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CFA Institute Research Challenge

hosted by
CFA Society Budapest
Team BISSE

The CFA Institute Research Challenge is a global competition that tests the equity research
and valuation, investment report writing, and presentation skills of university students. The
following report was submitted by a team of university students as part of this annual
educational initiative and should not be considered a professional report

Disclosures:

Ownership and material conflicts of interest


The author(s), or a member of their household, of this report does not hold a financial interest in
the securities of this company.

The author(s), or a member of their household, of this report does not know of the existence of
any conflicts of interest that might bias the content or publication of this report.


Receipt of compensation
Compensation of the author(s) of this report is not based on


investment banking revenue.


Position as an officer or a director
The author(s), or a member of their household, does not


serve as an officer, director, or advisory board member of the subject company.


Market making
The author(s) does not act as a market maker in the subject company’s
securities.


Disclaimer
The information set forth herein has been obtained or derived from sources
generally available to the public and believed by the author(s) to be reliable, but the author(s)
does not make any representation or warranty, express or implied, as to its accuracy or
completeness. The information is not intended to be used as the basis of any investment
decisions by any person or entity. This information does not constitute investment advice, nor is it
an offer or a solicitation of an offer to buy or sell any security. This report should not be
considered to be a recommendation by any individual affiliated with CFA Budapest society, CFA
Institute, or the CFA Institute Research Challenge with regard to this company’s stock.
Valuation Date: 29/12/2017 Recommendation: Buy Stock Exchange : BUX

Current share price: 14.66 Target price: 16.60 Sector: Industrials


Ticker: WABERERS Upside: 13.23% Industry: Trucking

Executive Summary
Waberer’s International Nyrt (“Waberer’s” or the “Company” or „the Group”) is a
B A S IC IN F O R M A T IO N
Hungarian asset heavy freight transportation company. The company was introduced
Ticker WA B ERERS
to Budapest Stock Exchange in July, 2017 at 5,100 HUF per share. And, it has built a
network across Hungary to France. With the enhancement of the business lines by
ISIN HU0000120720 multiple means, the company will boost its core competencies in the future.

Date o f listing 20-Jun-17


Investment Recommendation
Currency o f trading HUF The investment recommendation is BUY on Waberer’s International Nyrt (Waberer’s) with
a target price of 16.60 Euro, representing an upside of 13.23% from closing price of 14.66
Face Value 0.35 EUR th
Euro per share price on 29 November 2017.
Number o f securities listed 17,693,734

M arket Capitalizatio n (HUF


81,568
millio n)

TRADING DETAILS
Opening price 4,750
Last clo sing price (date / price) 4,685
A verage P rice 4,784
180 Days A verage P rice 4,975
360 Days A verage P rice 4,975
La t e s t C a pit a liza t io n ( B illio ns o f
H UF )

Share P rice 4.68

Share Out. 4.54

M arket Capitalizatio n 67.43

- Cash & Sho rt-Term Investments 11.89

+ To tal Debt 96.46 Financial Strength:


+ P ref. Equity -
The financial plan of Waberer’s is good and has worked well in the business environment
so far. The working capital management and good CAPEX investments has propelled
+ To tal M ino rity Interest 2.14
the growth of the firm in the past years.
= To tal Enterprise Value (TEV) 154.14 Adaption to macro Environment:
B o o k Value o f Co mmo n Equity 52.42 Being an asset based company, it results lower return on assets. Waberer’s is flexible
enough to adapt the changing production environment associated with growing
+ P ref. Equity -
macroeconomic and industry environment However, the Company should strengthen
+ To tal M ino rity Interest 2.14 groupage service more consistent with European and Global trends.
Share Price Valuation and Outlook:
+ To tal Debt 96.46
Waberer’s share price is slightly undervalued according to the discounted cashflow
= To tal Capital 151.02
method and relative valuation method. The valuation of the company is likely to rise
further as the results of the acquistions are due next year and the growth prospects from
germany shall add further support moving forward.
Investment Risk Summary
Ke y F ina nc ia ls 2 0 14 2 0 15 2 0 16 We have identified potential risks such as market and industry risks that may affect the
future success of the company. These downsides but not limited should be taken into
Revenue Gro wth NA 5.30% 9.50% consideration when making an investment decision. Although some risks including market
Gro ss P ro fit liquidity and more effective substitutes reveal potential downsides to the business, the
20.00% 19.80% 20.50% company has generated sustainable growth and is willing to cooperate with multiple
M argin
business partners. Also, Waberer's plans to strengthen its network by expansion and
EB ITDA M argin 12.80% 12.30% 11.20%
alliance. We believe that those challenges would be mitigated in the near future.
EB IT M argin 4.30% 2.80% 2.10%
Business Description
Net Inco me
2.00% 2.20% 1.10%
M argin
George Waberer, the founder had worked in Volan Tefu Pte. Co. („Tefu”), a Hungarian
Chart 1. European markets of
transportation company. In 1993, he took advantage of the privatisation wav
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International FTL Freight countrywide and acquired Tefu, later renamed to Waberer’s Rt. Currently it is the most
Forwarding in 2016 intensively growing transportation company in the region, owns modern fleet of
container transport and refrigerator vehicles, operating under Waberer’s International
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Nyrt. In ITS, the main services are:
• FTL – Full Truck Load: One consignor takes up one container delivered to
one consignee. The Company also serves non-EU destinations, delivers
oversized, non-palatalised and hazardous goods. The largest market is
Hungary and United Kingdom shown in chart 1.
• LTL-Less than Truck Load: Shipping order that don’t fill the container
therefore the order is combined with other orders.
Source: company fillings • Groupage: The container contains commodities from more shippers to
several consignees. Groupage requires depots where the goods are
sorted by their conignees.
Chart 2. Mid Europa Partners
51% of the total revenue attributable to FMCG, automotive and white goods market
sectors and 71% of the revenue is from Hungary, Germany, UK and France.
Mid Europa Partners LLP („Mid”)
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Mid is a British private quity firm, operates via 4 private equity funds. Its portfolio
comprises medical-healthcare, food-beverages, financial and transportation companies.
(Chart 2) It is the parent company of CEE Transport Holding B.V., direct controller of
Waberer’s.
CEE Transport Holding B.V. („CEE”)
CEE is a dutch transportation and warehousing company, took the majority ownership
in Waberer’s in June, 2016. Besides the purchase of 56.8% of the shares previously
owned by the Company, CEE acquired the founder, Mr. Waberer’s 40.3% ownership,
reaching 97.1% control. During and after the IPO, CEE sold 25.1% of the shares,
remained the majority owner with 12,75 million equities.
Waberer’s International Nyrt
Source: Company website Waberer’s flagship line of business is FTL logistics sector. The most significant M&A
deal was the acquisition of Link Sp Zoo, a Polish truck company 1 month after the IPO.
Waberer’s is one of the most considerable supplier of the Mercedez-Benz’s Hungarian
factory and Audi Hungaria. The main markets are Germany and United Kingdom. Strong
relationships are maintained between the Company and its suppliers, Volvo/Renault,
Chart 3, Group Structure
DAF, MAN and Mercedez-Benz. Waberer’s owns majority stakes in more than 38
companies. It opened branches in Italy, United Kingdom, Poland, Slovakia, and France.
Waberer’s Szemerey Kft („Szemerey”)
60% of the shares owned by Waberer’s, Szemerey supports the warehousing, transport
and storage divisions. The Company gained access to major Hungarian cities, including
Kecskemét, where later German Mercedes-Benz built a factory 3 years later and
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became the Company’s main client .
Waberer Hungaria Biztosító Zrt („Hungaria”)
The Company had purchased Hungaria, an insurance company located in Budapest.
Following the acquisition, non-life insurance products were included in Waberer’s
services. It contributed to the increase of revenue in the International Transportation and
the other segment. The Company’s Other segment comprises the insurance service to
third parties. Hungaria has long term financial assets, government bonds and T-bills.
Link Sp Zoo
Its focus has been on the International FTL, producing 56% of its revenue. It reflects
Chart 4. Changes in EBITDA in million EUR the Company’s intention to gain greater market share in FTL business. Link also owns
modern LTL adjusted fleet delivering goods to the direction of the main markets of
Waberer’s. Chart 4 shows the augmentation in Revenue and EBITDA.

Source: company fillings

Corporate Governance

1
https://autopro.hu/szolgaltatok/Waberer-Gyorgy-felmondja-a-Waberer-s-nev-hasznalati-jogat/22542/
2
Company website: http://w3.waberers.com/en/aboutus/history
3
Mid Europa http://www.mideuropa.com/about-us/history/
4
IHO - http://iho.hu/hir/a-gvh-jovahagyta-a-waberer-s-szemerey-fuziot-130117
Shareholder Base
Waberer’s authorized capital stock consists only of Class A shares, 17.7 million shares
of common stock with €0.35 par value. The shares are listed on the Budapest Stock
Exchange since July 2017, when the bank IPO-ed raising €80m of capital (including
€30m secondary offering by CEE Transport). CEE Transport Holding B.V. (Chart 1)
currently owns 72% of the shares, being the largest shareholder of the company. The
rest of shares are widely held: institutional investors hold ca. 16.5% of the share capital,
while retail shareholders own 10%. The remainder is kept as treasury securities. Each
share entitles one voting right. (Chart 8)
Chart 5 Board experience Corporate Management
The Board Size
Board of Directors of Waverer’s, consist of ideal number by 7 (seven) individuals
according to the law of the directors. However, currently, the board of directors of
Waberer’s consist of 6 (six) members and 6 members for supervisory boards.
The Board Quality
The board 84% of the board has degree on economics and accounting. Meanwhile,
33.33% of the members have experience on transportation and on logistic companies.
Mr. Ferenc Lajkó has been an operative member of the Board of Directors since 2017.
He is currently working in Waverer’s as Chief Executive Officer. The supervisory board
consists of highly qualified members where 50% of the members has international
Source: Company Fillings
experience on financial sectors. Peter Grace joined the supervisory board in 2016. Mr.
Grace holds MA degree from Cambridge University and is a CFA® charter holder as well
as a Fellow of the Institute of Chartered Accountants of England and Wales.
The Degree of Independence
Chart 6 The company has separate Chairmen and CEO positions. Having separate chair and
CEO positions increase the effectiveness of committees and helps to serve for
100% 66.66% of shareholders with integrity. The Chairman Mr. Nikolaus Bethlen is external member of
International Board the Board of Directors who joined the company in 2016. Waberer’s has 66.66% outside
experience members members for directors, also board of directors are strongly independent from having
of Board are family relations and there is no threat of conflicts of interest. The supervisory board
Members independent
consists of 50% independent members.
Commitees
There are two critical committees in the company: Audit Committee, Nomination and
50% are Remuneration Committee. The chair of the audit committee is Peter Grace is a Fellow
Separate
independent
CEO and
supervisory of the Institute of Chartered Accountants of England and Wales and currently manages
Chairman the finances of US quoted company in Budapest. The other two members of audit
board
Position
members committee are Philip Antony Marshall and Dr. Zoltán György Bodnár who also have long
years of working experience in financial sectors for the international companies. Mr.
Marshall has 17 years of working experience in GE as a President of the company. The
Source: Company Fillings Nomination and Remuneration committee also consist of three members. The Chairman
of the committee is Gerard van Kesteren served in management positions in finance for
the logistic companies. All committee members are independent. The committee holds
ordinary and extraordinary meetings, and ordinary meeting with a quarterly basis.
Chart 7
Corporate Governance
The Corporate governance of the Waberer’s is split into two parties executive and
Ferenc Lajkó, Chief Executive Officer
(operational member) supervisory boards.Civil Code of the Waberer’s Company state that: ’’ The Board of
Directors shall consist of maximum 7 (seven) and at least 3 (three) members (individually,
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Barna Erdélyi, Deputy Chief Executive the “Director”). The duration of the mandate of each Director shall be indefinite.” Article
Officer (operational member) 3:25 of the Civil Code. The board of Directors considered as a managed body of the
Company and and takes the right to undertake the obligations on the behalf of the
Nikolaus Bethlen (non-operational 6
(external) member) Company . The members of the Board of Directors shall be appointed by the General
Meeting. The members of the Board of Directors elect a chairman (the “Chairman of the
Dr. Péter Lakatos (non-operational Board of Directors”) and a deputy chairman (the “Deputy Chairman of the Board of
(external) member)
Directors”) from among themselves. The Chairman and Deputy Chairman of the Board
Stefan Alexander Delacher (non- of Directors shall be elected by a simple majority of the votes of the Directors present at
operational (external) member) the meeting of the Board.
Social responsibility
Gerard van Kesteren (non-operational As a part of it, social responsibility Waberer’s contributes to Hungarian Health by
(external) member)
donating the ambulances to the Hungarian Children Safety Services. In addition,
Waberer’s financially supports the higher education in fields of logistics and
Source: Company Fillings transportation Engineering. The funds are channeled each year to colleges and
universities, bringing advantage for the social improvement of the country.


5
The Members of the Board of Directors from time to time
6
WABERER’S INTERNATIONAL Nyilvánosan Működő Részvénytársaság;
Industry Overview and Competitive Positioning
Industry Overview
Truck transportation market
After the financial crisis, road transportation hasn’t gained traction again, still perform
modestly, owning 72% of the modal share amongst all the kind of inland transport in EU.
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Railway transport, one of the largest subtitute of road takes 18%. Road transport
accounts for 2% of EU’s GDP. Long distanced road haulage grows slower than road
Chart 8. Import in USD million haulage for less than 300km. The Group fulfills the need with Regional Contract Logistics
EU 28 segment, offering distribution services. The segment’s contribution of the revenue has
been increasing consistently. Waberer’s owns 0,2% market share in European transport.
Regulators
In the industry, several regulators control the companies, vary by regions. European
Source: UNCTADSTAT Commission has been focusing on improvement of road safety, providing good condition
of drivers. Hungary had introduced Electronic Trade and Transport Control System in
2015 to avoid VAT fraud. It incremented the administration costs and challenged the
transportation companies.
Fleet management
As the result of financial crisis, most of the Company’s competitors had to downsize their
fleet. Since then, road transport companies have improved truck utilization by 3% as the
result of more effective fleet management and optimization of the timing of vehicle
maintenance. The change of production system has been adapted by logistics as well,
Source: UNCTADSTAT the focus has been on just in time, making warehousing service one of the most crucial
point in the supply chain. The Company’s revenue in CL segment highest increase, 34%,
in Q1 2017 compared to Q1 previous year.
Chart 9. Export in USD million
EU 28 Economy outlook
However, the global economy has been experiencing a slowdown, with its 2,5% CAGR
over the last five years in the global trading volume, the total price of goods and service
in export trading has grew 0,49% by 2016 from 2015 in EU28 countries. Import trading
grew by 0,57% in the same period and region. Eastern Europe had grown its contribution
by 0,2% and 0,4% by 2016 in export and import trading, indicated in chart 8-9.
Competitors
Two of the main competitors are Kuehne Nagel International AG a Swiss, non asset
based transportation provider, owns 33% of the assets. The other company is XPO, an
US based top ten global logistics company, owns 61% of the assets, received an
extensive market share in Europe by acquiring Norbert Dentressangle SA. It become
the largest competitor of the Company. Waberer’s faces growing competition as
Kuehne started improving its overland segment in 2015.
Source: UNCTADSTAT
Shortage of Drivers
The diminishing pool of truck drivers has been building obstacles. Many sector struggle
with shortage of skilled employees and logistics is highly affected. According to
estimations, in Germany, there is going to be a huge drop in the number of truck drivers,
approximately 150,000 in 15 years. United Kingdom suffers from shortage of 50,000
Chart 10. Revenue Contribution in 8
million Euro
drivers . Almost one third of the drivers are over 50 years and it is hard to replace them
due to the undesirable work image of the work among younger employees, which also
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weakens the engagement . If they get into the business, they are likely to give their
resignation in a few years. The Company also experienced the lack of qualified drivers
in 2015, but following the acquisition of Link, it reached Eastern European workforce and
expanded its driver base. Not only the truck industry has been struck by high shortage
of employees but also the manufacturer industry Europe wide.
Future dimensions of truck industry

Source: Company Fillings


7
https://ec.europa.eu/transport/sites/transport/files/mobility-package-overview-of-the-eu-road-transport-market-in-2015.pdf
8
https://www.iru.org/what-we-do/network/driver-portal/problem
9
http://www.truckinginfo.com/blog/on-the-road/story/2014/11/the-driver-shortage-make-it-someone-else-s-problem.aspx
Concerns about climate and resources will shape the industry therefore light commercial
vehicles will be prevalent in ten years to encourage urban logistics that might be
challenging for Waberer’s as its fleet comprises mainly mega vehicles, mega-semi and
semi-trailers.
Chart 11. GDP Growth in Hungary, Alternative driving methods
in % Within the frameworks of European Platooning Challenge, the Company tested self-
driven trucks with Volvo that will be applied in logistics centers in 4 years according to
the estimations. One of the main target of new driving methods is to decrease the
demand of fuel. Alternative driving methods such as Plug-in-Hybrid Electric Vehicle,
Battery Electric Vehicle will be widely used in Germany by 2026.
Intermodal shipments
Applicable terminals and adjusted trail rates contribute to an appropriate infrastructure
for intermodal transport. Waberer’s has started operating its intermodal solutions
between Germany and Hungary in 2017 that rose transit costs by 45%. With the
spread of light commercial vehicles, delivering of small shipments will be prevalent that
fits in the just in time system. It rises the need of groupage service. Waberer’s doesn’t
use own asset for groupage transport but mainly small Hungarian road transport
companies’ assets. The growing demand for groupage is highlighted in chart 10
Economy outlook
Based on OECD, the GDP growth is expected to slow down in the next ten years
Source: Company Fillings reaching +3,3% CAGR. This will also repress the annual increase in the global truck
industry however, the annual grow will reach 1,37% in the following 3 years.
Chart 12. Unemployment rate changes,
EU, Hungary in 2017, in % Macroeconomic overview
Following a brief downturn to 2% last year, 2016, a result of shortlived fall in EU-funds-
related public investments, the Hungarian economy started an upturn period again in
2017. Based on OTP research forecast, in 2018, Hungary expects a 3.7% growth, 2.6%
in 2019, will be followed by a slowdown to 2% in 2020 as the contribution of real estate
and EU investments will be more limited. Logistics industry as one of the strategical
Chart 11.KSH.hu
GDP Growth in Hungary
Source: sector in Hungary, gives 6,3% of GDP having 253 000 employees, 3,5% of the total
employee base. Transport and manufacturer industry contributed 4,7 and 4,9% to GDP
growth as Chart 12 shows. Waberer’s main clients belong to automotive sector, whose
Source: Tradingeconomics production takes 30% of the total manufacturing and represents 18% of total exports.
Approximately 700 companies operate in manufacturer industry, the top four, the major
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clients of the Group are Audi, Mercedes, Opel, Suzuki.
Unemployment Rate and Low wages
Chart 13. Segments Contribution to
Revenue in million Euro Hungary is highly dependent of Western European, mainly German supply chain.
Large auto and white goods manufacturer factories have been building new plants and
divisions in the Central European region offering more jobs, decreasing unemployment
rate that reached the lowest percentage in October, 2017 in this area. It also
increments the value of export between Central and Western Europe as Waberer’s
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2017 Q3 reports reflects, the revenue increased by 23% compared to 2016 Q3.
Salaries are historically low in CEE attracted auto makers to migrate there the factories
from the higher Western labor costs. In 2008, the average Hungarian salary reached
almost 32% of that of Germany, 7 years later it only reached 25,1%. The market
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currently experiences an upturn in wages . In order to appease the negative effects of
low wages in the transportation segment, the foreign companies operating within the
German borders are forced to pay the German minimum salary.

Chart 14. Distribution of Cost per Industry Segments of Waberer’s


segment, 2016 Waberer’s provides three main services in the supply chain:
• International Transportation segment – It primarily focuses on EU market,
divided into two groups, Asset based and Freight Forwarding, meaning that the
orders that can’t be fulfilled with Asset based group will be completed by
subcontractors. The Group is the largest truck operator in European FTL market.
3021 trucks belong to this segment alongside with 600 more from sub-contractors
contributed 81% and 19% of the total revenue generated by the segment as per
chart 13.
• Regional contractual logistics – Comprises national FTL, LTL and vehicle
services and warehousing for the third parties. 13 It provides services for specialized
cargo such as hazardous and oversized goods.
• Other segment – Insurance services segment became part of the Company after
Source: company fillings the acquisition of Hungaria.


10
https://hipa.hu/images/HIP/Manufacturing%20sector%20overview.pdf
11
https://www.ft.com/content/7a599264-825b-11e7-94e2-c5b903247afd
12
https://www.euractiv.com/section/economy-jobs/news/central-and-eastern-europe-trapped-in-low-wage-spiral/
13
Company Fillings
One of the most significant cost in logistics is the cost of fuel, which is highly dependent of the
oil market. In ITS, fuel’s cost takes up more than 20% of the total cost (Chart 14). CL segment
uses mainly subcontractor’ service, therefore the subcontractor fee will be higher. (Appendix
2). CL segment, being the most developing segment produced the highest CAPEX growth,
from 0,5 to 1,1 million euro in 2016, meanwhile ITS’s CAPEX dropped by 53%. Besides the
organic growth in CL, Waberer’s is concentrated on inorganic growth as well.

Competitive Positioning/Strenght
Labor relations
The industry is labor intensive and throughout Link, truck drivers from Ukraine or
Romania fill the gap in truck driver’s base of the Group. It created a transparent and
flexible wage system. preventing work stoppage or strikes.
Fleet management and IT systems
Waberer’s has always been a trailblazer in introducing new IT solutions in the region.
In 2016, it invested m 1.3 EUR in WebEye to monitor driving time, measure the fuel.
The total CAPEX related to IT is 2,7 million euro. Within FTL service, hazardous goods
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are often delivered and the risks are minimized due to the sensitive detect system .
According to estimations, 15% of the truck market will use ride sharing service in ten
years in which Waberer’s, being the largest fleet owner in FTL segment in Europe. The
aim is to replace the fleet every 48 months. Due to forceful fleet procurement, the net
gain on fleet sales contributed with 4,24% and 0,4% to the gross profit of ITS and CL.
Asset based 3PL
Due to the ownership of 82% of the assets, clients hire hardwares besides the expertise
and large network. It also allows flexible customization. Waberer’s has the choice to offer
lower price not having to pay subcontractors for transportation and warehousing.
Waberer’s owns the total control of door to door transportation. Please see Appendix 2/a
for SWOT Analysis.

Investment Risks
Market risk
Liquidity - High Likelihood:
Waberer’s is listed on Budapest Stock Exchange (BSE). Given the volume of the stock
market and respective participants, it is highly likely that transaction will be affected.
Hence, liquidity of the shares should be taken into consideration when investors
purchase the shares from the market. Moreover, price valuation is limited accordingly.
In the past 15 years, 35 stocks were IPO to the market, leaving a huge room to improve
the essence of the stock market. Price discovery is one of the crucial features of the
stock market. Lacking of the sufficient support from the investors and trading would
constrain the abilities. Also, the nature of the market makes the valuation of the company
difficult.

Currency risk - Moderate:


Uncertainties of politics and currency are other concerns for the growth of the company
since central bank is controlled by a single party government, losing the independence
and neutral perspective. From the past three years, the daily exchange rate of Hungarian
Forint to Euro changed rapidly, and the standard deviation shows about 3.8, which
demonstrated relatively big volatilities on the currency. The scale of the rates ranges
from 323 HUF/EUR to 296 HUF/EUR, showing 9% price movement. Hence, any
fluctuation from international market would leave little flexibilities for BSE to react quickly.
The dominated currency of Waberer’s is Hungarian Forint, which is exposed the potential
risks to major currencies such as Euro.

Commodity risk- Moderate:


Trucking and Transportation industry activity is heavily dependent on the fuel prices. Fuel
costs sum to nearly 20% of the revenue every year, it is higher when the oil prices are
higher worldwide (25% of the revenue in 2014). There is a significant commodity risk for
the firm when the crude oil prices increase again in the market. The oil prices have dived
down since 2014 and are expected to bounce back in coming years. There is a great
risk on achieving the expected growth and returns if the primary dependent commodity
price changes significantly.

Industry Risk
Conflict of interest – Moderate:
As an asset-based logistic provider, Waberer’s can sometimes realize a conflict of

14
WebEye https://hu.webeye.eu/en/solution/transport-dangerous-goods/#tartalom
interest when developing supply chain and logistics solutions to prospect clients. When
designing the solutions, asset-based providers are inclined to construct a plan that suit
more for company’s network than client’s benefits. The situation is similar when it
comes to manage freight claims.
Flexibility – Moderate:
Flexibility is another concern. Customized supply chain needs would sometimes face
challenges to be successfully implemented since the companies simply create logistics
strategies to fit into their complete system, though customers can enjoy the low-cost
pricing on warehousing and transportation.
More effective substitutes - High Likelihood:
In the long, run rail road intermodal is getting more attractive in the European market
and Waberer’s works on to obtain large market share as it successfully develops its
intermodal service in the relation of Hungary-Germany, there is no guarantee of the
profitable operation and further expansion. Intermodal transportation is more cost
effective as the distance increases which will became disadvantageous for the truck
service (please refer to the Porter’s Five Forces analysis in Appendix 2 for additional
detail).
Empty runs - Low likelihood:
For an asset-based transportation company, there might be a higher risk for empty
runs and this situation would deteriorate the business of the company. In 2015, 23% of
vehicle-km were empty runs in Europe, meanwhile Waberer’s hit a loaded ratio of
91.6% in 2016 due to effective fleet and driver management supported by market
leading IT service and modern fleet.

Investment Summary
Investment Thesis
We issue a BUY recommendation on Waberer’s International Nyrt (Waberer’s) with a
target price of 16.60 Euro, representing an upside of 13% from closing price of 14.66
th
Euro per share price on 29 November 2017. The target price has been established on
a combination of the Discounted Cash Flow and Relative Valuation. The key drivers for
our recommendation are:

Investment drivers
Stable Financial Performance
Based on the results in the third quarter 2017, Waberer’s has seen a substantial growth
in revenues and margins compared to the same period in 2016. The acquisition of Link
has increased the sales by 23.3% and EBITDA by 20% during the period. The Working
capital has deteriorated in the period which may cause liquidity problems moving forward.
On whole, the company is faring well in the last quarter and the stock is likely to rise on
the positive signals.
Trustworthy governance and ownership:
The corporate governance of the company is very well structured. Board only consists
of 7 people in which 64% are independent and all board members are with international
experience. Further, 84% of the members are from economics background which can
serve to make better decisions for the company future financial perspectives.
Secondly, Major shares are held by the direct parent company, CEE. The indirect parent
company, Mid is specialized in acquiring mid-market leader companies such as Link and
the Group reducing the number of potential competitors for the firm. Rapid expansion
with the support of the parent companies benefits the company.
A wide group structure of the company shows good strength on controlling company’s
operations from top to bottom.

Access to cheaper labor and new markets


Availability of skilled drivers is higher than that of competitors reaching cheaper Eastern-
European labor. Due to iconic brand and reputation, Waberer’s is the company of choice
for the truck drivers. The number of drivers increased by 8% and 35% in ITS and CL
segments respectively. Waberer’s had developed a transparent and flexible wage
system, preventing work stoppage or strikes. Such stable and high workforce shall
support the high growth rates and

Develop businesses that are either complementary or substitute of ITS and CL


Waberer’s has started operating its intermodal solutions between Germany and Hungary
in 2017 that rose transit costs by 45%. The global production switches the direction of
just in time, the timing and the speed of delivery have to be consistent with the needs.
Just in time production system requires freight forwarding companies to deliver the parts
when they can be immediately utilized. This change resulted a more significant growth
in groupage service and a drawback in FTL service by 2016. Asset light competitors
such as Kuehne can easily be clients as the groupage service needs more warehousing
service, expertise, asset.

However, they are few drawbacks to the investment. Liquidity risk and currency risk is
an important factor when investing in the Budapest stock exchange (BUX). The financial
strength is on par with the industry standards but is behind its competitors in Europe.
Moreover, the industry risk is quit uncertain.

Valuation
Discounted Cash-flow and Relative Valuation methods was used for the valuation of the
company ‘Waberer’s’.

Beta Discounted Cash-flow method


Calculations
Beta 0.69 Step 1: WACC Calculation: The unlevered Beta was taken from the Damodaran
Transportation database for Europe. The company has revenues majorly from trucking and
Beta Trucking 0.47 transportation. The Bottom-up Beta has been calculated based on the ratio of their
Revenue Ratio 3:1 revenues in the two segments. The Beta calculation has also been done through
Beta Unlevered 0.525 regression with the Budapest stock exchange. But the company has launched IPO six
D/E ratio 1.97 months ago which makes the regression beta inaccurate.
Beta Levered 1.21
The sum of risk free rate in Hungary and spread determined from credit rating of the
Cost of Equity 14.4%
company was taken as the cost of debt for Waberer’s. This procedure was adopted as
Beta Regression -0.076
long-term bonds were not issued by Waberer’s.
WACC Step 2: Discounted Cash Flow Calculations: With the base year as 2016, the cash
Calculation
flows were determined for the next 5 years and terminal valuation was done at the end
Country Risk 2.7%
Premium
of 5 years. The weighted average of the trucking and transportation industries’ growth
risk free rate Rf 2.1% rate from Damodaran database was taken as the revenue growth rate for the company
Avg. market 8.0% in the next 5 years. All the other elements in the Free cash flow to firm calculations were
risk premium taken as the ratio of revenue based on the previous financial statements. However, the
Interest 5.21 Hungarian economy value after 5 years was taken as the terminal growth rate. The
Coverage ratio slowdown in the growth was weighted in all the free cash flow calculations and minimum
Credit Rating A3/A- CAPEX and net working capital were considered in the terminal value calculation. Table
Spread 1.3% 3.2 shows the DCF values.
Cost of Debt 3.4%
WACC 6.3%


Table 3.1: WACC Calculations

Base year Growth Phase Stable
Growth
2016 2017 2018 2019 2020 2021 Terminal
Value
Year 0 1 2 3 4 5 5
Revenue growth rate 3.59% 3.59% 3.59% 3.59% 3.59% 2.17%
Revenues 572,351,812 592877479 614161781 636210188 659050134 682710034 697524842
EBIT (Operating income) 17,169,924 17786324 18424853 19086306 19771504 20481301 12206685
EBIT (Operating margin) 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 1.8%
Tax rate 34% 34% 34% 34% 34% 34% 34%

EBIT(1-t) 12,300,298 11,738,974 12,160,403 12,596,962 13,049,193 13,517,659 8,056,411.9


Net Capex (25,529,005) (14,821,937) (15,354,045) (15,905,255) (16,476,253) (17,067,751) (1,046,287)

△ NWC 13,541,112 1,643,456 1,702,456 1,763,575 1,826,887 1,892,472 322,256


FCFF 24,288,191 24,917,455 25,811,991 26,738,642 27,698,559 28,692,937 8,780,443

Cost of capital 6.33% 6.33% 6.33% 6.33% 6.33% 6.33% 6.33%

Cumulated discount factor 6.33% 6.33% 6.33% 6.33% 6.33% 6.33% 4.16%

PV(FCFF) 24,288,191.1 23,433,628 22,829,332 22,240,620 21,667,089 21,108,348 7,160,923

Table 3.2 DCF Calculations (All values in Euro in the tables)







EV
Share
Price
MARKET 14.66 DIFF.: The Enterprise value was determined from the discounted cash flows of the next 5 years
SHARE
PRICE and present value of the terminal growth. The Value of equity was determined by
SHARE 15.23 3.9% 266478121 subtracting the debt and Cash from the Enterprise Value. Average outstanding shares in
PRICE
FROM
the previous years was used in the share price calculations. The share price from DCF is
DCF slightly higher (4%) than the current share price (29/12/2017).
SHARE 17.90 22.1% 305257589
PRICE
FROM Relative valuation:
REL. P/E The companies ‘XPO’ and ‘Kuhnes’ were used in the relative valuation of Weberers.
SHARE 12.95 - 233400879 Only 2 companies were used as similar companies listed in the European exchanges
PRICE 11.7%
FROM were hard to find. Most widely used ratios P/E and EV/EBIT were used in the relative
REL. valuation (Table in appendix). Table 3.4 shows the variation of the share price from
EV/EBIT
actual in different valuation methods.

Table 3.4 Comparaison Between Relative
Valuation & DCF Valuation

Financial Analysis
Revenue considerations – The net margin has been on average of 2% in the last 3
years which is slightly higher than industry averages of 1.52%. Such higher margins are
hard to maintain in the long run as the net margin had been dropped by 25% in 2016. In
Chart 15. Crude Oil Price 2014-2016
from Nasdaq
2017 Q3 report, net margin dropped by 12.8% compared to 2016 Q3. Regarding 9M
results, Waberer’s could maintain 3.1% net margin ratio due to strong Q1 this year.
Acquisition of Link in 2017 July has opened more markets, mainly Eastern-Europeans
that is reflected between Q2 and Q3 figures, revenue has grown from 158 to 182.3 million
euros.
Cost structure/benchmarking – Direct wages, benefits & allowances have been higher
as the payroll grows due to organic and inorganic growth and inflation shown in chart 16.
Cost of fuel however, has been decreasing since 2014 due to decrease in the oil prices
worldwide (is)and more effective fleet management.
CAPEX structure –The trucking industry is a heavy capex based industry. There has
been huge investments in CAPEX in the initial years of the company. However, the
CAPEX investments have reduced in 2016 as the company was acquiring Link in 2017.
With the Acquisition, Waberer’s have the heavy assets under their belt. Nearly 9% of
the revenue is lost in the depreciation. The CAPEX structure is good to maintain the
high growth rate of the company going ahead. Furthermore, the CAPEX to depreciation
Chart 16. Cost distribution 2014-2016
ratio is in line with the industry standards.
LTD assumptions and viability – The debt to capital ratio is 77% on average which is
more than the industry average of 59%. This is due to heavy capex investments by the
company. IPO has been launched recently, the capital from equity is not high yet.
However, the high debt ratio makes it difficult for the company to take more debt going
ahead.
WC management – The working capital has been around 2-3% of the sales in all the
years and is negative for the year 2017, which is good or the company. The Accounts
receivable to sales ratio was 16% on average which is less than the industry value of
24%. The inventory to sales ratio is also less than the industry standard of 1%. The
account payables to sales ratio has been 14% which is higher than13%, industry
standard. Lesser account receivables and inventory and higher payables is good for
liquidity of the firm. On whole, the working capital has been maintained well by the
company.
Short term Debt – The short-term Debt has been in line with the working capital
requirements of the firm which is good use of the short-term debt.
Source: company fillings Dividend policy – The company has given a payout of 6% in the recent years, less
than the industry standard of 35%. It’s a recently launched IPO and a growing company,
lesser payout is good for the growth of the company.
Financing need – Debt has been the main source of finance. Low value of equity and
low cash reserves limit the debt taking capacity of the firm moving forward.
No R&D expense in the financial statement, lacking the future development and
innovation in the company for high sales growth rate.
Ratios Industry Waberer’s
Net margin 1,52% 1,81%

ROIC 8.26% 3.56%

EV/EBITDA 7.49 3.19


EBITDA/Value 13.35% 33%
EV/EBIT 16.23 12.83
Payout Ratio 35.5% 8.1%
Acc. Rec/Sales 24.5% 15,39%
Financial Ratios Analysis (Ratio table in appendix):
Inventory/Sales 1.12% 0,58%
Liquidity Ratios: It is observed that all of liquidity ratios have been in the downward
Acc. 13.28% 14.67% trend from the year 2014 to 2016 which indicates that the company may have difficulty
Payable/Sales
No Cash 12.41% 2.60% in meeting short terms loans, accounts payable and other credit obligations of the year.
WC/Sales Activity Ratios- An upward movement in inventory ratio trend indicates that the
Debt/ Equity 146% 196%
company has been successful in converting inventory into sales and cash. However,
downward trend in asset turnover ratio indicates a clear decline of utilizing assets
efficiently. Moreover, a downward movement in the collection ratio suggests that
collection is getting delayed and may affect the company finances
Leverage Ratios - It is observed that both Debt-Equity and Debt-Asset ratios have been
increasing which elevates the riskiness of default. Furthermore, the interest coverage
ratio as dropped from 7.22 to 5.49 indicating that the company has been working on a
high level of cost of capital.
Profitability Ratios -It is observed that the gross margin has slightly increased in the
year 2016 but the company failed to increase the net profit margin and it has remained
constant in the years. Furthermore, ROE and ROA are also declining which is not a
good sign for the company.
Appendix

Appendix 1 CORPORATE GOVERNANCE

Waberer's International Nyrt. INSIDERS ON Board Members


Name (Connections) Relationships Title Age
Ferenc Lajkó 11 Relationships CEO, COO & Director 41
Barna Erdélyi 11 Relationships Deputy CEO, CFO & Director 39

Other Board Members On Board Members


Name (Connections) Relationships Type of Board Primary Company Age
Members
Nikolaus Bethlen 11Relationships Chairman of the Board Waberer's International Nyrt. 40
Peter Grace 11Relationships Member of Audit Waberer's International Nyrt. 54
Committee
Stefan Delacher 13Relationships Member of the Board of Waberer's International Nyrt. 56
Directors
Peter Lakatos 11Relationships Member of the Board of Waberer's International Nyrt. 51
Directors
Gerard van Kesteren 15Relationships Member of the Board of Janel Corporation 68
Directors
Sándor Székely 11Relationships Member of Corporate Waberer's International Nyrt. 57
Board
Maria Kazuska 11Relationships Member of Corporate Waberer's International Nyrt. 54
Board
Gyorgy Zoltan Bodnar 13Relationships Member of Audit Waberer's International Nyrt. 59
Ph.D. Committee
Philip Marshall 11Relationships Member of Audit Waberer's International Nyrt. 47
Committee
Gábor Nagy 18Relationships Member of Nominating Waberer's International Nyrt. 50
Committee

Audit Committee Of Waberer's International Nyrt.


Name (Connections) Board Relationships Title Key Developments
Peter Grace 11 Relationships Chairman of Supervisory
Board
Gyorgy Zoltan Bodnar 13 Relationships Independent Member of
Ph.D. Supervisory Board
Philip Marshall 11 Relationships Independent Member of
Supervisory Board

Compensation Committee*
Name (Connections) Board Relationships Title
Peter Grace 11 Relationships Chairman of Supervisory Board

Gábor Nagy 18 Relationships Independent Member of Supervisory Board

Gerard van Kesteren 15 Relationships Director

Nominating Committee*
Name (Connections) Board Relationships Title Key Developments
Peter Grace 11 Relationships Chairman of Supervisory No relevant key
Board developments are
available at this time.
Gerard van Kesteren 15 Relationships Director
Gábor Nagy 18 Relationships Independent Member of
Supervisory Board
Appendix 2
Porter’s Five Forces Analysis:

Power of Buyers - High: There is a huge price competition affected by oil gas cost, the performance of the
clients (less products-less delivery) But the market itself it is huge, Waberer's also operates European wide. Given
the limited possilities to expand in the Hungarian market, the bargaining power of buyers is high. The client base
is concentrated and purchases relatively high volume of Waberer’s sales. Top 10 clients accounted for 23%
based on revenue. In 2016, approximately 81% of the revenue is allocated to International Transportation
segment, where Mercedes-Benz Manufacturing Hungary ZRT and Audi Hungaria Zrt Electrolux AB represent
themselves as the main clients. The influence of Mercedes will grow by expanding the existing plant in
Kecskemét, giving potential growth to Waberer’s. These auto manufacturer giants contributed with 330,000
15
vehicles to the total production in Hungary. Tesco represents itself as the main client this year and plans a
reduction in stores and warehouse square meters.
.
Power of Suppliers – Low: However, Europe’s most dominant truck manufacturers contribute significantly to
global production, only a few company operates its own fleet. Suppliers such as Renault, Mercedes highly prefer
to select one buyer company that operates its own, large fleet. Waberer's has large influence in choosing supplier.
I assume the power of suppliers are relatively small.

Threat of Substitutes – Significant: Rail and intermodal transport. The less significant substitute is Inland
waterways freight. Waberer’s also develops intermodal transport. there is a higher risk that when the intermodal
rail service will develop in the nearly future and can take away market from the Company’s truck transportation.
Railroads are less environmentally intrusive.

Threat of new entrants – Low


The demand for road transportation companies is growing by truck manufacturers, Waberer’s is eager to preserve
the market leader position, preventing small potential companies to grow. One of the tool is strategic acquisition.
Revesz Logisztikai Holding Zrt („Revesz”) had been acquired by the Company in 2007. It is headquartered in
Eastern Hungary where large companies such as Lego, Michelin, Electrolux AB are also located. Revesz’s
presence is prevalent in this area in warehousing and distributing.

Existing Rivalry – High: The Company has significant market shares and the largest fleet in Central Europe,
Waberer’s has limited direct rival in this area however, it has to compete with thousands of truckload carriers that
16
own fewer vehicles. The largest one is XPO Europe SA owns less market share than the Company. Horvath
Rudolf Intertransport Kft is considered a rival in Hungary.

Appendix 2/a


15
https://autopro.hu/en/news/Hungarian-OEMs-report-on-0-5m-cars-manufactured-in-2016/22419/
https://www.european-business.com/waberers-international-zrt/portrait/
16
https://hipa.hu/new-logistic-centre-of-revesz-group-has-been-delivered-in-nyiregyhaza
Appendix 3

Segment Reporting 2016

figures in EUR unless indicated Regional Inter-


otherwise International Contract segment
Transportation Logistics Other transfers Total
Item
Sales to third parties 443 422 026 97 970 177 31 911 271 572 351 812
Inter-segment sales 7 979 410 951 662 - -8 931 072 -
Sales revenues 451 401 436 97 970 177 31 911 271 -8 931 072 572 351 812
EBITDA 52 143 806 13 044 250 3 993 998 - 69 182 054
Depreciaton, Amortization
and impairment 45 389 840 6 570 726 51 564 - 52 012 130
EBIT 6 753 966 6 473 524 3 942 434 - 17 169 924

Regional
International Contract Inter-segment
Transportation Logistics Other transfers Total
Revenue 451 401 436 97 970 177 31 911 271 -8 931 072 572 351 812
inter-segment revenue -7 979 410 -951 662
Revenue 443 422 026 97 018 515 31 911 271 572 351 812
Direct wages, benefits & -75 534 341 -11 055 658 - - -86 589 999
allowances
Fuel -95 890 574 -8 774 123 - 10 956 -104 653 741
Toll Fees & Transit Costs -80 584 905 -13 884 460 - 240 365 -94 229 000
-16 378
Cost of Subcontractors and -70 232 096 -25 193 353 651 1 255 071 -110 549 029
reinsurance fee
Cost of goods sold -13 697 252 -5 124 668 - 5 172 282 -13 649 638
-10 530
Other cost -27 087 933 -9 667 436 271 351 479 -46 934 161
Net gain on fleet sales 3 915 190 100 551 22 068 - 4 037 809
Gross Profit 92 289 525 24 371 030 5 024 417 -1 900 919 119 784 053
Indirect Wages & Benefits -21 416 774 -5 418 467 -845 570 - -27 680 811
Other services -13 667 245 -5 920 381 -567 853 1 834 492 -18 320 987
other operating income 4 729 912 988 871 456 276 33 186 6 208 245
other operating expense -9 791 612 -976 803 -73 272 33 241 -10 808 446
Profit before interest, tax,
depreciation and amortization 52 143 806 13 044 250 3 993 998 - 69 182 054
(EBITDA)
Depreciation and Amortization -45 389 840 -6 570 726 -51 564 - -52 012 130
Profit before interest and tax 6 753 966 6 473 524 3 942 434 - 17 169 924
(EBIT)
Interest -2 346 235 -728 998 -51 138 - -3 126 371
In taXES -2325615 -1368748 1175263

-29 673
Total costs -465 943 832 -95 635 483 582 -559 219 697
Distribution of Total cost in %
FUEL 20,58 9,17 18,71
Fees, transit 17,29 14,52 16,85
Cost of Subcontractors 15,07 26,34 55,20 19,77
Depreciation, Amortization 9,74 6,87 9,30
Appendix 4

Company Valuation:

• The credit rating was determined based on the interest coverage ratio as the standard rating was still due.
• Market risk premium was taken from https://www.statista.com/statistics/664926/average-market-risk-
premium-hungary-europe/ and Country risk premiums were taken from Damodaran Data base.
• All the elements in the free cash flow to firm were taken as a percentage of revenue. The average
percentage of revenue in the last three financial statements was used for the calculations.
• The CAPEX and the net working capital were taken from the Damodaran website. The weighted average
was again considered for the DCF calculations.

Relative Valuation
Companies Shares Day Close Net Income P/E EV EBIT EV/EBIT Debt-Cash Equity Value
Outstanding Price Latest
USD

XPO 979000 199.05 119789000 21.7 2867285950 217651000 13.17 2672416000 194869950
Kuhnes 120000000 87.28 720000000 28.28 12864300000 918000000 14.01 2390700000 10473600000
Avg. value 24.99 13.59


Appendix 5

Financial Analysis

Financial statements:

WABERER'S International ZRt.

2014 2015 2016
P&L Yr.1 Yr.2 Yr.3
EUR Construction Operation 1 Operation 2

Revenue 496,199,940 522,480,448 572,351,812



TOTAL NET SALES 496,199,940 522,480,448 572,351,812
Sales growth (%) 5.30% 9.55%
Direct Costs
Material cost I. - Fuel -123,096,699 -107,820,034 -104,653,741
Material cost II.-COGS -11,833,687 -16,765,427 -13,649,638
Net gain on sale of fleets 8,258,681.0 6,134,342.0 4,037,809.0

Toll costs -86,288,374 -93,590,286 -94,229,000
Material storage cost
Annual labour costs -64,175,800 -70,004,445 -86,589,999
Other direct material
Maintenance -81,498,341 -92,207,557 -110,549,029
R&D Activities
Capitalized value of self-manufactured assets
Project development
Other -32,765,093.0 -41,309,317.0 -46,934,161.0
TOTAL DIRECT COSTS -391,399,313 -415,562,724 -452,567,759

GROSS MARGIN 104,800,627 106,917,724 119,784,053
Gross Margin % 21.1% 20.5% 20.9%

Indirect Costs
Indirect wages & expenses -19,200,055 -23,055,037 -27,680,811
Other Services (12,404,616) (15,371,871) (18,320,987)
Other Indirect Costs (5,059,742) 1,811,913 (4,600,201)
TOTAL INDIRECT COSTS -36,664,413 -36,614,995 -50,601,999

EBITDA 68,136,214 70,302,729 69,182,054
EBITDA margin 13.7% 13.5% 12.1%
Depreciation -41,891,884 -49,555,878 -52,012,130

EBIT 26,244,330 20,746,851 17,169,924
EBIT margin 0.052890635 0.039708378 0.029998899

Extraordinary Results
Financial Results/ Interests -9,016,239 -2,874,955 -3,126,371
Pre-tax result 17,228,091 17,871,896 14,043,553
Tax -6,147,489 -5,452,007 -4,869,626
OTHER COMPREHENSIVE INCOME -670,715 -1,251,503 1,196,362

NET INCOME 10,409,887 11,168,386 10,370,289
Net Margin % 2.10% 2.14% 1.81%
Dividends paid - -959,602 -483,161
Number of shares 14,496,362 14,494,112 14,469,149
EPS 0.68 0.78 0.43
ROIC 3.76% 3.80% 3.11%
Interest Coverage ratio 2.91 7.22 5.49
Net Capex/EBIT 2.7% 18.6% -154.2%
NWC/CAPEX 17% -54% 79%

Balance Sheet profit figure



B/S (EUR)

Assets
Current Assets
Cash 20,939,007 10,439,523 31,665,305
Financial Investment
Average collection period (days)
Account receivable 82,624,817 87,621,441 88,126,518
Prepaid expenses
Inventory 3,262,669.0 2,877,932.0 3,314,497.0
Raw Material I. Inventory Days
Raw Material II. Inventory Days
Raw Material I. Inventory
Raw Material II. Inventory
Other Inventory
Other current assets 39,590,407.0 54,588,955.0 45,645,556.0
Total current assets 146,416,900 155,527,851 168,751,876

Land and buildings
Property, plant and equipment (Asset class I.) 245,654,432 258,561,701 257,594,865
Other equipments and fixtures 5,208,625 5,708,837 6,619,085
Plants and machinery under construction
Intangible assets 19,282,625 19,646,120 20,507,795
Other investments 1,031,451 1,275,393 60,373,443
Net property, plant and equipment 250,863,057 264,270,538 264,213,950
Accrued Income
Total non-current assets 271,177,133.0 285,192,051.0 345,095,188.0

TOTAL ASSETS 417,594,033 440,719,902 513,847,064

Liabilities
Current liabilities
Down payments received
Average pay day
Account Payable 75,289,235.00 70,329,330.00 83,999,380.00
Short term debt - 29,910,880 14,981,432
Short term credit/ liabilities 51,230,071 51,153,118 65,872,100
Accrued expenses
Other current liabilities 10,006,480 16,277,670 22,733,151
Total current liabilities 136,525,786 167,670,998 187,586,063

Investment and development loans
Long-term debt 19,548,050 8,622,375 -
Capital lease 153,889,616 146,852,798 162,244,189
Shareholder's debt
Other long term liabilities 12,836,653 12,327,573 50,542,003
Total non-current liabilities 186,274,319 167,802,746 212,786,192
TOTAL LIABILITIES 322,800,105 335,473,744 400,372,255
Debt
Net Debt

Provision

Shareholder's Equity 90,490,498 100,517,031 105,618,844
Share capital (CC) 5,128,910 5,128,910 5,037,513

Capital reserve (CR)
Retained earnings (RE) 85,361,588 95,388,121 100,581,331
Current period profit 4,303,430 4,729,127 7,855,965
TOTAL EQUITY 94,793,928 105,246,158 113,474,809

TOTAL LIABILITIES AND EQUITY 417,594,033 440,719,902 513,847,064
Debt to Equity ratio 77.3% 76.1% 77.9%
Check





Cash Flow (EUR)

Cash from operations
Cash flow from operations before change in WC 56,628,100 62,579,957 63,000,966
Depreciation and Amortization -41,891,884 -49,555,878 -52,012,130
Changes in working capital
Current assets
Financial Investment -3,182,152 1,055,261 -7,453,261
Account receivable - -5,001,079 -806,734
Prepaid expenses
Inventory 3,733,044 312,417 -665,026
Other current assets
Prepaid expenses and accrued income
Provision
Current liabilities
Down payments received
Account Payable -8,104,775 -6,484,972 15,012,872
Accrued expenses 8,781,628 1,460,209 2,076,682
Total change in working capital -4,371,731 -11,173,634 13,541,112

Cash from operations 57,855,845 53,921,793 71,165,499

Cash from investing activities -620,883 -16,479,637 27,829,653
Changes in tangible -43,691,642 -33,733,873 -3,778,017
Changes in non-tangible/ financial assets 42,990,197 29,884,938 30,261,142
Change in NET CAPEX -701,445 -3,848,935 26,483,125
others 80,562 -12,630,702 1,346,528




Cash form investing activities -620,883 -16,479,637 27,829,653

Cash from financing activities -52,191,115 -47,941,640 -77,769,370

Dividends paid to shareholders - -959,602 -483,161

Short term liabilities
Short term debt
Short term credit
Other current liabilities

Long term liabilities
Investment and development loans
Long-term debt 20,926,304 17,230,168 -11,863,683
Capital lease -73,117,419 -64,212,206 -65,422,526
Shareholder's debt
Other long term liabilities

Equity
Share capital (Contributed Capital)
Capital reserve (Premium or Grant)

Cash from financing activities -52,191,115 -47,941,640 -77,769,370

Annual Cash Flow 5,043,847 -10,499,484 21,225,782
OB 15,895,160 20,939,007 10,439,523
CB 20,939,007 10,439,523 31,665,305

Ratio Table:

2014 2015 2016
Liquidity Ratios & Analysis

Current Ratio
Total Current Assets 146,416,900.00 155,527,851.00 168,751,876.00
÷ Total Current Liabilities 136,525,786.00 167,670,998.00 187,586,063.00
= Current Ratio 1.07 0.93 0.90

Quick Ratio
Total Current Assets - Inventories 143,154,231.00 152,649,919.00 165,437,379.00
÷ Total Current Liabilities 136,525,786.00 167,670,998.00 187,586,063.00
= Quick Ratio 1.05 0.91 0.88

Inventory to Net Working Capital
Inventory 3,262,669.00 2,877,932.00 3,314,497.00
÷ Current Assets - Current Liabilities 9,891,114.00 -12,143,147.00 -18,834,187.00
= Inventory to Net Working Capital 0.33 -0.24 -0.18

Activity Ratios & Analysis

Inventory Turnover
COGS 391,399,313.00 415,562,724.00 452,567,759.00
÷ Inventory 82,624,817.00 87,621,441.00 88,126,518.00
= Inventory Turnover 4.74 4.74 5.14

Total-Asset Turnover
Sales 496,199,940.00 522,480,448.00 572,351,812.00
÷ Total Assets 417,594,033.00 440,719,902.00 513,847,064.00
= Total Asset Turnover 1.19 1.19 1.11

Average Collection Period
A/R 82,624,817.00 87,621,441.00 88,126,518.00
÷ Average Daily Sales 1,359,451.89 1,431,453.28 1,568,087.16
= Average Collection Period (days) 60.78 61.21 56.20

Leverage Ratios & Analysis

Debt-to-Assets Ratio
Total Debt 322,800,105.00 335,473,744.00 400,372,255.00
÷ Total Assets 417,594,033.00 440,719,902.00 513,847,064.00
= Debt-to-Assets Ratio 0.77 0.76 0.78

Debt-to-Equity Ratio
Total Debt 322,800,105.00 335,473,744.00 400,372,255.00
÷ Total Equity 94,793,928.00 105,246,158.00 113,474,809.00
= Debt-to-Equity Ratio 3.41 3.19 3.53

Times Interest Earned (TIE) or Coverage Ratio
EBIT 26,244,330.00 20,746,851.00 17,169,924.00
÷ Interest Expense 9,016,239.00 2,874,955.00 3,126,371.00
= Times Interest Earned 2.91 7.22 5.49

Profitability Ratios & Analysis


Net Profit
Margin
NIAT 10,409,887.00 11,168,386.00 10,370,289.00
÷ Sales 496,199,940.00 522,480,448.00 572,351,812.00
= Net Profit Margin 0.02 0.02 0.02

Return on
Equity
NIAT 10,409,887.00 11,168,386.00 10,370,289.00
÷ Stockholder's Equity 94,793,928.00 105,246,158.00 113,474,809.00
= Return on Equity 0.11 0.11 0.09

Return on
Assets
NIAT 10,409,887.00 11,168,386.00 10,370,289.00
÷ Total Assets 417,594,033.00 440,719,902.00 513,847,064.00
= Return on Assets 0.02 0.03 0.02

Gross Profit
Margin
Sales - COGS 104,800,627.00 106,917,724.00 119,784,053.00
÷ Sales 496,199,940.00 522,480,448.00 572,351,812.00
= Gross Profit Margin 0.21 0.20 0.21

Return on
Sales
EBIT 26,244,330.00 20,746,851.00 17,169,924.00
÷ Sales 496,199,940.00 522,480,448.00 572,351,812.00
= Return on Sales 0.05 0.04 0.03

Comparsion of financials with the competitors:

Financial Ratios for the year 2016 Weberers XPO Europe SA Kuehne Nagel
Liquidity Ratios & Analysis
Current Ratio 0.90 1.13 1.17
Quick Ratio 0.88 1.11 1.08
Inventory to Net Working Capital -0.18 0.12 0.50
Activity Ratios & Analysis
Inventory Turnover 5.14 311.22 33.25
Total-Asset Turnover 1.11 1.25 2.61
Average Collection Period 56.20 60.04 60.76
Leverage Ratios & Analysis
Debt-to-Assets Ratio 0.78 0.74 0.66
Debt-to-Equity Ratio 3.53 2.85 1.92
Times Interest Earned (TIE) or Coverage Ratio 5.49 1.35 218.50
Profitability Ratios & Analysis
Net Profit Margin 0.02 0.00 0.04
Return on Equity 0.09 0.02 0.33
Return on Assets 0.02 0.01 0.11
Gross Profit Margin 0.21 0.15 0.40
Return on Sales 0.03 0.03 0.05

















































CFA Institute Research Challenge


hosted by
CFA Society Budapest
Team BISSE

The CFA Institute Research Challenge is a global competition that tests the equity research
and valuation, investment report writing, and presentation skills of university students. The
following report was submitted by a team of university students as part of this annual
educational initiative and should not be considered a professional report

Disclosures:

Ownership and material conflicts of interest


The author(s), or a member of their household, of this report does not hold a financial interest in
the securities of this company.

The author(s), or a member of their household, of this report does not know of the existence of
any conflicts of interest that might bias the content or publication of this report.


Receipt of compensation
Compensation of the author(s) of this report is not based on


investment banking revenue.


Position as an officer or a director
The author(s), or a member of their household, does not


serve as an officer, director, or advisory board member of the subject company.


Market making
The author(s) does not act as a market maker in the subject company’s
securities.


Disclaimer
The information set forth herein has been obtained or derived from sources generally
available to the public and believed by the author(s) to be reliable, but the author(s) does not
make any representation or warranty, express or implied, as to its accuracy or completeness. The
information is not intended to be used as the basis of any investment decisions by any person or
entity. This information does not constitute investment advice, nor is it an offer or a solicitation of
an offer to buy or sell any security. This report should not be considered to be a recommendation
by any individual affiliated with CFA Budapest society, CFA Institute, or the CFA Institute
Research Challenge with regard to this company’s stock.