Groupe Steria: Disposal of Steria Iberica to Aurelius

Fair Value EUR18 (+63%)        BUY 

News published on October Tuesday 23, 2012
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Yesterday evening Steria announced the disposal of its Spanish business (Steria Iberica, 2% of sales) to Aurelius, for an undisclosed sum. We consider this is a positive move for Steria as this subsidiary was loss-making in a difficult local market. The deal is expected to be accretive by 0.3ppt on Steria’s 2012 op. margin.

ANALYSIS

  • The disposal of a loss-making business. Steria has signed an agreement to sell its Spanish subsidiary (Steria Iberica, c.900 staff) to the German venture capital firm Aurelius, for an undisclosed sum. However, we would not be surprised if it would be sold for less than EUR10m, i.e. less than 0.25x sales. The closing of the deal is expected to take place within the next few weeks. In 2011 Steria Iberica posted revenues of EUR42.2m (2% of Steria’s total revenues) and an operating loss of EUR3.7m. In H1 12, revenues were at EUR21m and the operating loss was at EUR1m. The Spanish business had been an issue for Steria for many years due to difficult local market conditions, the absence of critical size and the failure to reach the breakeven point. As such, we believe such a disposal is clearly a positive milestone for Steria’s margin recovery.
  • Accretive to the operating margin by 0.3ppt. Steria Iberia will be retroactively classified as a discontinued business for 2012. The group estimates the disposal will be accretive to the operating margin by 0.3ppt and will comfort Steria’s FY12 operating margin guidance (above 6%). In counterpart, Steria will book non-cash charges of EUR10m (after tax), corresponding to the resulting capital loss.
  • Marginal changes to our ests. We reduce our sales ests. by 2%, but increase our operating margin forecasts to 6.7% from 6.4% for 2012, to 7% from 6.8% for 2013 and to 7.3% from 7.1% for 2014. Our adj. EPS ests are upped by 4% for 2012, 1% for 2013 and 1% for 2014.

VALUATION

  • Steria’s shares are trading at est. 3.6x 2012 and 4.1x 2013 EV/EBIT multiples.
  • Net debt on 30th June 2012 was EUR212.7m (net gearing: 26%).

NEXT CATALYSTS

Q3 12 sales on 30th October before markets open, with a conference call at 9am CET / 8am BST / 3am 

EDT (France: +33 1 70 48 01 66; UK: +44 20 7784 1036).

Analyst: Gregory Ramirez / 33(0) 1 56 68 75 91 / gramirez@bryangarnier.com

 

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