Finmeccanica SpA: Valuation Update – GreenWood Investors


Finmeccanica SpA: Valuation Update by GreenWood Investors.

Please click here for a brief report updating Finmeccanica’s valuation for the full-year 2014 financial results, as well as the recent sale of its transportation division.  We’ve also updated valuations for the entire industry, and noted a few of the recent positive developments at the company.

In a Nutshell:

Shares of Finmeccanica are up 44% since we published our original recommendation. Yet, thanks to some great early maneuvering by the restructuring-focused CEO, the firm’s valuation has risen only 5-15% (whether or not you use EBIT or EBITDA to value the company) and still remains at steep discounts to competitors. We’ve updated our comparable valuation tables to reflect current share prices and full-year 2014 information. One large reason why valuation remains low, is the company agreed to sell its weaker transportation division to Hitachi, which has been an accretive sale to the group. We think it further validates the government’s support for the company doing whatever it takes to restore health and strength back to the group, which has suffered from poor investments and business practices in recent years. Just today, management’s incentive package was revealed to include a significant equity-linked component – the first of its kind for Finmeccanica. With shares still at a discounted valuation on a trailing basis, and a restructuring plan that has yet to be implemented, as well as very conservative guidance for the near-term financial trajectory, we believe shares represent a compelling opportunity in a dynamically changing business that requires no strength in aerospace and defense industries in order to perform very well. Significant upside remains.

This article has been distributed for informational purposes only.  Neither the information nor any opinions expressed constitute a recommendation to buy or sell the securities or assets mentioned, or to invest in any investment product or strategy related to such securities or assets.  It is not intended to provide personal investment advice, and it does not take into account the specific investment objectives, financial situation or particular needs of any person or entity that may receive this article.  Persons reading this article should seek professional financial advice regarding the appropriateness of investing in any securities or assets discussed in this article.  The author’s opinions are subject to change without notice.  Forecasts, estimates, and certain information contained herein are based upon proprietary research, and the information used in such process was obtained from publicly available sources.  Information contained herein has been obtained from sources believed to be reliable, but such reliability is not guaranteed.  Investment accounts managed by GreenWood Investors LLC and its affiliates may have a position in the securities or assets discussed in this article.  GreenWood Investors LLC may re-evaluate its holdings in such positions and sell or cover certain positions without notice.  No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of GreenWood Investors LLC.

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Finmeccanica SpA: Valuation Update – Full Report

We’re providing a simple update to our comparable valuations we presented, as information for the full-year in 2014 has been reported for Finmeccanica as well as its peers. Given the last quarter of the year is a significant one for the group, fundamentals have notably moved in the last few months of earnings reports. Exhibit 1 shows the current peer universe, excluding transportation-related companies. Exhibit 2 shows each company we’ve used to come up with segment peer valuations.



Using the average valuation of each segment’s peers for all four metrics, the current value of each segment within Finmeccanica is shown in Exhibit 3. We note that the EBIT-derived valuation has moved higher after the results are adjusted for the transportation division sale.


Also, for the first time, Finmeccanica provided more information on the full financial profile of MBDA the European missile monopoly. CEO Moretti has said it will potentially be monetized, and Airbus has been reported to be interested in buying Finmeccanica’s stake in the division.

See full PDF below.