Growth accelerating to a new high
Amplifon (MILAN:AMPm)’s organic sales growth accelerated further in Q115 to a new high of 12%. We expect raised productivity and investments to sustain growth well above historical trends and a steady rise in profitability. While it trades at a 29% premium on P/E, Amplifon offers a 26% discount on EV/EBITDA vs its hearing aid peers in FY15e, influenced by its unusually high tax rate.
Further acceleration in operating performance in Q1
Amplifon’s sales growth accelerated further to +23% in Q115 of which 12% was organic (6% in FY14), 7% FX and 4% acquisitions. In spite of heavy investments in new shops, marketing and acquisitions, Amplifon’s strong operating leverage shone through with the group’s EBITDA margin expanding 320bp (+70bp in FY14) y-o-y.
Improving productivity in revamped business model
While Q115 benefited from the weak Q114 in Italy (weather, economy) and the US (weather, supplier issues), the geographic breadth of the sales growth acceleration implies that changes to Amplifon’s business model are the real drivers, in our view. First, a new customer acquisition strategy based on a better understanding of the client’s motivation to buy and a wider deployment of digital-enabling technologies is being implemented. Second, it is reaping the benefits from recent years’ staff training and the alignment of store KPIs, such as sales and conversion ratios, to staff pay. Third, it is about to adopt a more cost-efficient multimedia advertising approach in Italy, likely as a prelude to a wider international rollout.
Consensus forecasts remain overly conservative
Amplifon’s long-term organic growth should stay well above the 2006-14 average of 1.5%, helped not only by the business model initiatives but also a rise in marketing spend and accelerated store openings. We believe these investments will sustain market share gains in a rebounding market. In our view, the guidance of 7% organic sales growth and 100bp EBITDA margin expansion in FY15 looks conservative. Adding an estimated 3% growth from acquisitions (Amplifon has >€200m headroom up to its debt covenants) and 3% from FX suggests sales of €1.01bn and EBITDA of €166m, 2% and 3% above current consensus, respectively.
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