Francotyp-Postalia — From analogue to digital

Francotyp-Postalia — From analogue to digital

Francotyp-Postalia (FP) looks back on a more than 90-year history as a producer of franking machines. In the past it expanded its product offering into mail services (eg pre-sorting mail). Future growth is expected to come from digital and IoT solutions, assisting current customers in their digitalisation process and finding new applications for the IoT know-how already present in FP’s secure high-tech franking machines.

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Written by

Francotyp-Postalia

Industrials

Price

€3.85

Market cap

€63m

Share price graph

Share details

Code

FPH

Shares in issue

16.3m

Net debt (€m) at end 2017

19.5

Business description

Francotyp-Postalia (FP) produces and sells franking machines as well as inserters, and offers mail services and software. In franking machines, the company has a global market share of 11%, in a highly oligopolistic market. Future significant growth is expected to come from digital services and IoT solutions.

Bull

Showing consistent market share gains in a mature market.

Restructuring and efficiency measures in place.

Promising new digital products (e-signature, IoT), with key know-how coming from IoT features in its own franking machines.

Bear

Paper-linked communication is a structurally stagnant or shrinking market.

Business re-engineering measures still have to show sustainable impact.

New products still have to prove successful in the market, FP is a rather small player in each of the new markets.

Analyst

Christian Breitsprecher

+44 (0)20 3077 5700

From analogue to digital

Francotyp-Postalia (FP) looks back on a more than 90-year history as a producer of franking machines. In the past it expanded its product offering into mail services (eg pre-sorting mail). Future growth is expected to come from digital and IoT solutions, assisting current customers in their digitalisation process and finding new applications for the IoT know-how already present in FP’s secure high-tech franking machines.

Growing with share gains and digital solutions

About 25% of FP’s revenues come from hardware sales, with 40% from equipment rental income, services and the sale of consumables, which are relatively high-margin businesses. Mail services, like the pre-sorting of outbound mail, contribute about 30% of revenues, with a rather low margin. FP still sees growth in its traditional business, but a bigger growth push is expected from digital solutions like FP Sign (a digital transaction and secure e-signature process) and IoT applications like FP Secure, providing a secure data gateway. IoT know-how is already present in FP’s secure franking machines, which require secure communication between FP’s customers, its servers and the postal services. The development of these new business areas is a key point of the company’s ‘ACT’ strategy, announced in 2016. With almost no revenue contribution from these new product developments at present, they are targeted to contribute more than €30m by 2020. In total, the company targets revenues of €250m, and an EBITDA margin ≥17% by 2020, and €400m in revenues with an EBITDA margin of 20% by 2023.

2017-18: Transformation puts pressure on margins

In 2017, FP reported revenues of €206.3m (+1.7%). On the back of higher costs associated with the ACT programme, EBIDTA fell by 3.3% to €26.3m. For 2018, the company targets a small revenue improvement vs 2017 and a small improvement in company adjusted EBITDA. FP was clear in its outlook that 2018 will be significantly affected by restructuring costs. H118 revenues reached €104.8m (flat y-o-y, €107.9m currency adjusted, +3.3% y-o-y), and EBITDA came in at €12.8m, virtually unchanged from H117. Adjusted for currency effects and restructuring costs, EBITDA would have reached €15.5m, +21% y-o-y, according to FP. However, the company expects significant restructuring charges in H218.

Valuation: Business re-engineering and new products

The company is trading at relatively undemanding FY18e consensus EV/Sales of 0.4x and EV/EBITDA of 3.5x, with a further reduction in multiples expected in FY19 on the back of the ongoing cost-cutting and growth in digital services.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

2016

203.0

9.6

0.36

0.16

10.7

4.2

2017

206.3

7.0

0.28

0.12

13.8

3.1

2018e

212.3

2.1

0.13

0.10

29.6

2.6

2019e

222.3

10.3

0.49

0.19

7.9

4.9

Source: Bloomberg

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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. 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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 [2014]. "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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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