Deutsche Bank bestätigt Kaufempfehlung und hebt das Kursziel auf 8,50 Euro.
Investment case remains
compelling - despite slow start
Benjamin Kohnke
Research Analyst
( 49) 69 910-31943
benjamin.kohnke@db.com
Uwe Schupp, CFA
Research Analyst
( 49) 69 910-31955
uwe.schupp@db.com
On track to deliver profitable growth - new target price of Euro 8.5 (Euro 6.5)
ADVA's EBIT margin target of 0-4% was disappointing. However, we believe the
reasons were sensible and allow for a ramp-up in Q2-Q4. The top line should be
supported by strong underlying demand for optical systems. This leads us to lift
our revenue forecasts by 7% and 10% for FY11 and FY12, respectively, which
nicely flows through to EPS. That the optical market seems to be at an inflection
point is reflected in a strong peer group multiple expansion, which, in addition to
our forecast upgrade, results in a new target price of Euro 8.5. Buy.
Q1 margins depressed by investments in the Juniper partnership
ADVA is still in the process of integrating its product portfolio with Juniper
Networks, which should allow it to leverage the partner’s strong sales channels.
However, the efforts also result in a (temporary) step-up in R&D costs, which will
depress Q1 operating profitability. The group’s gross margin guidance, however,
remains unchanged at 40-45%. As a result, we believe that acceleration in revenue
growth paired with rigid opex control will likely lead to a margin ramp-up from Q2.
Our revised pro forma EBIT margin is 7.6% (vs. 7.7% before).
Optical markets at an inflection point
ADVA expects its markets to grow at a FY10-13E CAGR of c. 16%, which is in line
with our view that optical systems spending is at an inflection point driven by (i)
mobile backhauling; (ii) data center connectivity and (iii) operators’ pressure to
invest in agile core transport technology. ADVA has invested heavily in its product
offering and improved its distribution channels. Therefore, we see no reason at
this stage why the company should not grow at least in line with market rates.
ADVA trades on a discount of 30-60% to the peer group
We value ADVA on a one-year forward EV/EBIT peer group multiple using a broad
peer group of optical system vendors. As the constituents are larger and offer a
higher trading liquidity, we apply a 20% discount to the implied equity value,
which yields our new target price of Euro 8.5 (Euro 6.5) (See page 5 for details).
The main risk to our investment case is fierce competition, which could lead to
accelerating price pressure. Moreover, we note unforeseen technological changes
and the loss of key customers and / or distribution partners as potential risks.
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