Monday, December 26, 2016

Geox S.p.A. : business turnaround & BP, drivers of the (possible) upside for the next months.

With the presentation of the strategic business plan (2016-2018), at the current prices (about 2 eur/share), the stock seems to be interesting, about the valuation (2018E) : EV/EBITDA 5X, 
EV/SALES 0.5X. The market multiples are more generous in its sector (luxury sector and the like). 
Secondly, the ratios must be adjusted for the high expected growth (see the following image).
Indeed, the expected growth is greater compared to its peers. The handicap is the profitability : the margins are low ; however, with the progress of the business plan, we will see a likely improvement of the EBITDA margin  (from 7% to 10%) and of the NET INCOME margin (from 1% to 4%). 
Then, the margins are supporting the growth and the investments.

Analysis dated December 4, 2016 ;  revised data from

The management is implementing a saving costs policy and they are streamlining the stores.
There is a change in the business : investments and advertising & promotions. The product is changing, compared to the past years, the geographical focus, too (sales increasing with a major growth rate in "other countries"). The last agreement with Pou Sheng International  was signed with that purpose (the italian market is stationary or declining). 
The valuation is interesting if we compare it with M&A multiples, too. 


There are some risks, of course. The business plan could be not achieved even if the credibility and communicability of the management are better versus the previous business plan.
The current BP is far less aggressive with lower risk of PWs, the guidance is a range without interim targets, the starting point is the full year 2015 (in fact, radical and positive changes over the years 

Data source (except the chart, ) : Geox S.p.A. Investor Relations

Finally, at the current prices, it could be an opportunity (not free of risks) because there is a potential 
that is not discounted in market prices.
Secondly, the risk is smaller : one consideration is buying at 4 eur/share ("bubble prices") and another is buying at 2 eur/share (more so with the mentioned assumptions).