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Research Morning Notes
Hagemeyer (3.54), Rating: BUY, 2006E: 0.21 2007E: 0.38 2008E: 0.45
Event
Rexel trading update Q406
Comment
Rexel, one of Hagemeyer's peers has provided a trading update for the fourth quarter of 2006. Overall organic growth amounted to 7.9%, which is substantially lower than the 13.8% achieved in Q306, which is caused by North America, where growth, as expected, declined to just 4.0% versus 15.7% in Q306. Growth in Europe amounted to 11.5%, which is only marginally lower than the 12.5% reported in Q306. Rexel benefited from its strong presence in France but also reported organic growth of 13.3% in the UK, stating that especially the small contract customers drove sales growth. This is also positive for Hagemeyer as it targets the same segment although Hagemeyer UK also services large contractors. Growth in Germany amounted to 9.8%, driven by "an improvement in general construction as well as specific commercial developments in industry end-markets". The statements from Rexel about the UK and German markets bode well for Hagemeyer as these represent approximately 70% of the European business and are the main profit drivers. Asia Pacific reported organic growth of 10.8%, an acceleration from Q306 growth of 10.8%, stating a very strong Australian market, which is again positive as Australia is the key market for Hagemeyer's Asia Pacific operations. As mentioned, grpwth in North America feel back to 4.0%, which was caused by a high growth base in Q405 and a slow down in residential markets. As Hagemeyer North America is more active in the Industrial segment and only derives 20% of revenues from the C&I market, the slow down in the housing market will not have made a similar impact. Rexel does mention strong oil & gas markets and strong developments in commercial construction, which is positive again for Hagemeyer. Rexel further mentions that organic growth for the full year 2006 amounted to 11.1% of which 50% was derived by raw material price increases, of which copper was the main component. No margins provided or guidance for FY07.
Conclusion
The strong growth in Asia Pacific (+10.8% driven by Australia) and especially the high growth (+11.5%) in Europe (including very positive remarks about the German and UK markets) bode well for Hagemeyer, as Hagemeyer Germany and Hagemeyer UK are the main profit drivers of the PPS division of Hagemeyer. The slow down in growth in North America is less of a concern as (1) Hagemeyer already reported this slowdown in Q306 and we also take into account lower growth in Q406 in our model (so no surprise anymore) while (2) Hagemeyer North America is also active in different end-markets (more skewed towards the Industrial segment instead of residential construction), of which certain segments (oil & gas especially) have held up well.
Hagemeyer
Event
Schneider trading update Q40o
Comment
Schneider, one of Hagemeyer's largest suppliers, has provided a trading update for Q406. Overall organic growth amounted to 10.6% versus 9.9% in Q306. Growth in Europe accelerated from 8.7% in Q306 to 12.1% with Schneider stating that especially the UK and Spain markets (both important end-markets for Hagemeyer as well) were strong, next to Central-Europe, which is increasing in importance for Hagemeyer. Growth in North America slowed somewhat from 5.6% in Q3 to 4.8% in Q406 with firm demand in non-residential construction offsetting a decline in residential. As mentioned in earlier reports, the residential markets in North America only represent approximately 5% of the Hagemeyer North America's revenue. Growth in the Asia Pacific region amounted to 15.6%, slightly higher than the 15.0% reported in Q305, led by growth in China (a small market so far for Hagemeyer although it is stepping up efforts to increase its presence. Schneider is sufficiently confident about its end-markets that it now expects to increase organic growth by more than the earlier provided guidance of organic growth of 5%.
Conclusion
The organic growth in fourth quarter reported by Schneider is further evidence that end-markets for Hagemeyer, especially in Europe and Asia Paific are very strong. North America is a different story as growth slows but in terms of importance for Hagemeyer, a further improvement in results in Europe is much more important than lower growth in North America. The increased organic growth guidance for FY07 supports our assumption that, even if copper price
The update above was published in our Research Morning Notes for 19/01/2007In HTML and In PDF
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