# Inchcape “well placed to hit 2019E” says Zeus Capital

- Link: https://www.directorstalkinterviews.com/inchcape-well-placed-to-hit-2019e/412797708
- Published: 2019-11-11T08:52:05+00:00
- Author: Amilia Stone

**Revising 2020E and 2021E**

We update our forecasts following Inchcape’s Q3 IMS on 7^(th) November, and focus
our attention on 2020E and 2021E estimates after the Group confirmed it was well
placed to hit 2019E last week. In 2020E and 2021E we expect a more challenging market
in Asia, and currency headwinds in regions such as Australia to persist and adjust
our forecast accordingly. We now expect adj. PBT in 2020E of £270.0m (vs £307.1m
previously) and £268.5m in 2021E (vs £320.9m previously), which triggers a c12% 
EPS downgrade in each year. We remain comfortable with our long-term thesis set 
out in December 2018 and continue to see Inchcape as a unique investment opportunity.
The business continues to invest in the higher margin distribution business, and
growth of this segment should act as a key factor in the re-rating in our view.

 * **Forecasts: **We expect weaker trading in Asia,as key market such as Singapore
   and Hong Kong continue to see trading headwinds. We incorporate a continued £
   25m JPY currency headwind, offset by £10m of operational improvements and cost
   savings. Stronger Sterling creates a further currency headwind, although purely
   translational, of c.£10m. We also trim our growth forecast in emerging markets.
   We incorporate these factors into our forecasts and now expect adj. PBT in 2020E
   of £270m growing to £283.9m in 2021E. We provide a profit bridge showing how 
   we arrive at our new 2020E forecast on page 2. Net cash based on these assumptions
   is £203.9m (vs. £232.3m previously) in 2020E going to £211.8m (vs £268.5m previously)
   in 2021E, with the balance sheet clearly remaining very robust for further accretive
   capital allocation that has been well executed to date.

 * **Investment view:** Based on our revised forecasts, Inchcape trades on a 2019E
   P/E of 12.2x in 2020E falling to 11.2x in 2021E, which we believe is at odds 
   vs. its distribution peers, as well as the ROCE delivered of 18%. The average
   share price outcome based on our valuation techniques pointed towards an intrinsic
   value in excess of 800p, which we believe is achievable within a three-year time
   horizon, which implies >30% upside from current levels.

| **£m** | **2020E
old
 | 202E
new
 | % difference | 2021E
old
 | 2021E new | % difference | 
| Revenue | 9,102.2 | 8588.1 | (5.6) | 9,347.4 | 8775.7 | (6.1) | 
| Adj. EBIT | 355.1 | 318.0 | (10.4) | 368.9 | 331.9 | (10.0) | 
| Adj. PBT | 307.1 | 270.0 | (12.1) | 320.9 | 283.9 | (11.5) | 
| EPS (p)* | 59.5 | 52.1 | (12.3) | 64.5 | 57.1 | (11.5) | 
| DPS (p) | 26.8 | 26.8 | 0.0 | 26.8 | 26.8 | 0.0 | 
| Net (debt)/cash | 232.3 | 203.9 | (12.2) | 268.5 | 211.8 | (21.1) |

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