GENERAL ANALYSIS
Company Description
Exor NV is a dynamic and diversified holding company that invests in multiple sectors, including reinsurance, agricultural and construction equipment, commercial vehicles, automotive, professional football, and sports cars. The company's portfolio includes investments in some of the world's leading companies, positioning it as a global player in the market.
Founded in 2015, Exor NV is headquartered in Amsterdam, under the leadership of CEO John Jacob Philip. With a rich history rooted in the founding of Fabbrica Italiana Automobili Torino (FIAT) by Giovanni Agnelli, the company has a strong legacy of success and innovation. Over the years, Exor has continued to expand its portfolio, including a significant investment in the sports industry through its acquisition of the football club Juventus. In 1927, Agnelli established Istituto Finanziario Industriale (IF), a holding company that combined his interests in Fiat, consumer goods, food, financial services, airlines, and real estate. By the end of the century, IFINT acquired Exor Group and extended its reach globally with investments in Asia. Exor NV's diverse and global portfolio provides investors with an opportunity to benefit from a wide range of industries and markets. As a result, the company has positioned itself as a key player in the stock market, with a strong reputation for innovation, performance, and growth.
Performance
Exor NV's highest revenue was achieved in 2019, estimated at €143,755 million, which dropped significantly to €33,617 million in 2021 due to the COVID pandemic. However, the net revenues for the six months ended 30 June 2022 were €18,683 million, representing an increase of €2,543 million compared to the same period in the prior year (€16,140 million). This increase is primarily attributed to the improved performance of CNH Industrial and Ferrari.
Despite the increase in net revenues, the net profit or loss was impacted by several factors, including higher raw material and energy costs, asset write-downs related to operations in Russia and Ukraine (€53 million), hyperinflation in Turkey (€15 million), and separation costs related to the spin-off of Iveco Group (€10 million). However, the company had a net Asset Value (NAV) of nearly €26 billion on 30 June 2022.
In 2019, the stock price of Exor NV on the share market was €61.60, overvalued by 34% compared to the intrinsic value of €45.81. As a result, investors could not buy the stock at a good price. This overvaluation was due to the low predicted future increase in revenue for the coming years, which was accurate as the net revenue decreased to less than €40,000 million in 2021. Overall, Exor NV's recent financial performance has been impacted by various factors, but the company has demonstrated resilience and an ability to adapt to changing market conditions. The company's strong NAV and diverse portfolio make it an attractive investment option for investors looking for long-term value.
Market Analysis
Exor operates in a diverse set of industries, with its holdings spanning automotive, construction, retail, and more. This diversification allows Exor to mitigate risk and capture opportunities across various markets. According to the company's 2020 annual report, its net asset value (NAV) increased by 16.5% year-over-year, driven by a strong performance from its key investments, particularly CNH Industrial and Ferrari.
The automotive industry, a significant part of Exor's portfolio, is a massive global market with substantial growth potential. The global automotive market is projected to grow at a CAGR of 3.9% between 2021 and 2028, driven by increasing demand for electric vehicles and advancements in autonomous vehicle technology. This growth presents an opportunity for Exor's automotive holdings, particularly CNH Industrial and Ferrari, to capture a larger market share.
Exor's diverse portfolio of companies operates in highly competitive industries, and the company faces strong competition from both established players and new entrants. In the automotive industry, CNH Industrial competes with global heavy equipment manufacturers like Caterpillar and Komatsu, while Ferrari competes with luxury car brands like Lamborghini and Aston Martin. However, Exor's strong financial position and strategic investments give it a competitive advantage in these industries. The company's investments in CNH Industrial and Ferrari have positioned it to benefit from the growth in the automotive industry, and its ownership of Juventus Football Club gives it a significant presence in the global sports market.
Overall, Exor is well-positioned to capitalize on growth opportunities in its diverse portfolio of industries, particularly in the automotive sector. The company's strong financial position and strategic investments give it a competitive advantage, while its ownership of high-profile brands like Juventus Football Club and Ferrari provides a strong brand presence in the global market. However, Exor also faces strong competition in its industries, and its success will depend on its ability to continue to invest strategically and maintain a competitive edge in its markets.
Global Background
In recent years, Exor has faced various economic and geopolitical challenges that have affected its operations and investments. One major event that has impacted the company is the COVID-19 pandemic, which has caused widespread disruption in the global economy. The pandemic has affected Exor's portfolio companies in various ways, with some experiencing significant declines in revenue and profits.
In addition to the pandemic, Exor has also had to navigate a complex geopolitical landscape. The company has operations and investments in various regions, including Europe, Asia, and North America. The ongoing trade tensions between the US and China, Brexit, and other geopolitical developments have had implications for Exor's business activities and investment strategies.
Despite these challenges, Exor has continued to pursue its mission of building great companies. The company has remained committed to its long-term vision and has made strategic investments in various sectors, such as technology, healthcare, and financial services. Exor's investments in these areas are aimed at driving growth, innovation, and sustainability in the companies it owns.
Looking ahead, Exor will likely continue to face economic and geopolitical challenges, but the company's strong financial position, experienced leadership team, and commitment to responsible business practices position it well to weather these challenges and continue to build great companies.
SWOT Analysis
Strengths: Exor NV is a diversified holding company with a broad range of products that cater to various customer segments in the Auto & Truck Manufacturers industry, which has helped the company to diversify its revenue streams. It holds a strong market leadership position in the Auto & Truck Manufacturers industry, and its skilled employees contribute to the success of the company.
Weaknesses: Exor NV has a low investment in customer-oriented services, which could lead to the success of competitors. The high employee turnover rate may lead to higher salaries to maintain talented collaborators. Additionally, the influence of artificial intelligence on the company requires building a new business model, which could result in a significant financial loss. Replacing existing experts with more skilled ones may also incur additional costs.
Opportunities: The fast-changing customer preferences, driven by rising disposable incomes, easy access to information, and the fast adoption of technological products, present an opportunity for Exor NV to experiment with and introduce new products to the market. The expansion of the market and consumer base provides an opportunity to increase revenue. The technological development in the car industry is also an opportunity for innovation, leading to an increase in profits and a reduction in competition.
Threats: Changes in the political environment, especially Brexit, can have a significant impact on the supply chain of companies. The difficulty in enforcing WTO regulations and laws in various markets can also cause delays in implementation. Changing demographics, the trade relations between the US and China, and their impact on the supply of products pose a threat to Exor NV.
FINANCIAL ANALYSIS
Introduction
In this section of the equity research report, we will conduct a comprehensive financial analysis of Exor's past balance sheets and performance. By examining key financial metrics such as free cash flow, ratios, profitability, debt, and multiples, we will be able to gain valuable insights into the company's financial health and make informed predictions about its prospects. These insights will be critical in determining Exor's investment potential and providing a thorough evaluation of the company's financial performance.
Liquidity
Liquidity is the ability of an asset to be easily converted into cash to meet short-term obligations or liabilities. The most commonly used measures of liquidity include the current ratio, quick ratio, and cash ratio. A ratio greater than one is generally considered desirable. The current ratio compares a company’s current assets (assets that can be converted into cash within a year) to its current liabilities by dividing current assets by current liabilities. The quick ratio excludes inventories and other less liquid current assets and is calculated by adding cash and cash equivalents, accounts receivable, and short-term investments, then dividing by current liabilities. The cash ratio is the most conservative liquidity measure as it considers only cash and cash equivalents in relation to current liabilities, indicating a company’s ability to pay short-term debts with available cash resources.
Exor’s current ratio has been increasing since 2020 and is currently at around 1.9 (as of the last half-year report on June 30, 2022), which is a good range for a holding company as the industry median is around 0.75. However, its quick ratio is currently below 1 at 0.8, while the industry median is around 1.25. Additionally, its cash ratio is at 0.19, compared to the industry median of 0.35. This indicates that Exor has more debts than liquid assets, which could lead to difficulties in paying its debts and potential insolvency.
To assess Exor’s ability to pay its long-term debt, we can use solvency ratios. The interest coverage ratio measures how many times a company can cover its current interest payments with its available earnings by dividing EBIT (Earnings Before Interest and Taxes) by interest expenses. A higher ratio is generally better, but it should not fall below 1.5, as this may indicate difficulty in meeting interest payments on debts. As of June 30, 2022, Exor’s interest coverage ratio is 12, indicating that it can cover interest payments with its earnings before taxes.
The debt-to-assets ratio measures a company’s leverage in terms of how much it is funded by debt rather than assets and therefore its ability to pay its debts with available assets. This ratio is obtained by dividing debts by assets, and a ratio above 1.0 indicates that a company is funded by debt rather than assets and may face difficulties in meeting its long-term obligations. As of June 30, 2022, Exor’s debt-to-assets ratio is 0.47, which is in a healthy range, indicating that most of the company is funded by assets rather than debt.
In conclusion, using liquidity ratios we can conclude that Exor can pay its current liabilities with its current assets within a year but may experience liquidity problems if these obligations need to paid earlier as it has a low quantity of cash & cash equivalents. Using solvency ratios we can conclude that Exor will be solvent in the long-term perspective.
Profitability
To evaluate the profitability of the company, we have identified four key financial indicators that are crucial for assessing its financial health over the last five years. These indicators include ROE and ROIC, net revenue, and net profit margin.
ROE (Return on Equity) measures the return generated by the company on the equity invested by its shareholders. This ratio is calculated by dividing the company's net income by its shareholder's equity. A higher ROE signifies that the company is using its shareholder's equity effectively to generate profits.
ROIC (Return on Invested Capital) measures the return generated by the company on the total capital invested in the business. This ratio is calculated by dividing the company's after-tax operating profit by its invested capital. A higher ROIC indicates that the company is using its total capital efficiently to generate profits.
Net revenue is the total amount of revenue earned by the company from its sales or operations, after deducting any deductions such as returns, discounts, and allowances. It represents the top line of the company's income statement and indicates the total amount of money earned by the company before any expenses are deducted.
Net profit margin is a financial ratio that measures a company's profitability by calculating the percentage of revenue that is left after deducting all expenses, including taxes and interest. This ratio is calculated by dividing the company's net income by its net revenue. A higher net profit margin indicates that the company is more efficient at generating profit from its revenue.
By analyzing these financial metrics, investors and analysts can evaluate a company's financial performance and make informed decisions about investing or lending to the company. The net total revenues have experienced a slight increase from 2017 until 2019, reaching over 143 million euros. Due to the Covid pandemic, the revenue decreased significantly to 26 million euros in 2020. However, it showed a good increase in 2021, with total net revenues of 33.6 million euros. Projections suggest that revenues should increase to 38 million euros in 2022. The net profit margin followed a similar trend, with a slight increase from 3.36% to 6.22% in the pre-Covid years. The net profit margin in 2020 saw a significant decrease due to low net profits, while 2021 showed the best margin in the last five years, even in double digits, indicating a successful response to the pandemic. ROE and ROIC both experienced a similar trend, with indices increasing in the three years before Covid and dropping to 0% in 2020. Both indices showed recovery in 2021, with ROE at 14.2% and ROIC at 3.8%.
Stock Valuation
The Discounted Cash Flow model is a popular valuation technique used to estimate the intrinsic value of a company. This model utilizes future cash flows, discounted to their present value, to determine the present value of a company's assets. This approach is based on the concept that the intrinsic value of an investment is the present value of its expected future cash flows.
To calculate the present value of a company using the DCF model, we forecasted future cash flows for Exor, taking into account factors such as revenue growth, operating expenses, capital expenditures, and taxes. These forecasts were then discounted back to their present value using the company's weighted average cost of capital (WACC).
WACC is the required rate of return that a company must earn on its investments to satisfy its investors. This rate takes into account the cost of debt and equity financing, as well as the risk associated with the company's operations. For our analysis of Exor, we got a WACC of 4.42%.
There are several methods to estimate the terminal value of a company, including the perpetuity growth method and the EBITDA multiple method. The perpetuity growth method assumes that the company will grow its cash flows at a constant rate indefinitely, while the EBITDA multiple method uses comparable companies or industry standards to estimate a multiple of EBITDA that can be applied to the company being analyzed.
Using the perpetuity growth method, we used a terminal growth rate of 2.5% and got a share price of $107.39. While using the EBITDA multiple method, we used an exit multiple of 8.5x which is standard for holding companies, and got at a share price of $118.36.
Discounted Cash Flow Analysis
Multiples Analysis
For this analysis, we used two fundamental multiples commonly used by investors and analysts to evaluate a company's financial performance and make investment decisions. Revenue-based multiples are particularly useful for cross-country comparisons.
The EV/EBITDA ratio is a financial metric used to estimate the value of a company in relation to its EBITDA. It is computed by dividing a company's Enterprise Value (EV) by its EBITDA. Enterprise Value represents the market value of a company's equity and total debt, excluding cash and cash equivalents.
On the other hand, the Price-to-Earnings (PE) ratio measures a company's current stock price in relation to its earnings per share (EPS). It is obtained by dividing the current market price per share by the EPS. This widely used valuation metric helps determine whether a company's stock is overvalued or undervalued relative to its earnings. A higher PE ratio typically suggests that investors are willing to pay more for each dollar of earnings generated by the company, while a lower PE ratio may indicate that the stock is undervalued. Excluding the anomalous 2020 year, the P/E ratio for the financial sector has consistently remained below its average, with values of 8.3 and 5.4 in 2018 and 2019, respectively. However, in 2021, the P/E ratio for the sector was around 6, while the P/E ratio for the stock was 9.9, indicating that the stock may be overvalued.
It is also worthwhile to examine the P/CF ratio, which provides insight into the company's ability to manage future cash difficulties. In 2021, the P/CF value of 19 is quite high, with values under 10 generally considered favorable, while values over 10 may imply that the company's price is high or its cash flow is low. It is worth noting that this metric is particularly relevant for industrial companies, and Exor's P/CF value above 10 is not a cause for significant concern.
The EV/EBITDA ratio has increased in recent years, particularly after the spread of COVID-19, rising from 4.5 in the previous three years to 16.9 in 2021. An increasing EV/EBITDA ratio may indicate that the market's perception of the company has shifted, resulting in a decrease in the company's valuation. This shift could be due to various factors, such as heightened competition, changes in consumer behavior, or adverse news events. It is important to note, however, that a rising EV/EBITDA ratio does not necessarily imply that the company is performing poorly. For instance, if a firm is investing heavily in R&D or expanding into new markets, it may have a higher EV/EBITDA ratio due to increased debt or lower EBITDA. Nonetheless, these investments could generate long-term benefits and lead to future growth.
Piotroski Score
The Piotroski score is a popular metric used to evaluate the financial health and value of a company's stock. The score ranges from zero to nine, with higher scores indicating better value. The score is divided into three categories: profitability, leverage and liquidity, and operating efficiency.
Under profitability, a company earns points for having a positive net income (+1), positive return on assets (ROA) (+1), positive cash flow from operations (CFO) (+1), and higher CFO than net income (+1), which indicates good earnings quality. For leverage and liquidity, a company earns points for decreasing long-term debt (+1), but loses points if the current ratio is lower than the previous year (+0), or if there are new shares issued (+0). Lastly, for operating efficiency, a company earns points for a higher asset turnover ratio (+1), and for having a gross margin that is consistent with the industry standard (+0).
When assessing Exor's Piotroski score, it appears to have a score of 6 out of 9. This is a reasonably good score, indicating that Exor may be a value stock. Exor earns points for having a positive net income, ROA, and CFO, as well as for decreasing its long-term debt. It loses points for having a lower current ratio than last year and for issuing new shares. The score is also positively impacted by a higher asset turnover ratio.
Risks
Exor is subject to a range of risks that could adversely impact its financial position and earnings. These risks are largely driven by the performance of the global economy and the industries in which its subsidiaries and associates operate.
One of the most significant factors influencing Exor's financial performance is the state of the economy in the countries where it invests. Increases or decreases in the gross national product, access to credit, consumer and business confidence, the cost of raw materials, and the rate of unemployment can all affect the company's earnings. Moreover, many of the sectors in which Exor operates are highly cyclical and tend to reflect the overall performance of the economy, amplifying the effects of economic trends.
Another significant risk is associated with a slowdown in the markets in which Exor invests. Increases in energy prices, fluctuations in raw materials, and possible contractions in infrastructure spending could all negatively impact the company's financial performance.
Exor's credit ratings are also an important consideration for investors. Currently, the company's corporate credit rating from S&P is "BBB+" for long-term debt and "A-2" for short-term debt, with a stable outlook. Exor's ability to access capital markets and the cost of borrowing in those markets is highly dependent on its credit ratings. If the rating agencies were to review their ratings for possible downgrades, any resulting downgrades could increase Exor's cost of capital, limit its access to sources of financing, and negatively affect its businesses.
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