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Research Tree provides access to ongoing research coverage, media content and regulatory news on GN STORE NORD A S. We currently have 2 research reports from 1 professional analysts.
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GN STORE NORD A S
GN STORE NORD A S
Decent quarter but short-term challenges ahead
01 Dec 16
GN Store Nord reported a healthy quarter with revenue rising 13% to DKK2.1bn, driven predominantly by M&A (c.5ppt mainly Audigy) and forex tailwinds (c.2ppt), while organically the growth receded (6% vs. 9% both in Q2 16 and Q3 15). GN Hearing’s 5% growth (organic, excluding Otometrics), reflected a slowdown sequentially (Q1 16: 11% and Q2 16: 10%) but GN Audio sustained its strong momentum (+9% organically) supported by the sturdy uptake (24%) in Contact Centre & Offices (CC&O) offsetting a sharp decline of 21% in its mobile business. Additionally, it has divested Otometrics (the diagnostic equipment business reported under the GN Hearing segment) to Natus Medical for $145m, and acquired VXi, a US-based headset manufacturer, for $35m, intended to strengthen the GN Audio’s North American presence. With FY 15 sales of DKK649m (c.8% of the group turnover), the GN Otometrics deal translates into 1.5x EV/Sales vs 1.9x as per our NAV. Factoring in these recent transactions, management now guides for an EBITA of c.DKK1,100m for GN Hearing (previously c.DKK1,200m) excluding transaction costs. Also, management expects a much lower effective tax rate of c.22% from the earlier 25-26% for FY 16. The rest of the guidance remains unchanged – GN Hearing: c.6% organic growth; GN Audio: c.7-10% organic growth & c.DKK590m EBITA. Separately, at its Capital Markets Day (CMD) held in September 2016, GN shared its new medium-term targets for 2017-19: a) GN Hearing: annual organic revenue growth of 6-8% and EBITA margin of 20-22%; b) GN Audio – annual organic revenue growth of 6-9% and EBITA margin of 17-19%; and c) effective tax rate of c.22%, in line with the lowered Danish taxes. The key focus in the hearing business will be on increasing its share in the open market (comprising independent dispensers, ENTs and buying groups), while further fortifying its relationship with large retailers (Costco, Veteran Affairs and Amplifon) and the successful launch of its fifth generation 2.4GHz-based product in 2017. The company is also looking to further secure its position in North America, particularly the US (aiming to be number 1), through sales-force expansion, leveraging Audigy’s network and strengthening the Beltone network in the US. On the other hand, GN Audio’s focus will be on improving its presence in the call-centric space, gaining further ground in the Unified Communications (UC) domain and repositioning itself in the mobile segment (geared more towards integrated voice and music solutions).
Initiating coverage on GN Store Nord
23 Aug 16
Recommendation and upside We are initiating coverage on GN Store Nord (market cap. of DKK21.9bn/ €2.9bn and a float of 100%) with an Add recommendation and a target price of DKK165 (c.17% upside). Our upside is driven by the company’s traditional technological superiority over peers, strong control on costs (through low-cost manufacturing centres such as China and Malaysia), a healthy balance sheet and attractive shareholder reward programmes (through significant share buy-backs and dividends). The stock had come under pressure recently following concerning read-across from its Netcom/ Audio business, weaker profitability and increasing threats from recent product/ platform launches by hearing-aids peers, but has since recovered to come close to its 52-week high. While we acknowledge the upside potential, we restrict our recommendation to an ‘add’, as we continue to see the company facing headwinds in its Netcom business and expect it to under-deliver on its FY 16 profitability guidance, given tougher comps in H2 16 (we see H2 margin expectations as demanding given the H1 run-rate), a changing product mix (from premium towards medium and lower cost products) and limited visibility on a new platform launch this year (given competitors’ recent launches and the US Veteran Affairs contract up for renewal in November, GN may end of conceding some of its market share gains in the past few months – GN currently accounts for a c.20% share of the VA market). Business and trends GN Store Nord operates two separate businesses under its corporate umbrella – GN Resound (hearing) and GN Netcom (audio). The former includes manufacture and marketing of hearing aids and is the core business for the company (accounting for 62% and 66% of FY 15 revenue and underlying operating profit, respectively). The other segment constitutes the company’s hand-free communications equipment (office and mobile headsets). With a volume share of c.17% at the end of 2015, GN is the fourth largest player in the c. $4bn oligopolistic global (wholesale) hearing instruments market. Characterised by the constant need for innovation and technology upgrades (the products’ lifecycle has declined to 1-1.5 years from the earlier 2-3 years) and by virtue of being highly regulated, the industry offers natural barriers to entry (the top six players – Sonova, William Demant, Sivantos, GN Store Nord, Starkey and Widex – account for c.95% of the market). However, competition amongst the six players remains intense, with market share gains/ volumes gaining critical importance, particularly in the wake of the intense pricing pressure being faced by the industry – average selling prices (ASPs have been declining 1-2% p.a.). Courtesy of its technology focus, GN has been steadily gaining market share since 2010, following the launch of its path-breaking 2.4GHz technology platform (four generations of the platform have been launched to date) and the first of its kind, made-for-iPhone wireless hearing aids. However, both Sonova and William Demant are currently in the process of launching their own 2.4GHz platforms (and promising additional features), threatening GN’s competitive advantage. Moreover, unlike its peers which have increasingly been tapping the diversification route (venturing into the retail and hearing implants space) to beat market overhangs, GN has remained steadfast in its strategy to focus only on the core wholesale side of the business. While this strategy does have merit (increased focus, greater earnings visibility and better terms with independent audiologists), it would require the company to stay ahead of the curve in terms of technological prowess and delivery. Performance delivery in the hearing devices segment takes on an even more critical role, given the headwinds faced by GN’s audio business. While the duopolistic Contact Center and Office business (CC&O) has been taking off, courtesy the strong uptake of the ‘Unified Communication’ devices (Plantronics and GN are the only two key players), it is being offset by the structural changes in the mobile headset market, leading to double-digit decline for the sub-segment. We expect the segment to remain soft in the near term. Need to know While operating under the GN Store Nord umbrella, the company’s two segments, Resound and Netcom, operate as completely unique entities, each headed up by a different CEO, with no synergies or overlaps in operations or end consumers. Back in 2007, GN had tried to divest its hearing aids business, Resound, to Sonova for $2.6bn but the deal was shot down by the German competition authorities which contested that the deal would create an oligopoly in Germany (the German courts dismissed GN’s 2013 petition for €1.1bn damages against the German authorities in 2014). The segment has since gone on to become the core earnings contributor for the company. Divestment/ sale of the business looks highly unlikely in the near term. The hearing aids industry, in recent times, has also been plagued by the noise around ‘commoditisation’ with a multitude of technology companies showing interest in entering the hearing aids space (particularly Samsung). Of note, however, is that other players such as 3M, Motorola and Panasonic have previously tried and subsequently failed to make inroads into the industry. We maintain that the current breeds of ‘pretenders’, the Personalised Sound Amplification Products (PSAPs), while much more pocket-friendly (costing a tenth of traditional hearing aids) and increasingly ramping up in sophistication (adding features such as noise cancellation), are still not programmed to correct hearing loss. However, the recent agreement by the FDA to have another look at its position on the regulation of hearing aids may become a threat if it does decide to soften its stance. Upcoming triggers We expect the next triggers for the company to be its Capital Markets Day, scheduled for 26 September 2016 (where the company is expected to discuss its medium-term guidance for 2017-19), the EUHA conference in October 2016 (possible announcement of the new platform) and the launch of the 5th generation 2.4GHz platform later this year/ early 2017.
08 Dec 16
Elderstreet stake acquired 02 GENERAL NEWS Globalworth premium In this issue Venture capital firm Draper Esprit has taken a 30.8% stake in venture capital trust manager Elderstreet. Both investment managers focus on the technology sector and they will be able to co-invest. Elderstreet has investments in a number of AIM-quoted companies through its VCTs. The purchase was funded by an issue of Draper Esprit shares worth just over £250,000. Simon Cook, the chief executive of Draper Esprit, is a former partner at Elderstreet so he knows the business and the people who run it, although he did leave more than 14 years ago. Cook has previously acquired portfolios from 3i and Cazenove, two other firms where he has worked. Draper Esprit has an option to acquire the remaining shares in Elderstreet, which has more than £25m under management. Adding Elderstreet to the group enables Draper Esprit to offer investors a range of EIS funds, VCTs and an ISA qualifying listed evergreen patient capital fund. The enlarged group has venture capital assets under management of more than £350m. At the end of September 2016, Draper Esprit had a net asset value of 352p a share, which is similar to the current share price. The June 2016 flotation price was 300p a share. Draper Esprit is quoted on Ireland’s Enterprise Securities Market as well as AIM.
N+1 Singer - Morning Song 05-12-2016
05 Dec 16
RTHM is acquiring a profitable Canadian listed mobile specialist for equivalent of US$42.5m consideration in shares (88.235m). This helps adds to two growth vectors RTHM is targeting; (i) adds unique exclusive audience (10m unique) and (ii) Exclusive demand Yahoo and Facebook. The business has 15 premium and owned and operated apps which provide users with rewards for activity. The business is expected to deliver c$9m of EBITDA in FY18 including $2m of cost synergies. This equates to just 4.7x EV/EBITDA. This marks what we see the first step in RTHM activity to scale the business and deliver on margin potential (see our initiation notes). Our initial estimates for EPS revisions are very significant - for FY18 are 2.3 cents (currently 0.6) and for FY19 4.3 (currently 2.5). There is a call at 830 for investors and we will revise post this.
Exponential growth now in sight
07 Dec 16
The best things in life are worth waiting for, or at least that seems to be the case with Kromek, a pioneering radiation detection expert. Since listing on AIM at 51p back in October 2013, the company has not only been busily refining and field testing its next generation CZT (cadmium zinc telluride) technology, but importantly also securing a raft of new orders.
N+1 Singer - Morning Song 09-12-2016
09 Dec 16
This morning’s AGM Statement confirms that trading in the first four months of the year to 31st October was in line with expectations. Revenue was slightly above the prior year period and cash collection has remained strong. The Group has reiterated its commitment to maintaining a progressive dividend policy. The statement is encouraging and we therefore leave our forecasts unchanged. We note the attractions of a 5% dividend yield and consider the shares inexpensive at 4.5x FY’17 EV/EBITDA.
Small Cap Breakfast
07 Dec 16
Creo Medical group—Schedule 1 update.. £20m raise. Expected market cap £61.2m, admission expected 9 December. ECSC—Schedule 1 from provider of cyber security services. Raising £5m. Vendor sale £0.8m. Target date 14 Dec. Expected market cap £15m. RM Secured Direct Lending - The secured direct lending fund intends to float on the Main Market on 15 December raising up to £100m
N+1 Singer - Morning Song 06-12-2016
06 Dec 16
With FY16 volume and revenue already disclosed in the pre-close, the focus in today’s prelims is on PBT (£100.3m versus our £101m) and EPS (96.8p versus our 95.4p). No special dividend triggered this year (none forecast) and DPS is held at 46.8p (N1SE: 48.0p). On end markets, recent commentary is reiterated – the core business is growing, whilst consumer electronics will be subdued in the current year (competitive capacity from Solvay). On currency, there will be a material benefit in the current year (a little more than the £14m to £15m previously indicated), and a further tailwind next year if current rates are maintained (quantum TBC). There is also an investment of £10m today in a minority interest in Magma Global, Victrex’ oil and gas mega programme partner. Although the share price is now close to our TP of 1730p, we feel that there is enough in today’s announcement to retain a positive stance on medium term opportunities with strong cashflow and a special dividend potentially to look forward to in the current year.