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Richard Kersley Manish Nigam Andrew St Pierre
+44 20 7888 0313 +852 2101 7067 +1 212 325 5618
[email protected] [email protected] [email protected]
Joelle Anamootoo Natzkoff, CFA Sabrina Shao Arbin Sherchan Sam Burgess
+44 20 7883 9662 +852 2101 6305 +1 212 325 8967 +44 20 7883 5012
[email protected] [email protected] [email protected] [email protected]
Global stocks for the new normal“Beyond the Pandemic” seriesThe Credit Suisse “Beyond the Pandemic” series reflects emerging investment themes shaping thefortunes of industries and companies both through and beyond a COVID-19 world
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE
STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the
Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
November 9 2020
Equity Research Global
2
41
APAC: Stocks for a new normal29
EMEA: Stocks for a new normal16
United States: Stocks for the new normal6
Structural themes for the new normal4
“Beyond The Pandemic”: Global stocks for the
new normal3
Table of Contents
Appendix
“Beyond The Pandemic”: Global stocks for the new normal
The Credit Suisse “Beyond the pandemic” series seeks to identify investment themes, shaped by the pandemic,
which we see as powerful influences on stock selection both amidst and beyond a COVID-19 world. Our global
equity analysts and strategists have now published 48 reports over recent months laying out their related thinking (see pages
42-45).
In our prior report, Beyond the Pandemic Part 1, 15th June 2020 summarized the common themes emerging and in
turn influencing consumer behavior, corporate business models, macro policy and also changing investor attitudes to portfolio
construction, with ESG at the core. We revisit these again here and identify global stocks tied to the themes at work.
A transition to digitization, working from home and online retail have been some of the most obvious trends and
taking root at unprecedented speed. Meanwhile, the ease of global trade and travel, which characterized globalization, has
been thrown into doubt, with longer term questions over the risks of extended supply chains.
At a macro level, governments have now provided nearly $11 trillion in fiscal and financial policy measures globally.
A number of governments have seen the necessity of huge fiscal stimulus as an opportunity to build infrastructure and begin the
transition to a greener economy. This has been a keen focus for ESG investors hungry for growth opportunities.
Against this backdrop, analysts across the breadth of our global research department in the US, EMEA and APAC
have highlighted 31 stocks that resonate with the themes at work. Throughout the report, we seek to align the stocks to
the themes concerned. Some are multi-layered in their exposure.
Clearly the Autumn resurgence of coronavirus cases in Europe and the US underlines that we are by no means as
yet “beyond the pandemic” itself, even if the backdrop in Asia is more encouraging. However, the relevance of the
longer themes we lay out are, if anything, only made more relevant by the ongoing crisis as the identified trends intensify.
3
Theme Description
Covid-19 Pandemic
Consumer Behaviour
Business operations
Macro/ESG
Structural themes for the new normal
4
ESG
Digitization
Fiscal Stimulus
De-globalisation
Online living
Cocooning
Hygiene
Industry trends
Healthcare
Transport habits
Covid-19 has necessitated huge investment in vaccine research, testing and therapeutic solutions
A rise in digitization and de-globalisation has rapidly changed transport habits
Lockdowns have accelerated working from home, online retail and digital entertainment
Covid-19 has increased a domestic focus in spending
Hygiene and health and safety have received unprecedented attention in the fallout of the global pandemic
Digitization and automation have been a lifeline for companies whose workforce has been demobilised
Companies have been forced to consider more localised supply chains or near-shoring existing supply
Industry trends have been accelerated through M & A and increased market share for dominant players
Government responses have often featured a significant commitment to future infrastructure spending,
often with a green focus
The global crisis has accelerated interest in ESG investment
5
Structural themes for the new normal - Company Exposure
Themes AMERICAS EMEA APAC
Co
vid
-19
Pand
em
ic
Healthcare Change Healthcare (CHNG)Eurofins (EUFI.PA)
Siemens Healthineers (SHLG.DE)Dabur (DABU.BO)
Top Glove (TPGC.KL)
Co
nsu
me
r B
eh
avio
r
Transport Habit UPS (UPS)
Online Living
Charter (CHTR)PayPal (PYPL)
Progressive (PGR)
UPS (UPS)
Adyen (ADYEN.AS)
Asos (ASOS.L)BT (BT.L)
Logitech (LOGN.S) Just Eat (JETJ.L)
Bangkok Dusit Medical Svs
(BDMS.BK)IHH Healthcare (IHHH.KL)
Frasers (FCRT.SI)Medikaloka (HEAL.JK)
Cocooning
Charter (CHTR)
Papa John’s (PZZA)
PayPal (PYPL)UPS (UPS)
Adyen (ADYEN.AS) BT (BT.L)
Just Eat (JETJ.L)
Frasers (FCRT.SI)Realtek (2379.TW)
Tata Consumer (TACN.BO)
Bu
sin
ess O
pe
rati
ons
Hygiene Trane Technologies (TT) Top Glove (TPGC.KL)
Digitization
Change Healthcare (CHNG)Equifax (EFX)PayPal (PYPL)
Progressive (PGR)
Tradeweb Markets (TW)
Adyen (ADYEN.AS) Asos (ASOS.L)Inwit (INWT.MI)
Logitech (LOGN.S)
Schneider Electric (SCHN.PA)
Bangkok Dusit Medical Svs (BDMS.BK)
ICICI Bank (ICBK.BO)
IHH Healthcare (IHHH.KL)
MediaTek (2454.TW)
De-globalisation Medikaloka (HEAL.JK)
Industry trends
Change Healthcare (CHNG)Equifax (EFX)
Tradeweb Markets (TW)UPS (UPS)
Asos (ASOS.L)Dabur (DABU.BO)
ICICI Bank (ICBK.BO)Tata Consumer (TACN.BO)
Macro
/E
SG Fiscal Stimulus
Enel (ENEI.MI)
Schneider Electric (SCHN.PA)
ESG Trane Technologies (TT)
Amundi (AMUN.PA)
Enel (ENEI.MI)Eurofins (EUFI.PA)
Schneider Electric (SCHN.PA)
United States: Stocks for the new normal
6
Change Healthcare (OP, TP: $19)
Investment case for Change Healthcare
Company description: CHNG offers financial, clinical, and engagement services across abroad portfolio of solutions serving commercial/government payers, employers, health systems,physicians, pharmacies, labs, and consumers.
Investment thesis for post-pandemic world: CHNG stands to benefit from secular trends
in the broad US healthcare system, including (a) increased focus on reducing unnecessarymedical spend; (b) growing population of chronically ill and high-risk patients; (c) increased
adoption of value-based care models; (d) accelerated consumerism of healthcare services; and
e) proliferation of healthcare data. With CHNG offering low CapEx/high ROI products andsolutions, we expect the company to see increased interest in its offerings post-COVID as
customers look for opportunities to gain efficiencies and reevaluate cost structures/capitalconstraints. In just the past six months, CHNG has acquired four companies that will furtherexpand product offerings and differentiate its solution set relative to competition. We see the
company well positioned to exceed its LT revenue and EBITDA growth targets of 4-6% and 6-
8%, respectively, in a post-pandemic environment.
What’s in the price: Shares have rebounded to $15.38 after cratering to $6.86 mid-Marchas concerns over healthcare utilization amidst COVID-19 initially set in. While the underlyingbusiness has recovered after headwinds experienced in CY2Q, in addition to raisingrevs/EBITDA guidance ahead of the CY3Q print, we believe shares are still pricing in
uncertainty over the emergence of new COVID cases and the corresponding impact to
CHNG’s utilization-based revenues.
What risks remain: CHNG is more leveraged than peers (5.2x at 6/30), which likelyexacerbated some of the sell-off in shares, but the company remains covenant-lite. A repeal of
the ACA would likely have an impact on the volume-driven businesses given a higher number
of uninsured. However, we remain constructive as customers will look for cost-effective
solutions with proven ROIs, which CHNG has routinely demonstrated.
Recent research: (1) Catch-Up with Management on the ACA Exposure & the Recent
Guidance Raise; (2) On a Shopping Spree; A Quick Catch-up Call with Management; (3)Strong FY1Q and Conservative FY21 Commentary Leaves Significant Room for Upside; (4)
Prudent ST, Bullish LT – Virtual NDR Takeaways
Top7
Encouraging Recovery in Healthcare Utilization
Analyst details:
Jailendra Singh
(212) 325-8121
Key financials
Source: Company Data, Credit Suisse estimates
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
Healthcare Digitization Industry trends
Year 3/19A 3/20A 3/21E 3/22E 3/23E
EPS (reported) US$/sh 0.700 -0.019 -0.310 0.449 0.642
EPS (CS adj.) US$/sh 1.62 1.55 1.14 1.44 1.61
P/E (CS adj.) x 9.50 9.95 13.45 10.70 9.55
P/E rel. (CS adj.) % 0.45 0.50 0.50 0.52
Revenue US$ mn 3,282 3,303 3,096 3,575 3,775
Operating income US$ mn 935.7 995.7 897.3 1,091.1 1,173.7
Net debt US$ mn 5,742 4,579 4,771 3,945 3,381
OCFPS US$/sh 1.14 1.96 1.33 3.12 2.42
P/OCF x 13.55 7.84 11.60 4.93 6.35
Number of shares (m) 302.4 Price/Sales (x) 1.6
BV/share (current, US$) 10.86 P/BVPS (x) 1.6
Net debt (current, US$) 4,579 Dividend (last, US$) 0.00
Dividend yield (%) 0.00
Charter (OP, TP: $724)
Investment case for Charter
Company description: Charter is the second largest cable operator in the US and sells payTV, broadband, wireline voice, and wireless services under the Spectrum brand, and also offersbusiness telecom services.
Investment thesis for post-pandemic world: The pandemic has elevated broadband
internet as a key product not just for streaming entertainment but also for remote work andschooling and telehealth, with consumers and businesses focused on faster speeds and
increased consumption. Charter benefits from cable being the superior broadband plant in the
majority of its footprint, driving accelerating customer growth, and ultimately increased pricingpower, in this environment. Charter’s go-to-market strategy focuses on driving customer
growth (with relatively fast 200Mbps service as its minimum offering in most markets) to takeadvantage of cable’s inherent operating leverage, leading to outsized EBITDA growth.Charter’s levered equity strategy allows it to add incremental return to this healthy operating
growth.
What’s in the price: We see an 8.2% 5y EBITDA CAGR vs the street at 6.3%, on the backof faster declines in video but stronger internet growth, and see scope for free cash flow toalmost double in 2025 vs 2020 (only slightly ahead of street expectations). Nearer term, weand the street see strong 3Q20 internet and customer net adds, only moderate video declines,and continued progress toward a wireless breakeven.
What risks remain: Disappointing subscriber results, inability to sustain industry-leading levelsof growth, high speed internet competition, higher than expected wireless opex or capex, or anadverse regulatory shift.
Recent research: (1) CHTR: Charting A Course to $600: Upgrade to Outperform; (2) CHTR
2Q20 Wrap: Beat and Raise; (3) CHTR: Growth Tracking Ahead of Street; Raising Target to
$724
Top8
Charter’s operating growth fuels its levered equity return strategy, which will
significantly reduce the share count
Analyst details:
Doug Mitchelson
203.717.1550
Key financials
Source: Company Data, Credit Suisse estimates
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
Liberty 22.3% 23.6% 25.3% 26.9% 28.7%
A/N 11.4% 13.0% 13.9% 14.8%15.8%
All Other
Shareholders
66.2%
63.4% 60.8% 58.4% 55.6%
Total 33.8%36.6%
39.2% 41.6%44.4%
$5.1B
$7.8B
$9.5B
$11.3B $12.4B
2018 2019 2020E 2021E 2022E
Charter Shareholder Ownership (%) and Buyback ($B)
Online living Cocooning
Year 12/18A 12/19A 12/20E 12/21E 12/22E
EPS (reported) US$/sh 5.22 7.47 15.03 20.02 27.73
EPS (CS adj.) US$/sh 5.22 7.47 15.03 20.02 27.73
P/E (CS adj.) x 123.96 86.71 43.06 32.34 23.35
P/E rel. (CS adj.) % 3.96 1.61 1.50 1.27
Revenue US$ mn 43,634 45,764 48,147 51,231 54,216
Operating income US$ mn 16,059 16,855 18,515 19,662 21,513
Net debt US$ mn 72,062 75,743 81,573 85,348 89,838
OCFPS US$/sh 49.96 52.58 68.14 76.04 82.68
P/OCF x 12.96 12.31 9.50 8.51 7.83
Number of shares (m) 223.4 Price/Sales (x) 2.8
BV/share (current, US$) 149.8 P/BVPS (x) 5.3
Net debt (current, US$) 75,743 Dividend (last, US$) 0.00
Dividend yield (%) 0.00
Equifax (OP, TP: $200)
Investment case for Equifax
Company description: Equifax is a credit bureau offering credit information and analyticsamong other consumer credit related services.
Investment thesis for post-pandemic world: Given the high-velocity nature of the world asof late + increased usage/complexity of data fueling more predictive analytics, client demand
for near real-time data has grown, especially in the context of credit decisioning. We see thosefurthest along in the cloud/technology transition [key theme in info services] as best positioned
to benefit from greater demand for new product innovation [NPI]. As such, we see EFX as
best positioned here given ongoing ~$1.3b technology transformation initiative [TTI] whereEFX will become the only cloud-native credit bureau. The cloud transition not only helps on
costs [tailwind to margins] but greater NPI is a boost to topline as well.
What’s in the price: Shares quickly recovered from the pandemic-related sell-off given rate-
driven boosts to mortgage amid durable + counter-cyclical business mix in areas such as
Equifax Workforce Solutions [EWS, ~30% revenue] which processes roughly 1 in 5 joblessclaims [jobless claims are ~20-30% above GFC peaks]. While we recognize toughermortgage-driven 2021 comps discounted in shares, we highlight that elevated mortgageactivity persisted well into 2012 following GFC-related Fed interest rate actions in the priordownturn.
What risks remain: Risks to our thesis include lingering impact from the 9/17 data breach,
ongoing COVID-19 macro headwinds [domestic + abroad] negatively impacting key consumercredit end-markets, and muted FCF as EFX invests in the enhanced tech stack.
Recent research: (1) Credit Bureaus: Large cap banks reinforce relative EFX view; (2) EFX
Virtual NDR: Differentiated data enhanced by $1.3b TTI; (3) Business & Information Services:
Framing value creating levers at DNB, EFX + TRI
Top9
CS proprietary end market tracker shows strong historical correlation
Analyst details:
Kevin McVeigh
(212) 325-1751
Key financials
Source: Company Data, Credit Suisse estimates
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates, FactSet
Digitization Industry trends
Year 12/18A 12/19A 12/20E 12/21E 12/22E
EPS (reported) US$/sh 2.47 -3.27 3.85 4.71 5.56
EPS (CS adj.) US$/sh 5.79 5.62 6.30 6.45 7.10
P/E (CS adj.) x 26.20 26.98 24.07 23.50 21.36
P/E rel. (CS adj.) % 1.23 0.90 1.09 1.16
Revenue US$ mn 3,412 3,508 4,009 4,030 4,250
Operating income US$ mn 1,150 1,177 1,392 1,420 1,505
Net debt US$ mn 2,412 2,981 2,880 2,483 2,136
OCFPS US$/sh 5.54 2.57 6.36 8.07 9.02
P/OCF x 27.39 58.96 23.85 18.80 16.81
Number of shares (m) 122.0 Price/Sales (x) 4.6
BV/share (current, US$) 47.32 P/BVPS (x) 3.1
Net debt (current, US$) 2,981 Dividend (last, US$) 1.56
Dividend yield (%) 1.03
Papa John’s (OP, TP: $110)
Investment case for Papa John’s
Company description: Papa John’s (PZZA) is one of the largest global pizza companies, withover 5,300 locations across the US and international markets.
Investment thesis for post-pandemic world: Papa John’s is arguably the biggestbeneficiary from pandemic-related consumer behavior changes in public restaurants,
accelerating turnaround plans by years and meaningfully improving the financial positions of itsfranchisees that have struggled in recent years. We believe PZZA is an underappreciated
multi-year growth story with improved unit economics supporting a compelling unit development
opportunity. In recent weeks, PZZA announced it signed its largest North America franchiseagreement in 20+ years and plans to open a new global HQ to attract new talent, underscoring
the shift in the company narrative from turnaround to growth. We believe the confluence of afavorable pizza backdrop (shift in consumer behavior to off-premise/delivery, return of sports,presidential election year), execution of company-specific initiatives (new menu innovation,
marketing, digital, aggregators) and unit growth acceleration support top & bottom line upside
potential, with an increased growth outlook supporting a valuation premium to historical levels &restaurant peers. Potential strategic optionality through refranchising of company units couldunlock additional value.
What’s in the price: Investors expect SSS to decelerate as pandemic-related tailwindsdissipate and PZZA laps difficult compares next year following record SSS over the last several
months. We believe the market is underappreciating the step change in the business
supporting recent sales levels, margin expansion potential and meaningful opportunities toaccelerate global development.
What risks remain: Consumer sentiment, closures, COVID-19 pandemic, competition.
Recent research: (1) US Restaurants: Pizza Party Rages On; (2) PZZA: New Coach, Proven
Playbook; Upgrade to Outperform; (3) PZZA: Not An Easy Layup; Initiate Neutral
Top10
Papa John’s SSS
Analyst details:
Lauren Silberman
(212) 325-2720
Key financials
Source: Company Data, Credit Suisse estimates
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
Cocooning
Year 12/18A 12/19A 12/20E 12/21E 12/22E
EPS (reported) US$/sh 0.76 0.03 1.51 2.50 2.73
EPS (CS adj.) US$/sh 0.76 0.03 1.51 2.50 2.73
P/E (CS adj.) x 108.77 2482.33 54.36 32.87 30.09
P/E rel. (CS adj.) % 113.51 2.03 1.53 1.64
Revenue US$ mn 1,661 1,619 1,814 1,892 1,965
Operating income US$ mn 103.6 81.3 153.3 199.7 211.2
Net debt US$ mn 587.9 339.4 201.2 185.5 182.5
OCFPS US$/sh 2.25 1.95 6.43 4.74 5.12
P/OCF x 36.51 42.21 12.80 17.37 16.07
Number of shares (m) 31.68 Price/Sales (x) 1.5
BV/share (current, US$) -10.51 P/BVPS (x) -9.4
Net debt (current, US$) 339 Dividend (last, US$) 0.90
Dividend yield (%) 1.09
PayPal (OP, TP: $215)
Investment case for PayPal
Company description: eCommerce pure-play payments platform differentiated by its leadingtwo-sided network of ~320mm consumers and ~26mm merchants across +200 globalmarkets. We view PayPal as a long-term share gainer, informed by our true TAM analysis
(global eCommerce, online travel, eFood delivery, eTicketing, online charitable donations, ride-sharing, crowdfunding, mobile gaming, and streaming subscriptions).
Investment thesis for post-pandemic world: We believe PayPal is best positioned within
our coverage to capitalize on the accelerated shift to digital as a near pure-play eCommerce
platform, with in-store representing a meaningful call option. Further, PayPal shares have anatural hedge against any further shelter-at-home measures (which drives a mix shift to
eComm vs. instore).
What’s in the price: PayPal is trading at ~36x our 2022E EPS estimate, a ~2x premium to
its three-year average NTM PE of ~34x. We believe a premium multiple is justified given
strong user additions of ~70mm in 2020E when combined with the ongoing acceleration ofeCommerce penetration and a long list of emerging areas of upside (e.g., QR codes, BusinessProfiles, Pay with Venmo, China, tech partnerships [MELI/UBER, Facebook/Instagram],Paymentus, Braintree international, omnichannel, & gaining local acquiring capabilities, etc.).
What risks remain: Primarily consist of macro consumption, competitive (e.g., “click-to-pay”,
large tech platforms), take rates (mix driven), and optics around eBay (headwind manageable
and likely accompanied by previously restricted marketplace partnerships).
Recent research: (1) New user additions suggest TPV growth persistence ahead; granularexit rate & progression analysis update; (2) Pay with Venmo: Q3 2020 expanded rollout &
Honey integration to bolster consumer network & engagement; (3) eCommerce tailwinds
+“True TAM” analysis + in-store optionality + natural hedge all supportive of shares & multiple
Top11
2019E revenue mix, with the vast majority of monetization via transaction-based
revenue (Braintree ~25% of total)
Analyst details:
Timothy Chiodo
(415) 249-7921
Key financials
Source: Company Data, Credit Suisse estimates
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
Braintree
21%
Core PYPL
50%
eBay
13%
Xoom
2%
iZettle
2%
Venmo
4%
PYPL Credit
6%OVAS Remain
2%
Online living Cocooning Digitization
Year 12/18A 12/19A 12/20E 12/21E 12/22E
EPS (reported) US$/sh 1.71 2.07 2.91 3.37 4.35
EPS (CS adj.) US$/sh 2.42 2.96 3.78 4.47 5.68
P/E (CS adj.) x 84.48 69.01 54.10 45.78 36.01
P/E rel. (CS adj.) % 3.16 2.02 2.13 1.96
Revenue US$ mn 15,451 17,772 21,576 25,069 30,392
Operating income US$ mn 4,125 5,042 6,585 7,672 9,543
Net debt US$ mn -9,109 -10,761 -12,540 -10,881 -8,913
OCFPS US$/sh 4.56 3.84 5.39 6.54 8.22
P/OCF x 44.88 53.28 37.94 31.27 24.88
Number of shares (m) 1,188 Price/Sales (x) 11.3
BV/share (current, US$) 14.21 P/BVPS (x) 12.3
Net debt (current, US$) -10,761 Dividend (last, US$) 0.00
Progressive (OP, TP: $101)
Investment case for Progressive: We believe telematics represents the future of
auto insurance, with PGR the industry leader. Increased adoption of telematics and
a growing proportion of more profitable bundled home & auto policies should
expand PGR’s margins relative to historical pre-COVID levels over time, and efforts
to expand commercial lines offerings hold the potential to drive growth.
Company description: Progressive (PGR) is a property and casualty insurer, primarilyfocused on personal automobile insurance. It also sells commercial auto and homeowners’insurance.
Investment thesis for post-pandemic world: PGR stands to benefit from the same trendsthat have propelled it ahead of peers since the virus’s outbreak in the US. Specifically, PGR is
a leader in direct-to-consumer (DTC) sales, which accounted for 30% of industry premiums in2018, up from 23% in 2013. We view PGR’s faster premium growth in 2020 has been helpedby an acceleration in this trend caused by the pandemic, and we view many consumers will not
switch back to traditional agency channels post-the pandemic, having become morecomfortable with DTC purchasing. Further, less automobile utilization during the pandemic hasled to higher telematics adoption in the US, and PGR’s capabilities in that area should position
it deliver stronger growth and improve margins over historical levels. We estimate telematics
policies are 15-25% more profitable on average vs. regular auto policies.
What’s in the price: PGR is up 34% YTD (vs. -17% for ALL), as margins have benefited in
2020 from lower accident frequency levels due to less vehicle traffic. While we view investorsbroadly understand that this benefit will subside as driving levels return, consensusexpectations do not yet appear to reflect a sufficient continuation of this benefit in 1H’21, and
we therefore see potential upside to 2021 EPS estimates.
What risks remain: Post-COVID, not only do we expect accident frequencies to rise fromcurrent levels, we view a pandemic that has likely only widened the income inequality gap toaccelerate certain “social inflation” trends that have led to higher claims payouts and juryawards in recent years. We point out PGR’s policyholder base is more tied to blue collarworkers that may be incrementally more likely to find sympathetic juries in a post-COVID world,particularly relative to carriers that cater toward more affluent customers such as Allstate and
State Farm.
Recent research: 1) ALL + PGR Positioned To Continue Benefiting From Pandemic ImpactsOh, Snapshot – Telematics More Profitable Than We Estimated; (2) Social Inflation Is GettingPersonal – Tort Inflation Not Only Impacting Commercial Lines
Top12
PGR Personal Auto Core Loss Ratio, 1Q’15-3Q’20
Analyst details:
Mike Zaremski
(212) 325-5061
Key financials
Source: Company Data, Credit Suisse estimates
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
1Q
18
2Q
18
3Q
18
4Q
18
1Q
19
2Q
19
3Q
19
4Q
19
1Q
20
2Q
20
3Q
20
Underlying loss ratio - Personal Auto Pre-pandemic 20 quarter avg
2 Std Dev's below 20 qtr avg
Online living Digitization
Year 12/18A 12/19A 12/20E 12/21E 12/22E
EPS (reported) US$/sh 4.87 5.49 7.37 5.56 5.91
EPS (CS adj.) US$/sh 4.87 5.49 7.37 5.56 5.91
P/E (CS adj.) x 19.97 17.73 13.19 17.49 16.46
P/E rel. (CS adj.) % 0.81 0.49 0.81 0.89
Revenue US$ mn 31,159 37,980 40,890 44,636 49,878
Operating income US$ mn 3,163 5,161 6,305 3,887 4,141
Net debt US$ mn 0 0 0 0 0
OCFPS US$/sh 5.36 8.75 10.68 6.55 6.96
P/OCF x 18.15 11.12 9.11 14.86 13.98
Number of shares (m) 586.9 Price/Sales (x)
BV/share (current, US$) 0 P/BVPS (x)
Net debt (current, US$) 0 Dividend (last, US$) 0.00
Dividend yield (%) 0.00
Tradeweb Markets (OP, TP: $68)
Investment case for Tradeweb
Company description: Tradeweb builds and operates electronic trading platforms for a globalclient base. It launched its first fixed-income platform in 1998, went public in April 2019, andtoday facilitates trading across multiple asset classes (rates, credit, equities, money markets),
client segments (institutional, wholesale, retail) and geographies (2,500+ clients in 62countries). We believe this diversity is central to its value proposition. We see the company as
well positioned to grow volumes and revenues over the next five years through its differentiatedbusiness model and positive industry fundamentals.
Investment thesis for post-pandemic world: Heading into 2020, we viewed TW as asecular growth story that benefited from electronification of fixed income markets and
customer workflow automation. The unforeseen Covid-19 crisis served as a critical test casethat not only validated TW’s technology but also reinforced the evolution of client behavior - aselectronic participation and volumes remained elevated despite market stress (unlike during
GFC). In addition, we believe that remote working coupled with large debt issuance
(byproducts of the pandemic) have accelerated these industry trends as customers/tradersleverage new TW protocols like portfolio trading & net spotting, consume more data, and utilizeplatform tools to access TW’s deep liquidity pools to trade and manage risk.
What’s in the price: Our $68 Target Price applies a 43.0x multiple on our 2022 cash EPSestimate (80%/20% blend of post IPO average/high P/E multiple) and embeds 10%+ volume
growth over the next two years, 5-6% cost inflation and 100-150bps/yr of margin expansion.
We see upside to our ~11% EPS growth forecasts in the event of higher volatility/marketshare gains, and also see potential for a special dividend in the event TW does not find viableM&A opportunities over the next 12-months (neither net cash position nor dividend embeddedin current estimates).
What risks remain: Risks include 1) weaker rates trading volumes especially if volatility
remains depressed for prolonged periods (~55% of company revenues, though diversifiedacross product/fixed fees), 2) US credit market share loss, 3) lower mix-shift driven FPM.
Relevant research: (1) Beyond The Pandemic; (2) TW - August Company Update; (3) TW -May Company Update; (4) Early Thoughts From 2Q20 Results and Expectations For EarningsThis Week; (5) Financials Conference Takeaways; (6) Exchange Sector Initiation; (7) TWInitiation
Top13
Revenue and Market Share Trends
Analyst details:
Ari Ghosh
(212) 325-7113
Key financials
Source: Company Data, Credit Suisse estimates
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
Digitization Industry trends
1%
3%
5%
7%
9%
11%
13%
400
450
500
550
600
650
700
750
800
2016 2017 2018 2019
Net Revenues (LHS) IG Market Share HY Market Share
Year 12/19A 12/20E 12/21E 12/22E
EPS (reported) US$/sh 1.01 1.26 1.40 1.55
EPS (CS adj.) US$/sh 1.01 1.26 1.40 1.55
P/E (CS adj.) x 60.26 48.33 43.57 39.21
P/E rel. (CS adj.) % 2.76 1.80 2.02 2.13
Revenue US$ mn 775.6 874.2 942.6 1,022.8
Operating income US$ mn 311.4 376.7 419.9 467.7
Net debt US$ mn 0 0 0 0
OCFPS US$/sh 0 0 0 0
P/OCF x
Number of shares (m) 228.9 Price/Sales (x)
BV/share (current, US$) 0 P/BVPS (x)
Net debt (current, US$) 0 Dividend (last, US$) 0.00
Dividend yield (%) 0.00
Trane Technologies (OP, TP: $141)
Investment case for Trane Technologies
Company description: Trane manufactures HVAC equipment and provides services andsolutions to enable sustainability and drive energy efficiency. We estimate that TT’s productscan influence ~45% and ~32% of the total energy consumption in a commercial building and
single-family home, respectively. The company has a balanced portfolio, including commercialHVAC, residential HVAC and transport refrigeration.
Investment thesis for post-pandemic world: We view Trane as the quality name within the
HVAC industry, which we expect to outperform given the focus on indoor air quality (IAQ).
Trane has noted thousands of customer requests for IAQ assessments as facility managersprepare for the safe return of occupants to buildings, and we have sized the IAQ upgrade TAM
at ~$37B. HVAC peers CARR and JCI sized the opportunity at $9-10B and $2-3B,respectively. HVAC system upgrades also provide environmental and energy efficiencybenefits. The effort to reduce GHG emissions is largely being driven by Europe and U.S.
states/cities, but we see potential for a more unified approach depending on the U.S.
presidential election. While energy efficiency and IAQ largely focus on commercial buildings(39% of global GHG emissions), residential HVAC is also benefitting from strong new buildactivity, and Trane’s transportation business will see a cyclical improvement and potential coldchain benefit from vaccine distribution. From a margin perspective, the focus on increasedenergy efficiency has led to industry wide price gains. Trane also has self-help levers, strongfree cash flow generation and a healthy balance sheet (retaining optionality for share
repurchase in H2 2020).
What’s in the price: Our $141 target price is based on 28.0x our 2021 EPS of $5.05. Ourtarget multiple takes into consideration an expansion of Trane’s multiple to be more in-line withthe upper-middle range of an index of AAA-rated MSCI ESG stocks.
What risks remain: Risks to our investment thesis include a slowdown in global buildings and
transportation markets, capital allocation and reescalation of global trade tensions.
Recent research: (1) Sustainable Buildings: IAQ Pandemic-Related Upgrade TAM Potentially
in Excess of $35B for the U.S.; (2) Biden Clean Energy and Infrastructure Investment Plan -Impact on Global Building Solution Providers; (3) September 2020 Quarterly Earnings Preview
- Sequential Improvement Builds
Top14
Indoor Air Quality – Credit Suisse Estimate of U.S. Total Addressable Market
Analyst details:
John Walsh
(212) 538-1664
Key financials
Source: Company Data, Credit Suisse estimates
Link to HOLT Lens
Source: U.S. Government Accountability Office, Energy Information Administration, Credit Suisse estimates
Average
Spend on
Healthy
Building
(1)
# of U.S.
public schools
that need to
be upgraded
(2)
Spend on
US
Education
structures
US
Education
base
(3)
Total US
Installed
base
(3)
Grossed
up
oppt'y
$72,000 X 36,000 = ~$2.6B / ( 389,000 / 5,557,000 ) = ~$37B
(1) average spending per building based on several contract announcements
(2) based on July 2020 GAO report
(3) per 2016 EIA Commercial Buildings Energy Consumption Survey
Hygiene ESG
Year 12/18A 12/19A 12/20E 12/21E 12/22E
EPS (reported) US$/sh -7.85 5.79 4.41 5.34 5.66
EPS (CS adj.) US$/sh 4.15 6.85 4.21 5.05 5.70
P/E (CS adj.) x 33.99 20.60 33.53 27.97 24.74
P/E rel. (CS adj.) % 0.94 1.25 1.30 1.34
Revenue US$ mn 15,306 16,599 12,298 13,207 13,893
Operating income US$ mn 1,917 2,120 1,845 2,091 2,265
Net debt US$ mn 3,188 4,270 1,834 1,911 1,575
OCFPS US$/sh 4.44 9.99 7.47 6.03 6.67
P/OCF x 31.81 14.12 18.89 23.40 21.16
Number of shares (m) 244.4 Price/Sales (x) 2.8
BV/share (current, US$) 29.92 P/BVPS (x) 5.6
Net debt (current, US$) 4,270 Dividend (last, US$) 2.12
Dividend yield (%) 1.50
UPS (OP, TP: $202)
Investment case for UPS
Company description: UPS is one of the largest global package delivery companies and apremier provider of global supply chain management solutions.
Investment thesis for post-pandemic world: COVID-19 has pulled forward multiple yearsof eCommerce growth, driving a profound acceleration in demand for residential deliveries –
and UPS is a major beneficiary of this trend. Consequently, domestic parcel capacity hastightened substantially, which in our view has given rise to a structural shift in carrier pricing
power. At the same time, a dramatic reduction in international belly space capacity (from fewer
passenger flights) is pushing more cargo to dedicated freighters, supporting higher pricing; thisshould prove to be a structural shift in the near to mid-term. We also see a number of
idiosyncratic opportunities, with the company now being led by new CEO Carol Tomé – achange agent with a proven track record of executing on cost performance, efficiency gains,capital discipline, and improved returns. Based on what we believe to be a conservative base
case for structural cost reductions, we now see a clear path for meaningful margin
improvement at U.S. Domestic, and believe UPS can achieve high-teens EPS growth in 2021and 2022. At the same time, reduced capital intensity (following a multi-year ramp) shoulddrive FCF conversion of ~100%, and ROIC to return to previous peak levels by 2022.
What’s in the price: The stock is currently trading above historical peak valuation, as aremany of the stocks in the transports. The recent re-rating stems from the fact that the sector
has become investable first the first time in several years; and we further note that the
valuation gap versus the rails, for example, remains narrow relative to historical levels. While weacknowledge that some degree of the secular pricing tailwind is priced in, we think that themarket is significantly underappreciating the meaningful structural cost takeout story that isabout to unfold, as well as the improved capital efficiency and ROIC profile going forward.
What risks remain: Key risks include cost inflation from lower margin B2C growth, as well as
customer concentration; specifically, its exposure to AMZN. Further deterioration in theeconomy, increased airfreight capacity, and new entrants in the last mile space could alsopotentially reduce pricing power and volume growth.
Recent research: (1) Upgrade to OP: Pricing Going Up, Capital Intensity Going Down, and a
Change Agent to Capitalize on It All; (2) WWHHD No Longer Just a Question for the Rails
Top15
UPS Capacity Utilization Analysis (CS Estimate)
Analyst details:
Allison Landry
(212) 325-3716
Key financials
Source: Company Data, Credit Suisse estimates
Link to HOLT Lens
Source: Company Data, Credit Suisse estimatesNote: = non-peak ADV / Dec ADV; 2020 = 2Q20 ADV / Dec ADV Forecast
54%
56%
58%
60%
62%
64%
66%
68%
70%
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0E
Transport habits Online living Cocooning Industry trends
Year 12/18A 12/19A 12/20E 12/21E 12/22E
EPS (reported) US$/sh 7.24 7.52 7.68 8.87 10.54
EPS (CS adj.) US$/sh 7.24 7.52 7.68 8.87 10.54
P/E (CS adj.) x 22.58 21.75 21.28 18.43 15.51
P/E rel. (CS adj.) % 0.99 0.79 0.86 0.84
Revenue US$ mn 71,861 74,094 82,564 86,591 92,747
Operating income US$ mn 9,231 10,158 10,535 12,628 14,640
Net debt US$ mn 18,511 20,000 17,167 12,765 3,631
OCFPS US$/sh 14.61 9.96 14.18 14.49 16.58
P/OCF x 11.19 16.43 11.53 11.29 9.86
Number of shares (m) 867.8 Price/Sales (x) 1.7
BV/share (current, US$) 3.78 P/BVPS (x) 22.0
Net debt (current, US$) 20,000 Dividend (last, US$) 3.68
Dividend yield (%) 2.25
EMEA: Stocks for a new normal
16
Adyen (OP, TP: €1653)
Investment case for Adyen
Company description: Adyen is a provider of mobile, online and POS payment solutions that isbased in the Netherlands. The company operates an online platform that covers the full payment chain,including technical, contractual, reconciliation and settlement processes. In FY19, 65% of net revenuecame from Europe, 15% North America and 20% Rest of the World, with 88% of volumes derived fromeCommerce and 12% from in-store payments.
Investment thesis for post-pandemic world: We believe Adyen is situated in an industry of structuralgrowth, with the shift to non-cash forms of payment driving multi-faceted growth across the sector.Specifically, our key reasons for Outperform are: (1) Adyen’s single platform has enabled it to differentiateon a global scale, deliver some of the fastest growth in the sector, and emerge as an industry leader; (2)our market share analysis shows that Adyen’s share in global eCommerce has risen year on year, reachingc6-11% in FY19, depending on definitions of market size. Our unique total addressable market (TAM)analysis – which adjusts for non-retail eCommerce variables, such as ride sharing and food delivery –implies this trend is set to continue, with Adyen reaching FY23 shares of c11-15%. As COVID continuesto drive retail spending online we feel Adyen’s leading position in eCommerce will support market sharegains and resiliency through FY20 and beyond; and (3) levers of future growth – such as mid-marketfocus and expansion of Unified Commerce – should all position Adyen well in the long term.
What’s in the price: To reflect Adyen’s industry-leading growth trajectory, we use FY22 in our valuationmethodology. Valuing Adyen in line with the sector on FY22E net revenue growth of c39% drives ourFY22E EV/EBITDA multiple of 65x and our €1653 TP. With the share price up c100% YTD, Adyencurrently trades on a FY22 EV/EBITDA multiple of c47x vs peer average at c29x – the average FY22revenue growth for the peer group is c16% vs Adyen’s c39% (CSe).
What risks remain: The primary risk to our TP of EUR 1653 and Outperform rating is that COVIDdisruption in 4Q20 and FY21 is worse than we currently forecast and this pushes Adyen's recovery furtherto the right; our FY21 estimates are for example based upon a gradual recovery in both airline and non-airline volumes. Meanwhile from an operational point of view, Adyen is exposed to Merchant PotentialLiability, and digital payments is a round-the-clock mission-critical operation on which businesses of allsizes are increasingly reliant upon - any technical issues that may lead to payments network downtimepresents a serious risk to Adyen’s course of business and reputation as a leading global paymentsprovider.
Recent research: (1) Leading on all fronts: Outperform (Initiation, 6 Oct); (2) 3Q20 complexity; Updated monthly progression & exit rate analysis (04 Nov)
17
Our eCommerce TAM analysis shows Adyen as a market share gainer
Analyst details:
Charles Brennan+44 20 7883 4705
Key financials
Link to HOLT Lens
Online living
Source: Company data, Credit Suisse estimates, Euromonitor International, eMarketer, Phocuswright,
ResearchAndMarkets.com, givingusa.org, funraise, Statista, IAC, Grand View Research
Digitization
Source: Company Data, Credit Suisse estimates
Cocooning
Year 12/19A 12/20E 12/21E 12/22E
Revenue (€ m) 534.3 685.4 956.2 1332.0
EBITDA (€ m) 316.9 380.13 548.06 781.58
Adjusted Net Income (€ m) 234.3 254.05 399.16 570.81
CS EPS (adj.) (€) 7.67 8.25 12.72 17.86
ROIC (%) 116.0 145.5 251.4 657.7
P/E (adj.) (x) 211.9 197.1 127.8 91.1
P/E rel. (%) 1,096.35 754.56 674.23 592.53
EV/EBITDA 153.4 127.2 87.4 60.5
Dividend (12/20E, €) 0.00 Net debt/equity (12/20E, %) -82.9
Dividend yield (12/20E, %) 0.0 Net debt (12/20E,€ m) -941.5
BV/Share (12/20E, €) 37.4 IC (12/20E,€ m) 193.7
Current WACC - EV/IC (12/20E, (x) 249.7
Free float (%) 74.2 Number of shares (m) 30.3
Amundi (OP, TP: €70.00)
18
Investment case for Amundi
Company description: Amundi is Europe’s largest asset manager by Assets Under Management(AUM), with €1.6 trillion AUM across six main investment hubs: Boston, Dublin, London, Milan,Paris and Tokyo. Amundi offers its clients a full range of capabilities across the active, passive andreal assets investment universes. Amundi was a founding signatory of the UN Principles forResponsible Investment in 2006, and in September 2020 was awarded an A+ rating, the highestpossible score, in every category in the PRI.
Investment thesis for post-pandemic world: In uncertain market conditions, we preferinvestment cases with a self-help component. We see Amundi poised to benefit not only fromgenerally recovering investor risk sentiment, but also from i) M&A potential – it has around €1bnsurplus capital available to deploy and a strong track record in deal execution (Pioneer, Sabadell); ii)Chinese expansion – Amundi is amongst the first overseas fund managers to be granted permissionto establish a majority owned partnership in China (in its case, with Bank of China), offering thepotential to access a growing wealth management market; iii) Shifting investor demands: we believethe pandemic has accelerated the existing trend towards ESG investment approaches. Amundi hasdeveloped a proprietary ESG scoring methodology which it will have integrated into its investmentapproach for 100% of its active mutual fund strategies by end 2020. Until now, its main demand forESG investment strategies has been from institutional clients. We believe there is now anopportunity for it to make this more widely available to its higher margin retail clients.
What’s in the price: Incorporating IBES consensus forecasts into the HOLT valuation approachsuggests a warranted price of €81.59, 38% above the current market price. Adjusting the HOLTscenario to arrive at the current market price suggests the market is pricing in 7% fall in sales in
2020E, followed by long term zero growth, and an EBITDA margin held flat at 47.6% (the five yearmedian level) – i.e. no further improvement in cost efficiency despite the group’s track record ofimproving its margins with each acquisition.
What risks remain: The principal risk to our Outperform rating is that net outflows could be largerand continue for longer than we anticipate – in particular from the group’s higher margin retaildistribution networks. An early leader in ESG, Amundi has so far not converted its strengths in thisarea into significant high margin retail fund flow. A key risk is that it is overlooked by the growingwave of ESG investors, and that a shift to lower cost passive ESG product, rather than Amundi’stailored active offerings, could take hold sooner than we anticipate.
Recent research: Amundi: Upgrade to Outperform – China, M&A and Platform resilience
Amundi Responsibly Invested AUM (€bn) has grown significantly since 2010
Key financials
ESG
Analyst details:
Haley Tam, CFA ACA+44 20 7883 9073
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
Year 12/19A 12/20E 12/21E 12/22E
EPS (reported) €/sh 4.75 4.19 4.73 5.41EPS (CS adj.) €/sh 5.00 4.44 4.98 5.65P/E (CS adj.) x 11.97 13.49 12.03 10.59
P/E rel. (CS adj.) % 0.83 0.50 0.75 0.79Revenue € mn 2,708 2,510 2,717 2,922EBITDA € mn 1,365 1,265 1,361 1,504OCFPS €/sh 4.87 5.06 4.81 5.31P/OCF x 12.29 11.84 12.45 11.28
Number of shares (m) 201.8
BV/share (current, €) 44.11 P/BVPS (x) 1.2
Net debt (current, €) 250 Dividend (last, €) 0.00
Dividend yield (%) 0.00
ASOS (OP, TP: 5800p)
Investment case for Asos
Company description: Asos is an online-only apparel retailer that is focused on the 20-something demographic and known for its fashion credentials and content. c40% of sales own
brand (Asos Design) and the rest third party brands, with 40% of sales in the UK, 32% inEurope, 13% in US and 15% Rest of the World (inc Australia/Russia)
Investment thesis for post-pandemic world: Asos is one of the names under our structuralthemes as a beneficiary of channel shift, exposure to multibrands and WFH/sportswear
product categories as well as wholesale consolidation. Social media engagement has roughlytripled this year and continues to point to increasingly strong brand momentum, and the new-
look management team has broader ambition for the business. Cost saving and leverage
helped deliver 29/20 EBIT margins of 4.6% vs 1.3%. This also included a c£45m (140bp)
benefit from lower return rates. This will partly reverse in the current year although we still seepotential for more cost cutting and fixed cost leverage.
What’s in the price: The shares trade on 1.1x 12m FWD EV/sales and 14x 12m FWDEV/EBITDA, well below historic levels and peers. We think shares now discount many recentconcerns around slowing growth, pressure on margins and cash generation. We use a 12m
FWD EV/sales of 1.1x (40% weight), 15x EBITDA (20%) and a DCF with a 6% terminal
margin and 7.5% WACC (40%), giving a target price of 5,800p.
What risks remain: We think capacity constraints, its reliance on Occasionwear, and the
length of the own-brand supply chain, make it slower to re-gear the offer than third-partypeers, explaining why sales growth has been slower than online peers. The main risk to theinvestment case would be weaker sales growth toward peak trading and a more rapid return to
historical return rates, without a corresponding benefit to Asos Design sales.
Recent research: (1) ASOS Plc - Still our favourite online retailer; (2) General Retail andSporting Goods: Beyond the pandemic-six key trends that will accelerate post-COVID
19
Asos engagement (Instagram “Likes”) has been transformed this year
Analyst details:
Simon Irwin
+44 20 7888 0320
Key financials
Link to HOLT Lens
Source: Monatair
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20
Asos (Likes) Missguided Boohoo.com
Digitization Online living
Source: Company Data, Credit Suisse estimates
Industry trends
Year 12/20A 12/21E 12/22E 12/23E
Revenue (£ m) 3263.5 3875.7 4527.0 5199.1
EBITDA (£ m) 268.5 300.47 388.64 471.58
Adjusted Net Income (£ m) 113.3 117.60 180.78 240.25
CS EPS (adj.) (£) 1.26 1.18 1.81 2.40
ROIC (%) 29.9 24.8 38.6 48.3
P/E (adj.) (x) 37.8 40.3 26.3 19.8
P/E rel. (%) 335.63 210.87 193.33 173.70
EV/EBITDA 16.2 14.3 10.5 8.2
Dividend (12/20E, £) 0.00 Net debt/equity (12/20E, %) -50.3
Dividend yield (12/20E, %) 0.0 Net debt (12/20E,£ m) -407.5
BV/Share (12/20E, £) 8.2 IC (12/20E,£ m) 402.8
Current WACC 7.5 EV/IC (12/20E, (x) 10.8
Free float (%) 73.3 Number of shares (m) 99.8
BT Group (OP, TP: 185p)
Investment case for BT Group
Company description: BT Group plc (BT Group) is a UK communications services company
with operations in more than 170 countries worldwide. BT’s principal activities include the provision of fixed lines, broadband, mobile and television products and services.
Investment thesis for post-pandemic world: We are positive on BT Group as we areconfident BT Group will return to sustainable EBITDA growth in FY22 as near-term Covid-19’simpact on global sport reverses. In addition, we expect BT financials to increasingly reflect thepositive compounding effect of 1) recent Consumer price hikes; and 2) Openreach’s
accelerating fibre build. BT Consumer’s move to implementing annual CPI+3.9% priceincreases is a core part of our positive thesis. UK wireline prices have typically been rising at
more than the rate of inflation. As a result we would not expect BT to experience anysignificant pick-up in churn. Moreover, Openreach FTTP is to build expansion to 20m to drivecompounding boost to EBITDA going forward. We welcome Openreach’s expanded fibre build
and forecast a continued fibre mix shift in Openreach’s broadband base, boosting annualEBITDA by ~£100m p.a. over the next few years, consistent with our wider Euro Telco view ofgreater future demand for fibre. This compounding annual EBITDA boost offsets ongoing UK
economy headwinds.
What’s in the price: We forecast 1% BT Group EBITDA growth between FY20 and FY23 to£8.0bn. In our view, consensus is much too pessimistic in forecasting a 4% decline. HOLT®-
driven blue sky sum-of-the-parts 228p, using HOLT price-to-book (P/B) analysis (Unlockingthe value within Openreach). This implies a P/B multiple for Openreach of 1.22x—well belowrecent fibre deals (e.g. CityFibre, FibreNation, Deutsche Glasfaser).
What risks remain: Risks include a 1) deep prolonged UK recession post-Brexit; and 2)
VMED wholesaling its network.
Recent research: (1) Increase target price to 185p on Consumer price hikes; (2) Consumerbriefing takeaways—confident on ability to raise prices as metrics improve
20
BT Group: FY20-23E EBITDA drivers – we forecast £8bn EBITDA in FY23
Analyst details:
Paul Sidney
+44 207 888 6015
Key financials
Link to HOLT Lens
Source: Company data, Credit Suisse estimates, Credit Suisse Equity Research
7,200
7,300
7,400
7,500
7,600
7,700
7,800
7,900
8,000
8,100
8,200
FY20
E EB
ITDA
BTSp
ort H
ouse
hold
s
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ort p
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Reta
il fib
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/SRC
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E EB
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ort H
ouse
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ix
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FY22
E EB
ITDA
BTSp
ort p
ubs/
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le
Reta
il fib
re m
ix
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ch F
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mix
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/SRC
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FY23
E EB
ITDA
Cocooning Online living
Source: Company Data, Credit Suisse estimates
Year 12/20A 12/21E 12/22E 12/23E
Revenue (£ m) 22824.4 21605.4 21561.4 21674.0
EBITDA (£ m) 7907.3 7399.77 7607.43 7993.61
Adjusted Net Income (£ m) 2324.4 1761.02 1851.77 2087.09
CS EPS (adj.) (£) 0.24 0.18 0.19 0.21
ROIC (%) 10.7 8.6 9.1 9.9
P/E (adj.) (x) 4.2 5.6 5.3 4.7
P/E rel. (%) 37.49 29.28 39.18 41.42
EV/EBITDA 2.7 2.9 2.8 2.6
Dividend (12/20E, £) 0.05 Net debt/equity (12/20E, %) 76.9
Dividend yield (12/20E, %) 4.6 Net debt (12/20E,£ m) 11,346.6
BV/Share (12/20E, £) 1.5 IC (12/20E,£ m) 26,109.6
Current WACC 6.5 EV/IC (12/20E, (x) 0.8
Free float (%) 99.9 Number of shares (m) 9,917.0
Enel (OP, TP: €8.20)
Investment case for Enel
Company description: Enel, originally Italy’s government-owned leading utility, is currentlythe largest renewable developer globally, with over 40GW of installed capacity (including
hydro). The company is active in Italy, Spain (through Endesa), Latin America (through EnelAmericas and Enel Chile), US, Africa and Asia, across the entire value chain (powergeneration, distribution and supply).
Investment thesis for post-pandemic world: The focus on energy transition in Europe will
increase, supported by the EU Green Deal and the Recovery Fund. Thanks to its business mix,we believe Enel is well positioned to take advantage of growth opportunities both in renewablesand power networks, respectively covering 27% and 45% of 2020E EBITDA. Enel is currently
targeting 14GW of new installations over 2020-22E, of which only c30% is Europe. In ourview, at the Capital Markets Day on 24th November, Enel will increase its renewable addition
targets (refocusing towards Europe) and add capex in the network business (supported by the
EU Recovery Fund).
What’s in the price: Based on our estimates, Enel currently discounts c2 years (or 10GW) ofrenewable pipeline, assuming 5GW p.a. of new capacity and €300/kW of value creation (c.
1.3x NPV/capex). In light of the EU Green Deal and EU-27 targets of 400GW new capacity
by 2030E, we believe there is sufficient visibility for investors to discount a longer time frame intheir valuations.
What risks remain: LatAm currencies have devalued by c20% compared to Enel’s previous
business plan and represent a significant headwind against 2020-21 targets. Enel downgraded
its 2020E net income target to €5-5.2bn (from €5.4bn) in July 2020, and we see downside
risk also on the 2021E target (€5.8bn), depending on the future FX evolution. LatAmrepresented 30% of group EBITDA in 2019A.
Recent research: (1) Enel: On top of the EU Green Deal; (2) Enel: Risks overstated, keep
Outperform
21
Analyst details:
Stefano Bezzato
+44 207 883 8062
Key financials
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
-
5
10
15
20
25
30
35
40
45
Global renewable capacity installed for European Utilities companies, GW
Fiscal Stimulus ESG
Source: Company Data, Credit Suisse estimates
Year 12/19A 12/20E 12/21E 12/22E
EBITDA (€ m) 17704.0 18029.3 18529.9 19428.5
EBIT (€ m) 6878.0 11403.3 11862.4 12528.8
Adjusted Net Income (€ m) 4767.0 5170.80 5427.50 5907.85
CS EPS (adj.) (€) 0.47 0.51 0.53 0.58
Dividend yield (%) 0.33 0.36 0.37 0.41
P/E (adj.) (x) 15.7 14.5 13.8 12.7
Dividend Yield (%) 4.45 4.83 5.07 5.52
Dividend Cover (x) 1.43 1.43 1.43 1.43
Net debt /EBITDA (x) 2.8 3.0 2.9 2.8
Current WACC (%) 7.13 Number of shares (m) 10,166.7
Free float (%) 76.4
0
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2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E 2025E
Economic Profit (Eur millions)
Eurofins Scient (OP, TP: €760)
Investment case for Eurofins Scient
Company description: Eurofins is the global market leader in food, environmental andpharma testing markets. It also operates a large, and growing, clinical diagnostic business. It’s
a founder run and owned business based in Belgium with operations across 800+ labs in 47countries.
Investment thesis for post-pandemic world: Revenue declines in the base businessthrough H1 were more than offset by significant growth in Covid related testing driving 23%
organic growth in Q3. Post Covid this should revert to normal with msd organic, M&A andrising margins as network matures. This will be supported by increased global focus on quality,
safety and traceability providing tailwinds to its underlying food, diagnostic, pharma andenvironmental testing operations. In the medium term we expect a combination of mid-singledigit organic growth, on-going M&A and rising EBITDA margins driven by network maturation
and the benefits of digitally enabled lab information systems. We also expect significantimprovement in FCF as previous investment is consolidated, leading to 2022E FCF 3x higher
than in 2018. Its focus on improving the safety and quality of factors impacting human health isfundamentally positive from a environmental and social perspective. Governance has improvedwith an enlarged board and increased disclosure. The combination of resilient growth, inbuilthedge to the impact of Covid, rising FCF generation and, in the longer term, exposure toattractive end markets where its network will build further competitive advantage, will drive
sustainable value creation.
What’s in the price: Eurofins trades at a 95% premium to the FTSE Europe compared to anaverage of 100% premium over the last 12 years. In HOLT, discounting sales growth of 8%,sees EBITDA margins rising to 24% in FY23.
What risks remain: Upside risks include: 1) increased demand for Covid related services and
testing; 2) additional value creative M&A. Downside risks include: 1) demand for Covid testingdeclines leaving short term over capacity and 2) severe lockdown impacting access to labs and
headwinds to core clinical business.
Recent research: (1) Eurofins Scient: Improving FCF, growth and margins. Raise PT to€735; (2) Beyond the Pandemic: Longer-term winners and seven key themes
22
Analyst details:
Andy Grobler
+44 20 7883 5943
Key financials
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
Eurofins Scient Economic Profit Growth
Healthcare ESG
Source: Company Data, Credit Suisse estimates
Year 12/19A 12/20E 12/21E 12/22E
Revenue (€ m) 4562.8 5213.7 5327.1 5348.4
EBITDA (€ m) 930.7 1137.88 1207.07 1243.71
Adjusted Net Income (€ m) 309.7 441.56 489.56 539.44
CS EPS (adj.) (€) 16.65 23.02 24.98 27.52
ROIC (%) 5.4 7.1 7.8 8.5
P/E (adj.) (x) 43.5 31.5 29.0 26.3
P/E rel. (%) 303.39 117.32 181.06 196.41
EV/EBITDA 19.6 15.1 13.9 13.1
Dividend (12/20E, €) 3.23 Net debt/equity (12/20E, %) 88.2
Dividend yield (12/20E, %) 0.4 Net debt (12/20E,€ m) 3,406.4
BV/Share (12/20E, €) 152.5 IC (12/20E,€ m) 7,268.6
Current WACC 5.3 EV/IC (12/20E, (x) 2.4
Free float (%) 66.2 Number of shares (m) 19.1
Inwit (OP, TP: €11)
Investment case for Inwit
Company description: Inwit is the largest mobile tower company in Italy that provides towerinfrastructure for mobile networks. Mobile operators install their equipment on Inwit towers andpay fees to Inwit for using the tower infrastructure, thus providing consistent cash flow to the
business. In March 2020 Inwit merged with Vodafone Italy’s towers. Currently, Telecom Italia(TIM) has 15% economic stake (30% voting) and Vodafone owns 33% in Inwit.
Investment thesis for post-pandemic world: Inwit has a strong organic growth story and
significant opportunities for expansion, as it currently has relatively few mobile sites in Italy (16k
per operator vs 20k in France with fairly similar population) coupled with low tenancy ratio of<2x in a 4-player market. In addition to that, Italy has one of the strongest growth trends in
data usage across Europe (as displayed in the chart).
There is further upside to deal synergy guidance as Inwit almost doubled the size of its
business following the merger with Vodafone Italy towers. We believe synergies should start
coming through in 2021 and over time double EBITDA to c.€850m by 2026, as Inwit buildsnew sites, expands its tenancy ratio both from the anchor tenants and by opening up its goldensites to WindTre/Iliad.
What’s in the price: Price reflects lower EBITDA growth guidance of +4% in 2020 (i.e. pre-Vodafone towers merger level), as the market expects no synergies benefit in 2020, however,
we think it does not reflect faster EBITDA growth of c.10% in 2021-26. Inwit currently trades
on 22x 21E EV/EBITDA vs Cellnex and US towers that typically trade in mid 20s onEV/EBITDA, despite Inwit having potentially the highest organic 2021-26 EBITDA CAGR inour European telco universe.
What risks remain: The main downside risk is back-end loading of growth and higher interest
rates. Inwit will publish its 3-year business plan on 5 November.
Recent research: (1) INWIT – Positioned for a sharp EBITDA acceleration (Aug 2020); (2)INWIT – Q2 20 (Jul 2020); (3) European Towers: Still defensive, still growing (Apr 2020)
23
Growth in Vodafone data traffic (y/y)
Analyst details:
Jakob Bluestone
+44 20 7883 0834
Key financials
Source: Vodafone
Digitization
Source: Company Data, Credit Suisse estimates
Year 12/19A 12/20E 12/21E 12/22E
Revenue (€ m) 395.3 664.5 786.2 833.0
EBITDA (€ m) 226.7 409.73 496.36 528.67
Adjusted Net Income (€ m) 146.2 158.53 196.32 219.56
CS EPS (adj.) (€) 0.24 0.17 0.20 0.23
ROIC (%) 9.2 5.3 6.0 6.8
P/E (adj.) (x) 40.7 60.0 48.5 43.4
P/E rel. (%) 407.87 310.39 384.06 411.69
EV/EBITDA 42.3 30.0 25.5 23.8
Dividend (12/20E, €) 0.28 Net debt/equity (12/20E, %) 270.1
Dividend yield (12/20E, %) 2.8 Net debt (12/20E,€ m) 2,766.1
BV/Share (12/20E, €) 1.2 IC (12/20E,€ m) 3,790.0
Current WACC 4.8 EV/IC (12/20E, (x) 3.2
Free float (%) 36.6 Number of shares (m) 960.2
Just Eat Takeaway (OP, TP:12,100p)
Investment case for Just Eat Takeaway
Company description: Just Eat Takeaway connects consumers and restaurants, allowingusers to order food from nearby restaurants to be delivered to their homes. The Groupoperates two models: 1) Marketplace – where it simply acts as the intermediary between
consumers and restaurants; and 2) Delivery Logistics- where JET delivers the food toconsumers. JET operates in 24 countries globally.
Investment thesis for post-pandemic world: 1) The pandemic has caused an accelerationin the structural adoption of online takeaway, resulting in a significant growth of new
customers. JET CEO expects these benefits to last, supported by the continued heightenedgrowth levels seen in 3Q when lockdowns had eased; 2) UK turnaround on track, but still in itsearly stages – JET highlighted at 3Q that the gap to competition in the UK was widening and
this was during a period when: a) McDonald’s has only been partially rolled out (CSe 60%
McD’s UK footprint); b) Uber Eat’s have been aggressively couponing; and c) JET’s“aggressive investment” is only in its early stages. We see this as encouraging for UK
outperformance in the next 12m; 3) Execution shows promising signs for GRUB merger –
Canada and ANZ were also cited as making market share gains, the later triple digit growthpost order declines in FY18, this turnaround of Just Eat’s legacy assets has been achieved inless than a year of the merger, whilst early days we believe this will start to raise investorconfidence regarding JET’s ability to execute in the US
What’s in the price: Our reverse SOTP suggests at JET’s current price, the market isimplying a value of £1bn for JET’s UK operations which includes 2.3x FY21 EV/EBITDA forthe UK Marketplace (a 90% discount to RMV/AUTO). JET is currently trading on 13.6xFY23E EV/EBITDA ex-LatAm for 26% FY23-25e adj. EBITDA CAGR vs the average ofRMV/AUTO on 18.5x for 6.2% growth.
What risks remain: 1) Competitive pressure esp in Just Eat’s legacy markets; 2) Execution
risk with regards the “aggressive investment” programme; 3) Execution risk about the potential
GrubHub acquisition
Recent research: E-food: opportunities and risks: Preferred stocks & how to stay sector-
neutral; Just Eat Takeaway - 3Q orders beat, competitive positioning improving
24
Rolling 7 days order development
Analyst details:
Jo Barnet-Lamb
+44 20 7883 3535
Key financials
Link to HOLT Lens
Source: Just Takeaway 1Q20 trading update
Cocooning
Source: Company Data, Credit Suisse estimates
Online living
Year 12/19A 12/20E 12/21E 12/22E
Revenue (€ m) 426.8 2471.6 2860.5 3449.7
EBITDA (€ m) 12.3 318.03 426.84 677.63
Adjusted Net Income (€ m) -54.5 40.37 195.97 398.70
CS EPS (adj.) (€) -0.94 0.26 1.26 2.57
ROIC (%) -3.0 1.8 2.6 4.9
P/E (adj.) (x) -105.9 382.0 78.7 38.7
P/E rel. (%) -939.71 1,997.16 578.76 338.92
EV/EBITDA 1,203.2 44.9 33.0 20.1
Dividend (12/20E, €) 0.00 Net debt/equity (12/20E, %) -6.1
Dividend yield (12/20E, %) 0.0 Net debt (12/20E,€ m) -520.7
BV/Share (12/20E, €) 57.1 IC (12/20E,€ m) 7,999.0
Current WACC 9.5 EV/IC (12/20E, (x) 1.8
Free float (%) 79.3 Number of shares (m) 148.7
Logitech (OP, TP: SFr 101)
Investment case for Logitech
Company description: Logitech is a provider of personal peripherals for computers & other
digital/cloud platforms. It develops and markets products in PC navigation, Internetcommunications, digital music, gaming, wireless devices and video conferencing products &services.
Investment thesis for post-pandemic world: Covid-19 is changing our world and theeffects from the lockdown are turning into structural mid-term trends. Disruptive trends are thathomeworking will probably retain a higher share, eLearning should continue to gain share and
games should play a bigger role as a pillar of entertainment, social connection and leisure time.Companies are starting to offer 1) working some days a week at home to its employees (e.g.
Siemens) or 2) subsidies for the work at home equipment. That’s a lot of new desktops to becreated, improved and upgraded. But it is also interesting how the platforms are verticalizing(e.g. Fortnite, BlueJeans) and offering more and more additional services (e.g. CRM, events,
ticketing). This requires more and various peripheral devices. Profitability is likely to benefitfurther thanks to the much more favorable product mix and higher-margin products, and thecompany’s strategy to grow in the very profitable enterprise business (B2B) through video
collaboration. (e.g. Video Conferencing). We expect a GPM for Video Conferencing of aboutc50% compared to the group GPM non-GAAP of 38.4% (2020). Logitech is not only about
sales growth (MSD-HSD), but also about higher profitable growth.
What’s in the price: Currently, the stock is trading in line with other tech names with a similarCFROI® (e.g. MSFT, AAPL). In addition, LOGN has historically justified a higher valuation witha positive trading update. So far indications are strong that momentum will remain. In addition,
LOGN has a high net cash pile (CSe 21E USD 862m) so we see scope for potential M&Aactivity.
What risks remain: Key risks include major FX volatility mainly EUR/USD, tariffs escalations,the China-exposed supply chain and an unexpected slowdown in organic growth due to
deteriorating consumer confidence.
Recent research: (1) Logitech – Underlying trends are continuing (2) Logitech - A few
thoughts ahead of 2Q; (3) Logitech - Platforms are verticalizing; (4) Logitech - Impressive Q1FY21 / Guidance raised
25
Revenue growth potential of c40% based on FY20
Analyst details:
Serge Rotzer
+41 44 333 05 48
Key financials
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
Digitization
Source: Company Data, Credit Suisse estimates
Online living
Year 12/20A 12/21E 12/22E 12/23E
Revenue (US$ m) 2975.9 4000.7 4176.3 4613.4
EBITDA (US$ m) 350.2 694.68 722.02 781.61
Adjusted Net Income (US$ m) 364.8 658.85 676.44 725.70
CS EPS (adj.) (US$) 2.15 3.86 3.92 4.17
ROIC (%) 66.8 72.0 77.0 82.7
P/E (adj.) (x) 41.3 23.1 22.7 21.4
P/E rel. (%) 218.01 112.68 128.79 133.93
EV/EBITDA 42.0 20.7 19.2 17.1
Dividend (12/20E, US$) 0.83 Net debt/equity (12/20E, %) -46.0
Dividend yield (12/20E, %) 0.9 Net debt (12/20E,US$ m) -685.2
BV/Share (12/20E, US$) 8.8 IC (12/20E,US$ m) 804.1
Current WACC 7.5 EV/IC (12/20E, (x) 18.3
Free float (%) 100.0 Number of shares (m) 173.1
Schneider Electric (OP, TP: €120)
Investment case for Schneider Electric
Company description: Schneider Electric supplies electrical equipment, systems andsolutions for Energy Management (buildings and data centres) and Industrial Automation.
Investment thesis for post-pandemic world:
1) We expect both Energy Management and Industrial Automation divisions to benefit from
governments stimulus packages for energy efficiency given the energy savings that can beachieved by implementing its offerings for smart buildings and smart factories;
2) Schneider is also well-positioned for tailwinds from growth in Date Centres (15% sales
exposure) that are receiving a demand boost from WFH and digitalisation and remotemonitoring and remote operations (driving up edge computing demand);
3) Software strategy: we believe Schneider has created a winning player in the Industrialsoftware space with successfully AVEVA leveraging Design and Operate capabilities and isnow pushing into vertical outside of its traditional process industries and oil & gas within that.
On the building software side, Schneider has also expanded its portfolio into the AEC space
with the acquisitions of RIB and IGE-XAO;4) We see potential for Schneider to deliver adjusted EBITA profitability above the targeted17% level by 2022 driven by healthy top-line growth and savings from cost programs;5) Schneider continues to trade at a discount to quality growth peers which points to scope fora structural re-rating.
What’s in the price: According to Credit Suisse HOLT Lens, the current share price has
priced in an eCap status for Schneider and IBES consensus for 2020-2022, however, withonly 0.7% sales growth between 2023 and 2029 with no margin expansion.
What risks remain: Protracted O&G downturn; pressure on Office vertical from WFH.
Recent research:
Growth attractions shining throughAdding thematic angles to the already solid Margin & Re-rating storyGlobal Data Center : Making Connections Across Industrial Data Center Suppliers and Data
Center Operators
Top26
Schneider is exposed to structurally favourable end-markets
Analyst details:
Andre Kukhnin
+44 20 7888 0350
Key financials
Source: Company Data, Credit Suisse estimates
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
0.0%
0.5%
1.0%
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30%
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SchneiderEM
Legrand Fluidra Geberit KONE Assa Schindler
Data centre - Strong+ve
Resi - +ve
Institutional &Government - +ve
Industrial &Infrastructure -Small +ve
Commercial (Office,Retail, Hospitality) -Mixed
Implied mid-termgrowth rate (RHS)
Digitization
Year 12/19A 12/20E 12/21E 12/22E
Revenue (€ m) 27158.0 24924.0 26426.9 27630.8
EBITDA (€ m) 5413.0 4753.22 5141.07 5721.68
Adjusted Net Income (€ m) 2950.5 2570.69 2898.94 3360.74
CS EPS (adj.) (€) 5.29 4.66 5.32 6.18
ROIC (%) 11.8 10.7 12.0 13.8
P/E (adj.) (x) 21.2 24.0 21.1 18.1
P/E rel. (%) 147.46 89.46 131.33 135.11
EV/EBITDA 12.2 13.7 12.6 11.0
Dividend (12/20E, €) 2.55 Net debt/equity (12/20E, %) 13.0
Dividend yield (12/20E, %) 2.3 Net debt (12/20E,€ m) 3,021.1
BV/Share (12/20E, €) 39.0 IC (12/20E,€ m) 26,218.7
Current WACC 7.5 EV/IC (12/20E, (x) 2.5
Free float (%) 90.6 Number of shares (m) 554.7
ESG Fiscal Stimulus
Siemens Healthineers (OP, TP: €43)
Investment case for Siemens Healthineers
Company description: Siemens Healthineers is the market leader in Imaging Equipment(MRI, CT scanners, ultrasound and image guided therapy) with a 33% market share. They alsoare a top two player in diagnostics equipment and reagents. The company has recently
announced the acquisition of Varian which will expand their product portfolio into the fastgrowing segment of radiation therapy.
Investment thesis for post-pandemic world: Siemens Healthineers remains a key pick onthe basis of its exposure to the structural growth market of Imaging equipment and broadly we
see support for Healthcare budgets and investment which has moved back into focus in thepandemic.
On direct exposure to equipment which will continue to see an uplift due to the
pandemic: Siemens sells CT scanners (28% of the Imaging division) that are used in the
diagnosis of COVID-19. Also, Siemens has capacity for 50 million antibody tests in itsDiagnostics division and has recently developed a rapid antigen test for identifying COVID-19.
We remain confident in Siemens Healthineers being a 4-6% organic growth company
based on: 1) low penetration of imaging equipment in emerging markets where healthcarespending (public and private is a focus – see the recent CS China baby boomers report) and 2)
the aged European installed equipment base (21% of EU CT and MRI scanners are now >10years old) where we believe replacement of older equipment will need to step-up.
What’s in the price / Valuation: Siemens Healthineers is trading on a (pro-forma includingVarian) 2022E EV/EBITA of 16.4x which is a 12% premium to Philips trading on 14.6x.
What risks remain: Key risks for the stock are a potential further equity raise to finance the
Varian deal in March 2021 following the AGM. A further risk is a delayed hospital capex
investments due to hospitals continuing to prioritize treating COVID-19.
Recent research: Siemens Healthineers: The lay of the land after the €2.9bn equity raise.Siemens Healthineers. Multi-year growth backed-up by Varian
27
MRI Scanners per million people. Emerging markets penetration is an attractive growth
driver for Healthineers and we see runway for continued growth out to 2050
Analyst details:
Max Yates
+44 207 883 8501
Key financials
Link to HOLT Lens
Source: OECD Healthcare 2019 Outlook. Credit Suisse Research
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0MRI scanners per million people
Healthcare
Source: Company Data, Credit Suisse estimates
Year 12/19A 12/20E 12/21E 12/22E
Revenue (€ m) 14518.0 14489.5 14983.6 15833.9
EBITDA (€ m) 2978.0 2732.83 3055.08 3378.91
Adjusted Net Income (€ m) 1714.3 1587.24 1795.28 2010.69
CS EPS (adj.) (€) 1.70 1.57 1.78 1.99
ROIC (%) 20.6 19.7 21.5 23.2
P/E (adj.) (x) 22.3 24.1 21.3 19.0
P/E rel. (%) 131.98 115.26 141.41 147.18
EV/EBITDA 13.4 14.2 12.5 11.1
Dividend (12/20E, €) 0.75 Net debt/equity (12/20E, %) -17.1
Dividend yield (12/20E, %) 2.0 Net debt (12/20E,€ m) -1,786.0
BV/Share (12/20E, €) 10.4 IC (12/20E,€ m) 8,635.8
Current WACC - EV/IC (12/20E, (x) 4.5
Free float (%) 20.9 Number of shares (m) 1,075.0
APAC: Stocks for a new normal
28
Apollo Hospitals (OP, TP: Rs 2,365)
Investment case for Apollo Hospitals Enterprise:
Company description: Apollo Hospitals operates the largest private hospital (10k+ beds) andpharmacy chain in the country. It has multiple touch-points with patients which helps to capturehigher wallet share of patients and cross-sell services. Apollo also operates diagnostic centers,
sugar and dental clinics, dialysis centers, and day-care surgery and maternity hospitals.Recently, Apollo made a foray into digital health via Apollo 24|7 app, which offers tele-
consultation, e-pharmacy and online diagnostic services. It has already scaled up to #2position, in terms of number of users.
Investment thesis for post-pandemic world:
• RoCE to double by FY25 (vs. FY20) with contribution of asset-light non-Hospital segments[Pharmacy, AHLL, Apollo 24|7] increasing to 46% by FY25E (from 23% in FY20)
• Apollo 24|7 – online health app (tele-medicine, e-diagnostics, e-pharmacy)• Strong initial traction post launch in Feb-2020• Tied up with largest private sector bank; in discussions with a large telco
• Target of US$500mn revenues and user base of 100mn within four to five years
• Offline Pharmacy• EBITDA to grow at 20%+ CAGR over FY20-FY25E• RoCE to expand to 37% (from 27% currently) as young stores mature• Increasing share of Private Label brands [9% in 1QFY21 vs. 6% in 1QFY19]
• AHLL [Apollo Health and Lifestyle Ltd.]• Achieved EBITDA break-even in FY20
• Revenues to double by FY25 (vs. FY20)
• Diagnostic network to expand and utilization to increase in day-care centers
What’s in the price: Our Target Price of Rs 2,365 incorporates valuation of Hospitals [Rs1,453] at regional benchmark of 18x FY22E EV/EBITDA. We assign Pharmacy [Rs 801] a
higher multiple of 25x FY22E EV/EBITDA due to high growth and RoCE profile.
What risks remain: (1) Extended impact of COVID-19 on hospital footfalls, (2) Delay innotification of e-pharmacy regulations, and (3) Slow ramp up of Apollo Diagnostics.
Recent research: Apollo 24|7; Channel consolidation; Apollo Pharmacy deep-dive
Top29
Analyst details:
Name: Anubhav Aggarwal
Phone number: +91-9930470099
Email: [email protected]
Key financials
Source: Company Data, Refinitiv, Credit Suisse estimates
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
12%12%11%10%
8%6% 7%
9%
13%
3%
17%20%
22%25%
0%
5%
10%
15%
20%
25%
30%
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40%
FY
12
FY
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FY
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Apollo overall RoCE (adj. Ind. AS 116) Pharmacy RoCE
RoCE to double by FY25 with
higher asset-light contributionMultiple touch-points enable Apollo to capture
higher wallet share of patients
Tertiary Care
Own Hospitals
Hospital JVsManaged
Beds
Secondary Care
Apollo Spectra
Apollo Cradle
Primary Care
Apollo Clinic
Apollo Sugar
Apollo Dialysis
Apollo Dental
Digital Health
Apollo 24|7 AskApolloRemote Medical
Apollo TeleHealth
Allied Health
Apollo Pharmacy
Apollo Diagnostics
Wellness & Others
Apollo ProHealth
Apollo HomeCare
Precision Medicine
Online living Hygiene Digitization Industry trends
Bangkok Dusit Medical Svs (OP, TP: Bt 22)
Investment case for BDMS
Company description: BDMS is the largest hospital network in Thailand and the biggestmarket cap stock within Thailand’s healthcare space. The company has 49 hospitals in itsportfolio, covering diverse market segments i.e. high end, medical tourism, and medium end
segment, as well as geographical locations i.e. Bangkok, northeast, north, east, west andsouth of Thailand.
Investment thesis for post-pandemic world: BDMS should be one of the prime
beneficiaries of rising private health insurance penetration in Thailand which is receiving a boost
from the pandemic. Large network allows it to develop exclusive health insurance policies withsome insurers, a model that other players find it hard to replicate. Medical tourism from China
should also accelerate post-pandemic, given Thailand’s reputation as one of the best countrieshandling the spread of COVID-19 and driven by baby boomer retirees. BDMS has forgedpartnership with Ping An Health Insurance, which we expect will help support its Chinese
patient volume in the long-term. Finally, BDMS is also most advanced in term of Telemedicine
platform compared with other Thai hospitals and should be the top beneficiary as adoption oftelemedicine increases, caused by the pandemic.
What’s in the price: Near term weak outlook on Thailand’s medical tourism has negativelyimpacted Thai hospitals with exposure to this revenue segment, including BDMS. We believethe current share price has reflected such scenario.
What risks remain: Rising competition in the high end segment due to the upcoming arrivalsof a new player (TPP Healthcare). In this context, the well diversified portfolio of BDMS meansimpact should not be too intense.
Recent research: (1) Thailand Healthcare Sector: Riding the wave of health insurance
spending; (2) China Market Strategy: Capitalise on 245 mn retiring baby boomers; (3) BDMS:
The bottom is behind; (4) ASEAN Healthcare sector: Beyond the pandemic – Telemedicine atthe cusp of growth
Top30
Analyst details:
Name : Thaniya Kevalee
Phone number : +662 614 6019
Email : [email protected]
Key financials
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
Rising private health insurance penetration in
Thailand
BDMS’ share of revenue generated from private
health insurance
Online living Digitization
Source: Company Data, Refinitiv, Credit Suisse estimates
Dabur India (OP, TP: Rs 590)
Investment case for Dabur
Company description: Dabur is one of the leading FMCG companies in India. The companyhas a broad based portfolio spanning healthcare, personal care, home care and foods. Theumbrella brand of Dabur is over 150 years old and has a strong differentiated positioning on
the traditional Indian science of Ayurveda.
Investment thesis for post-pandemic world
• Dabur is India’s leading Ayurvedic healthcare positioned brand, and thus is a natural
beneficiary of a scenario where consciousness towards health is heightened. Dabur’s
healthcare business (~35% of revenues) is focussed on immunity boosting Ayurvedicproducts, which are likely to continue to see a surge in consumption till COVID continues to
be around. The household penetration of these products will see a step jump as these arealso meant for general immunity against infective disease beyond COVID.
• Dabur is rapidly expanding its portfolio to many new healthcare and foods segments, which
have in the past had local and unorganized players, driving market share consolidation
towards a large national player. These are segments like ‘Kadha’, ‘Tulsi Drops’ and healthsupplement juices.
• Dabur’s personal care business is also likely to see acceleration of the existing trend ofconsumers moving towards Ayurvedic or naturals based products. We expect market sharegains in toothpaste and shampoos.
• We expect Dabur to deliver a revenue CAGR of ~12% over FY21-23E vs FY16-19 CAGR
of ~3%. As healthcare products also have high margins, we expect gradual margin
expansion leading to ~15% earnings CAGR over FY21-23 vs ~7% CAGR over FY16-19.
What’s in the price: Dabur’s consensus estimates build in high single digit revenue CAGRwith modest margin expansion, leading to 10-12% EPS CAGR over FY20-23.
What risks remain: The first risk is that Dabur fails to fully capitalize on the opportunity due to
execution slip ups, and is not able to scale up some of their new product launches inhealthcare. The second risk is that the international business (~20% of profits) becomes adrag especially the businesses in the Middle East and Africa.
Recent research: Ayurvedic products surge report, Dabur daily – seizing the opportunity
Top31
Key financials
Link to HOLT Lens
Source: Google Trends, Credit Suisse estimates
-
2.0
4.0
6.0
Ashwagandha Giloy Kadha
Pre lockdown (Pre Apr'20) Peak lockdown (Apr - Jul 20)
Unlock phase (Aug'20 onward)
-
1.0
2.0
3.0
Dabur Baidyanath Zandu Patanjali
Pre lockdown (Pre Apr'20) Peak lockdown (Apr - Jul 20)
Unlock phase (Aug'20 onward)
Google searches of healthcare products remain
high vs pre-COVID levels even in the unlock phase
Google searches suggest elevated
interest in key Ayurveda brands
Analyst details:
Name: Arnab Mitra
Phone number: +91-99876 35130
Email: [email protected]
Healthcare Industry trends
Source: Company Data, Refinitiv, Credit Suisse estimates
Frasers Centrepoint Trust (OP, TP: S$2.90)
Investment case for Fraser Centrepoint Trust
Company description: Frasers Centrepoint Trust (FCT) is a retail REIT in Singapore with itsportfolio predominantly made up of suburban retail malls which are the incumbent malls in theareas that they are located. The REIT is the second largest retail mall owner in Singapore
which also provides it with economies of scale to develop omni channel offerings such asFrasers e-store.
Investment thesis for post-pandemic world: We expect a portion of Singapore’s workforce
to continue to work from home post pandemic, as such, suburban retail will get a structurally
higher share of weekday office consumption that has traditionally been concentrated in theCBD. The pandemic seems to have increased the share of online sales in total retail sales to
10-11% (vs 5-7% pre pandemic), we expect this to exacerbate the divergence observed in thelast several years where stronger/well located malls have remained resilient (high occupancyand positive reversions) while weaker malls have struggled with occupancy.
What’s in the price: FCT currently trades at a CY21 yield of 5.1% which is similar to retailREIT peers at 4.9%-5.8%. Meanwhile, FCT is the only retail REIT to have seen tenant salesrecover to pre-COVID levels.
What risks remain: Resurgence or COVID-19 cases in Singapore could lead to re-tighteningof social distancing measures and forced closure of retail venues. This would lead to further
rent rebates being paid and expectations that the retail REITs will also look to lower payout
ratios further into the future.
Recent research: Singapore REITs work from home
Top32
Tenant sales growth (YoY) have recovered to pre-COVID levels
Analyst details:
Nicholas Teh
+65 6212 3026
Key financials
Link to HOLT Lens
Source: Company Data
Online living
Source: Company Data, Refinitiv, Credit Suisse estimates
ICICI Bank (OP, TP: Rs 520)
Investment case for ICICI Bank
Company description: ICICI Bank is the 2nd largest private bank in India by assets
(~$150bn). It is one of the largest mortgage player with ~$26bn book which makes up ~50%of its retail loans. Having a deep presence in urban markets, it is amongst the top 3 retail
private lenders in India and also has amongst the strongest liability franchises (~40% CASAratio) in private sector.
Investment thesis for post-pandemic world: Even as stress levels are expected to rise,banks, particularly the private banks, have now built in significant buffers to absorb this. ICICI’s
NPL cover stands at ~79% with additional 1.3% of loans in COVID specific buffers. With awell diversified loan book, asset quality outcomes are likely to be better than industry. Givenstrong pre-provision profitability (~2.6%) and capital position (CET1 at 13.3% which will rise
further by ~190bp from the recent capital raise), the bank is well positioned to continue makingmarket share gains.
What’s in the price: At CMP, ICICI bank is trading at 1.1x 24M fwd P/B (core bank).Despite recent run-up, bank is still 30% below its Feb-2020 peaks and at a significant
discount to its long-term avg. multiple. ICICI has established large subsidiaries across financial
services domain (insurance, asset management, securities etc.) which now contribute ~30% toour SOTP based valuation.
What risks remain:
- Retail loans in India have grown steadily over past decade and no slowdown was observed
until COVID. However, if macro worsens driving job losses, retail NPAs may increase in the
system. Last retail NPA cycle occurred in 2008-10 where unsecured loan book in retail of
ICICI Bank suffered and similar experience for it on a much larger book can impact multiplesfor the bank.
-Sluggish macro recovery in post COVID world can delay normalization of growth andeventually risk re-rating of the stock.
Recent research: (1) India Financial Sector - 1Q21: Not just corporate stress; (2) 1Q21:Stable operating qtr; stake sale gain adds to provision buffer
Top33
3rd largest retail private lender Stock is trading at attractive valuations
Analyst details:
Ashish Gupta
+91 22 6777 3895
Key financials
Link to HOLT Lens
Source: BSE
Digitization Industry trends
Source: Company Data, Refinitiv, Credit Suisse estimates
IHH Healthcare (OP, TP: RM 6.10)
Investment case for IHH Healthcare:
Company description: IHH Healthcare is Asia’s largest private healthcare provider, with keyoperating markets in Singapore, Malaysia, Turkey, India & North Asia. The group operates 77hospitals across 12 countries, offering integrated healthcare and a wide range of ancillary
services (e.g. diagnostics, medial education) and is known to be a premium hospital operator.
Investment thesis for post-pandemic world: We remain confident of a turnaround inAcibadem (Turkey) and Fortis (India), though temporarily set back by the pandemic. At the
same time, we see potential in the digital space where IHH leverages on its strong offline
network (>15,000 licensed beds and 77 hospitals) and offers a full-service online healthcaresuite. Furthermore, IHH is well positioned to ride the telemedicine wave given its recent launch
of its in-house telemedicine service and recent stake acquisition in Singapore’s largesttelehealth firm Doctor Anywhere. Lastly, IHH is an attractive prospect for China’s outboundmedical tourists, given that it operates among the most prestigious hospital brands in ASEAN.
This could be an attractive growth opportunity considering Singapore’s prominence as a high-
end medical care destination and Malaysia’s growing popularity (and improved quality) amongmedical tourists.
What’s in the price: Near term weak outlook on medical tourism has negatively impactedIHH, which derives ~12% of group revenue from medical tourists. We believe this has alreadybeen priced in and see upside potential as IHH remains one of the best plays in Asia’s growing
healthcare market, given its scale and international presence. Our target price of RM6.10 for
IHH Healthcare is derived using a DCF (discounted cash flow)-based valuation methodology,assuming a 7.4% WACC and 2.5% terminal growth rate.
What risks remain: (1) Extended impact of Covid-19 on hospital patient loads, (2) China
expansion execution risk, and (3) intensifying competition.
Recent research: (1) IHH: On the path towards recovery; (2) China Market Strategy:Capitalise on 245 mn retiring baby boomers; (3) ASEAN Healthcare sector: Beyond thepandemic – Telemedicine at the cusp of growth
Top34
Analyst details:
Name : Amanda Foo
Phone number : +603 2723 2089
Email : [email protected]
Key financials
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
IHH is one of the best avenues into Asia’s
growing healthcare market (FY2019 revenue
split)
Aggressive expansion strategy to capture the
region’s accelerating growth
Online living Digitization
Source: Company Data, Refinitiv, Credit Suisse estimates
Mediatek (OP, TP: NT$800)
Investment case for Mediatek
Company description: Mediatek is one of the global leading fabless semiconductorcompanies in Taiwan with deep portfolio of silicon IP and solutions that span smartphones,tablets, TV, networking, analog and custom ASICs for gaming and data center.
Investment thesis for post-pandemic world:
• Strong leverage to 5G unit, content and share gains. Mediatek has over 40% marketshare in smartphone chipsets in a duopoly with Qualcomm. The 5G cycle offers 1.5-2x
content gain, relatively stable competitive landscape following multiple baseband vendor
exits, and opportunities for share gains with Samsung/LG using more design houses opento Mediatek solutions and Huawei largely in-house now restricted by the US government.
• Gaining share on the mature 4G smartphones. 4G has a long tail in emerging marketsand Mediatek is set for share gains as it continues to innovate and gain into the China andKorea brands as the standard matures. Its China competitor has also lagged, limiting low-
end competition.
• Non-mobile business also benefit from more digitalization. Mediatek has growingopportunities outside mobile, including consumer applications (e.g. TV SoC, set top box),IoT (Internet of Things), power management and ASICs for game console and networking.The growth area is contributing 30% of Mediatek’s sales and ramping at a healthy 10-20% YoY growth from these multiple product lines contributing.
What’s in the price: Our OUTPERFORM rating and target price of NT$800 for Mediatek is
based on 20x 2021E EPS. The market has been expecting a better position for Mediatek’sopportunity in the initial 5G ramp and solid outlook for its growth products but has not yet fullyreflected its market share potential in Oppo, Vivo and Xiaomi and the Korea brands whichshould support better operating leverage.
What risks remain: Pricing pressure could resurface from Qualcomm, customer demand at
other Android brands may overshoot all trying to chase after Huawei’s lost business post US
restriction, and WFH demand may fade post pandemic, though we do believe some behaviorchanges should drive more long-term demand for home work, education and entertainment.
Recent research: 3Q20 results outlook: Strength continues into year-end
Top35
Sales growth at stable GMs drives OP leverage
Analyst details:
Randy Abrams
+886 2 2715 6366
Key financials
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
-80,000
-60,000
-40,000
-20,000
0
20,000
40,000
60,000
80,000
100,000
120,000
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
1Q
17
3Q
17
1Q
18
3Q
18
1Q
19
3Q
19
1Q
20
3Q
20
E
1Q
21
E
3Q
21
E
YoY Growth %Units (mn)
Mediatek sales (NT$mn) YoY sales growth (%) YoY Op Profit growth (%)
Digitization
Source: Company Data, Refinitiv, Credit Suisse estimates
Medikaloka Hermina (OP, TP: Rp3,800)
Investment case for HEAL.JK
Company description: Medikaloka Hermina is one of the largest private hospital groups inIndonesia with 37 hospitals and 4,521 beds as of June 30, 2020. The hospital treats morethan 6mn patients annually and has 3,800 doctors and specialists with 100% universal
healthcare participation. It has a doctor partnership model where top specialist doctors own aminority stake at each hospital. This helps to attract and retain quality doctors and is a key
advantage to other hospitals that may find difficulty in recruiting top talent.
Investment thesis for post-pandemic world:
• Most aggressive expansion plan• HEAL plans to add 2-4 hospitals annually, around 5-10% of current portfolio
• Open for M&A of a larger scale for faster ramp up• Hospitals on the market are at a steep discount
• Faster regular patient volume recovery
• Around 50% of the hospital’s patients are JKN
• Previously proven to be more resilient during the pandemic and are recoveringfaster at the moment (already at 90% of normal levels)
• Room for margin improvement• In process of streamlining drug procurement process and other operational
activities• Expect EBITDA margin to expand by 150-200 bps in the next few years
What’s in the price: Our target price of Rp3,800 for HEAL is derived using EV/EBITDAtarget multiple (16x 2021E EBITDA, in line with regional peers that have similar or slowergrowth outlook). Our Outperform rating is driven by (1) growth above peers; (2) resilientmargins profile, despite a 50% revenue exposure to the universal healthcare and (3)
compelling valuation.
What risks remain: (1) unfavorable regulatory/pricing adjustments surrounding JKN, (2)longer-than expected receivable days, (3) follow-up impact due to COVID-19.
Recent research: (1) Indonesia Healthcare Sector: Vaccine thoughts; (2) Asean telemedicineat the cusp of growth; (3) HEAL.JK: Maintain single-digit growth guidance for FY20
Top36
Analyst details:
Name Steven Ho
Phone number +62 81902040608
Email [email protected]
Key financials
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
Online living Digitization
Source: Company Data, Refinitiv, Credit Suisse estimates
Realtek (OP, TP: NT$450)
Investment case for Mediatek
Company description: Realtek is a leading fabless semiconductor company based in Taiwan
that sells chipset solutions spanning PCs, networking, multimedia and IoT markets.
Investment thesis for post-pandemic world:
• Realtek is well positioned for a structural shift to more electronics consumption from rising
work, education and entertainment with the increase in connectivity and services COVID-19 has delivered which should continue some lifestyle changes. These should support the
companies products in PCs, TV, audio, networking and IoT which adds intelligence andconnectivity to more home appliances. Some upcoming product drivers:
o Audio headsets: Leading solutions integrating controller, connectivity, noisecancellation and high quality / low power audio
o Wifi: Wifi for home networking and into more appliances also advancing to amore advanced Wifi 6 standard at 2x content/box
o Bluetooth/MCU into more products: Realtek’s solution is penetrating
cameras, toys, home appliances, lighting, smart plugso Content upgrades across the portfolio: Demand for higher speed and low
latency transfers is upgrading its switch, router, Ethernet controller, Fiber to thehome and USB to more advanced chips at higher prices
o Auto Ethernet: The networked car is adding Ethernet, a potential US$1bnopportunity in 3-5 years, with Realtek having 25% share of design-wins
• We model 2020/2021 EPS at NT$16.50/NT$19.50, with growth keyed on share gains
on TVs, WiFi upgrade to 11ac, content upgrades in connectivity and a new wave of audio
(Airpod) headsets for the Non-Apple customer base.
What’s in the price: The stock has been a strong performer on the work from home growth
but is below our target at 16x 2021 cash adjusted EPS vs. our target at 20x cash-adjustedEPS at target of NT$450 on fears of a growth slowdown post the pandemic and on rising
competition. We see the company maintaining higher multiple as growth has maintained 15-20% CAGR even pre-pandemic and drivers.
What risks remain: Risks include rising China competition although we do see opportunitiesto gain from US peers, slowdown in work from home momentum post pandemic, periodic
inventory adjustments in the supply chain after a period of strong demand and tightness andtight foundry capacity limiting upside.Recent research: 3Q20 results outlook: Strength continues into year-end
Top37
GM/OPM remain stable
Analyst details:
Randy Abrams
+886 2 2715 6366
Key financials
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
0
10
20
30
40
50
60
0
5,000
10,000
15,000
20,000
25,000
30,000
1Q
00
3Q
00
1Q
01
3Q
01
1Q
02
3Q
02
1Q
03
3Q
03
1Q
04
3Q
04
1Q
05
3Q
05
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
1Q
17
3Q
17
1Q
18
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18
1Q
19
3Q
19
1Q
20
3Q
20
E1
Q2
1E
3Q
21
E
GM/OpM %Sales (NT$mn)
Revenue GM (excluding bonus) OpM
Cocooning
Source: Company Data, Refinitiv, Credit Suisse estimates
Tata Consumer (OP, TP: Rs 535)
Investment case for Dabur
Company description: Tata Consumer is a leading player in packaged foods in India and alsoruns Starbucks in India through a joint venture. The company mainly plays is branded staplesand is among the top 2 brands in branded tea, salt and pulses. Tata Consumer owns 50% in
the joint venture with Starbucks which runs Starbucks in India. Tata Consumer also derives35% business from international business spread primarily across the US, Canada and UK.
Investment thesis for post-pandemic world
• Tata’s India business growth is likely to accelerate as greater food consumption moves in
home from out of home. In home food preparation has much higher share of brandedproducts compared to out of home food preparation. Thus Tata is likely to gain in packaged
tea, salt, pulses and spices, as consumers use more branded products than hotels andrestaurants.
• Tata is also a beneficiary of a broader industry consolidation in packaged tea as small local
competitors have got impacted in their ability to compete due to the disruptions to the
supply chain post COVID.• In the international business markets like the US and UK, Tata’s business directly benefits
from greater share of consumption of hot beverages like coffee and tea moving from out ofhome to in home.
• We expect Tata to deliver a revenue CAGR of 12% over FY20-23E vs FY17-20 CAGR of7% in the India business. With margin expansion from the synergies of the merger of the
foods business, we expect ~200bps EBITDA margin expansion leading to 18%
consolidated earnings CAGR over FY20-23 vs ~11% organic CAGR over FY17-20.
What’s in the price: Tata’s consensus estimates build in high single digit revenue CAGR inthe India business with 200bps margin expansion over FY20-23, leading to 10-12% EPS
CAGR over FY20-23.
What risks remain: In the near term the company faces a spike in input costs of tea, as a
month of production was lost due to COVID leading to a supply shortfall. This could lead to ashort term pressure on gross margins, which will ease as supply gap gradually narrows in Indiaover the next 6 months. The other risk for the company is a large slowdown in the developed
markets business due to weak economic conditions.Recent research: Tata Consumer initiation
Top38
Key financials
Link to HOLT Lens
Source: Company Data, Credit Suisse estimates
Analyst details:
Name: Arnab Mitra
Phone number: +91-99876 35130
Email: [email protected]
Tata Tea20%
HUL23%
Wagh Bakri5%
Others 52%
India branded tea market share
70260
600
1500
0
500
1000
1500
2000
0
500
1000
1500
2000
Salt Tea Spices Pulses
Market sizes of Tata's current segments (Rs bn)
Branded Unbranded
National players have mere 43% of branded
share, another 35% of consumption is loose
Large unbranded share in categories where
Tata is present
Cocooning Industry trends
Source: Company Data, Refinitiv, Credit Suisse estimates
Top Glove (OP, TP: RM16.20)
Investment case for Top Glove
Company description: Top Glove is the largest glove manufacturer in the world, with acurrent annual production capacity of 85.5bn pieces.
Investment thesis for post-pandemic world: As the world emerges from the pandemic, webelieve there will be a structural shift in demand for gloves. Glove usage has been largely
dominated by the medical industry but we see an emergence of new users as hygieneawareness heightens. Meanwhile, the acceleration of healthcare spending would include PPE
like medical gloves given that it is still one of the cheapest forms of barrier protection. Demand
for gloves has been growing 8-10% p.a. pre Covid-19, but we see significant upside asconsumption across most countries picks up.
What’s in the price: Top Glove’s share price has risen 490% over the past twelve-months onthe back of optimism on the glove maker’s strong earnings growth following the surge in
demand. Despite the strong share price performance, stock is still trading at 6.6x FY21 PE,
suggesting to us that the magnitude of earnings expansion has yet to be fully priced in. Thestock’s official dividend payout policy of 50% translates into a 7.8% dividend yield for thestock.
What risks remain: Given that ASPs have gone up 3-4x versus pre Covid-19, this could alsorevert once spot orders are no longer necessary and there is sufficient stockpiles. Labour
practices adopted by glove manufacturers in Malaysia have been subjected to close scrutiny
and could result in loss of major customers. Any potential disruption along its supply chain isalso a key risk.
Recent research: (1) FY20 results beat estimates by 25% (18 Sep); (2) Reward outweighs
risk (24 Aug); (3) Underappreciated dividend angle (27 Jul); (4) Response to US Customs
detention (16 Jul); (5) Let the good times roll (15 Jul); (6) Record earnings…but unlikely to be
the last (11 Jun); (7) Beyond the pandemic: Hygiene first (3 Jun)
Top39
Analyst details:
Joanna Cheah, CFA
+6 03 2723 2081
Key financials
Link to HOLT Lens
Source: MARGMA, Credit Suisse estimates
Healthcare Hygiene
Source: Company Data, Refinitiv, Credit Suisse estimates
Appendix
40
Beyond the Pandemic Reports published to date - APAC
41
Sector Report title Publication date Author
Banks Australian Banks: Beyond the pandemic 01-Jun-20 Jarrod Martin
Casino & Gaming ALL.AX: Aristocrat Leisure - 1H 20 Result - Look Beyond The Pandemic 21-May-20 Larry Gandler
Consumer
Discretionary
China Consumer Appliances and e-commerce Sectors: Beyond the pandemic: Winners and losers in
the decade of disruptive channel shifts 14-Jun-20 Tony Wang
Consumer
DiscretionaryKorea E-commerce Sector: Beyond the pandemic: Stronger e-commerce growth is the new normal
23-Jun-20 A-Hyung Cho
Consumer
DiscretionaryTaiwan Bicycle Sector: Beyond the pandemic: Riding on the modal shift to cycling
30-Jun-20 Chien Po Huang
Consumer Staples India Consumer Staples Sector: Beyond the Pandemic: Structural gains and cyclical reversals 07-Sep-20 Arnab Mitra
Healthcare Malaysia Rubber Gloves Sector: Beyond the pandemic: Hygiene first 04-Jun-20 Joanna Cheah
Healthcare
TechnologyASEAN Healthcare Sector: Beyond the pandemic: Telemedicine at the cusp of growth
04-Aug-20 Amanda Foo
HOLT AsiaHOLT China Internet Insights: Beyond the pandemic - eCommerce & online entertainment best
positioned for growth 07-Jul-20 Shawn Lee
Independent
RefinersThai Energy Sector: Beyond the pandemic: Fragile recovery
28-May-20 Paworamon (Poom) Suvarnatemee
Oil & Gas Asia Oil & Refining Sector: Beyond the pandemic: A new normal 27-May-20 Horace Tse
Pharmaceuticals India Pharmaceutical Sector: Beyond the pandemic: Impact of supply chain shift to the US 25-May-20 Anubhav Aggarwal
PharmaceuticalsIndia Pharma Sector: Beyond the pandemic: Channel consolidation could disrupt India Pharma
market 23-Aug-20 Anubhav Aggarwal
Real Estate ASEAN Property Sector: Beyond the pandemic: The future of residential real estate 05-Jun-20 Louis Chua
Real Estate Singapore REITs Sector: Beyond the pandemic: Implications of working from home 28-Aug-20 Nicholas The
Retailing Thailand Retail Sector: Beyond the pandemic: What lies ahead for retailers 09-Jun-20 Warayut Luangmettakul
Strategy India Market Strategy: Beyond the Pandemic: The flood, the drought, and water under the bridge 02-Sep-20 Neelkanth Mishra
Source: Credit Suisse Research
Beyond the Pandemic Reports published to date - EMEASector Report title Publication date Author
AirlinesAirLinks - Value Chain Insights: Beyond the pandemic: State aviation systems juggling conflicting
objectives 01-Jun-20 Neil Glynn
Airlines AirLinks - Value Chain Insights: Beyond the Pandemic: Sizing corporate travel recovery prospects 25-Sep-20 Neil Glynn
BanksEuropean Banks: Beyond the Pandemic - Six key themes and de-rated opportunities: Upgrade ING to
Outperform 08-Sep-20 Jon Peace
Banks European Banks: Beyond the Pandemic Part 2: potential M&A scenarios 01-Oct-20 Jon Peace
Business Services Business Services: Beyond the Pandemic: Longer-term winners and seven key themes 22-Jun-20 Andy Grobler
Building Materials and
ConstructionBeyond the Pandemic: Infrastructure and residential to pave the way to recovery 02-Jul-20 Lars Kjellberg
Chemicals Global Chemicals: Beyond the pandemic - disruption in Chemicals 22-May-20 Chris Counihan
Chemicals Retail to Resource - Industry 4.0 Beyond the Pandemic: Industry 4.0 in a postCOVID-19 environment 16-Jul-20 Charles Bentley
Diversified Financials European Diversified Financials: Beyond the Pandemic - Six key themes and our most mispriced stocks 25-Jun-20 Haley Tam
Food & Drug Retailing Turkish food retail: Beyond the pandemic: Lessons learned for a new normal 11-Jun-20 Onur Muminoglu
Global Product and
Thematic
Beyond the Pandemic Part 1: Global perspectives on structural investment themes in a post-COVID-19
world15-Jul-20 Richard Kersley
Global Product and
ThematicBeyond the Pandemic: Going back to normal: An EMEA guide to normalised stock valuations 18-Sep-20 Richard Kersley
Luxury Goods Beyond the pandemic: Luxury shopping hotspots poised for change as Chinese demand returns 05-Nov-20 Guillaume Gauvillé
Luxury Goods Beyond the pandemic: Polarization in trends accelerating 23-Jun-20 Guillaume Gauvillé
Media Ad Agencies: Beyond the Pandemic: Acceleration of digital transformation vs traditional services 08-Jul-20 Matthew Walker
Retailing General Retail and Sporting Goods: Beyond the pandemic-six key trends that will accelerate post-COVID 09-Jun-20 Simon Iriwin
Telecommunication
ServicesEuropean Telecoms: Beyond the pandemic - Changing sector trends in a post-COVID-19 world 19-May-20 Jakob Bluestone
Turkish BanksTurkish Banks: Beyond the Pandemic - Seven themes for a prolonged recovery; Akbank and Garanti
stand out 22-Oct-20 Ates Buldur
42
Source: Credit Suisse Research
Beyond the Pandemic Reports published to date - US
Sector Report title Publication date Author
Asset Managers US Alternative Asset Managers: Beyond the Pandemic - Special SOTPs Valuation Analysis 12-Jun-20 Craig Siegenthaler
Building Products U.S. Multi Industry: Beyond the Pandemic - Smart Buildings 02-Jun-20 John Walsh
Building Products US Housing: Beyond the Pandemic: The Home will be More Important than Ever 12-Jun-20 Adam Baumgarten
Business Services Business & Information Services: Beyond the Pandemic: COVID-19 structural changes 10-Jun-20 Kevin McVeigh
Financials U.S. Exchanges: Beyond The Pandemic 22-Oct-20 Ari Ghosh
Food Retail AD.AS: Management Meeting Takeaways; Implications Beyond COVID-19 03-Jun-20 Judah C. Frommer
Healthcare Technology Telehealth Industry: Beyond the Pandemic 01-Jun-20 Jailendra Singh
Packaged Food
Beyond the Pandemic CAG, BYND, NOMD, BGS, DANO, and MKC Will All Get Healthier if
Consumers Eat More Plants 15-Jul-20 Robert Moskow
Packaged Foods Beyond Meat: Planting Seeds for Growth Beyond the Pandemic; Raising Estimates and TP 17-Jun-20 Robert Moskow
43
Source: Credit Suisse Research
Beyond the Pandemic Reports published to date - Global
44
Source: Credit Suisse Research
Sector Report title Publication date Author
ESG Global ESG Equity Strategy: Beyond the Pandemic: The Green-Shaped Recovery 02-Sep-20 Phineas Glover
Strategy Global Equity Strategy COVID-19: Long-term impact 04-May-20 Andrew Garthwaite
Strategy Global Equity Strategy COVID-19: Long term inflationary consequences and what to do 02-Jul-20 Andrew Garthwaite
Disclosure
45
Valuation, Methodology and Risks
Target Price and Rating Valuation Methodology and Risks: (12 months) for ASOS Plc (ASOS.L)
Method: We rate ASOS Outperform as we think shares now discount many recent concerns around slowing growth, pressure on margins and cash generation. We arrive at a 12m target price of 5,800p based on a weighted average of fair values derived from: DCF, EV/sales and EV/EBITDA. Our DCF assumes an 6.0% terminal margin, 2% TGR and 7.5% WACC. For multiples, we use 12m FWD EV/sales of 1.1x and 15x EV/EBITDA.
Risk: Risks to our Outperform rating and 5,800p target price are that demand continues to be softer than expected and that excessive promotional activity in the market leads to further downward pressure on margins and cash generation.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Adyen (ADYEN.AS)
Method: In order to reflect Adyen's unique growth trajectory in our forecasts - and to account for the near-term COVID disruption, we target a slightly wider valuation window than normal, looking to FY22 in our valuation of Adyen. As a starting point we look to peer group multiple analysis to
derive Adyen’s implied EV/EBITDA multiple using our FY22 YoY net revenue growth estimate of 39.3%. This implies an EV/EBITDA
multiple of 65x. Applying this 65x multiple to our FY22 EBITDA estimates gets us to our implied EV. We then forecast add net cash (excluding merchant funds) for FY22 so as to arrive at our target share price of EUR 1653, and hence we rate the shares Outperform.
Risk: The primary risk to our TP of EUR 1653 and Outperform rating is that COVID disruption in seasonally important 4Q20 and also 1H21 is worse than we currently forecast and this pushes Adyen's recovery further to the right; our FY21 estimates are for example based upon a gradual recovery in both airline and non-airline volumes. Meanwhile from an operational point of view, digital payments is a round-the-clock mission-critical operation on which businesses of all sizes are increasingly reliant upon - any technical issues that may lead to payments network downtime presents a serious risk to Adyen’s course of business and reputation as a leading global payments provider.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Amundi (AMUN.PA)
Method: Our €70 target price is based on a discounted cash flow valuation, using a 10.6% WACC and 1.0% long term growth rate assumptions. We
also include €530m (a significant discount to reported end September 2020 surplus capital of €1bn) in our valuation, reflecting our
expectation that there is a high probability Amundi will either return this to shareohlders or deploy this within a reasonable time frame in M&A that will at least generate ROE = COE. At our target price, Amundi would trade at a 14.1x 2021E PE multiple. Our Outperform rating reflects the resilience of its business, and growth potential from M&A and flow recovery as structural shifts in retail investment to unit linked product re-assert themselves.
Risk: The main risks to our €70 price target and Outperform rating include: (1) greater volatility in Amundi's fixed-income biased AuM than we anticipate; (2) a significant deterioration in outlook in any of Amundi’s key markets, such as France, Italy or Spain; (3) increased pressure on fee margins from distribution partners and/or increased reporting transparency; and (4) execution risk associated with M&A activity.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Apollo Hospitals Enterprise (APLH.NS)
Method: We arrive at our target price of Rs 2,365 for Apollo Hospitals Enterprise using blended 20x FY22E EV/EBITDA for consolidated business [including AHLL but excluding Proton and Apollo 24|7]. We value Apollo 24|7 app at Rs 175/share by assigning a 15x multiple on FY24E EBITDA. We assign OUTPERFORM rating to Apollo as: (1) margins have bottomed-out for Mature Hospitals (2) utilisation is increasing across clusters (3) Navi Mumbai hospital has ramped-up well, (4) pharmacy division continues to deliver strong margins and is expected to witness a steadily increasing RoCE profile as new pharmacies in the network mature, and (5) Apollo 24|7 digital health app leverages strong offline network of hospitals, pharmacies and diagnostic laboratories, which should position it as one of the key digital health players going forward.
Risk: Risks to our target price of Rs 2,365 and OUTPERFORM rating on Apollo Hospitals Enterprises include: (1) government controlling prices of hospital services; (2) delay in AHLL break-even post CoViD-19 impact; (3) investments in non-core segments, (4) extended impact of CoViD-19 on Hospitals business, (5) slower addition of new pharmacies, and (6) muted ramp up of Apollo 24|7 revenues.
Target Price and Rating Valuation Methodology and Risks: (12 months) for BT Group (BT.L)
Method: Our price target of 185p is driven by a 10-yr DCF valuation of 185p. Key drivers or our DCF valuation are the following assumptions: Risk-free rate 0.5%; Interest rate spread of 1.0%; Equity risk premium of 8.3%; WACC of 6.5% and a perpetual growth rate of -0.5%. We rate BT Group Outperform as we now believe BT can return to sustainable EBITDA growth by FY22E consistent with an Outperform rating compared to its European Telecom peers.
Risk: The main risk to our 185p target price and Outperform rating on BT is a deeper recession negative economy impact on its Global Services division and UK business, in particular BT's Enterprise division.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Bangkok Dusit Medical Services (BDMS.BK)
Method: Our 12-month target price of Bt22 for Bangkok Dusit Medical Services is based on a discounted cash flow (DCF) methodology, with weighted average cost of capital (WACC) of 7.56% and cost of equity of 9.71%. Our OUTPERFORM rating is based on recovery in EPS growth and the defensive nature of the healthcare business. These should lead to a sustained high multiple in the longer term.
Risk: Key downside risks to our Bt22 target price and OUTPERFORM rating for Bangkok Dusit Medical Services include: (1) worse-than-expected cost management; (2) lower-than-expected revenue growth; and (3) higher-than-expected competition.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Change Healthcare (CHNG.OQ)
Method: Assuming CHNG returns to its LT growth target in CY22, it would imply CY22 EBITDA at $1.153 bln. A 9x EV/EBITDA multiple on this estimate yields a TP of $19 and thus our OUTPERFORM rating.
Risk: Risks to our Outperform rating and $19 PT include COVID-19 pressure coming in worse than CSe, current investments not yielding desired results, and inability to deleverage its balance sheet.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Charter Communications (CHTR.OQ)
Method: Our $724 target and Outperform rating for Charter are derived via DCF, using a 7.6% cost of equity, 3.5% pre-tax cost of debt and no terminal growth. We rate Charter Outperform given the upside to our target price and based on its expected performance relative to peers.
Risk: Risks to our Outperform rating and $724 target price for Charter include dilutive M&A or capital deployment, adverse regulatory changes, and increased fiber or Fixed/Mobile 5G Wireless competitive intensity.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Dabur India (DABU.BO)
Method: Our target price of Rs590 for Dabur India is based on 48x Sep-2022 earnings estimates (in line with domestic FMCG peer, Marico). We have an OUTPERFORM rating on Dabur as we expect revenue growth to accelerate and margins to expand moderately from here on.
Risk: Key downside risks to our Rs590 target price and OUTPERFORM rating for Dabur are: (1) failure to leverage some of its old brands which have high brand equity but have not been scaled up as yet; (2) a slowdown in consumption in India; (3) sustained increase in competition—ITC in foods, Colgate in toothpastes; and (4) a revival in Patanjali's sales push and distribution.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Enel (ENEI.MI)
Method: Our €8.2 target price for ENEI.MI is based on a mix of SOTP, market multiples and DDM model, assigning different weights at each valuation
method. Our SOTP is based on a mix of individual business DCFs (average WACC 7.1%, nominal post-tax), EBITDA multiples, regulated asset bases and market values. We believe our Outperform rating is justified by (i) the upside potential on the current share price, (ii) Enel's earnings growth above the average of the sector and (iii) the limited exposure in the short-term to commodity/power price risk, leaving the company's targets within reach.
Risk: Risks to our €8.2 target price and Outperform rating for ENEI.MI are regulatory developments for the network and renewable businesses, macroeconomic changes affecting our risk-free-rates assumptions for WACC purposes, LatAm FX, and the market value of Enel's listed subsidiaries. Our rating could be negatively affected by regulatory changes leading to a cut in regulated returns, the introduction of new taxes affecting utilities in Italy, slower growth in the renewable business (either because of lack of projects or unattractive returns) and a significant increase in customer churn in Italy and Spain, leading to a cut in supply margins.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Equifax (EFX.N)
Method: Our Outperform rating and $200 TP equates to ~17.5x 2022E EV/EBITDA. This compares to 3-year range + average of 11.2x-20.2x + 14.5x. We rate shares Outperform as we believe upside from an enhanced tech stack and new product innovation is not discounted in shares.
Risk: Risks to our Outperform rating and $200 target price for EFX are 1) increased regulation, 2) share losses as EFX customers moderate spend, 3) more-than-expected infrastructure + IT spend, and 4) macro headwinds from COVID-19.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Eurofins Scient (EUFI.PA)
Method: Our target price of €760 is based on ROIIC, which is in line with the rest of the sector. Our analysis is based on FY22. We assume a WACC
of 5.3%, 5% NOPAT growth and 4.5% operating asset growth. Our Outperform rating is based on our view that the current price is not reflecting its ability to sustainably compound value, improve FCF and add value through M&A
Risk: Risk factors that could impact our €760 price target and Outperform rating are as follows. Downside risks include: 1) demand for Covid-19 tests declines leaving unutilized capacity and 2) improvement in FCF is delayed by incremental capex and working capital investment. Upside risks include; 1) additional demand for Covid-19 related products; 2) additional value creative M&A
Target Price and Rating Valuation Methodology and Risks: (12 months) for Frasers Centrepoint Trust (FCRT.SI)
Method: Our S$2.90 target price for Frasers Centrepoint Trust is derived using the dividend discount valuation method, assuming a 5.5% cost of equity and a terminal growth of 1.5%. We believe FCT's suburban malls portfolio makes it best positioned to capture the LT benefit of work from home on suburban retail. Meanwhile, potential accretive acquisitions and progress on reopening in Singapore would be positive for the REIT. Hence our OUTPERFORM rating.
Risk: Key risks to our S$2.90 target price and OUTPERFORM rating for Frasers Centrepoint Trust include: (1) acquisitions and AEI execution risks, (2) equity or debt financing risk, (3) worse-than-expected occupancy rates, and (4) slower than expected economic growth.
Target Price and Rating Valuation Methodology and Risks: (12 months) for ICICI Bank (ICBK.BO)
Method: We value ICICI Bank based on sum-of-the-parts to arrive at our target price of Rs520. We value the core bank at 1.7x 24-month forward adjusted book value at a 20% discount to the historical average multiple on rising asset quality concerns due to COVID driven lockdowns and some legacy stress. Our OUTPERFORM rating is driven by: (1) accelerated non-performing loan (NPL) recognition leading to de-risking and (2) better pre-provision profitability and capital buffer against problem loans.
Risk: Key risks to our Rs520 target price and OUTPERFORM rating for ICICI Bank are: (1) significant slowdown in the macro environment and corporate loan demand, (2) substantial deterioration in the asset quality environment, and (3) deterioration in the retail asset quality cycle.
Target Price and Rating Valuation Methodology and Risks: (12 months) for IHH Healthcare Berhad (IHHH.KL)
Method: We derive our target price of RM6.10 for IHH Healthcare using a DCF (discounted cash flow)-based valuation methodology, assuming a 7.4% WACC (weighted average cost of capital) and a 2.5% terminal growth rate. We believe IHH's multi-market strategy gives it the ability to capture the growing healthcare demand across Asia, warranting an OUTPERFORM rating.
Risk: Key risks to our RM6.10 target price and OUTPERFORM rating for IHH Healthcare include: (1) government regulations, (2) execution risk, (3) intensifying competition, and (4) foreign exchange headwinds.
Target Price and Rating Valuation Methodology and Risks: (12 months) for INWIT (INWT.MI)
Method: We base our €11 target price for Inwit on a DCF for combined business. We use a 4.8% WACC derived from a 7.6% equity risk premium, a
2.1% interest spread for and -0.5% risk free rate. In addition we use a 1.5% terminal growth rate, which is our standard towers terminal growth rate. Our standalone Inwit forecasts are ahead of consensus revenue EBITDA forecasts and thus we rate Inwit Outperform.
Risk: The main near term risks to our Outperform rating and €11 target price we believe is failing to integrate the Vodafone tower assets. More fundamentally our forecasts are highly sensitive to continued tenant growth as well as Inwit executing on its small cell and other additional services roll-out plans.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Just Eat Takeaway (JETJ.L)
Method: We value Just Eat Takeaway using a DCF in line with the majority of our European Media coverage. Our methodology uses explicit forecasts out to 2029, beyond which we assume growth in perpetuity of +3%, in line with what we use for other leading internet players under our coverage. We use a WACC of 9.55% derived from a cost of equity of 10.4% (ERP of 8.4%, RFR of 0.35%, beta of 1.2) and a cost of debt of 2%. We assume a capital structure of 90% equity and 10% debt. This yields a target price of 12,100p. Our SOTP valuation framework also supports our TP. Owing to the significant upside potential implied by our target price we rate the shares Outperform.
Risk: Risks to our Outperform rating and 12,100p target price include: Competition, whether from direct competitors or delivery-only providers as well as also uncertainty around the level and duration of investment in Delivery Logistics. We would also flag cyclicality, brand risk, cyber security, restaurant pushback to price rises, technological change (e.g. drones/robots) and shifting consumer preferences. The potential acuqisition of Grubhub brings about operational and execution risk.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Logitech (LOGN.S)
Method: We derive our target price of SFr 101 per share using a three-stage DCF model assuming a WACC of 7.5% and long-term growth of 3.0%. Logitech benefits not only from topline growth but also from an improving gross margin on the back of the success of the above group margin products categories. We carry sales CAGR 2020-25 of 9% (2015-19: 7.2%) fully in line with long-term target of HSD growth and for 2026-32 we have a CAGR of 7.5%. Our target price suggests reasonable upside to the current share price. As such, we rate the stock Outperform.
Risk: Risks to our SFr 101 target price and Outperform rating include: (1) an unexpected decline in consumer confidence (e.g. due to the COVID-19 pandemic), (2) tariff escalations and a China-exposed supply chain/manufacturing, (3) Logitech failing to invent new product innovations that spur sales growth, and (5) FX volatility, the EUR/USD rate in particular.
Target Price and Rating Valuation Methodology and Risks: (12 months) for MediaTek Inc. (2454.TW)
Method: Our OUTPERFORM rating and target price of NT$800 for Mediatek is based on 20x 2021E EPS (earnings per share), in line with global peers. We still view the company better off than pre-Huawei restriction as Huawei had sourced 85% in-house and may be unable to build smartphones.
Risk: Risks that could impede achievement of our NT$800 target price and cause us to change our OUTPERFORM rating for Mediatek include the impact of competitive products and pricing, timely design acceptance by its customers, timely introduction of new technologies, ability to ramp new products into volume, industry-wide shifts in supply and demand for semiconductor products, industry overcapacity, availability of manufacturing capacity, and financial stability in end markets.
Target Price and Rating Valuation Methodology and Risks: (12 months) for PT Medikaloka Hermina Tbk (HEAL.JK)
Method: Our target price of Rp3,800 for PT Medikaloka Hermina Tbk is derived using EV/EBITDA target multiple (16x 2021 EBITDA, in line with regional peers). We also did a sanity check with DCF (discounted cash flow) methodology that shows a fair value of Rp3,800, with assumed WACC (weighted average cost of capital) of 9.6% and terminal growth rate of 6.7%. Our OUTPERFORM rating is driven by: (1) growth above hospital peers; (2) resilient margin profile despite 50% revenue exposure to the Universal Healthcare (BPJS-K); (3) compelling valuation. Mid-teen growth appears achievable in 2021
Risk: Risks to our Rp3,800 target price and OUTPERFORM rating for PT Medikaloka Hermina Tbk include: (1) slower-than-anticipated growth due to a prolonged COVID-19 outbreak, (2) longer-than-expected JKN receivables, (3) ramp-up delays, and (4) unfavourable regulatory developments.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Papa John’s International, Inc. (PZZA.OQ)
Method: Our $110 target price and Outperform rating is based on ~19.5x our NTM EBITDA in 12 months.
Risk: Key risks to our $110 target price and Outperform rating include: competition; consumer sentiment; selloff from block sale. Competition and company-specific challenges could continue to weigh on sales and profitability.
Target Price and Rating Valuation Methodology and Risks: (12 months) for PayPal (PYPL.OQ)
Method: Our $215 target price, which helps drive our Outperform rating, is based on 38x 2022E EPS (vs. +/- 1 std. dev. range [3-year avg.] 30x –
36x), given prospects for an acceleration in eCommerce mix shift, presenting potential upside to estimates both near-term (should recent positive data points continue) and medium-term (increased digital commerce tailwinds).
Risk: Risks to our $215 target price and Outperform rating for PYPL are mainly competitive in nature (e.g., Secure Remote Commerce “single payments button” from the networks, W3C’s Payment Request API in-browser, and any further payments efforts by large cap technology companies). Given the inertia in consumer payments, we are hesitant to put too much weight on these competitive offerings (but acknowledge related headlines will create volatility). We note that a long list of large technology players have made payments announcements over the years, only to see PayPal to continue to grow through these perceived threats.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Progressive Corporation (PGR.N)
Method: Our $101 TP, which drives our Outperform rating, is equal to 18.2x our 2021 EPS estimate, equal to ~90% of the S&P 500's multiple, which compares to PGR's 6-yr historical average of 93%. We note the slight discount is due to our expectation for increasing competition in personal lines to drive pricing lower.
Risk: Risks to our $101 TP and Outperform rating include: 1) Should accident frequencies increase versus our expectations for declines, EPS would come under pressure; 2) Should economic conditions deteriorate, PGR's bad debt expense could drive the expense ratio higher than expected; 3) If telematics based underwriting solutions are deployed by competitors at a faster pace than we expect, PGR's relative competitive advantage would be lessened.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Realtek Semiconductor (2379.TW)
Method: Our target price of NT$450 and OUTPERFORM rating for Realtek are based on 20x cash-adjusted 2021E EPS, in line with its peers. Realtek's upside could continue from sales into new products, and if more benign competition also drives operating leverage.
Risk: The major risk to Realtek achieving our NT$450 target price and OUTPERFORM rating is the company's business concentration on the PC industry. Due to the large size and standard nature of the architecture, many of Realtek's products face competition and commoditisation, placing risks on pricing and margins. The segment is also at risk of slowdown as consumer purchasing shifts to tablets or other media consumption devices where Realtek may have less silicon designed in. Other risks include: (1) its capability to gain market share in key products; (2) its margin trends, (3) foundry manufacturing risks, and (4) inventory cycle risks to sales when channel inventories are at high levels.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Schneider Electric (SCHN.PA)
Method: We use DCF valuation to derive our EUR120 target price. Our DCF is based on a mid-cycle top line growth of 4.5%, through-cycle margin of 18%, terminal growth of 2%, WACC of 7.5% and company NOPAT to free cash flow conversion ratio of 85%. We rate Schneider Outperform. We continue to see an attractive investment case based on margin expansion to a targeted 17%, attractive positioning in the structurally growing Datacentre segment as well as the Industrial Automation software and the Building Information Modelling (BIM) software segment. We see scope for structural re-rating towards its quality growth peers. Our valuation is backed by group P/E and EV/EBITA multiples relative to Schneider's key peers.
Risk: We see the following key risks to earnings forecasts and hence EUR120 target price and Outperform rating for Schneider: Prolonged shut-downs and extensive knock-on effect from COVID-19 pandemic. Execution on Productivity improvement programme and RIB Software acquisition integration.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Siemens Healthineers (SHLG.DE)
Method: Our €43 target price, which helps drive our Outperform rating, is based on a 2022E SOTP. We apply an aggregate 17.8x EV/EBITA multiple
which is inline with the upper end of the Healthcare equipment peer group and discount back one year. We also include Varian EBITA and synergies in our SOTP and the associated equity and debt to finance the acquisition.
Risk: We see the key upside risks to our €43 target price and Outperform rating as being 1) successful execution on Atellica which may lead to the Diagnostics divisional multiple re-rating, 2) US Imaging demand accelerating, leading to faster than expected growth in the Imaging division. Key downside risks are 1) regulatory uncertainty leading to slower than expected demand, 2) pricing pressure in Imaging equipment being higher than expected, and 3) less syergies than expected from the Varian acquistion.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Tata Consumer (TACN.BO)
Method: We value Tata Consumer (TCL) on a sum-of-the-parts basis using different metrics for the three businesses: (1) core India business of tea and salt on 42x P/E which is at par with the valuation of domestic FMCG peer; (2) we value the International business at 15x P/E which is at a discount to global FMCG players such as HUL, P&G, etc.; and (3) Starbucks and the new food segments like pulses/spice are high growth and high potential businesses but do not make profits currently. We value Starbucks at 6x price to sales (at par with other QSR peers) and the pulses segment at 3x sales. We also add Rs9 based on the CMP of Tata Coffee at a 20% hold co discount. This gives us our SOTP target price of Rs535. With TCL beginning a journey of transformation, we see potential for faster growth in the tea and salt business, rapid expansion in pulses/spices and margin expansion from merger synergies. We thus rate the stock OUTPERFORM.
Risk: The risks to our OUTPERFORM rating and target price of Rs535 are: (1) economic slowdown in India could lead to downtrading in the tea business; (2) COVID could have more than a one-year impact on Starbucks; (3) TCL is not able to create brand pull in pulses and spices and these businesses remain commoditised; and (4) the US coffee business is small and susceptible to competition and changes in market structure.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Top Glove Corporation Bhd (TPGC.KL)
Method: Our target price of RM16.20 for Top Glove Corporation Bhd is pegged to 12x P/E (price-to-earnings), which is at 1SD below mean P/E. Our Outperform is premised on the strong earnings expectation, cheap valuations and attractive dividend yield of the stock.
Risk: Key risks to our target price of RM16.20 and OUTPERFORM rating for Top Glove Corporation Bhd include: (1) a sharp and sudden collapse in glove ASP (average selling price), (2) volatility in USD/MYR; (3) unexpected movement in raw material costs; and (4) any reputational damage from its labour practices.
Target Price and Rating Valuation Methodology and Risks: (12 months) for Tradeweb Markets (TW.OQ)
Method: Our $68 Target Price and Outperform rating for Tradeweb is based on a 43x multiple on our 2022 adjusted EPS estimate. We believe that TW's premium multiple relative to the broader peer group is warranted given the secular and cyclical tailwinds (growing market size, electronification, volatility...) benefiting the business.
Risk: Risks to our Outperform rating and $68 target price include slower volume growth (especially Rates over near-term), Mix-shift related FPM pressure, system malfunctions, and corporate governance risks related to its controlled-company structure (majority owned by Refinitiv/LSE).
Target Price and Rating Valuation Methodology and Risks: (12 months) for Trane Technologies (TT.N)
Method: Our Outperform rating and $141 target price are based on 28.0X our 2021 EPS of $5.05. This equates to an EV/EBITDA multiple of 17.3X 2021CSe and a FCF yield of 3.9%.
Risk: Risks to our $141 target price and Outperform rating for TT are (1) a slowdown in global buildings and transportation markets, (2) capital allocation, and (3) reescalation of global trade tensions.
Target Price and Rating Valuation Methodology and Risks: (12 months) for United Parcel Service Inc. (UPS.N)
Method: Our 12-month price target for UPS is $202 and our rating is Outperform. We derive this using a proprietary discounted cash flow model. We start with a base year level of profit consistent with our earnings estimate of $8.87 per share in 2021. From there, we assume UPS can generate operating profit growth of about 6.5% annually over the subsequent 3-5 year period. Based on our estimate of UPS's return on incremental invested capital (ROIIC) of 60%, we assume it costs the company a little more than $1.82 of incremental capital (capex + acquisitions - D&A - divestitures +/- working capital) to generate $1.00 of incremental EBIT. We use a consistent discount rate across the entire airfreight sector; the rate runs in the range of about 8% - 11%, depending on prevailing investor sentiment toward the group. Once we have calculated the company's enterprise value, we add the value of cash on the balance sheet plus any anticipated dividends for the remainder of the year, add estimated values for equity investments, subtract the value of minority interests, and subtract market value of balance sheet debt to arrive at the value available for equity holders.
Risk: Risks specific to UPS's achieving our target price of $202 and our Outperform rating are the economy (both domestic and global), fuel prices (particularly jet fuel), a cyclical rotation out of the airfreight sector, impending risks of labor strikes by the pilots, competitive pricing pressures in the domestic market, and further market share losses in its ground division.
Companies Mentioned (Price as of 30-Oct-2020)
ASOS Plc (ASOS.L, 4408.0p) Adyen (ADYEN.AS, €1447.5) Amundi (AMUN.PA, €56.3) Apollo Hospitals Enterprise (APLH.NS, Rs2119.45) BT Group (BT.L, 101.4p) Bangkok Dusit Medical Services (BDMS.BK, Bt17.5) Change Healthcare (CHNG.OQ, $14.15) Charter Communications (CHTR.OQ, $603.82) Dabur India (DABU.BO, Rs511.55) Enel (ENEI.MI, €6.83) Equifax (EFX.N, $136.6) Eurofins Scient (EUFI.PA, €683.8) Frasers Centrepoint Trust (FCRT.SI, S$2.11) ICICI Bank (ICBK.BO, Rs392.55) IHH Healthcare Berhad (IHHH.KL, RM4.97) INWIT (INWT.MI, €9.28) Just Eat Takeaway (JETJ.L, 8568.0p) Logitech (LOGN.S, SFr77.2) MediaTek Inc. (2454.TW, NT$678.0) PT Medikaloka Hermina Tbk (HEAL.JK, Rp3,150) Papa John’s International, Inc. (PZZA.OQ, $76.6) PayPal (PYPL.OQ, $186.13) Progressive Corporation (PGR.N, $91.9) Realtek Semiconductor (2379.TW, NT$355.5) Schneider Electric (SCHN.PA, €104.2) Siemens Healthineers (SHLG.DE, €36.85) Tata Consumer (TACN.BO, Rs493.3) Top Glove Corporation Bhd (TPGC.KL, RM8.57) Tradeweb Markets (TW.OQ, $54.48) Trane Technologies (TT.N, $132.75) United Parcel Service Inc. (UPS.N, $157.11)
Disclosure Appendix
Analyst Certification
The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperfo rms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European (e xcluding Turkey) ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin America, Turkey and Asia (excluding Japan and Australia), stock ratings are based on a stock’s total return relative to the average total return of th e relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Austra lian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform wh ere an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time.
Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all compan ies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 50% (33% banking clients)
Neutral/Hold* 37% (28% banking clients)
Underperform/Sell* 12% (20% banking clients)
Restricted 2%
Please click here to view the MAR quarterly recommendations and investment services report for fundamental research recommendations.
*For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, a nd Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relati ve basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Important Global Disclosures
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See the Companies Mentioned section for full company names
Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): ENEI.MI, PGR.N, AMUN.PA, EUFI.PA, APLH.NS, LOGN.S, BT.L, INWT.MI, CHNG.OQ, CHTR.OQ, SHLG.DE, TT.N, TW.OQ
Credit Suisse provided investment banking services to the subject company (ENEI.MI, PGR.N, AMUN.PA, EUFI.PA, APLH.NS, LOGN.S, BT.L, INWT.MI, CHNG.OQ, CHTR.OQ, SHLG.DE, TT.N, TW.OQ) within the past 12 months.
Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): IHHH.KL, PGR.N, AMUN.PA, TACN.BO, ICBK.BO, CHTR.OQ
Credit Suisse has managed or co-managed a public offering of securities for the subject company (PGR.N, AMUN.PA, EUFI.PA, CHNG.OQ, CHTR.OQ, SHLG.DE, TW.OQ) within the past 12 months.
Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): ENEI.MI, PGR.N, AMUN.PA, EUFI.PA, APLH.NS, LOGN.S, BT.L, INWT.MI, CHNG.OQ, CHTR.OQ, SHLG.DE, TT.N, TW.OQ
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (BDMS.BK, ENEI.MI, IHHH.KL, PGR.N, ASOS.L, AMUN.PA, SCHN.PA, BT.L, JETJ.L, INWT.MI, CHNG.OQ, CHTR.OQ, SHLG.DE, TT.N, TW.OQ) within the next 3 months.
Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-banking, securities-related: IHHH.KL, PGR.N, AMUN.PA, TACN.BO, ICBK.BO, CHTR.OQ
Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-banking, non securities-related: AMUN.PA
Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): ASOS.L, ADYEN.AS, AMUN.PA, APLH.NS, BT.L, BDMS.BK, CHNG.OQ, CHTR.OQ, DABU.BO, ENEI.MI, EFX.N, EUFI.PA, FCRT.SI, ICBK.BO, IHHH.KL, INWT.MI, JETJ.L, LOGN.S, 2454.TW, HEAL.JK, PZZA.OQ, PYPL.OQ, PGR.N, 2379.TW, SCHN.PA, SHLG.DE, TACN.BO, TPGC.KL, TW.OQ, TT.N, UPS.N
A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (ENEI.MI, PGR.N, AMUN.PA, EUFI.PA, APLH.NS, LOGN.S, BT.L, INWT.MI, CHNG.OQ, CHTR.OQ, SHLG.DE, TT.N, TW.OQ) within the past 12 months.
Credit Suisse may have interest in (HEAL.JK)
Credit Suisse may have interest in (IHHH.KL, TPGC.KL)
As of the date of this report, Credit Suisse beneficially own 1% or more of a class of common equity securities of (2379.TW, LOGN.S, BT.L, JETJ.L).
Credit Suisse is acting as financial advisor to Cassa Depositi e Prestiti SpA (CDP) on the announced pending combination of Open Fibre, owned by Enel (ENEI.MI) and CDP, and FiberCorp, owned by Telecom Italia (TLIT.MI).
Credit Suisse is acting as agent to Logitech (LOGN.S) on the announced share buy-back program.
For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=563607&v=2kzllsuobjifdzoo2loiftbm .
Important Regional Disclosures
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For Thai listed companies mentioned in this report, the independent 2019 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Bangkok Dusit Medical Services (Very Good)
This research report is authored by:
Credit Suisse (Hong Kong) Limited ......................................................................................... Manish Nigam ; Germaine Tai ; Sabrina Shao, CFA
Credit Suisse International ........................................................................... Joelle Anamootoo Natzkoff, CFA ; Samuel Burgess ; Richard Kersley
Credit Suisse Securities (USA) LLC .............................................................................................................................................. Andrew St. Pierre
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the FINRA 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse (Hong Kong) Limited ......................................................................................... Manish Nigam ; Germaine Tai ; Sabrina Shao, CFA
Credit Suisse International ........................................................................... Joelle Anamootoo Natzkoff, CFA ; Samuel Burgess ; Richard Kersley
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