Home 180925 Signify | self-help to arrive at 2019 mid-term targets
180925 Signify | self-help to arrive at 2019 mid-term targets

180925 Signify | self-help to arrive at 2019 mid-term targets

No. pages 33
Since Signify’s listing in 2016, the share price development had been strong until the company announced its 1Q18 results. Due to a combination of lacklustre sales performance and lagging development of its profitability, apparently the investment community has lost faith in Signify. The questions that have been risen are if the company is capable of recording positive comparable sales growth and to raise its profitability to the targeted levels for 2018 and 2019.
In this note we will start to compare the company’s indirect costs ratio with its peers to judge whether or not Signify has set itself a realistic target to bring its adjusted indirect costs to below 29% in 2019 and within the range of 25% and 29% in the long-run. Next we will analyse where the company stands and how much of indirect costs it still needs to eliminate to achieve its goal. 
Once we have discussed the expected development of the company’s indirect costs, we will analyse whether or not it will be enough to lift Signify’s adjusted EBITA-margin to the goal it set itself for this and next year. 
The development of the company’s comparable sales growth has been an issue for the investment community. To see how Signify performs against its peers we have compared the company’s organic sales growth development with Acuity Brands, Fagerhult and Zumtobel. Next we will discuss the odds that Signify will return to structural positive comparable sales growth. Therefore we will split the company’s sales into three product categories. When applying the expected sales growth rates for each of these three categories, the top line of Signify is obtained on a high level.
After discussing the development of the company’s adjusted indirect cost and revenue development, we’ll arrive at Signify’s earnings model for the next couple of years.
On basis of our earnings estimates we will be presenting the company’s valuation multiples and compare these with its peers.
Lastly we will draw our conclusions and investment opinion.

      executive summary
1    introduction
2    Signify at a first glance
3    targeting an adjusted EBITA-margin in the range of 11% to 13% by 2019
3.1 comparing Signify's indirect costs with its peers
3.2 indirect cost reductions by self-initiated measures
3.3 gross margin development key to achieve 18FY adjusted EBITA-margin target
3.4 mid-term adjusted EBITA-margin target of between 11-13% for 2019 well within reach
3.5 indirect cost ratio will remain relative high when compared to its peers
4    odds of solid comparable growth is mounting
4.1 organic revenue – excluding Lamps - growth stronger than most of its peers
4.2 connected systems and services to drive future growth
5    cost reduction to result in solid earnings growth
6    discount cash flow model for Signify
7    summary and conclusions
7.1 will Signify be able to achieve its profitability objectives?
7.2 will Signify be able to record positive comparable sales growth again?
7.3 valuation
7.4 our view on Signify

Created Date: Tuesday September 25, 2018 15:14:12
Last Updated Date: Tuesday September 25, 2018 15:14:12
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