A. Beets schreef op 19 november 2013 13:28:
SNS van Hold near Buy:
DPA is optimising its portfolio by aggressively exploiting consolidation opportunities in the Dutch secondment markets. Having absorbed the 2011 DPA-NIG merger and the 2012 Benkis acquisition, CEO Eric Winter and COO Olav Berten have recently widened DPA's portfolio of niches through the assimilation of two groups of technology and construction engineering professionals. Operating efficiency transpires through the EBITDA/Gross ratio at the top of its peer group. On 8x ‘14E EV/EBITDA, investors buy into the momentum created by on-the-ball management of both portfolio and operations.
DPA's multi-niche approach can reap benefits of scale and scope. More importantly, it also protects gross margins because it concentrates on value added for corporate customers and secondees alike. DPA secures its role as an intermediary by narrowly (re-)defining the clients' needs.
Two-thirds of the value added by secondment firms risks being disrupted by a combination of deregulation and technology. Consolidation, centralisation and shrinkage of demand adds to the disintermediation risk in specific verticals. Smaller or more homogeneous secondment firms are vulnerable: they lack width and are more exposed to gross margin erosion from disintermediation. DPA is targeting acquisitions that help the penetration per client or that help to widen the roster of specialities while skipping the conventional 12-18 months period to break-even. The recent technology and construction additions, sourced from bankrupt smaller players, have grown the professionals roster without any cash paid other than working capital.
Business units experience their own particular life cycles, that require active management. Currently, DPA has 22 speciality business units. Over the past eighteen months, five specialities have been acquired, five have been started, one was split into three, two were merged into one, and two were closed. Exposure to local government, a mainstay only two years ago, has all but disappeared. High-end (university educated) engineering professionals currently make up an estimated 20% of DPA’s book, signalling a significant shift away from the historically administrative focus of marketed specialities.
DPA’s public desire to acquire ICT Automatisering (ICT:NA, EUR 4.7, Hold) through a share swap fits its transformation-through-additional-specialities strategy, albeit at a grander scale than in other instances. Given ICT’s defensive reaction, we have not incorporated in our numbers the deal as intended by DPA.
For equity investors. DPA offers an opportunity to exploit the consolidation phase in Dutch professional staffing intermediaries. With gross margins temporarily sacrificed to reduce employability risk, 2013E forecasts for the bottom line reflect only a portion of the story. The valuation of 8x ‘14E EV/EBITDA is not in keeping with its current profitability at the top of its peer group and the medium-term potential of its portfolio. On the assumption of a 400+bps recovery of gross and EBITDA margins from ’12H2-‘13H1 levels into 2014-‘15E, a EUR 2 target share price, 10x prospective EV/EBITDA, is supported by both DCF and peer group. Buy (from Hold).