We have upgraded our recommendation for the share of Kapsch TrafficCom to “buy” from “hold” based on our updated sum-of-the-parts (SOTP) valuation, which leaves a convincing upside of more than 30% to the current price level, even despite the fact that we have priced-out vastly all projects whose operation or completion is at risk currently. In this regard we have to a big extent priced-out the operation of the ETC project in RSA, as the government has still not released a corresponding directive to put the operation into place. Additionally, we have priced-out the Russian M4 project after the sale of the shareholding stake in the joint venture company UTS. A vast part of the SOTP valuation is made up by the remainder of the projects, particularly those in the Czech Republic, Austria and also in Poland, where 2Q figures underpinned our projection of gradually improving margins, as well as the component sales business. Since we treat the aforementioned core of the SOTP valuation as a solid layer we reckon that the stock should gradually pick-up after the most recent shake-out and withstand even potential further backlashes (e.g. from a loss of the tender in Hungary). On the other hand, a start of operations in RSA early next year as well as improving margins in 2H 2012/13e could induce a rebound of the stock.
Outlook: We have cut our top line estimate to approx. EUR 490 mn from approx. EUR 507 mn for 2012/13e due to an elimination of the sales estimate for the Russian M4 project as well as a smaller than expected final milestone payment on project completion in Poland. Similarly, we have cut our sales estimate for 2013/14e to approx. EUR 560 mn from EUR 574 mn mainly related to the Russian project. Furthermore, we have decreased our operating margin estimate for 2012/13e from 7.2% to 6.7% due to the weak performance of the RSP segment in 1H. As we reckon with an erosion of the RSP margin after completion of the Belarusian project, we have slashed our margin forecast for 2013/14e from roughly 10% to roughly 8%. We have cut our net profit estimate for 2012/13e only modestly from EUR 16.3 mn to EUR 15.5 mn and from EUR 35.3 mn to EUR 31.5 mn for 2013/14e due an upgraded financial result, which partially outweighs the cut of the operating profit forecasts.
Recommendation: In terms of P/E for 2012/13e the share trades significantly higher than the peer group due to the reduced earnings estimate, but this does not reflect the significant upside potential derived from the “options” on a return to full operation in RSA and potentially improved performance in Poland. However, we preferred to value the share of Kapsch TrafficCom via a DCF method due to a different product focus and geographical sales composition of the peers and derived a fair value of EUR 54.70 (EUR 57.00 previously). Due to an upside of roughly 31% to the closing price as per December 5, 2012 of EUR 41.61 we upgrade our recommendation from “hold” to “buy”.