the strong brand awareness of the CEWE print offering. Thus we believe the company is well positioned to gain further market share in this growing segment and benefit from the further reduction in the number of offline players that have already seen an accumulated decline of over 30% during the last decade.

Increasing share of online printing in Germany Online printing market breakdown, 2012

Source: Company data Source: CWC, company register Germany, Berenberg estimates

Breakdown of number of companies by size (number of employees), 1998-2011

Breakdown of number of employees by company size (number of employees), 1998-2011

Source: Bundesverband Druck und Medien (German Federal Association of Print and Media), 2012

Company Average online

Offline/ online price

Quantity

(units)/ price

(EUR)

Total

price

Price per

item

Premium to

average

online price

Total

price

Price per

item

Total

price

Price per

item

Total

price

Price per

item

Total

price

Price per

item

Total

price

Price per

item

25 31.9 1.28 133% 13.2 0.53 14.3 0.57 13.7 0.55

50 36.1 0.72 77% 30.1 0.60 16.7 0.33 14.4 0.29 20.4 0.41

100 42.4 0.42 101% 18.37 0.18 32.6 0.33 19.2 0.19 14.5 0.14 21.2 0.21

Saxoprint

online

Haase-druck Flyeralarm Die druckerei Viaprinto

offline online online online

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012e

Online print Offline print

Flyeralarm37%

Onlineprinters10%

Unitedprint.com7%

Saxoprint6%

Rest40%

-

4,000

8,000

12,000

16,000

1998 2000 2005 2011

1-9 10-19 20-49 50-99 100-499 > 500

-

50,000

100,000

150,000

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250,000

1998 2000 2005 2011

1-9 10-19 20-49 50-99 100-499 > 500

http://www.diedruckerei.de/


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Conclusion

CEWE is well positioned, in our view, to benefit from the growth in the online printing segment and gain market share due to its expertise and the financial means it has at its disposal to invest in expansion. The profitability of the key players as well as the increasing profitability of its core Photofinishing segment are good indicators in our view of the possible EBIT margin of the Online Printing division once the operating leverage takes effect and the company slows down its investment in expansion and marketing. Moreover, we note that CEWE is already benefiting from its expertise in digital printing and has implemented measures to optimise the cost structure, reduce the material costs and increase automatisation of its production processes. Thus it has reduced its paper consumption by c30%, and the number of employees has remained stable despite a more than 30% increase in revenues.

CEWE’s Online Printing division sales and EBIT, 2009-2017E (EURm)

Source: Berenberg estimates, CEWE

Valuation

Valuation is still appealing in our view: The stock trades at 12x PE 2015E for an 11.5% EPS CAGR 2013-17E despite its high competitive quality (it is the market leader in western Europe in the photofinishing segment, and has a strong management track record in monetising structural changes in the markets) and solid profitability with ROCE approaching 20% by 2015E. With the increased estimates, our new price target of EUR69.0 (up from EUR63.0) is an average of DCF (EUR75) and CFRoEV 2015E (EUR63).

A 12x PER 2015E and an 8% FCF yield for an 11.5% EPS CAGR 2013-17E and highly profitable business with solid competitive quality and track record give an indication of the value on offer. An almost 30% upside to our price target of EUR69 and further expected consensus upgrades underpin our Buy recommendation.

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2011 2012 2013 2014 2015 2016E

Sales EBIT


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DCF model


DCF model

EUR m 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Terminal

value

Operating profit (NOPAT) 27.1 29.5 33.1 38.6 41.3 44.4 44.6 44.8 45.5 46.0

Change working capital 0.9 -2.1 -2.6 -3.0 -2.4 -2.2 -2.0 -2.1 -2.2 -1.9

Depreciation 35.9 37.3 38.5 39.6 41.0 42.3 43.5 44.7 46.0 47.1

Investments 34.6 35.9 39.0 40.2 41.0 42.3 43.5 44.7 46.0 47.1

Net cash flow 28.9 29.1 30.4 35.3 39.3 42.5 43.0 43.2 43.8 44.5 602.5

Present value 27.1 25.0 24.0 25.5 26.1 25.9 24.0 22.1 20.6 20.9 283.1

WACC 8.9% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%

Long-term growth rateLong-term growth rate 1.5%

DCF per share derived from WACC derived from

Total present value 524 Interest costs, pre-tax 5.5%

thereof terminal value: 54% Tax rate 29.5%

Net debt at year start 22 Interest costs, after taxes 3.9%

Investments, minorities & others -11 Required ROE 9.0%

Equity value 492 Risk premium 6.0%

No. of outstanding shares 6.6 Risk-free (10y. bond) 3.0%

Discounted cash flow per share (EUR) 74.8 Beta 1.0

0.5% 1.0% 1.5% 2.0% 2.5%

1.2 10.1% 60 62 64 66 68

1.1 9.5% 64 66 69 71 75

1.0 8.9% 69 72 75 78 82

0.9 8.4% 75 78 82 86 91

0.8 7.8% 82 86 90 95 102

Long-term growth rate

Sensitivity analysis DCF

Bet

a

WA

CC

Fair value per share (EUR)


13

CFRoEV method


CEWE Stiftung & Co KGaA

Fair value = (cash flow return / hurdle rate) = (adj. EBIT after taxes / hurdle rate)

Business year end: 31.12 2014 2015 2016

EBIT 38.4 41.9 47.0

+ Depreciation of fixed assets 27.8 29.4 30.9

+ Amortisation / Impairment of goodwill 0.0 0.0 0.0

+ Amortisation of intangible assets 8.1 7.9 7.5

- Maintenance capex 35.9 37.3 38.5

= Adjusted EBIT 38.4 41.9 47.0

- Taxes (normalised tax rate) 11.5 12.6 14.1

- Minorities 0.0 0.0 0.0

= Adjusted cash flow after tax 26.9 29.3 32.9

Hurdle rate 7.4% 7.4% 7.4%

= Fair EV 366 399 447

- Net debt (cash) 3.7 -13.1 -30.6

- Pension provisions 17.6 18.0 18.4

- Off balance sheet financing 0.0 0.0 0.0

+ Financial assets (JV) 0.0 0.0 0.0

+ Accumulated dividends outstanding 9.9 21.7 34.7

+ Income ESOP (options x avg. price) 0.0 0.0 0.0

= Fair market capitalization 354 416 494

Number of shares (million) 6.58 6.58 6.58

Number of options / dilutive shares 0.00 0.00 0.00

Fully diluted no. of shares 6.58 6.58 6.58

Fair value per share (EUR) 53.8 63.2 75.2

Current value per share 53.3 53.3 53.3

premium (-) / discount (+) in % 1% 19% 41%


14

Financials

Profit and loss account

Year-end December (EUR m) 2010 2011 2012 2013 2014E 2015E 2016E

Sales 447 469 507 529 541 566 596

Own work capitalised 1 1 1 1 1 1 1

Total sales 448 470 508 530 542 567 597

Other operating income 25 23 30 25 25 26 27

Material expenses 169 174 186 190 190 198 208

Personnel expenses 102 109 122 130 132 137 142

Other operating expenses 136 147 164 167 170 179 187

Unusual or infrequent items 0 0 0 0 0 0 0

EBITDA 66 64 66 67 74 79 85

EBITDA margin 14.7% 13.6% 13.0% 12.7% 13.7% 14.0% 14.3%

Depreciation 30 26 28 26 28 29 31

EBITA 36 38 38 41 46 50 55

Amortisation of goodwill 0 0 0 4 0 0 0

Amortisation of intangible assets 8 8 9 8 8 8 8

Impairment charges 0 0 0 0 0 0 0

EBIT 28 30 29 29 38 42 47

EBIT margin 6.3% 6.4% 5.7% 5.6% 7.1% 7.4% 7.9%

Interest income 1 0 0 0 0 0 1

Interest expenses 2 1 2 2 2 1 1

Other financial result 0 0 0 0 0 0 0

Financial result -2 -1 -2 -2 -2 -1 0

Income on ordinary activities before taxes 26 29 27 28 37 41 47

Extraordinary income/loss 0 0 0 0 0 0 0

EBT 26 29 27 28 37 41 47

Taxes 13 11 8 6 11 12 14

Tax rate 48% 36% 29% 22% 30% 30% 30%

Net income from continuing operations 14 19 19 22 26 29 33

Income from discontinued operations (net of tax) 0 0 0 0 0 0 0

Net income 14 19 19 22 26 29 33

Minority interest 0 0 0 0 0 0 0

Net income (net of minority interest) 14 19 19 22 26 29 33

Source: Company data, Berenberg estimates


15

Balance sheet

Year-end December (EUR m) 2010 2011 2012 2013 2014E 2015E 2016E

Intangible assets 25 22 50 45 44 43 43

Property, plant and equipment 80 79 101 99 99 98 99

Financial assets 5 5 5 7 7 7 7

Fixed assets 111 106 156 151 150 148 149

Inventories 50 48 63 59 60 63 67

Accounts receivable 72 78 72 89 89 93 98

Other current assets 16 22 12 12 12 12 13

Liquid assets 33 31 13 14 24 25 38

Deferred taxes 5 5 7 7 7 7 7

Deferred charges and prepaid expenses 0 0 0 0 0 0 0

Current assets 177 183 167 181 192 201 223

TOTAL 288 290 324 331 341 349 371

Shareholders' equity 121 121 130 140 156 173 193

Minority interest 0 0 0 0 0 0 0

Long-term debt 24 17 23 7 7 7 7

Pensions provisions 10 11 17 18 18 18 18

Other provisions 14 14 12 10 10 10 11

Non-current liabilities 48 41 53 35 35 36 36

short-term debt 7 7 8 29 20 5 0

Accounts payable 83 90 102 101 103 108 114

Advance payments 0 0 0 0 0 0 0

Other liabilities 27 29 26 23 23 24 25

Deferred taxes 2 1 4 3 3 3 3

Other accruals 0 0 0 0 0 0 0

Current liabilities 118 127 140 156 150 140 142

TOTAL 288 290 324 331 341 349 371



16

Cash flow statement

EUR m 2010 2011 2012 2013 2014E 2015E 2016E

Net profit/loss 14 19 19 22 26 29 33

Depreciation of fixed assets (incl. leases) 30 26 28 26 28 29 31

Amortisation of goodwill 0 0 0 4 0 0 0

Amortisation of intangible assets 8 8 9 8 8 8 8

Other -4 4 -8 1 0 0 0

Cash flow from operations before changes in w/c 47 56 48 60 62 67 72

Change in inventory 2 2 -15 4 -1 -3 -3

Change in accounts receivable -5 -6 6 -17 0 -4 -5

Change in accounts payable 9 8 12 -1 2 5 6

Change in other working capital 0 0 0 0 0 0 0

Change in working capital 6 4 3 -14 1 -2 -3

Cash flow from operating activities 53 60 51 46 62 65 70

Maintenance capex 24 27 27 28 28 29 31

Cash flow from operating activities after maintenance 29 33 24 18 35 36 38

Capex, excluding maintenance 3 3 7 7 7 7 8

Payments for acquisitions 1 0 24 0 0 0 0

Financial investments 0 0 -11 2 0 0 0

Income from asset disposals 0 0 1 2 0 0 0

Cash flow from investing activities -27 -30 -46 -35 -35 -36 -39

Cash flow before financing 26 30 5 11 28 29 31

Increase/decrease in debt position -2 -7 -9 -1 -9 -15 -5

Purchase of own shares 1 7 0 -1 0 0 0

Capital measures 0 0 0 0 0 0 0

Dividends paid 7 8 9 10 10 12 13

Others -1 -1 -5 0 0 0 0

Effects of exchange rate changes on cash 0 0 0 0 0 0 0

Cash flow from financing activities -11 -23 -23 -10 -18 -27 -18

Increase/decrease in liquid assets 15 7 -17 1 9 2 12

Liquid assets at end of period 23 31 13 14 24 25 38



17

Growth rates yoy

(%) 2010 2011 2012 2013 2014E 2015E 2016E

Net sales 9.0 % 5.0 % 8.1 % 4.2 % 2.3 % 4.7 % 5.3 %

Organic 9.0 % 5.0 % 8.1 % 4.2 % 2.3 % 4.7 % 5.3 %

External 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

EBITDA 17.8 % -3.5 % 3.9 % 1.8 % 10.5 % 6.5 % 8.0 %

EBIT 35.4 % 5.1 % 0.5 % 7.3 % 13.8 % 7.0 % 9.6 %

Net income 103.5 % 35.4 % 2.1 % 13.9 % 20.1 % 11.7 % 14.4 %

EPS reported 102.0 % 40.6 % 1.4 % 14.1 % 20.1 % 11.7 % 14.4 %

EPS recurring 40.9 % 30.1 % 1.4 % 33.2 % 2.9 % 11.7 % 14.4 %


Regional sales

Regional Sales (EUR m) 2010 2011 2012 2013 2014E 2015E 2016E

Domestic 173 183 223 240 254 266 280

Rest of Europe 274 286 285 288 287 300 316

NAFTA 0 0 0 0 0 0 0

Asia Pacific 0 0 0 0 0 0 0

Rest of world 0 0 0 0 0 0 0

TTL 447 469 507 529 541 566 596

Regional sales shares

Domestic 38.6% 38.9% 43.9% 45.5% 47.0% 47.0% 47.0%

Rest of Europe 61.4% 61.1% 56.1% 54.5% 53.0% 53.0% 53.0%

NAFTA 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Asia Pacific 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Rest of world 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

TTL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%



18

Ratios

Ratios 2010 2011 2012 2013 2014E 2015E 2016E

Asset utilisation efficiency

Capital employed turnover 2.6 2.8 2.7 2.6 2.6 2.7 2.6

Operating assets turnover 3.7 4.1 3.8 3.6 3.7 3.9 4.0

Plant turnover 5.6 5.9 5.0 5.4 5.5 5.8 6.1

Inventory turnover (sales/inventory) 8.9 9.8 8.1 8.9 8.9 8.9 8.9

Operational efficiency

Operating return 54.8% 55.3% 49.4% 46.3% 51.4% 54.2% 57.2%

Total operating costs / sales 85.3% 86.5% 87.0% 87.3% 86.3% 86.0% 85.7%

Sales per employee 167.2 166.5 190.6 197.7 201.0 209.3 219.4

EBITDA per employee 24.6 22.5 24.8 25.1 27.6 29.2 31.4

EBIT margin 6.3% 6.4% 5.7% 5.6% 7.1% 7.4% 7.9%

Return on capital

EBIT/ Y/E capital employed 16.0% 17.7% 15.2% 14.4% 18.1% 19.6% 20.5%

EBIT / avg. capital employed 16.3% 17.4% 16.1% 14.8% 18.5% 19.7% 21.2%

EBITDA/ Y/E capital employed 37.5% 37.4% 34.5% 32.9% 35.1% 37.0% 37.3%

EBITDA / avg. capital employed 38.1% 36.8% 36.5% 34.0% 35.7% 37.2% 38.6%

Return on equity

Net profit / Y/E equity 11.4% 15.3% 14.5% 15.4% 16.6% 16.8% 17.2%

Recurring net profit / Y/E equity 11.4% 15.3% 14.5% 15.4% 16.6% 16.8% 17.2%

Net profit / avg. equity 11.8% 15.3% 15.1% 16.0% 17.5% 17.6% 18.1%

Recurring net profit / avg. equity 11.8% 15.3% 15.1% 16.0% 17.5% 17.6% 18.1%

Security

Net debt (if net cash=0) -3 -7 18 22 4 -13 -31

Debt / equity 25.5% 19.8% 24.1% 25.5% 17.4% 7.1% 3.7%

Net gearing -2.2% -5.5% 13.9% 15.5% 2.4% -7.6% -15.9%

Interest cover 13.2 21.1 11.9 15.9 22.2 38.6 88.0

EBITDA / interest paid 31.0 44.6 26.9 36.4 42.9 73.0 160.0

Altman's z-score 4.6 5.2 4.6 4.6 5.3 5.5 5.5

Dividend payout ratio 52% 46% 51% 46% 46% 45% 43%

Liquidity

Current ratio 1.5 1.4 1.2 1.2 1.3 1.4 1.6

Acid test ratio 1.1 1.1 0.7 0.8 0.9 1.0 1.1

Free cash flow 1.9 1.6 0.9 0.5 1.1 1.0 0.9

Funds management

Avg. working capital / sales 9.5% 8.0% 6.7% 7.5% 8.6% 8.3% 8.3%

Cash flow / sales 6.6% 5.4% 5.4% 5.2% 6.0% 6.2% 6.4%

Free cash flow/sales 6.0% 6.4% 3.4% 2.0% 5.2% 5.1% 5.1%

Inventory processing period (days) 109 101 123 114 116 117 117

Receivables collection period (days) 59 61 52 61 60 60 60

Payables payment period (days) 179 190 201 194 199 200 199

Cash conversion cycle (days) -11 -28 -26 -19 -23 -23 -23

Trade creditors / trade debtors 114.7% 115.8% 141.6% 113.9% 116.3% 116.3% 116.3%

Other

Interest received / avg. cash 3.1% 1.4% 1.5% 1.0% 1.0% 1.5% 2.0%

Interest paid / avg. debt 6.7% 5.2% 8.8% 5.5% 5.5% 5.5% 5.5%

Capex / dep'n 69.9% 90.5% 62.6% 98.1% 96.4% 96.3% 101.4%

Cost per employee 35 36 37 38 39 40 41

Capex / sales 5.9% 6.4% 4.6% 7.0% 6.4% 6.3% 6.5%

Maint. capex / sales 5.3% 5.8% 5.3% 5.3% 5.1% 5.1% 5.2%

Cash flow 30 25 27 27 33 35 38

Cash ROCE 17.1% 14.7% 15.1% 13.8% 15.7% 16.6% 17.1%

Free cash flow 14.3% 14.8% 8.3% 3.1% 7.9% 8.2% 8.7%



19

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20

Please note that the use of this research report is subject to the conditions and restrictions set forth in the “General investment-related disclosures” and the “Legal disclaimer” at the end of this document.

For analyst certification and remarks regarding foreign investors and country-specific disclosures, please refer to the respective paragraph at the end of this document.

Disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG)

Company Disclosures CEWE Stiftung & Co KGaA no disclosures (1) Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as “the Bank”) and/or its affiliate(s) was Lead

Manager or Co-Lead Manager over the previous 12 months of a public offering of this company. (2) The Bank acts as Designated Sponsor for this company. (3) Over the previous 12 months, the Bank and/or its affiliate(s) has effected an agreement with this company

for investment banking services or received compensation or a promise to pay from this company for investment banking services.

(4) The Bank and/or its affiliate(s) holds 5% or more of the share capital of this company. (5) The Bank holds a trading position in shares of this company. Historical price target and rating changes for CEWE Stiftung & Co KGaA in the last 12 months (full coverage)

Date Price target - EUR Rating Initiation of coverage

02 April 13 42.00 Buy 28 June 11

04 July 13 47.50 Buy

17 October 13 52.00 Buy

27 February 14 63.00 Buy

31 March 14 69.00 Buy

Berenberg distribution of ratings and in proportion to investment banking services

Buy 42.35 % 59.38 % Sell 15.48 % 3.13 % Hold 42.17 % 37.50 %

Valuation basis/rating key

The recommendations for companies analysed by Berenberg’s Equity Research department are made on an absolute basis for which the following three-step rating key is applicable:

Buy: Sustainable upside potential of more than 15% to the current share price within 12 months;

Sell: Sustainable downside potential of more than 15% to the current share price within 12 months;

Hold: Upside/downside potential regarding the current share price limited; no immediate catalyst visible.

NB: During periods of high market, sector, or stock volatility, or in special situations, the recommendation system criteria may be breached temporarily.


21

Competent supervisory authority

Bundesanstalt für Finanzdienstleistungsaufsicht -BaFin- (Federal Financial Supervisory Authority), Graurheindorfer Straße 108, 53117 Bonn and Marie-Curie-Str. 24-28, 60439 Frankfurt am Main, Germany.

General investment-related disclosures Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as „the Bank“) has made every effort to carefully research all information contained in this financial analysis. The information on which the financial analysis is based has been obtained from sources which we believe to be reliable such as, for example, Thomson Reuters, Bloomberg and the relevant specialised press as well as the company which is the subject of this financial analysis. Only that part of the research note is made available to the issuer (who is the subject of this analysis) which is necessary to properly reconcile with the facts. Should this result in considerable changes a reference is made in the research note.

Opinions expressed in this financial analysis are our current opinions as of the issuing date indicated on this document. The companies analysed by the Bank are divided into two groups: those under “full coverage” (regular updates provided); and those under “screening coverage” (updates provided as and when required at irregular intervals).

The functional job title of the person/s responsible for the recommendations contained in this report is “Equity Research Analyst” unless otherwise stated on the cover.

The following internet link provides further remarks on our financial analyses: http://www.berenberg.de/research.html?&L=1&no_cache=1

Legal disclaimer This document has been prepared by Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as „the Bank“). This document does not claim completeness regarding all the information on the stocks, stock markets or developments referred to in it. On no account should the document be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgements. The document has been produced for information purposes for institutional clients or market professionals. Private customers, into whose possession this document comes, should discuss possible investment decisions with their customer service officer as differing views and opinions may exist with regard to the stocks referred to in this document.

This document is not a solicitation or an offer to buy or sell the mentioned stock.

The document may include certain descriptions, statements, estimates, and conclusions underlining potential market and company development. These reflect assumptions, which may turn out to be incorrect. The Bank and/or its employees accept no liability whatsoever for any direct or consequential loss or damages of any kind arising out of the use of this document or any part of its content.

The Bank and/or its employees may hold, buy or sell positions in any securities mentioned in this document, derivatives thereon or related financial products. The Bank and/or its employees may underwrite issues for any securities mentioned in this document, derivatives thereon or related financial products or seek to perform capital market or underwriting services.

Analyst certification I, Anna Patrice, CFA, hereby certify that all of the views expressed in this report accurately reflect my personal views about any and all of the subject securities or issuers discussed herein.

In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views expressed in this research report, nor is it tied to any specific investment banking transaction performed by the Bank or its affiliates.

http://www.berenberg.de/research.html?&L=1&no_cache=1


22

Remarks regarding foreign investors The preparation of this document is subject to regulation by German law. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

United Kingdom This document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.

United States of America This document has been prepared exclusively by the Bank. Although Berenberg Capital Markets LLC, an affiliate of the Bank and registered US broker-dealer, distributes this document to certain customers, Berenberg Capital Markets LLC does not provide input into its contents, nor does this document constitute research of Berenberg Capital Markets LLC. In addition, this document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.

This document is classified as objective for the purposes of FINRA rules. Please contact Berenberg Capital Markets LLC (+1 617.292.8200), if you require additional information.

Third-party research disclosures

Company Disclosures CEWE Stiftung & Co KGaA no disclosures (1) Berenberg Capital Markets LLC owned 1% or more of the outstanding shares of any class of the subject

company by the end of the prior month.* (2) Over the previous 12 months, Berenberg Capital Markets LLC has managed or co-managed any public

offering for the subject company.* (3) Berenberg Capital Markets LLC is making a market in the subject securities at the time of the report. (4) Berenberg Capital Markets LLC received compensation for investment banking services in the past 12 months,

or expects to receive such compensation in the next 3 months.* (5) There is another potential conflict of interest of the analyst or Berenberg Capital Markets LLC, of which the

analyst knows or has reason to know at the time of publication of this research report.

* For disclosures regarding affiliates of Berenberg Capital Markets LLC please refer to the ‘Disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG)’ section above.

Copyright The Bank reserves all the rights in this document. No part of the document or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without the Bank’s prior written consent.

© May 2013 Joh. Berenberg, Gossler & Co. KG

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