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28 March 2011

Equity
Machinery
www.sgresearch.com 12m target upgrade

France

DELACHAUX
Buy (12m)
Price 24/03/11 12m target

Shareholder reorganisation makes for some speculative appeal
 Update

€68.1

€80.0

In a January interview with Bloomberg, François Delachaux, the group’s president, said that he had hired a bank to advise the family about a reorganisation of theshareholder make-up of the controlling holding company, Sogrepar (which owns a 57% stake in Delachaux), without this affecting Delachaux. On 23 March, Reuters reported that the FSI (French sovereign fund which buys stakes in companies considered strategic for the country) was apparently interested. On Friday 25 March, an article in Les Echos reported that, “two of the group’s three owners had opened thefirst round of selling their shares. Apparently Bain, Carlyle, Permira and CVC have shown an interest”. This latest news implies that a change in control is possible. This news does not affect the group’s business. Delachaux is scheduled to

 Impact

1 year
Price
75

MA 100

announce 2010 earnings on 4 April. We expect a rebound in EBIT to €95m (vs €76m in 2009), with a much loweroperating margin in H2 than in H1 (11.8% vs 14.6%) owing mostly to the impact of higher raw materials prices. For 2011, we expect high sales growth (close to 10%), thanks to momentum in Conductix.
 Target price & rating

60

45

30 2010
(th) 210 140 70 0 2010 2011

2011

Source: SG Cross Asset Research

We have raised our target price to €80 (vs €73). It is the average of a DCF (€75 vs€73, with a lower WACC of 10% vs 10.2% owing to better visibility on Conductix, a more cyclical business than rail equipment, which had prompted us to adopt a high beta; operating margin of 12.1%; 2009-14e sales growth of 8.9%; LT FCF growth of 1.5%) and a valuation in the framework of an LBO (€85, generating an IRR of 15% in five years, see details on the following pages). We would also point outthat the share price would come to nearly €100 based on the valuation multiples from 2007 applied to our 2011 estimates. We confirm our Buy rating which, besides any speculative appeal, is based on substantial potential for sales growth, in particular thanks to Conductix. Risk factors: just 60% of Delachaux’s sales come from rail equipment, making the group somewhat cyclical, as illustrated by the20% drop in sales in 2009. An economic downturn would thus most likely have an impact on the share price.

 Next events & catalysts
Delachaux on www sgresearch com

In the coming weeks, investors are likely to focus on the stock market consequences of the shareholder reorganisation.

Share data

Financial data

12/09

12/10e

12/11e

12/12e

Ratios

12/09

12/10e

12/11e12/12e

RIC DELX.PA, Bloom DCH FP 52-week range EV 10 (€m) Market cap. (€m) Free float (%) Performance (%) Ordinary shares Rel. Eurofirst 300 1m
3.7 5.7 14.7 17.1

Revenues (€m) EBIT margin (%) Rep. net inc. (€m) EPS (adj.) (€) Dividend/share (€) Payout (%) Interest cover (x) Net debt/equity (%)
Jean-Baptiste Roussille (33) 1 42 13 99 78

636 12.0 54 4.11 0.80 19.4 26.0 8.2

719 13.265 5.00 0.90 18.0 31.6 1.3

804 13.0 73 5.63 1.00 17.8 nm nm

869 13.6 82 6.34 1.10 17.4 nm nm

P/E (x) FCF yield (/EV) (%) Dividend yield (%) Price/book value (x) EV/revenues (x) EV/EBIT (x) EV/IC (x) ROIC/WACC (x)
CAGR 09-12e: +15.6%

10.8 8.1 1.8 1.3 0.95 12.0 1.8 1.2

9.8 6.8 1.8 1.3 0.88 9.2 1.7 1.5

12.1 8.6 1.5 1.6 1.02 7.8 1.6 0.1

10.7 9.6 1.6 1.4 0.87 6.4 1.4 0.169.8-39.8 876 884 42.3 3m 12m
70.3 62.6

Patrick Jousseaume (33) 1 42 13 66 62
patrick.jousseaume@sgcib.com

jean-baptiste.roussille@sgcib.com

CERTIFICATION(S), IMPORTANT DISCLOSURES AND DISCLAIMERS AND THE STATUS OF NON-US RESEARCH ANALYSTS.
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