Anyone seen the Morgan Stanley analyst report dated 14 September?
Couple of highlights:
- overweight rating - $3.35 price target
Couple of excerpts: - "CSV offers structural growth of contracted annuity earnings. We believe delivering on FY11 forecasts will shift the focus towards CSV�s longer term potential and the quality of its contracted earnings providing cause for a re-rating of earnings as uncertainty eases. We make only minor changes to our earnings forecasts. This glimpse into NZ operations has reduced the level of uncertainty further in our view."
- "CSV has a market leading position (25% market share) in New Zealand. In the first 6 months under CSV management MIF grew by roughly 1000 to circa 17,000. Despite this performance and the shift over recent years from low apex/high opex printers to multifunction devices, CSV is targeting growth to just 20,000 over the next five years. We believe there is upside to MIF volumes."
- "We believe that in the long term CSV must deliver not only EPS accretion but also a return on the invested capital in order to achieve a significant re-rating. The acquired businesses appear to have the capacity to achieve these returns, they are highly cash generative, they have long term revenue streams, and should benefit from favourable structural changes. However CSV has raised equity twice since November to fund acquisitive growth, ROIC declined in FY10 (in which KMBS contributed only part of the year) as a result."
- "LSL: The key points to emerge from LSL were the fact that CSV has a financing business that was profitable throughout the GFC with bad debts expense of less than 1%, we expect a lower BD expense in FY11 vs pcp. LSL provided certainty and flexibility during a period when many in the industry found financing to be the biggest constraint on their business."
In respect to Fuji loss: - "Since November CSV has increased MIF from 6,000 to 34,000. Almost 3,000 MIF are at risk from the termination of the Fuji Xerox agreement in Brisbane, and CSV has acquired 2,000 MIF in Brisbane from Canon upon termination of the Fuji Xerox agreement. Therefore, we consider the potential downside to be the net loss of 1,000 MIF, if CSV retains their existing clients the net upside is 2,000 MIF."
CSV Price at posting:
$1.76 Sentiment: Buy Disclosure: Held
