EQUITY RESEARCH
Footwear
November 9, 2015
ALPARGATAS|OVERWEIGHT
3Q15 EARNINGS REVIEW
RESEARCH ANALYSTS
International Divisions Lead the Way
Caio Moreira
+55 11 3049-9487
[email protected]
Alpargatas posted solid 3Q15 results, with highlights to: (i) top line increase of 20.4% y/y; (ii)
EBITDA rose 32.1% y/y while its margin hiked 1.2 p.p. to 13.0%; and (iii) 43.1% y/y net income
growth. We point out; however, these numbers are proforma, considering Osklen’s numbers
added in 3Q14 result, since at such point in time its numbers were included in the equity income
from subsidiaries line within the income statement, the highlights of the quarter were: We also
highlight numbers were inflated by the BRL devaluation given the company’s international
operations, but acknowledge these operations did indeed present improvements regardless of
the devaluation. All in, we believe the company’s positioning and perspectives are being poorly
priced by the street at the current 7.8x PE16 and 5.7x EV/EBITDA16 multiples, as such we
maintain our OVERWEIGHT recommendation with BRL 12.20 target price.
Marcio Maeda
+55 11 3049-9473
[email protected]
Strong Top line
Net revenue presented a strong increase of 26.9% y/y, regarding Osklen’s numbers only within
this quarter’s results, as reported by the company. In the domestic market, the company saw a
10% y/y growth, which was boosted by Havaianas sandals’ sales, which grew not only in volume,
+1% y/y, but also its average ticket, despite the hard comps of last year’s numbers. International
revenues growth (USA and EMEA region) were lifted by a volume increase whilst exports
revenues grew in both: volume and average ticket. Yet, the 56% real depreciation over DRL and
31% over EUR boosted international sales in BRL to 149 mn (71% y/y). Excluding the exchange
rate, revenues increase 10% y/y in USA, 31% y/y in the EMEA region and exports rose by 10%
y/y. We also point out Osklen revenues were only benefited by an 8.8% y/y increase in volume;
given footwear’s average ticket dropped 8.7% y/y and apparel declined 8.9% y/y. All in, given the
current challenging domestic scenario we welcome the company’s strategy to focus on the
internationalization of its brands, granting a higher percentage of its top line being exposed not
only to foreign currencies but also foreign/diversified macro situations.
Positive EBITDA effect
COMPANY X IBOVESPA
120
110
100
OVERWEIGHT reiterated
90
All in, Exchange rate contributed to a 41.9% y/y net income growth, but operational cash
generation, disregarding changes in working capital still remained close to 3Q14’s level. However,
cash generation was nearly double of what was presented a year ago, mainly given the company’s
efforts of inventory management. All in, we believe the company should continue to experience
solid cash generations going forward, but do not believe these numbers should continue
presenting sizeable improvements. We also expect the divestment of Topper and Rainha and the
focus on their brands’ internationalization process summed with efforts to reduce FX impacts over
imported footwear place the company well on its way to overcome the deteriorating
macroeconomic environment. In this context, we reiterate our OVERWEIGHT recommendation.
80
70
Oct-14
Dec-14
Mar-15
IBOVESPA
May-15
Aug-15
60
Oct-15
ALPA4
COMPANY DATA
Gross margin increased throughout the company’s regions. Havaianas grew its share in the
domestic market and, besides the rise in cost per pair, due to the cost of rubber in BRL and
general manufacturing expenses, the segment kept its margin above sporting goods. In the
international market, the BRL depreciation took the main role, contributing to its strong
performance in exports. Although the Havaianas segment increased its share in the domestic
market, imported footwear negatively impacted EBITDA margin, also given the BRL devaluation.
We highlight the company’s effort to diminish those impacts by increasing average prices while
nationalizing the manufacturing of the product. In the domestic market, we also highlight
Osklen’s results contributed to 0.9 p.p. of the 2.5 p.p. hike, given the aforementioned entry in
the income statement. Overall, EBITDA margin grew 1.4 p.p., which is encouraging given the
current macro situation.
ESTIMATES AND VALUATION
Ticker
ALPA4
Current Price (06 Nov 15, BRL)
Target Price (BRL)
Shares (million)
Market Cap (BRL million)
Net Debt (BRL million)
Enterprise Value (BRL million)
ADTV (BRL million)
8.55
12.20
461
3,940
50
3,990
2.9
Consolidated P&L (BRL Million)
Net Revenues
EBITDA
EBITDA Margin
Net Income
2014
3,711
471
12.7%
280
2015E
4,608
568
12.3%
404
2016E
5,328
698
13.1%
508
2017E
6,119
860
14.0%
642
Multiples
P/E
EV/EBITDA
2014
14.1x
8.5x
2015E
9.8x
7.0x
2016E
7.8x
5.7x
2017E
6.1x
4.6x
Important disclosures are contained on page 3 of this research report
EQUITY RESEARCH
November 9, 2015
Alpargatas | 3Q15 Earnings Review
KEY FINANCIALS
(BRL Million)
Net Revenues
Gross Profit
Gross Profit Margin
Adjusted EBITDA
Adjusted EBITDA Margin
Controlling Net Income
Controlling Net Income Margin
3Q15*
1,146.8
2Q15*
996.9
3Q14
903.8
3Q15/
2Q15
15.0%
3Q15/
3Q14
26.9%
467.6
411.5
340.8
13.6%
37.2%
40.8%
41.3%
37.7%
-0.5 p.p.
3.1 p.p.
148.7
102.7
105.1
44.8%
41.5%
13.0%
10.3%
11.6%
2.7 p.p.
1.4 p.p.
79.3
46.0
55.9
72.4%
41.9%
6.9%
4.6%
6.2%
2.3 p.p.
0.7 p.p.
*Osklen numbers included
Source: Company, Fator Equity Research
FATOR S/A CORRETORA DE VALORES
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EQUITY RESEARCH
November 9, 2015
Alpargatas | 3Q15 Earnings Review
|Environmental, Social and Corporate Governance Analysis
Alpargatas invests in sustainability looking towards positively impacting all stakeholders. Therefore, the company invests on the prevention of environmental and health
damage reduction, energy use, and reusing production spoils as raw material. They also own the Alpargatas Institute, which is the social responsibility arm. The institute
operates with educational and sports programs and uses the Basic Education Development Index (IDEB) to analyze company efforts impact. Currently, Alpargatas shares are
being trade in the Corporate Governance Level 1 with 80% tag along.
|Disclosures
18.0
Alpargatas. (ALPA4) stock follow-up, done by the current investment analyst, started in
10/26/2015.
14.0
Recommendations History:
10.0
8.0
6.0
4.0
2.0
UR
Price
Aug-15
Nov-15
Feb-15
May-15
Aug-14
Nov-14
Feb-14
May-14
Aug-13
Nov-13
Feb-13
May-13
Aug-12
Nov-12
Feb-12
May-12
0.0
Aug-11
OVERWEIGHT
OVERWEIGHT
OVERWEIGHT
OVERWEIGHT
OVERWEIGHT
UNDEPERFORM
UNDEPERFORM
EQUAL WEIGHT
UNDEPERFORM
EQUAL WEIGHT
OVERWEIGHT
OVERWEIGHT
OVERWEIGHT
OVERWEIGHT
UNDER REVISION
EQUAL WEIGHT
UNDER REVISION
EQUAL WEIGHT
OVERWEIGHT
Nov-11
2/22/05
9/2/05
12/6/05
1/27/06
12/8/06
12/5/07
12/5/08
3/16/09
6/10/09
11/16/09
12/4/09
9/23/10
12/3/10
12/2/11
2/22/05
3/8/13
8/12/13
11/11/13
8/11/14
Target Price
(BRL/stock)
UR
2.68
3.83
4.81
7.49
6.36
2.59
2.59
4.29
UR
7.13
11.07
15.56
16.37
UR
15.34
UR
15.35
12.20
12.20
Feb-11
May-11
Recommendation
15.35
15.34
11.07
12.0
Aug-10
Date
16.37
15.56
16.0
Nov-10
Risk Assessment: A deeper economic slowdown may affect negatively the company’s sales, as
reduces the population income. Also the company has exposure to Argentina economy.
Historical Price, Target Price and Fator Performance Recommendation for the Company stock
Feb-10
May-10
Valuation Method Used to Calculate Alpargatas’s Stock Target-price: cash flow discounted the
16.16% average rate and a 8% Y/Y perpetuity growth.
Target Price
Fator Corretora Recommendations - Criteria and Distribution
Distribution
Recommendation
Criteria
Quantity
Percentage
Overweight
Shares with expected return above the market return are eligible to be classified as Overweight rating
18
38.3
Equal Weight
Shares with expected return equal the market return are eligible to be classified as Equal Weight rating
25
53.2
Underweight
Shares with expected return below the market return are eligible to be classified as Underweight rating
0
0.0
Under Revision
4
8.5
Total
47
100.0
Important U.S. Disclosures
Caio Moreira is the responsible analyst for this report according to CVM Instruction 483
The security analyst(s) of the Equity Research Department of Fator S/A Corretora de Valores who prepared this report certify that:
(I) The views expressed in the research report accurately reflect the personal views of the security analyst(s) about the security/securities and/or company that are the
subject of this report; and
(II) No part of the compensation of the security analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report.
Fator S/A Corretora de Valores and/or the entities which belong to the same financial group as or are affiliated with Fator S/A Corretora de Valores beneficially own 5% or
more of a class of common equity securities of the following companies:
Cia Ferro Ligas Bahia – FERBASA, Log-In Logística Intermodal S.A, Jereissati Participações S.A , General Shopping Brasil S.A., Asa Alimentos S.A., Avista S.A. , COPOBRAS S.A,
CIA Paulista de Securitização, Desenvix Energias Renováveis S.A., Iochpe-Maxion S.A., Sonae Sierra do Brasil S.A., Tuper S.A.
Within the past 12 months, Fator S/A Corretora de Valores and/or the entities which belong to the same financial group as Fator S/A Corretora de Valores have managed
or co-managed a public offering of the following securities:
RAIZEN ENERGIA S/A, JSL S.A, Banestes Recebíveis Imobiliários – FII, Companhia Paulista de Securitização – CPSEC, Fator Geo Resíduos FIP, Suzano Papel e Celulose S/A
FATOR S/A CORRETORA DE VALORES
|3
EQUITY RESEARCH
November 9, 2015
Alpargatas | 3Q15 Earnings Review
Within the past 12 months, Fator S/A Corretora de Valores and/or the entities which belong to the same financial group as Fator S/A Corretora de Valores have received
compensation for investment banking services from the following:
JSL S.A, Companhia Paulista de Securitização – CPSEC, JSL S.A., Iochpe-Maxion S.A, Raizen Energia S/A, Suzano Papel e Celulose S/A.
In the next three months, Fator S/A Corretora de Valores and/or the entities which belong to the same financial group as Fator S/A Corretora de Valores expect to receive
or intend to seek compensation for investment banking services from the following:
Desenvix Energias Renováveis S.A., Iguatemi Empresa de Shopping Centers S.A., Inpar S.A., Iochpe-Maxion S.A., Banco Indusval S.A., João Fortes Engenharia S.A., Marfrig
Global Foods S.A.
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FATOR S/A CORRETORA DE VALORES
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