IVS — Update 29 September 2016

IVS — Update 29 September 2016

IVS

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IVS

Opportunity in consolidation

Business services

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29 September 2016

Price

€8.47

Market cap

€330m

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Share details

Code

IVS

Listing

Borsa Italiana (STAR)

Shares in issue

39m

Business description

IVS is the leader in the vending machine industry in Italy and the third largest player in Europe. IVS provides for the installation, maintenance and refill of fully automatic vending machines and semi-automatic small machines and Office Coffee Service (OCS) machines.

Bull

IVS is the market leader in its field and scale gives it a significant cost advantage.

There is still plenty of scope for consolidation in the sector, thus driving further growth and synergies for IVS.

IVS benefits from being able to offer a full service to customers from vending machine production through to operation and maintenance.

Bear

Excluding the effect of acquisitions, growth is relatively low.

The business is fairly capital-intensive as new business wins require the installation of new machines.

The macroeconomic picture is weak in the countries where IVS operates.

Analysts

Sara Welford

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

IVS operates in the vending machine and service sector, with coffee and coffee-like hot drinks representing c 55% of sales. It has grown through acquisition over the last few years and there is still plenty of scope for consolidation given the highly fragmented nature of the sector. Synergies are immediate as scale enables IVS to improve product mix in the acquired businesses and to reduce costs, thanks to greater efficiencies in its refilling and maintenance networks.

Sector consolidation proving an opportunity

The company operates mainly in Italy (c 80% of sales), but also in France and Spain where IVS has now established a sound base. The company has a proven track record in terms of acquiring businesses, integrating them successfully and extracting immediate synergies through increased efficiency. The operating leverage on the logistics side is significant, and through acquisition the group has become one of the largest food service operators in Italy. It is now the leading Italian vending machines operator and the third largest in Europe. Scale should help cement the business proposition as the market goes through a consolidation phase, and IVS benefits from owning companies that include vending machine revamping and coin service companies, thus enabling higher internal efficiency.

Underlying growth less attractive

There is a natural level of churn in the food service business and it is encouraging to note that the new business acquired tends to make a more positive contribution to the company. That said, the main metrics (sales from vending and number of vends) are generally less attractive when excluding acquisitions and new business. This is not a concern in the short to medium term while the business remains acquisitive and continues to expand. However, it is a longer-term issue once the expansion phase is over, as at that point growth is likely to normalise at a lower level. There are currently c 3,000 vending machine operators in Italy and France and c 2,500 in Spain, thus consolidation is highly likely to continue for some time.

Valuation: Material earnings growth in 2017

For 2017e, IVS trades on 12.1x consensus P/E and 6.8x consensus EV/EBITDA, which is not expensive relative to the market. Consensus is expecting material earnings growth in 2017 driven by acquisitions, which is then forecast to slow down materially in 2018.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

346.5

0.2

0.5

0.1

16.9

1.2

12/16e

358.5

26.1

0.5

0.1

16.9

1.2

12/17e

367.0

37.5

0.7

0.1

12.1

1.2

12/18e

372.0

35.0

0.8

0.2

10.6

2.4

Source: Bloomberg (as at 28 September 2016)

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2016]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: Investment Companies

The Brunner Investment Trust — Update 29 September 2016

The Brunner Investment Trust

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