Wavin NV, modelling before the possible revenue improvement

DCF assessment - Small-Cap DCF

Written by Peter van der Lely

Monday, 16 November 2009 12:21

Wavin's stockprice increased more than 50% since our last analysis of the 6th of July: "modelling the rights issue". This is mainly the result of a lower WACC (RiskPremium). To a lesser extend there was the influence of the bottoming out of earnings estimates. Also take note of the phenomenon that a stockprice only will profit from a lower RiskPremium, if consensus earnings estimates (at least) have bottomed out.

New valuation potential especially weights on better than expected earnings and/or corporate action possibilities. Wavin’s current stockprice is more in line with it’s valuation potential then was the case at the 6th of July. From a M&A (target) perspective, the improvement in margins is good news.

For our thoughts about the RiskPremium, please check our last article: it’s potential for a further decrease is falling, although there is still room left. Investor focus is more and more weighted to earnings.

Wavin’s substantial improvement in margins can set the stage for an improvement in earnings estimates based on further margin improvement and/or revenue surprises. The revenue comparative base is becoming very undemanding from the last quarter of the year. From our perspective, the revenue growth has the potential to become a big (positive) swing factor from the last quarter onward.

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