Einhell
Buy PT EUR 52.00
Price Bloomberg Reuters Sector Initial Coverage (old: n.a.)
Cheaper than the best, better than the rest
Einhell is a leading supplier of power tools and garden equipment for household use. Although Einhell is in charge of the complete product development as well as the quality control and after-sales service it has outsourced its manufacturing to China offering high flexibility in relation to its cost base and product variation. Einhell's main customers are large DIY chains such as OBI, Praktiker, Homebase or Leroy Merlin who make up for approx. 60% of Einhell's sales with the rest going to specialised trade, discounter chains and Cash&Carry stores. Within the market for household power tools, which should account for approx. 30% of the overall power tool market worth EUR 17 billion, Einhell differentiates from its competitors by… …undercutting brand products such as Bosch or Black&Decker by 30%-50% in price at a comparable quality level… …offering substantially better quality and after-sales service in comparison to no-name products in exchange for a slight price premium. The recent sales decline was not caused by competitive issues but can be put down to a number of extraordinary events (divestment at year end 2006, slump in air compressors sales due to EU regulation in 2008 and recession in 2009) and should therefore not be extrapolated going forward. To the contrary…
EUR 31.20 EIN3 GR EING_p Retail
Supplier of power tools and garden equipment for household use
Share data:
16.04.2010 / Closing price
…international expansion to countries such as Brazil, Australia and France and …market share gains due to struggling competitors and supplier consolidation ..in combination with the overall economic recovery should provide for a top line growth with a CAGR of approx. 4% until 2012. Despite the sales decline Einhell's prudent management and its lean corporate structure have enabled a solid earnings development allowing value creation even in 2009 with ROCE remaining above WACC. Fixed costs of approx. EUR 60m from personnel and general and administrative allow for some operational gearing and should enable a visible return to average EBIT margins of 6.5%-7%. Valuation: With the company trading just below book value adjusted for intangibles the current valuation would imply a further earnings decline of 50% with no recovery going forward based on a FCFY valuation. Against the backdrop of the strong competitive position and evident growth drivers this scenario seems out of bound. DCF, FCF yield and peer group valuation all indicate an upside of > 65%. This mispricing should result from the lack of institutional coverage in combination with the lacklustre sales development. However, with a number of IR activities planned for 2010 and a visible improvement of the top line this looks set to change Recommendation is BUY with a PT of EUR 52.

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