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vk.com/id4464259433 December 2018

Building Materials

European Building & Construction

Figure 143: SGO share price evolution vs change in France building permits

40%

30%

20%

10%

-10%

-20%

-30%

Jan-09

Jan-15

Jan-16

Jan-17

-40%

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Oct-14

Apr-15

Jul-15

Oct-15

Apr-16

Jul-16

Oct-16

Apr-17

Jul-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

	France Building permits 6m trailing YoY change	Saint Gobain share price (EUR, rhs)
Source: Deutsche Bank, Factset, Datastream
Source: Deutsche Bank, Factset, Datastream

Forecasts and ratios
Year End Dec 31	2016A	2017A	2018E	2019E	2020E
Revenue (EURm)	39,093	40,810	41,710	43,291	44,799
EBITDA (EURm)	3,998	4,234	4,378	4,631	4,919
EBITA (EURm)	2,818	3,028	3,137	3,353	3,604
PBT DB (EURm)	1,763	2,063	2,860	2,736	2,995
PBT stated (EURm)	1,763	2,063	2,860	2,736	2,995
DB EPS (EUR)	3.08	2.95	3.37	3.71	4.10
OLD DB EPS (EUR)	3.08	2.95	3.29	3.72	4.22
% Change	0.0%	0.0%	2.5%	-0.2%	-2.9%
DB EPS growth (%)	-19.6	-4.3	14.5	10.0	10.5
P/E (DB EPS) (x)	12.5	16.2	9.8	8.9	8.0
DB EV/ DB EBITDA (x)	7.8	8.5	6.6	6.2	5.6
EV/EBITA (x)	11.1	11.9	9.2	8.5	7.7
DPS (EUR)	1.26	1.30	1.35	1.48	1.64
Yield (%)	3.3	2.7	4.1	4.5	5.0
Source: Deutsche Bank estimates, company data

Deutsche Bank AG/London

Page 71

vk.com/id446425943

3 December 2018

Building Materials

European Building & Construction

Model updated: 29 November 2018

Running the Numbers

Europe

France

Building Materials

Saint Gobain

Reuters: SGOB.PA Bloomberg: SGO FP

Buy

Price (29 Nov 18)		€ 32.94

Target price		€ 43.00

52-week Range	€ 30.93 – 48.54

Market Cap	€	18,012m
	US$	20,323m

Company Profile

Saint-Gobain is a diversified global company active in building distribution, construction products, flat glass, high performance materials and packaging. On an aggregated basis, concstruction end-markets (mainly residential) represent 84% of total sales excluding Packaging (nonstrategic business the company plans to exit).

1yr Price Performance

55
50
45
40
35
30
Nov-17	Feb-18	May-18	Aug-18

SGOB.PA

EURO STOXX PRICE (Rebased)

Margin Trends

12
10
8
6
4
2
0
15	16	17	18E	19E	20E

EBITDA Margin

EBIT Margin

Growth & Profitability

6					14
4					12
4					10
					10
2					8
					8
0					6
0
-2					4
-2					2
					2
-4					0
15	16	17	18E	19E	20E

Sales growth (LHS)

ROE (RHS)

Solvency
40					10
30					8
30
20					6
20					4
					4
10					2
					2
0					0
15	16	17	18E	19E	20E

Net debt/equity (LHS) Net interest cover (RHS)

Xavier Marchand

+44(207)545-1400 xavier.marchand@db.com

Fiscal year end 31-Dec	2015	2016	2017	2018E	2019E	2020E

Financial Summary
DB EPS (€)	3.83	3.08	2.95	3.37	3.71	4.10
Reported EPS (€)	2.34	2.37	2.83	4.17	3.71	4.10
DPS (€)	1.24	1.26	1.30	1.35	1.48	1.64
BVPS (€)	34.25	33.91	33.37	34.64	36.25	37.74
Weighted average shares (m)	553	553	553	547	537	533
Average market cap (€m)	22,275	21,252	26,431	18,012	17,682	17,567
Enterprise value (€m)	31,631	31,231	36,043	28,937	28,193	27,143

Valuation Metrics
P/E (DB) (x)	10.5	12.5	16.2	9.8	8.9	8.0
P/E (Reported) (x)	17.2	16.2	16.9	7.9	8.9	8.0
P/BV (x)	1.16	1.31	1.38	0.95	0.91	0.87
FCF Yield (%)	4.4	2.1	4.2	6.6	8.4	9.5
Dividend Yield (%)	3.1	3.3	2.7	4.1	4.5	5.0
EV/Sales (x)	0.80	0.80	0.88	0.69	0.65	0.61
EV/EBITDA (x)	8.2	7.8	8.5	6.6	6.1	5.5
EV/EBIT (x)	12.0	11.1	11.9	9.2	8.4	7.5

Income Statement (€m)
Sales revenue	39,623	39,093	40,810	41,710	43,291	44,799
Gross profit	39,623	39,093	40,810	41,710	43,291	44,799
EBITDA	3,844	3,998	4,234	4,378	4,631	4,919
Depreciation	1,208	1,180	1,206	1,241	1,277	1,315
Amortisation	0	0	0	0	0	0
EBIT	2,636	2,818	3,028	3,137	3,353	3,604
Net interest income(expense)	-629	-541	-448	180	-397	-389
Associates/affiliates	0	5	0	0	0	0
Exceptionals/extraordinaries	0	0	0	0	0	0
Other pre-tax income/(expense)	-1,342	-514	-517	-457	-220	-220
Profit before tax	665	1,763	2,063	2,860	2,736	2,995
Income tax expense	248	416	438	520	684	749
Minorities	51	41	59	59	59	59
Other post-tax income/(expense)	929	0	0	0	0	0
Net profit	1,295	1,311	1,566	2,281	1,993	2,187
DB adjustments (including dilution)	823	393	65	-435	0	0
DB Net profit	2,119	1,704	1,631	1,846	1,993	2,187

Cash Flow (€m)
Cash flow from operations	2,469	1,965	2,751	2,868	3,229	3,470
Net Capex	-1,484	-1,518	-1,638	-1,674	-1,738	-1,798
Free cash flow	985	447	1,113	1,194	1,491	1,672
Equity raised/(bought back)	-133	-269	-219	-494	-224	0
Dividends paid	-732	-711	-731	-764	-952	-837
Net inc/(dec) in borrowings	0	0	0	0	0	0
Other investing/financing cash flows	2,304	-314	-488	-350	100	100
Net cash flow	2,424	-847	-325	-414	415	935
Change in working capital	84	-236	-209	-300	-48	-50

Balance Sheet (€m)
Cash and other liquid assets	5,380	3,738	3,284	3,153	3,194	3,288
Tangible fixed assets	16,626	16,590	16,284	17,067	17,427	17,810
Goodwill/intangible assets	10,683	10,669	10,575	10,308	10,308	10,308
Associates/investments	0	0	0	0	0	0
Other assets	12,167	12,770	12,774	12,954	12,983	13,013
Total assets	44,856	43,767	42,917	43,482	43,912	44,419
Interest bearing debt	10,177	9,382	9,239	10,421	10,048	9,206
Other liabilities	15,359	15,245	14,826	14,776	14,827	14,877
Total liabilities	25,536	24,627	24,065	25,197	24,874	24,083
Shareholders' equity	18,956	18,765	18,468	18,717	19,333	20,129
Minorities	364	375	384	384	384	384
Total shareholders' equity	19,320	19,140	18,852	19,101	19,717	20,513
Net debt	4,797	5,644	5,955	7,269	6,854	5,919

Key Company Metrics
Sales growth (%)	-3.5	-1.3	4.4	2.2	3.8	3.5
DB EPS growth (%)	92.5	-19.6	-4.3	14.5	10.0	10.5
EBITDA Margin (%)	9.7	10.2	10.4	10.5	10.7	11.0
EBIT Margin (%)	6.7	7.2	7.4	7.5	7.7	8.0
Payout ratio (%)	53.0	53.2	45.9	32.4	40.0	40.0
ROE (%)	7.0	7.0	8.4	12.3	10.5	11.1
Capex/sales (%)	3.7	3.9	4.0	4.0	4.0	4.0
Capex/depreciation (x)	1.2	1.3	1.4	1.3	1.4	1.4
Net debt/equity (%)	24.8	29.5	31.6	38.1	34.8	28.9
Net interest cover (x)	4.2	5.2	6.8	nm	8.4	9.3

Source: Company data, Deutsche Bank estimates

Page 72

Deutsche Bank AG/London

vk.com/id4464259433 December 2018

Building Materials

European Building & Construction

Rating	Company
Rating	Company
Buy	Sika				Xavier Marchand
Buy	Sika				Research Analyst
Europe			+44-20-754-51400
Europe					xavier.marchand@db.com
Switzerland
Building & Construction				Price at 28 Nov 2018 (CHF)		121.30
	Reuters	Bloomberg
	Reuters	Bloomberg		Price Target (CHF)		160.00
Building Materials				Price Target (CHF)		160.00
	SIKA.S	SIKA SW
				52-week range (CHF)		146.90 - 113.60
				52-week range (CHF)		146.90 - 113.60

Sika (BUY)

With this note, we transfer primary coverage of Sika from Priyal Mulji to Xavier Marchand with immediate effect.

Sector leading EBIT growth in 2019 and robust business model to any macro slow-down

Led by continued top-line growth, raw materials costs moderation and high operational leverage, we forecast Sika to deliver the best top-line and EBIT growth in 2019 across the sector (resp. +5% and +15%). We also see Sika business model as very resilient to a potential downturn: it combines the lowest exposure across the sector to the very cyclical new-build segment in DM, an increasing geographical diversiﬁcation and a proven track record of market outperformance through increased products penetration. Following recent macro concerns, Sika trades now at 13.9x 2019E EV/EBITDA and 4.6% FCF yield, which is in our view a compelling entry point for a quality growth stock: BUY.

Sika at a glance

Figure 144: 2018E Sales and Operating proﬁt by geography

GLOBAL		GLOBAL
BUSINESS		BUSINESS
13%		14%
	EMEA	EMEA
	EMEA
	45%	39%
	45%
APAC		APAC
16%		APAC
16%		19%
		19%
AMERICAS		AMERICAS
AMERICAS
26%		28%
26%

Source: Deutsche Bank, Company data. Note: Total not equal to 100% due to Group / Corp activities.

Key changes
TP	168.00 to ↓	-4.8%
	160.00

Source: Deutsche Bank

Price/price relative

175
150
125
100
Jul '18	Sep '18	Nov '18

	Sika	SPI Swiss Performance IX (Rebased)
	Sika	SPI Swiss Performance IX (Rebased)
Performance		1m	3m	12m
(%)
Absolute		-0.1	-15.7	–
SPI Swiss		1.9	-4.0	-2.6
Performance
IX
Source: Deutsche Bank

Key indicators (FY1)
ROE (%)				28.1
Net debt/equity (%)				109.1
Book value/share (CHF)				12.3
Price/book (x)				9.8
Net interest cover (x)				23.8
EBIT margin (%)				13.9
Source: Deutsche Bank

Stock & option liquidity data
Market cap (CHF)(m)				17,198.1
Shares outstanding (m)				142
Free ﬂoat (%)				–
Option volume (und. shrs., 1M avg.)				–
Source: Deutsche Bank

Deutsche Bank AG/London

Page 73

vk.com/id4464259433 December 2018

Building Materials

European Building & Construction

Key Charts

Figure 145: A proven track record of end-market outperformance

15%

10%

-5%

-10%


2007	2008	2009	2010	2011	2012		2013	2014	2015	2016	2017	2018E
		Organic growth YoY				Underlying construction market YoY
		Organic growth YoY				Underlying construction market YoY

Source: Deutsche Bank estimates, Company data, Global Cement Report 12th edition. Note: Underlying construction market estimated by cement volume growth across various countries, weighted by Sika’s 2017 regional breakdown.

Figure 146: Share of cement in bulk vs. GDP per cap ($/ inh.)

	90%
	80%								France
sales							Italy		France
							Italy
	70%
cement	60%		Malaysia
cement	50%		Mexico
in	40%	Egypt	Brazil
in			Brazil
bulk	30%	Morocco	Colombia
of	20%	Indonesia
of	20%	India
Share		India
Share	10%	Kenya
		Kenya
	0%
	0	5,000	10,000	15,000	20,000	25,000	30,000	35,000	40,000	45,000

GDP per cap ($/inh)

Source: Deutsche Bank estimates, Company data, IMF

Figure 147: Addressable market for Sika grows faster than construction market in EM

Country		2010	2018	Growth CAGR
Colombia	Cement demand	8.9	8.9	-0.1%
Colombia	Addressable market for Sika	2.3	2.8	3.9%
Colombia	Share of cement in bulk	26%	32%
Indonesia	Cement demand	40.8	69.8	11.3%
Indonesia	Addressable market for Sika	8.2	17.4	16.4%
Indonesia	Share of cement in bulk	20%	25%
Thailand	Cement demand	24.5	27.1	2.0%
Thailand	Addressable market for Sika	13.0	16.8	5.3%
Thailand	Share of cement in bulk	53%	62%

Source: Deutsche Bank, Company data

Figure 148: Scope for outperformance also in DM: example of precast market in the US

	2010	2018	CAGR
Cement demand	71.2	99.5	4.3%
Cement for precast	2.3	4.2	7.5%
Precast penetration rate	3.3%	4.2%

Source: Deutsche Bank estimates, USGS

Figure 149: Robust business model in case of market downturn

0%
-5%	-1%	-4%
-10%		-4%
-10%			-9%
-15%			-9%
-15%				-13%
-20%				-13%
-20%					-17%	-19%	-19%
					-17%
-25%								-22%
-25%
									-24%
-30%									-24%
-30%
-35%
-40%										-34%
-40%	Sika	Geberit	LafargeHolcim	Saint Gobain	Heidelberg	Cemex	Titan	Buzzi	CRH	Kingspan
	Sika	Geberit	LafargeHolcim	Saint Gobain	Heidelberg	Cemex	Titan	Buzzi	CRH	Kingspan

Source: Deutsche Bank estimates, Company data

Figure 150: Lesser exposure to new-build in DM vs. peers

70%	62%
60%
50%		44%	41%	37%
			41%
40%					31%
40%						28%

30%							25%	23%	22%
							25%

20%										15%	9%
20%

10%
0%	Kingspan	CRH	Buzzi	Titan	Heidelberg	Geberit	Saint Gobain	Cemex	LafargeHolci m	Tarkett	Sika
	Kingspan	CRH	Buzzi	Titan	Heidelberg	Geberit	Saint Gobain	Cemex	LafargeHolci m	Tarkett	Sika

Source: Deutsche Bank estimates, Company data

Figure 151: Key raw materials should be down in 2019E

120
110
100										98
100
										94
90										90
										86
80										83
70			Apr-18	May-18			Aug-18	Sep-18	Oct-18	Nov-18
Jan-18	Feb-18	Mar-18	Apr-18	May-18	Jun-18	Jul-18	Aug-18	Sep-18	Oct-18	Nov-18
	Brent Crude						Naphta
	Polyethytlene linear low density						MDI W Europe
	Polystyrene General purpose

Source: Deutsche Bank estimates, Factset, Bloomberg Finance LP

Page 74

Deutsche Bank AG/London

vk.com/id4464259433 December 2018

Building Materials

European Building & Construction

Figure 152: Gross margin historical evolution and improvement

56%	55.4%	55.1%
	55.4%

55%
			54.0%
54%				53.5%	53.6%		53.6%
				53.5%
						53.0%	53.2%
						53.0%
53%						52.7%
53%
52%
51%
	FY 16	H1 17	Q3 17	Q4 17	H1 18	Q3 18 Q4 18E FY 18E FY 19E

Source: Deutsche Bank estimates, Company data

Figure 154: 2018-19E EBIT margin bridge - DB assumptions

15.5%				0.40%	15.3%
15.5%			0.40%	0.40%
15.0%			0.40%
15.0%
14.5%		0.25%
14.5%		0.33%
		0.33%
14.0%	13.9%
14.0%
13.5%
13.0%
	2018 DBe	SGO impact Dilutive impact	Gross margin	Operational	2019 DBe
		of acquisitions	improvement	leverage
		in 2018

Source: Deutsche Bank estimates

Figure 153: Historical evidences of strong operational leverage

	2011	2012	2013	2014	2015	2016	2017	2018E	2019E
YoY gross margin evolution	-3.3%	1.7%	0.2%	0.6%	1.1%	1.2%	-0.9%	-1.2%	0.4%
YoY Others costs / Sales evolution	1.0%	-0.4%	1.1%	0.6%	-0.2%	0.3%	1.5%	0.8%	1.0%
YoY EBIT Margin evolution	-2.3%	1.3%	1.3%	1.2%	0.9%	1.6%	0.5%	-0.4%	1.4%

Source: Deutsche Bank estimates, Company data

Forecasts and ratios
Year End Dec 31	2016A	2017A	2018E	2019E	2020E
Revenue (CHFm)	5,748	6,248	7,123	7,467	7,850
EBITDA (CHFm)	966	1,068	1,205	1,369	1,499
EBITA (CHFm)	795	896	991	1,145	1,263
PBT DB (CHFm)	756	862	949	1,095	1,214
PBT stated (CHFm)	756	862	949	1,095	1,214
DB EPS (CHF)	36.97	42.25	5.08	5.87	6.51
OLD DB EPS (CHF)	36.97	42.25	5.31	5.63	5.96
% Change	0.0%	0.0%	-4.2%	4.3%	9.2%
DB EPS growth (%)	22.3	14.3	-88.0	15.5	10.9
P/E (DB EPS) (x)	–	–	23.9	20.7	18.6
DB EV/ DB EBITDA (x)	–	–	15.9	13.7	12.1
EV/EBITA (x)	–	–	19.3	16.3	14.4
DPS (CHF)	16.00	18.50	20.72	23.92	26.53
Yield (%)	–	–	17.1	19.7	21.9
Source: Deutsche Bank estimates, company data

Deutsche Bank AG/London

Page 75

vk.com/id446425943

3 December 2018

Building Materials

European Building & Construction

Model updated: 29 November 2018

Running the Numbers

Europe

Switzerland

Building Materials

Sika

	Reuters: SIKA.S	Bloomberg: SIKA SW

	Buy
	Price (29 Nov 18)	CHF 121.30
	Price (29 Nov 18)	CHF 121.30

	Target price	CHF 160.00

	52-week Range	CHF 113.60 – 146.90

	Market Cap	CHF 17,198m
		US$ 17,203m

Company Profile

Sika is the global market leader in production of specialty chemicals sold into constructions uses, and also sells into industry.

1yr Price Performance

160

150

140

130

120

110

100

Nov-17	Feb-18		May-18		Aug-18
		SIKA.S			SPI (Rebased)

Margin Trends

25
20
15
10
5
0
15	16	17	18E	19E	20E

EBITDA Margin

EBIT Margin

Growth & Profitability

15					50
10					40
10
5					30
5					20
					20
0					10
					10
-5					0
15	16	17	18E	19E	20E

Sales growth (LHS)

ROE (RHS)

Solvency
120					30
100					25
80					20
60					20
60
40					15
20					10
0					10
0					5
-20					5
-20
-40					0
15	16	17	18E	19E	20E

Net debt/equity (LHS) Net interest cover (RHS)

Xavier Marchand

+44(207)545-1400 xavier.marchand@db.com

Fiscal year end 31-Dec	2015	2016	2017	2018E	2019E	2020E

Financial Summary
DB EPS (CHF)	30.23	36.97	42.25	5.08	5.87	6.51
Reported EPS (CHF)	30.23	36.97	42.25	5.08	5.87	6.51
DPS (CHF)	13.00	16.00	18.50	20.72	23.92	26.53
BVPS (CHF)	166.20	191.98	222.24	12.34	16.02	20.00
Weighted average shares (m)	15	15	15	142	142	142
Average market cap (CHFm)	na	na	na	17,198	17,198	17,198
Enterprise value (CHFm)	na	na	na	19,161	18,685	18,174

Valuation Metrics
P/E (DB) (x)	na	na	na	23.9	20.7	18.6
P/E (Reported) (x)	na	na	na	23.9	20.7	18.6
P/BV (x)	na	na	na	9.83	7.57	6.06
FCF Yield (%)	na	na	na	5.1	6.4	7.0
Dividend Yield (%)	na	na	na	17.1	19.7	21.9
EV/Sales (x)	na	na	na	2.69	2.50	2.32
EV/EBITDA (x)	na	na	na	15.9	13.7	12.1
EV/EBIT (x)	na	na	na	19.3	16.3	14.4

Income Statement (CHFm)
Sales revenue	5,489	5,748	6,248	7,123	7,467	7,850
Gross profit	2,971	3,181	3,399	3,793	3,999	4,227
EBITDA	837	966	1,069	1,205	1,369	1,499
Depreciation	114	118	124	142	149	157
Amortisation	50	52	48	71	75	79
EBIT	673	795	896	991	1,145	1,263
Net interest income(expense)	-51	-40	-34	-42	-49	-49
Associates/affiliates	0	0	0	0	0	0
Exceptionals/extraordinaries	0	0	0	0	0	0
Other pre-tax income/(expense)	0	0	0	0	0	0
Profit before tax	622	756	862	949	1,095	1,214
Income tax expense	157	189	213	223	257	285
Minorities	5	4	6	6	6	6
Other post-tax income/(expense)	0	0	0	0	0	0
Net profit	460	563	644	721	832	923
DB adjustments (including dilution)	0	0	0	0	0	0
DB Net profit	460	563	644	721	832	923

Cash Flow (CHFm)
Cash flow from operations	810	976	978	1,109	1,307	1,430
Net Capex	-134	-149	-155	-225	-209	-220
Free cash flow	676	826	823	884	1,098	1,210
Equity raised/(bought back)	0	0	0	0	0	0
Dividends paid	-183	-200	-246	-282	-315	-364
Net inc/(dec) in borrowings	0	0	0	0	0	0
Other investing/financing cash flows	-293	-296	-616	-2,878	-307	-334
Net cash flow	200	331	-39	-2,275	476	511
Change in working capital	-1,018	-1,057	-1,187	-1,282	-1,344	-1,413

Balance Sheet (CHFm)
Cash and other liquid assets	1,074	1,155	1,038	583	678	780
Tangible fixed assets	924	959	1,065	1,252	1,282	1,314
Goodwill/intangible assets	1,038	1,021	1,314	1,671	1,626	1,579
Associates/investments	0	0	0	0	0	0
Other assets	1,887	1,964	2,375	2,442	2,485	2,533
Total assets	4,924	5,099	5,792	5,948	6,072	6,207
Interest bearing debt	948	699	699	2,519	2,139	1,730
Other liabilities	1,423	1,453	1,682	1,653	1,635	1,614
Total liabilities	2,372	2,152	2,381	4,173	3,774	3,344
Shareholders' equity	2,531	2,924	3,385	1,749	2,272	2,836
Minorities	21	23	26	26	26	26
Total shareholders' equity	2,552	2,948	3,411	1,776	2,298	2,862
Net debt	-126	-456	-339	1,936	1,461	950

Key Company Metrics
Sales growth (%)	-1.5	4.7	8.7	14.0	4.8	5.1
DB EPS growth (%)	4.7	22.3	14.3	-88.0	15.5	10.9
EBITDA Margin (%)	15.3	16.8	17.1	16.9	18.3	19.1
EBIT Margin (%)	12.3	13.8	14.3	13.9	15.3	16.1
Payout ratio (%)	43.0	43.3	43.8	407.6	407.6	407.6
ROE (%)	18.8	20.6	20.4	28.1	41.4	36.1
Capex/sales (%)	2.6	2.7	2.6	3.2	2.8	2.8
Capex/depreciation (x)	0.9	0.9	0.9	1.1	0.9	0.9
Net debt/equity (%)	-4.9	-15.5	-9.9	109.1	63.6	33.2
Net interest cover (x)	13.1	20.1	26.2	23.8	23.3	25.7

Source: Company data, Deutsche Bank estimates

Page 76

Deutsche Bank AG/London

vk.com/id4464259433 December 2018

Building Materials

European Building & Construction

Rating	Company
Rating	Company
Hold	Tarkett				Research Analyst
					Xavier Marchand
Europe			+44-20-754-51400
Europe					xavier.marchand@db.com
France
Building & Construction				Price at 28 Nov 2018 (EUR)		21.68
	Reuters	Bloomberg
	Reuters	Bloomberg		Price Target (EUR)		20.50
Building Materials				Price Target (EUR)		20.50
	TKTT.PA	TKTT FP
				52-week range (EUR)		36.92 - 18.07
				52-week range (EUR)		36.92 - 18.07

Tarkett (HOLD)

With this note, we transfer primary coverage of Tarkett from Priyal Mulji to Xavier Marchand with immediate effect.

Still a couple of tough quarters in sight

Tarkett's share price has struggled YTD (-39% vs. -20% for the sector average). This is due to high raw materials inﬂation, lack of pricing power and market slowdown in Russia post sanctions. Recent oil price decrease and company’s improving pricing momentum points at a better margin environment in 2019 - however with 4-6 months lag between oil price evolution and raw materials impact on P&L as well potential supply disruption in Europe due to the historically low levels of the Rhine river we believe costs inﬂation should start to moderate only from Q2 19. We see thus risks of lack of evidence of improving price vs. cost over the next two sets of results, while macro uncertainties in Russia could continue to weigh on the stock. Trading at 7.4x 2019E EV/EBITDA in line with the sector and with a lack of catalysts near-term, we maintain Hold.

Tarkett at a glance

Figure 155:2018E Sales and EBITDA* by geography

Sports	EMEA	Sports
Sports	EMEA	14%
20%	32%	14%
20%	32%	EMEA
		EMEA
		36%
		CIS &
		Others
CIS &		23%
Others
20%	North	North
		North
		America
	America	America
	America	27%
	28%	27%
	28%

Source: Deutsche Bank, Company data. Note: *Cental costs allocated to divisions.

Key changes
TP	24.70 to 20.50 ↓ -17.0%
Source: Deutsche Bank

Price/price relative

60
40
20
0
2016	2017	2018

	Tarkett			DJ (.STOXXE) (Rebased)
	Tarkett			DJ (.STOXXE) (Rebased)
Performance			1m		3m	12m
(%)
Absolute		18.7			-13.5	-35.3
DJ		0.9			-9.3	-10.6
(.STOXXE)
Source: Deutsche Bank

Key indicators (FY1)
ROE (%)						10.7
Net debt/equity (%)						87.1
Book value/share (EUR)						13.1
Price/book (x)						1.7
Net interest cover (x)						6.1
EBIT margin (%)						4.8
Source: Deutsche Bank

Stock & option liquidity data
Market cap (EUR)(m)						1,372.5
Shares outstanding (m)						63
Free ﬂoat (%)						28
Option volume (und. shrs., 1M avg.)						–
Source: Deutsche Bank

Deutsche Bank AG/London

Page 77

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3 December 2018

Building Materials

European Building & Construction

Figure 156: 5m lag YoY crude oil price increase

70%

60%

50%

40%

30%

20%

10%

-10%

-20%

-30%

Feb-18

Apr-18

May-18

Jul-18

Aug-18

Sep-18

Oct-18

Nov-18

Dec-18

Feb-19

Mar-19

Apr-19

May-19

Jul-19

Aug-19

Sep-19

Oct-19

Nov-19

Jan-18

Mar-18

Jun-18

Jan-19

Jun-19

Source: Deutsche Bank, Factset, Bloomberg Finance LP

Figure 157: Key Oil Derivatives: Purchasing Price Drivers

Source: Deutsche Bank, Tarkett Q3 18 report

Forecasts and ratios
Year End Dec 31	2016A	2017A	2018E	2019E	2020E
Revenue (EURm)	2,739	2,841	2,855	3,068	3,169
EBITDA (EURm)	314	135	263	295	317
EBITA (EURm)	191	13	137	166	184
PBT DB (EURm)	195	-11	114	144	163
PBT stated (EURm)	172	-8	114	144	163
DB EPS (EUR)	2.48	13.65	1.36	1.62	1.83
OLD DB EPS (EUR)	2.48	13.65	1.76	2.01	2.26
% Change	0.0%	0.0%	-23.0%	-19.6%	-18.8%
DB EPS growth (%)	93.9	450.2	-90.0	19.1	13.1
P/E (DB EPS) (x)	12.0	2.8	15.9	13.4	11.8
DB EV/ DB EBITDA (x)	7.6	22.3	7.9	6.8	6.2
EV/EBITA (x)	12.5	237.5	15.1	12.2	10.7
DPS (EUR)	0.60	0.60	0.55	0.65	0.74
Yield (%)	2.0	1.6	2.5	3.0	3.4
Source: Deutsche Bank estimates, company data

Page 78

Deutsche Bank AG/London

vk.com/id4464259433 December 2018

Building Materials

European Building & Construction

Model updated: 29 November 2018

Running the Numbers

Europe

France

Building Materials

Tarkett

Reuters: TKTT.PA Bloomberg: TKTT FP

Hold

Price (29 Nov 18)		€ 21.68

Target price		€ 20.50

52-week Range	€ 18.07	– 36.92

Market Cap	€ 1,372m
	US$	1,549m

Company Profile

Tarkett desings, manufacturers and sells flooring used in residential and commercial buildings. It is the worlds third largest flooring manufacturer by sales and the global leader in resilient flooring. Sales are equally split between residential and commercial end uses and key markets are US, Russia and Europe.

1yr Price Performance

40
35
30
25
20
15
10
Nov-17	Feb-18	May-18	Aug-18

TKTT.PA

EURO STOXX PRICE (Rebased)

Margin Trends

14
12
10
8
6
4
2
0
15	16	17	18E	19E	20E

EBITDA Margin

EBIT Margin

Growth & Profitability

14					15
12					10
10					10
10
8					5
6					0
4					-5
2					-5
2
0					-10
15	16	17	18E	19E	20E

Sales growth (LHS)

ROE (RHS)

Solvency
100					10
80					8
60					6
40					4
20					2
0					0
15	16	17	18E	19E	20E

Net debt/equity (LHS) Net interest cover (RHS)

Xavier Marchand

+44(207)545-1400 xavier.marchand@db.com

Fiscal year end 31-Dec	2015	2016	2017	2018E	2019E	2020E

Financial Summary
DB EPS (€)	1.28	2.48	13.65	1.36	1.62	1.83
Reported EPS (€)	1.31	1.87	-0.61	1.36	1.62	1.83
DPS (€)	0.52	0.60	0.60	0.55	0.65	0.74
BVPS (€)	13.15	14.69	12.30	13.06	14.13	15.31
Weighted average shares (m)	63.5	63.5	63.3	63.3	63.3	63.3
Average market cap (€m)	1,405	1,891	2,407	1,372	1,372	1,372
Enterprise value (€m)	2,010	2,385	3,016	2,066	2,023	1,969

Valuation Metrics
P/E (DB) (x)	17.3	12.0	2.8	15.9	13.4	11.8
P/E (Reported) (x)	16.9	15.9	nm	15.9	13.4	11.8
P/BV (x)	2.19	2.32	2.84	1.66	1.53	1.42
FCF Yield (%)	9.7	7.8	nm	1.8	5.8	6.9
Dividend Yield (%)	2.4	2.0	1.6	2.5	3.0	3.4
EV/Sales (x)	0.74	0.87	1.06	0.72	0.66	0.62
EV/EBITDA (x)	6.9	7.6	22.3	7.9	6.8	6.2
EV/EBIT (x)	12.2	12.5	237.5	15.1	12.2	10.7

Income Statement (€m)
Sales revenue	2,715	2,739	2,841	2,855	3,068	3,169
Gross profit	669	743	703	719	779	811
EBITDA	290	314	135	263	295	317
Depreciation	126	123	122	126	130	134
Amortisation	0	0	0	0	0	0
EBIT	165	191	13	137	166	184
Net interest income(expense)	-32	-21	-23	-22	-21	-20
Associates/affiliates	0	3	3	0	0	0
Exceptionals/extraordinaries	0	0	0	0	0	0
Other pre-tax income/(expense)	0	0	0	0	0	0
Profit before tax	132	172	-8	114	144	163
Income tax expense	49	53	30	27	41	47
Minorities	0	1	1	1	1	1
Other post-tax income/(expense)	0	0	0	0	0	0
Net profit	83	119	-39	86	103	116
DB adjustments (including dilution)	-2	39	903	0	0	0
DB Net profit	81	158	864	86	103	116

Cash Flow (€m)
Cash flow from operations	217	239	41	163	223	240
Net Capex	-81	-92	-107	-138	-144	-145
Free cash flow	136	147	-66	25	79	95
Equity raised/(bought back)	0	0	0	0	0	0
Dividends paid	-24	-33	-38	-38	-35	-41
Net inc/(dec) in borrowings	181	79	-135	-223	44	54
Other investing/financing cash flows	-21	-58	-51	-50	-63	-67
Net cash flow	271	135	-290	-286	26	41
Change in working capital	9	-17	-37	-50	-10	-10

Balance Sheet (€m)
Cash and other liquid assets	68	93	115	115	115	115
Tangible fixed assets	499	489	467	689	704	715
Goodwill/intangible assets	663	659	602	602	602	602
Associates/investments	29	35	32	32	32	32
Other assets	862	893	917	957	965	973
Total assets	2,121	2,168	2,133	2,395	2,417	2,437
Interest bearing debt	560	480	614	837	793	739
Other liabilities	724	753	739	729	727	725
Total liabilities	1,284	1,233	1,353	1,566	1,520	1,463
Shareholders' equity	835	933	778	826	894	969
Minorities	2	2	2	3	4	4
Total shareholders' equity	837	935	781	829	898	973
Net debt	492	387	499	722	678	624

Key Company Metrics
Sales growth (%)	12.4	0.9	3.7	0.5	7.5	3.3
DB EPS growth (%)	-4.3	93.9	450.2	-90.0	19.1	13.1
EBITDA Margin (%)	10.7	11.5	4.8	9.2	9.6	10.0
EBIT Margin (%)	6.1	7.0	0.4	4.8	5.4	5.8
Payout ratio (%)	40.0	32.1	nm	40.3	40.3	40.2
ROE (%)	10.7	13.4	-4.5	10.7	11.9	12.4
Capex/sales (%)	3.0	3.4	3.9	4.8	4.7	4.6
Capex/depreciation (x)	0.6	0.7	0.9	1.1	1.1	1.1
Net debt/equity (%)	58.8	41.3	64.0	87.1	75.5	64.1
Net interest cover (x)	5.2	9.1	0.5	6.1	7.7	9.0

Source: Company data, Deutsche Bank estimates

Deutsche Bank AG/London

Page 79

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3 December 2018

Building Materials

European Building & Construction

Rating	Company
Rating	Company
Hold	Titan Cement
Emerging Europe
Greece
Building and Construction	Reuters	Bloomberg
Building Materials	TTNr.AT	TITK GA
	TTNr.AT	TITK GA

Titan Cement (Downgrade to HOLD)

Xavier Marchand

Research Analyst +44-20-754-51400 xavier.marchand@db.com

Price at 28 Nov 2018 (EUR)	19.56

Price Target (EUR)	21.00

52-week range (EUR)	25.10 - 18.90

Titan: US macro risks and valuation premium

Since July 18, Titan has overperformed other cement stocks under our coverage by >12% - as a result the stock is now more expensive vs. other cement stocks (7.7x 2019E EV/EBITDA vs. 5.1-7.0x for others). In addition, across our coverage, Titan is the most leveraged stock to the US (c75-80% of Titan EBITDA growth in 2019E) while our analysis on US housing a ordability suggests now more downside than upside to residential forecasts. With increasing risks on the US residential cycle and a more expensive valuation vs. the sector, we downgrade Titan to HOLD.

Titan at a glance

Figure 158: 2018E Sales and EBITDA by geography

	Eastern Med			Greece & W Europe	Eastern Med			Greece & W
11%				Greece & W Europe		6%		Greece & W
11%				16%		6%		Europe
				16%				Europe
					South Eastern			5%
					South Eastern
South Eastern					Europe
Europe					22%
15%
North America					North America
58%					67%
Source: Deutsche Bank, Company data
Source: Deutsche Bank, Company data


Figure 159: Titan 2018-19E EBITDA bridge
320						4.2	(0.1)	307.6
320
310
310				22.8	4.6
					4.6
300
300
290
280		266.9	9.1
270		266.9
270
260
250
240
240		2018E	FX	US	Greece	South	Egypt	2019E
		2018E	FX	US	Greece	South	Egypt	2019E
		EBITDA				Eastern		EBITDA
						Europe

Key changes
TP	26.00 to 21.00 ↓	-19.2%
Rating	Buy to Hold ↓
Source: Deutsche Bank

Price/price relative

40
30
20
10
Jan '17	Jul '17	Jan '18	Jul '18

	Titan Cement		Athens General (Rebased)
	Titan Cement		Athens General (Rebased)
Performance		1m	3m	12m
(%)
Absolute		0.8	-1.2	-4.1
Athens		-4.8	-18.2	-16.9
General
Source: Deutsche Bank

Key indicators (FY1)
ROE (%)				4.9
ROA (%)				2.6
Net debt/equity (x)				52.6
Book value/share (EUR)				16.1
Price/book (x)				1.2
Net interest cover (x)				2.5
EBIT margin (%)				10.7

Source: Deutsche Bank

Source: Deutsche Bank estimates, Company data

Page 80

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