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1、,596,459,556,95,Analyst,FlashnoteMid CapConglomeratesEquity FranceOverweight,abcGlobal ResearchSaft Groupe SA(SAFT FP)OW:Road-show feedback,Target price(EUR)Share price(EUR)Potential return(%),26.0018.2542.5,2012 guidance reiterated,implying stronger sales growth inH2(+6%estimated)than in H1(-2.5%),
2、Note:Potential return equals the percentagedifference between the current share price andthe target price,Well placed to benefit from the emergence of new lithiumbattery market segments,but Nersac/Jacksonville unlikely to,PerformanceAbsolute(%)Relative(%)IndexRICBloomberg,1M-7.8-3.1,3M-0.8-7.0,12M-1
3、6.1-21.2SBF-120S1A.PASAFT FP,reach breakeven before 2014 in our view EUR26 target price and Overweight rating unchangedEvent:We took Safts management on a three-day road-show across Europe.The company,Market cap(USDm)Market cap(EURm)Enterprise value(EURm)Free float(%)16 October 2012Pierre Bosset*HSB
4、C Bank plc,Paris branch+33 1 5652 View HSBC Global Research at:http:/*Employed by a non-US affiliate ofHSBC Securities(USA)Inc,and is notregistered/qualified pursuant to FINRAregulations,reiterated the following 2012 guidance points:(1)2%sales growth on a comparable structurebasis,implying stronger
5、sales growth in H2(+6%HSBCe)than in H1(-2.5%),and(2)EBITDAmargin between 16.5%and 17.0%,although we think that the final figure will be closer to thelower end of this range due to the losses incurred by the Jacksonville plant(EUR16m for 2012e).Analysis:In our view,the key question now is how quickly
6、 will the new lithium battery marketsdevelop,and how quickly will Saft be able to secure sizeable production(rather thandevelopment)contracts in order to boost the utilisation rate of its two plants(Nersac andJacksonville).We continue to believe Saft is well placed to benefit from the emergence of n
7、ewlithium battery market segments,although we think that the Nersac and Jacksonville plants willnot have enough production activity to reach breakeven before 2014.In this note we revise ourestimates slightly,on the back of lower than expected figures at Jacksonville.Valuation:On 1 January 2013,Johns
8、on Controls(JCI US,USD26.2,NR)will transfer theNersac plant(France)to Saft.In our note on 13 July 2012,we highlighted that we value theJacksonville and Nersac plants together,as they will share the same technology and the sameend user markets.We have also assumed that Saft will achieve its sales gui
9、dance for theseplants one year later than it assumes,ie sales of USD100m in 2014(not 2013)and USD200min 2016(rather than 2015).We value the two plants at EUR3/share(based on a multiple of2016e EBITDA discounted back to 2013 at a 10%rate.This is probably too conservativerelative to Jacksonvilles cons
10、truction costs(USD200m,or cEUR6/Saft share).However,some uncertainties remain regarding the ramp-up of these facilities,even if Saft has alreadyanswered to bids totalling more than 100MWh in terms of battery capacity in H1 2012(USD100m based on a price of USD1,000 per kw/h).Our peer comparison appro
11、ach implies avalue for Safts traditional activities of EUR23.To this,we add a value of EUR3 for the,Issuer of report:,HSBC Bank plc,Paris branch,Jacksonville plant,arriving at our 12-month target price of EUR26,unchanged.We maintain,Disclaimer&DisclosuresThis report must be readwith the disclosures
12、andthe analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it,our Overweight rating on the stock.Catalysts:We see a number of potential catalysts:(1)the ramp up of the Jacksonville andNersac plants will be a deciding factor behind consolidated sales growth in
13、 2013 and beyond.In particular,the signing of major renewable energy storage solution contracts could boost theshare price;(2)the development of smart grids in Europe for energy storage solutions,but alsofor smart metering.,Saft Groupe SA(SAFT FP)Conglomerates16 October 2012Financials&valuationFinan
14、cial statements,Valuation data,abc,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Profit&loss summary(EURm),EV/sales,0.8,0.8,0.8,0.7,RevenueEBITDADepreciation&amortisationOperating profit/EBITNet interestPBT,629110-3080-1171,655108-3177-1069,700115-3382-1074,
15、750134-3599-1091,EV/EBITDAEV/ICPE*P/NAVFCF yield(%)Dividend yield(%),4.70.910.11.13.59.4,5.10.99.61.12.64.1,4.80.99.01.09.34.4,4.00.87.10.914.04.7,HSBC PBTTaxationNet profitHSBC net profit,71-205145,69-214848,74-235151,91-266565,Note:*=Based on HSBC EPS(fully diluted)Price relative,Cash flow summary
16、(EURm),3331,3331,Cash flow from operationsCapexCash flow from investmentDividendsChange in net debtFCF equity,70-60-68-18-6616,70-60-70-434012,71-35-46-19-542,83-30-42-20-1563,29272523211917,29272523211917,Balance sheet summary(EURm),15,15,Oct-10,Apr-11,Oct-11,Apr-12,Oct-12,Intangible fixed assetsTa
17、ngible fixed assetsCurrent assetsCash&others,331214526267,34126234979,35227436881,36428840597,Saft Groupe SASource:HSBC,Rel to SBF-120,Total assetsOperating liabilitiesGross debtNet debtShareholders fundsInvested capital,1,09122633970407578,972250188109412622,1,017270185104444643,1,08028518689490674
18、,Note:price at close of 12 Oct 2012,Ratio,growth and per share analysis,Year to,12/2011a,12/2012e,12/2013e,12/2014e,Y-o-y%change,RevenueEBITDAOperating profitPBTHSBC EPS,6.41.52.615.0-5.5,4.2-1.8-4.1-2.45.7,6.96.56.57.26.3,7.116.520.723.027.5,Ratios(%),Revenue/IC(x)ROICROEROAEBITDA marginOperating p
19、rofit marginEBITDA/net interest(x)Net debt/equityNet debt/EBITDA(x)CF from operations/net debt,1.110.412.24.917.512.810.017.00.6101.1,1.18.911.74.716.511.810.826.41.063.6,1.19.011.95.216.411.711.523.30.967.5,1.110.813.96.217.913.213.418.00.792.6,Per share data(EUR),EPS reported(fully diluted)HSBC EP
20、S(fully diluted)DPSNAV,2.011.801.7216.15,1.901.900.7516.36,2.022.020.8017.65,2.582.580.8519.46,2,Factset,Saft Groupe SA(SAFT FP)Conglomerates16 October 20122012 guidance maintainedSafts management has confirmed its 2012 guidance,published in July 2012 2%sales growth in 2012 on a comparable structure
21、 basis which implies stronger sales growth in H2(+6%est)than in H1(-2.5%),and EBITDA margin between 16.5%and 17.0%,although we think that the final figure will be closer tothe bottom due to the losses of the Jacksonville plant(EUR10.7m in H1 and EUR5 to 6m in H2)USD100m of Lithium ion battery sales
22、in 2013.However,these sales will be split between the Nersacand Jacksonville plants,and we therefore believe that both plants will be loss-making next year.The table below illustrates our forecasts for Saft group.We split them between Safts traditional businessand the Jacksonville and Nersac plants
23、combined.Exhibit 1:SAFT and Jacksonville&Nersac plants outlook,abc,(EURm)Sales Saft traditional business(1)Y o y variation(%)Sales Jacksonville&Nersac combinedY o y variation(%)Total sales for Saft groupY o y variation(%)EBITDA Saft traditional business(1)EBITDA Jacksonville&Nersac combinedTotal EBI
24、TDAEBITDA margin for Saft traditional business(%)EBITDA margin for Jacksonville&Nersac plants(%)Total EBITDA margin for the group(%),20116210621112-1010318.1%na16.5%,2012e6301.4%256555.4%124-1610819.7%-64.0%16.5%,2013e6503.2%50100.0%7006.9%125-1011519.2%-20.0%16.4%,2014e6703.1%8060.0%7507.1%12951341
25、9.3%6.3%17.9%,(1)excluding up front payment for licence fee of EUR7.4m in 2011Source HSBC for forecast,Saft for 2011Earnings forecasts adjustmentsThe table below highlights our updated forecasts for Saft.The small downward revision is mostly drivenby lower than expected sales and profits at the Jack
26、sonville plant.Exhibit 2:HSBC new estimates versus old and versus consensus(as of 11/10/2012),_ 2012e _,Factset _ 2013e _,(EUR m),Old,new,var(%)Consensus,Old,new,var(%),Consensus,SalesEBITDAEBITDA margin(%)EBITA adjustedEBIT margin(%)Net profit(1)EPS HSBC(EUR),67011016.5%7911.9%502.02,65510816.5%771
27、1.8%481.90,-2%-2%-3%-4%-4%,65410916.6%7511.4%47,70511716.5%8611.9%542.14,70011516.4%8211.7%512.02,-3%-3%-5%-6%-6%,70511616.5%8211.7%51,Source:HSBC estimates,Factset consensus(1)excluding non recurring items3,Saft Groupe SA(SAFT FP)Conglomerates16 October 2012Cash generation to increase significantly
28、 by 2014One of Safts key attractions is its strong cash flow generation which is currently mitigated by itssignificant capacity expansion in the US.Saft is investing in the Jacksonville plant with a second linecoming on stream in Q3 2012(Iron phosphate cells)and the third one in Q3 2013(prismatic ce
29、lls).Byend 2012,Saft will have used all the USD95m subsidies granted by the Department of Energy.By end2013,all the capital expenditure at Jacksonville will have been completed.In H1 2014,the Jacksonvilleplant will break even according to our projections,and Safts capital expenditure requirements wi
30、ll fallback to around EUR25m.The table below illustrates our projections for free cash flow generation,whichshould amount to around EUR36m in 2014,ie 8%of Safts current market capitalisation.Exhibit 3:Safts free cash flow generation outlook,abc,(EURm)Cash flow generated by Safts activitiesCapital ex
31、penditure for JacksonvilleSubsidies received from the DOENet capital expenditure at JacksonvilleCapital expenditure on Saft traditional businessesTotal capital expenditureAcquisition of intangible assetsFree cash flowas a%of current market cap,201169.8-43.020.4-22.6-16.6-39.2-9.121.55%,2012e70.0-32.
32、015.4-16.6-25.0-41.6-10.018.44%,2013e72.0-15.00-15.0-25.0-40.0-10.521.55%,2014e79.0000.0-25.0-25.0-11.043.08%,Source:Company data,HSBC estimatesLarge capacity available for several new emerging marketsOn 1 January 2013,Johnson Controls will transfer the Nersac lithium ion battery production line to
33、Saft,with a capacity of USD50m.Saft will also open the third production line in Jacksonville in Q3 2013,andwill have a capacity of USD300m in the US(assuming that 1MWh storage has a selling price ofUSD1m).We have three questions regarding this:How quickly will Saft be able to secure sizeable contrac
34、ts in order to boost the utilisation rate ofthose two plants(USD350m of sales capacity)?Saft indicated in July that it expects USD100m ofsales from these two plants in 2013 and USD200m in 2015.We have delayed those forecasts by 12months to be conservative,given current uncertainties about those new
35、markets.What will be the pricing outlook for Lithium ion MWh storage capacity,knowing that there is plentyof available capacity,notably in the US(A123 Systems,Johnson Control,Ener1)?How quicklywill the price fall?Saft indicated that they expect EBITDA margin of around 15%in the US,depending of the e
36、nd user market.This is a lower level than the current EBITDA margin on itstraditional business,excluding the losses on the Jacksonville plant at around 19%over H1 2012.How might Saft avoid competition from South East Asian producers?According to the company,theanswer lies probably in the size of the
37、 end user market(Saft will target niches rather than massmarkets),the value added on top of the battery(customization,tailor made solution for the clients).Saft has identified a number of potential segments where it could develop solutions.It expectscompetition will come from players such as Ener1,A
38、123 Systems,Valence Technology,all US based,but also from Asian producers(LG Chem,GS Yuasa etc.).4,1,2,3,Saft Groupe SA(SAFT FP)Conglomerates,abc,16 October 2012Storage solution for renewable energy:Saft could provide 1m3 Lithium ion battery for residentialindividual housing.The cost of the battery
39、would be EUR3,000 to EUR4,000 per total system includingsolar panels an electronics of about EUR15,000 and a 20-year utilisation expectancy with little or nomaintenance.Saft has already signed some agreements with Schco(solar panels)in Germany and Nedapin the Netherlands.At this stage,there is no ma
40、rket in France,as the electricity produced must be sold tothe grid and cannot be self-consumed at this stage.Grid stabilization:For the stabilization of the energy produced by wind or solar farms,Saft can offer asolution based on a container full of lithium ion with a capacity of 1MWh(for a price of
41、 USD1m).Forinstance,storage is becoming mandatory for renewable energy farms in California:indeed regulationsimposed a storage capacity of 2.5%to 5%of the production capacity of the farm.We expect more similarinitiatives which should trigger a strong uplift in the demand for energy storage system.Mo
42、bility:Peugeot Scooters launched an electrical scooter in March 2012 equipped with a Saft battery.Saft also won a contract for an electric Ferry in Bordeaux for Keolis.Telecom:Saft is introducing the Lithium ion battery to the stationary back-up battery for telecomstations,in order to replace lead o
43、r nickel-based batteries.Lithium ion batteries are more expensive butoffer a longer life span,more cycles,and a better resistance to temperature fluctuations.We estimate thevalue of this market at EUR1.7bn.Saft obtained a first contract with Ausonia(Italy)which suppliestelecom operators with network
44、 stations.Ausonia expects to sell more than 2000 stations,each of themincorporating a Saft battery worth EUR3000 to EUR4000.Forklifts:Forklifts are only powered by lead batteries,and the battery market is estimated at EUR2.2bn.Lithium ion batteries are approximately 5 times more expensive.Saft estim
45、ates that there could be anattractive pay back for 10 to 15%of the fleet,depending on the usage,and the temperature conditions.This could lead to a market for Lithium ion batteries worth EUR1bn,according to us.Automobile:Safts decision to return to the automobile market has raised some eyebrows amon
46、g Saftsshareholders.Nevertheless,we think that Safts strategy on this segment is not overly ambitious.Saft willstay away of the mass market where it would face competition from South East Asian producers(LGChem,GS Yuasa,Byd).It will focus on 3 niches:Buses and commercial vehicles(hybrid and electric
47、);each battery will cost between EUR100,000and EUR150,000;A number of corporate fleets could become all electric.Nevertheless,it willremain a niche market.No sales are expected on this segment before 2014.Affordable micro hybrid(small voltage batteries for passenger cars).Saft has linked up with Val
48、eo(FRFP,EUR35,N(V),TP EUR36),one of the world leaders for the stop-start system.The cost of this microhybrid could be EUR1,000 to EUR1,500 per battery according to Saft,which would just provide a boostduring the acceleration.It would help the CO2 emission reduction.We do not expect any sales before2
49、015.Limited series and competition vehicles;Saft is already supplying batteries for Formula 1 teams.Thiswill remain a very small market.5,-47,Saft Groupe SA(SAFT FP)Conglomerates16 October 2012Defence:Saft had been awarded a development programme contract by BAe Systems in 2012(for anundisclosed amo
50、unt)for ground combat vehicle.Lithium ion batteries could bring a number of propertiessuch as a lighter weight,longer life However,given the current constraints on budget deficit both inEurope and North America;it is difficult to gauge the potential size of the market in the coming years.It is diffi
