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 the shareholder 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 the first 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 lower operating 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 out