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Report update on Schaffner Holding AG by Research Dynamics: Guidance update (news with additional features)

DGAP-News: Research Dynamics / Key word(s): Research Update
Report update on Schaffner Holding AG by Research Dynamics: Guidance
update (news with additional features)

05.03.2015 / 19:35

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Demand slump in key markets, FX to affect FY2015


Uninspiring demand scenario to impede top-line growth in FY2015

Schaffner unexpectedly announced that its largest division - EMC - has been
facing headwinds as orders for its high-quality solutions from the Chinese
solar inverter industry fell significantly. However, the dip could be
partially offset by a healthy demand for ECOsine harmonic filters. The PM
division too is facing the heat of the ongoing geo-political tensions in
Europe as a key client, whose end market is Russia, trimmed down orders. On
the brighter side, Schaffner stated that the AM division is performing in
line with the group's expectations.


Guidance on 1H and full FY2015 results

Schaffner guided that revenue growth for 1HFY2015 will be flat y/y, given
challenging market conditions and the abolition of CHF/EUR peg. Based on
this guidance and the forex impacts, we expect Schaffner to report net
sales of CHF102mn for 1HFY2015. The group also stated that it expects EBIT
margin for the period to decline by 180bps y/y to 3%, indicating that cost
base will remain high. For the entire fiscal year 2015, Schaffner at
current exchange rates expects the top-line to remain stagnant (y/y) as
demand from various key markets continues to remain soft. The group
anticipates EBIT margin to decline from 7% last year to 5% in FY2015 on
account of high CHF costs and flat revenue growth. Management stated that
the group is working on executing cost management measures, which should
result in reduced personnel costs in Switzerland in the mid-single digits.


CHF de-peg to impact FY2015

The group derived just over 2% of the revenues (FY2014) from Switzerland,
indicating the scrapping of the CHF/EUR floor would negatively impact the
group's top-line in FY2015. Further, a significant portion of the expenses
are incurred in CHF specifying that a large portion of the cost base will
not change. This hurts the group's EBIT margin, according to management by
1 percentage point in FY2015. However, as the CHF stabilizes to a new
normal based on the market conditions, we believe the group will post a
healthy revenue and earnings growth beginning FY2016.


Stock weakens post guidance

The FY2015 guidance did not augur well with investors as the stock opened
with a gap-down of 7.4% (CHF 265) and continued to slide further intraday.
After a sales growth of ~10% y/y over the last two years, investors had
expected FY2015 to be a positive one, despite the negative impact of CHF
appreciation. However, we view the selling frenzy to be an over-reaction as
the group has solid fundamentals and will perform well over the medium
term.


Compelling valuation vs. peers

Over the last six months, Schaffner stock has largely been range bound,
after the positive sentiment post strong 1HFY2014 results subsided. The
stock corrected sharply on announcement of the abolition of the CHF/EUR
floor; however, it recovered largely in line with the Swiss benchmark
index. The stock continues to trade at a discount, based on the closing
price pre guidance update, of 5% and 12% on a P/E and EV/EBITDA basis,
respectively, to its product peers. On the similar line, it trades at a
discount of 5% and 17% (P/E and EV/EBITDA respectively) to its industry
peers. Given Schaffner's long-term growth prospects, we believe a discount
to its peers is unwarranted and that valuations remain attractive.


For more information please visit our website: www.researchdynamics.ch



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Additional features:

Document: http://n.equitystory.com/c/fncls.ssp?u=UXCYLHORMU
Document title: Schaffner Guidance Update

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