28.08.2017 - Equity Research Report (english) // buy

Research Comment - KPS AG - english

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Unternehmen: KPS AG
ISIN: DE000A1A6V48
Branche: Dienstleistungen
Rating: buy
Kurs bei Erstellung in €: 16,34
Kursziel in €: 18,00
Mögl. Interessenskonflikt gem. §34b Abs.1 WpHG und FinAnv: 5a;7;11

Growth continues in Q3 2016/17 – acquisition of ICE Consultants Europe SL creates further potential – forecasts for FY 2017/18 confirmed – Target Price: €18.00 – Rating: BUY

On 11/08/2017, KPS AG released its figures for the 3rd quarter and confirmed the forecast for the financial year. In the 3rd quarter, revenue rose by 3.4% to €39.7 million (previous year: €38.4 million) and revenue of €122.53 million was thus achieved in the first 9 months. Given the company’s own forecast of €160 million in revenues, this would mean further revenue of €37.47 million would be required in the 4th quarter (previous year: €37.72 million). This is an indication of an extremely conservative forecast as, with this forecast, an implicit slight decrease in revenue for the 4th quarter would be expected. In our view, revenue of €164.25 million should be reached in FY 16/17 and we consequently expect a revenue increase to €41.72 million in the 4th quarter. On the results side, EBIT remained at the previous year’s level in the 3rd quarter at €5.9 million (previous year: €6.0 million). This is in particular due to higher investments in head count, which should form the basis for further growth.

Furthermore, the acquisition of ICE Consultants Europe SL, Barcelona, (ICE) was also announced in the past quarter (see corporate news dated 01/08/2017). The finalisation of the acquisition is planned for 02/10/2017. In addition to the approximately 100 consultants, ICE should also have an EBIT margin on a par with KPS’s and have a similar growth dynamic. Besides the high profitability, the acquisition should, in particular, create access to new customers in new industries for KPS. Stronger local contact with customers through small, regional teams is planned. At the same time, the majority of the value creation will be realised in the SmartFactory in Dortmund. This will make higher margins possible in the long term, as this will allow an industrialisation of the consultancy approach. ICE effectively has a broader industry focus than KPS and assists companies in the sectors of retail and wholesale, consumer products, automotive and pharmaceuticals. This provides KPS with cross-industry expertise and new customer groups. Given ICE’s excellent market position and the potential synergies, we regard the acquisition as highly valuable; however, the purchase price and financing must be analysed in further detail for a qualified evaluation. Further information in this regard is to be published later.

In our view, KPS AG is extremely well-positioned in the current market environment and should be able to achieve gradual margin improvements with dynamic revenue in the long term with the industrialisation of the consultancy approach. Besides providing further important access to customers, the recent acquisition of ICE will also be able to provide KPS AG with supplementary expertise. We there-fore expect the long-term growth dynamic of KPS to be even further strengthened by the acquisition. Based on our DCF model, we have determined an unchanged fair value of €18.00 per share and assign a BUY rating.


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