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.
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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.