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Price Correction Creates Opportunity for Long Term Investors
- 1H22 results show pro-forma net profit of Eu24mn. TIP reported pro-forma consolidated 1H22 profit of Eu24mn and shareholders’ equity of Eu1.06bn, following the distribution of Eu20mn in dividends and a further Eu14mn of treasury share purchases. 1H22 earnings did not yet reflect the disposal of the stake in Be, which will have brought a capital gain of c.Eu100mn in 3Q22. The net debt is currently estimated at ~Eu357mn with a very solid balance sheet considering the disposal of Be to Engineering adding around Eu100mn to liquidity and considering some recent investments. TIP has confirmed its intention to continue the buyback, currently at 9.27% of the capital.
- Active management of investments and disposals continuing in a challenging environment. TIP has been very active in 1H22 despite the challenging markets. It has made several new investments in attractive private companies as well as rounding up some positions in listed companies such as OVS, Elica and Basic Net. Itaca announced its first investment in Landi Renzo, while more recently a major reorganisation of Eataly was announced with the entry of a new majority shareholder poised to boost growth plans and international expansion. On the divestment side, in 3Q22 TIP will benefit from the closing of the sale of Be Shaping the Future to Engineering, delivering a capital gain of c.Eu100mn and reinvest Eu27mn in Engineering. Some planned moves, like the listing of Chiorino, were delayed due to unsupportive market conditions, but this did not affect the company’s overall activity that continue to report strong results. Together with 1H22 results, TIP’s outlook indicated that there are many uncertainties ahead, making it hard to provide guidance, but reiterated the group’s strong point of strength allow TIP and its participated companies to “look at least to the near term with quiet confidence”.
- Enticing entry point after correction: stock performance has been hit YTD by negative markets and rising interest rates, penalising the quality / growth sectors to which TIP is exposed. It is paramount to remember that most of the companies in the current investment portfolio continue to show very healthy operating trends, enjoy solid balance sheets and are expected to thrive once economic and financial conditions stabilise and improve. We see TIP, but also its investees, as very well positioned to grasp opportunities on multiple fronts. TIP’s investments are typically market leaders in their segments and could act as consolidators through acquisitions or simply gaining market share from competition. We think the coming quarters could offer opportunities for TIP to put money to work, as in the recent past there has been fierce competition from financial players stretching leverage to offer excessive valuations, whereas potential targets are now more willing to seek a long term partner for their business in these unprecedented times for the global economy.
- OUTPERFORM; target Eu10.4ps (from Eu12.2ps). The recent market correction has widened the discount to NAV to a level not seen for some time. We therefore believe that current prices are an enticing starting point to build a position for patient investors interested in gaining exposure to excellent listed and private Italian companies. We are updating our dynamic NAV, based on our internally-calculated fair value for listed stocks we cover, while also adding new investments along with the current net financial position, yielding a FV of Eu10.4ps or a 39% discount on dynamic NAV. The NAV at market price is Eu8.1ps. This compares with the latest available company-calculated Net Intrinsic Value of Eu13.14ps which is more than double the current stock price.