PIERER Mobility — Outstanding performance continues

PIERER Mobility (AV: PMAG)

Last close As at 22/04/2024

81.00

1.00 (1.25%)

Market capitalisation

2,738m

More on this equity

Research: Industrials

PIERER Mobility — Outstanding performance continues

PIERER Mobility’s performance during the pandemic has been exceptional, with proactive management control enabling the company to successfully expand market share as demand for its products has surged. The positive momentum in Q421 has led to another upgrade to FY21 guidance. We expect growth to continue in FY22 albeit moderating as booming motorcycle demand normalises. The rapid expansion of the e-bikes business and entry into the e-scooter market provide growing and complementary revenue streams. The now complete simplification of the Bajaj shareholding enhances FY22 EPS by a further 23%. Shareholder returns are significantly enhanced, which is reflected in our capped DCF valuation of the group, which currently stands at €116 per share.

Andy Chambers

Written by

Andy Chambers

Director, Industrials

Industrials

PIERER Mobility

Outstanding performance continues

FY21 guidance increase

Automobiles & parts

19 January 2022

Price

€90

Market cap

€3bn

Net debt (€m) at 31 December 2021e

231

Shares in issue

33.8m

Free float

23%

Code

PMAG

Primary exchange

SIX Swiss Exchange

Secondary exchange

Frankfurt Stock Exchange

Share price performance

%

1m

3m

12m

Abs

4.2

15.0

28.8

Rel (local)

(0.4)

10.6

(0.1)

52-week high/low

€90.90

€65.50

Business description

PIERER Mobility is a leading manufacturer of powered two wheelers, focusing on premium motorcycles and two-wheeled electric vehicles including e-bikes. With its well-known brands – KTM, HUSQVARNA and GASGAS – it is the largest sports motorcycle manufacturer in Europe.

Next events

FY21 preliminary results

1 February 2022

Analyst

Andy Chambers

+44 (0)20 3681 2525

PIERER Mobility is a research client of Edison Investment Research Limited

PIERER Mobility’s performance during the pandemic has been exceptional, with proactive management control enabling the company to successfully expand market share as demand for its products has surged. The positive momentum in Q421 has led to another upgrade to FY21 guidance. We expect growth to continue in FY22 albeit moderating as booming motorcycle demand normalises. The rapid expansion of the e-bikes business and entry into the e-scooter market provide growing and complementary revenue streams. The now complete simplification of the Bajaj shareholding enhances FY22 EPS by a further 23%. Shareholder returns are significantly enhanced, which is reflected in our capped DCF valuation of the group, which currently stands at €116 per share.

Year end

Revenue (€m)

EBIT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

1,520

131.7

2.42

0.00

37.2

N/A

12/20

1,530

107.2

1.55

0.30

58.1

0.3

12/21e

2,027

188.6

3.20

0.50

28.4

0.6

12/22e

2,235

204.1

4.08

1.00

22.1

1.1

Note: *EBIT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Record year in prospect

With continued strong global demand for motorcycles augmented by the rapid growth of the e-bike activity, FY21 is set to be a record year for the group. In FY21 it sold 332,881 motorcycles (FY20: 270,407), up 23% and a record for the 11th consecutive year. The bicycle division (operating under the HUSQVARNA, R RAYMON and GASGAS brands) grew sales by over 40% to 102,753 bicycles (FY20: 73,277), of which 76,916 were e-bicycles (FY20: 56,064). The move into urban mobility should accelerate in FY23 with the launch of the e-scooter range approaching. The growth in demand for e-bikes should continue, driven by positive market dynamics in PIERER Mobility’s established European markets, as well as entry into new sales territories in Europe and North America, as evidenced by the recent acquisition of the FELT brand with its US market position.

Simplified Bajaj shareholding enhances returns

The recent deal with Bajaj to simplify its shareholding in the group has served to enhance returns to investors as PIERER Mobility expands its e-mobility portfolio. In addition to the run of trading upgrades, FY21 EPS are further enhanced by 5% reflecting the part year benefit of the transaction. In FY22 the EPS estimate is enhanced by 23%. In the longer term there is some value sacrifice as Bajaj will participate in the growing e-bikes business as well as the motorcycles business.

Valuation: Justifying a premium rating

The shares have performed well in FY21 and the company retains a premium rating, with the FY22 P/E of 22.1x reflecting the prospects for sustainable growth accompanied by strong cash flows to invest in growing the new e-mobility revenue streams.

FY21 setting new records

PIERER Mobility, Europe’s leading supplier of powered two wheelers, is set to report record FY21 results on 1 February 2022. This follows the heavily disrupted FY20 trading but more significantly FY21 will be well ahead of the FY19 pre-pandemic performance. The continued strong demand globally for both motorbikes and e-bikes and the targeted replenishment of dealer inventory levels mean that motorcycle production is running at close to capacity in Austria and supporting strong growth from India. Supply chain issues have been manageable and the impact limited. The situation for e-bikes has been more difficult with the market generally relying on an Asian supply chain that remains disrupted, with some basic components such as frames in short supply. PIERER Mobility has addressed this through the expanded supply cooperation with its main supplier in Bulgaria.

As a result, management has raised the forecast range again for FY21 and now expects to report revenues of €2.02–2.04bn (from €1.90–2.00bn). In addition, it has raised its EBIT margin expectation to 9.0–9.5% (from 8.0–9.0%).

FY22 expected to grow well although at more moderate rates

We expect growth in motorcycles to continue even if the current boom has satisfied the immediate enlarged appetite for both street and off-road models. In addition, while we expect the shortages of components due to the pandemic-related supply chain issues to diminish as the year progresses, they are still constraining production in the short term. The urban mobility exposure should be further advanced by the launch of the e-motorcycle and e-scooter ranges over the next few years (for clarity, ride-on scooters not electric stand-ons). The strong growth in demand for e-bikes should continue, driven by positive market dynamics in PIERER Mobility’s established DACH markets, as well as entry into new sales territories in Europe and North America.

Revisions to earnings estimates

Following the latest guidance, we have updated our estimates to reflect the strong trading momentum through FY21 as well as the simplification of Bajaj’s shareholding. It has been some time since we last updated our numbers so with several guidance increases, the uplift shown below is considerably greater than the c 13% increase in EBIT implied by the centre of the ranges in the latest management guidance issued on 12 January 2022. We now include e-motorcycles in our model with a modest sales contribution in FY21 and FY22, but this could grow rapidly from FY23 as PIERER Mobility seeks to penetrate the European urban mobility market.

Before the Bajaj transaction, the increase compared to our previous estimates is shown in Exhibit 1.

Exhibit 1: PIERER Mobility earnings estimates revisions (before Bajaj deal)

Year to December (€m)

2021e

2021e

 

2022e

2022e

 

Prior

New

% change

Prior

New

% change

Core motorcycle business

1,641.2

1,836.1

11.9%

1,739.7

1,942.5

11.7%

E-motorcycles

12.0

24.0

71.4%

40.0

40.0

0.0%

E-bikes

169.9

163.0

0.1%

230.3

248.3

7.8%

Other

3.8

3.8

0.0%

3.8

3.8

0.0%

Total revenues

1,826.9

2,026.9

11.8%

2,013.8

2,234.6

11.0%

EBITDA

306.3

333.1

8.8%

335.0

361.1

7.8%

D&A

(151.6)

(144.5)

-4.7%

(156.0)

(157.0)

0.6%

EBIT

154.7

188.6

22.0%

179.0

204.1

14.0%

PBT

142.9

165.5

15.9%

167.6

181.3

8.2%

Net income

59.1

68.4

15.9%

70.5

75.0

6.3%

 

 

EPS (€)

2.62

3.04

15.9%

3.13

3.33

6.3%

Dividend (€)

0.30

0.50

66.7%

0.30

1.00

233.3%

Adjusted net debt

302

231

-23.5%

215

129

-40.2%

Source: Edison Investment Research

As discussed later, the additional enhancement arising from the Bajaj deal is shown in Exhibit 2.

Exhibit 2: Earnings enhancement arising from Bajaj transaction

Year to December (€m)

2021e

2021e

 

2022e

2022e

 

Prior

New

% change

Prior

New

% change

Total revenues

2,026.9

2,026.9

0.0%

2,234.6

2,234.6

0.0%

Total gross profit estimates

577.0

577.0

0.0%

634.3

634.3

0.0%

EBITDA

333.1

333.1

0.0%

361.1

361.1

0.0%

D&A

(144.5)

(144.5)

0.0%

(157.0)

(157.0)

0.0%

EBIT

188.6

188.6

0.0%

204.1

204.1

0.0%

PBT

165.5

165.5

0.0%

181.3

181.3

0.0%

Net income

68.4

78.0

14.0%

75.0

137.8

83.8%

EPS (€)

3.04

3.20

5.3%

3.33

4.08

22.6%

Dividend (€)

0.50

0.50

0.0%

1.00

1.00

0.0%

Adjusted net debt

231

231

0.0%

129

129

0.0%

Source: Edison Investment Research

Valuation

With the elimination of the large minority and dividend and the imminent start of the new e-scooter product segment, we now use our capped discounted cash flow (DCF) model as our primary valuation tool. It encompasses all of the PIERER Mobility operations, whereas previously we had separated the core DCF from the new e-mobility offerings. We regard it as relatively conservative as after a six-year forecast period we assume a growth rate of zero in the terminal period, albeit normalising capex to depreciation and neutralising working capital flows, which in combination eliminate significant value from the tail period when e-mobility activities are expected to be growing strongly.

Currently our calculation returns a value of €116 per share using a calculated WACC of 7.4%. The sensitivity to WACC and terminal value growth rates is shown in the table below.

Exhibit 3: PIERER Mobility capped DCF sensitivity to WACC and terminal growth (€/share)

WACC

6.0%

7.0%

7.4%

8.0%

9.0%

10.0%

Terminal growth rate

0%

151

125

116

106

91

79

1%

180

144

133

119

101

87

2%

222

172

157

138

114

97

3%

294

212

190

164

132

109

Source: Edison Investment Research

Bajaj shareholding adjustment enhances returns

The simplification of the Bajaj Auto participation in PIERER Mobility was completed in late October 2021. The value of $895m was for 46.5% of the shares Bajaj held in KTM in return for a 49.9% stake in PTW Holdings, a new holding company created to facilitate the transaction. PIERER Industrie had placed 60% of its holding in PIERER Mobility. PTW Holdings then transferred the 46.5% KTM shares as a payment in kind to PIERER Mobility in return for 11,257,861m new shares issued at €79.5 by PIERER Mobility.

As a result:

Bajaj now holds an interest of 36.7% in PIERER Mobility and retains a direct c 1.5% stake in PIERER Mobility’s motorcycle operating subsidiary, KTM. The deal provides Bajaj with participation in the expected growth of e-mobility, which is external to KTM.

PIERER Industrie retains control through the 50.1% stake held in the main shareholder, PTW Holdings, providing for the appointment of the majority of board members.

PIERER Mobility also sold the treasury shares (0.86% of the existing capital) in the market, becoming part of the free float (now 22.97%).

The resulting new structure is compared to the previous structure below:

Exhibit 4: Previous shareholder structure

Exhibit 5: New shareholder structure*

Source: PIERER Mobility

Source: PIERER Mobility. Note: *After the 49.9% capital increase.

Exhibit 4: Previous shareholder structure

Source: PIERER Mobility

Exhibit 5: New shareholder structure*

Source: PIERER Mobility. Note: *After the 49.9% capital increase.

In our view, from a free float shareholder’s perspective the transaction would mean:

No change to the number of shares in free float, although the proportional ownership of PIERER Mobility decreases to just under 23% in line with the non-pre-emptive capital increase.

The minority to Bajaj from KTM is eliminated, leading to FY21 and FY22 EPS being enhanced by 5% and 23% respectively.

Potential for increased dividends although we believe any progressive policy is likely to retain conservative levels of earnings cover in excess of 3.0x.

A sacrifice of a proportion of the future value potential from the e-mobility operations that Bajaj had no direct stake in, but where it is an active partner.

Enhanced cooperation with Bajaj on technology and market reach for the e-mobility business.

Exhibit 6: Financial summary

€m

2019

2020

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,520.1

1,530.4

2,026.9

2,234.6

Cost of Sales

(1,074.1)

(1,103.6)

(1,451.7)

(1,595.5)

Gross Profit

446.0

426.8

575.2

639.1

EBITDA

 

 

230.8

233.7

333.1

361.1

Operating Profit (before amort. and except.)

 

 

187.7

172.5

260.1

284.7

Intangible Amortisation

(56.0)

(65.3)

(71.5)

(80.6)

Exceptionals

0.0

0.0

0.0

0.0

Other

0.1

(2.8)

(3.9)

(3.9)

Operating Profit

131.8

104.4

184.7

200.2

Net Interest

(13.9)

(13.6)

(13.3)

(12.9)

Profit Before Tax (norm)

 

 

117.8

90.8

165.6

181.5

Profit Before Tax (FRS 3)

 

 

117.8

90.8

165.6

181.5

Tax

(22.1)

(21.4)

(39.7)

(43.5)

Profit After Tax (norm)

95.7

69.5

125.9

137.9

Profit After Tax (FRS 3)

95.7

69.5

125.9

137.9

Average Number of Shares Outstanding (m)

22.5

22.5

24.4

33.8

EPS (€)

 

 

2.42

1.55

3.20

4.08

EPS - normalised fully diluted (€)

 

 

2.42

1.55

3.20

4.08

EPS - (IFRS) (€)

 

 

2.42

1.55

3.20

4.08

Dividend per share (€)

0.00

0.30

0.50

1.00

Gross Margin (%)

29.3

27.9

28.4

28.6

EBITDA Margin (%)

15.2

15.3

16.4

16.2

Operating Margin (before GW and except.) (%)

12.3

11.3

12.8

12.7

BALANCE SHEET

Fixed Assets

 

 

862.4

927.3

918.3

906.2

Intangible Assets

522.3

557.9

614.1

667.2

Tangible Assets

326.5

356.2

291.0

225.7

Right of use asset

0.0

0.0

0.0

0.0

Investments

13.6

13.3

13.3

13.3

Current Assets

 

 

751.5

758.7

898.9

975.2

Stocks

321.6

298.7

354.7

383.2

Debtors

175.2

144.9

182.4

199.1

Cash

160.9

218.3

238.3

258.3

Other

93.8

96.8

123.4

134.6

Current Liabilities

 

 

(406.6)

(450.5)

(454.8)

(498.0)

Creditors

(320.2)

(375.9)

(454.8)

(498.0)

Short term borrowings

(86.4)

(74.6)

0.0

0.0

Long Term Liabilities

 

 

(588.7)

(581.4)

(593.4)

(510.3)

Long term borrowings

(470.3)

(456.1)

(469.1)

(387.0)

Lease liabilities

0.0

0.0

0.0

0.0

Other long term liabilities

(118.3)

(125.3)

(124.3)

(123.3)

Net Assets

 

 

618.6

654.1

768.9

873.1

CASH FLOW

Operating Cash Flow

 

 

297.9

348.1

294.8

320.8

Net Interest

(18.4)

(13.9)

(13.6)

(13.3)

Tax

(22.1)

(21.4)

(39.7)

(43.5)

Capex

(149.8)

(147.9)

(135.8)

(144.9)

Acquisitions/disposals

(0.2)

(1.0)

0.0

0.0

Financing

(5.2)

(4.6)

0.0

0.0

Dividends

(20.2)

(26.7)

(24.5)

(16.9)

Other

(130.7)

(49.3)

0.4

0.0

Net Cash Flow

(48.7)

83.4

81.6

102.1

Opening net debt/(cash)

 

 

444.5

395.8

312.4

230.8

HP finance leases initiated

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

395.8

312.4

230.8

128.7

Net financial Liabilities

395.8

312.4

230.8

128.7

Source: Company reports, Edison Investment Research estimates


General disclaimer and copyright

This report has been commissioned by PIERER Mobility and prepared and issued by Edison, in consideration of a fee payable by PIERER Mobility. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

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General disclaimer and copyright

This report has been commissioned by PIERER Mobility and prepared and issued by Edison, in consideration of a fee payable by PIERER Mobility. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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The Mission Group — Investing in talent

The MISSION Group’s year-end trading update indicates FY21 PBT will be in line with market expectations, with a good H221 performance on revenue and margin. The net debt figure of £10.2m is also in line with the anticipated level, with £6.3m of deferred consideration paid out in H221. Management is indicating a higher level of investment in talent recruitment and retention in FY22, which will up the cost base in the short term but put it in a better position to take advantage of trends, particularly in data and analytics. The FY22 PBT market estimate has now reduced from £10.2m to £8.4m. MISSION’s shares continue to trade at a discount to peers.

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