1 | ISS Buy www.danskemarketsequities.com
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Equity Research
Investment Research
27 August 2015
ISS Buy
(Previous: Hold)
Building momentum – but FX headwind ahead
Support Services, Denmark
Key data
Price performance
1M 3M 12M 5Y
Source: FactSet
Estimate changes 15E 16E 17E
Source: Danske Bank Markets estimates
*Price as at 11:45 CET 27 August 2015
† Includes dividends
Another solid ISS report. Strong organic sales growth (4.8%), raised FY
guidance (3.5-4.5% from 2-4%) and a flow of IFS/GCC contracts into 2016 are
encouraging. The main negative is a recent FX headwind that means we trim
estimates by c.2%. We continue to see a growing yield case offering good
returns with potential share buy backs from H2 16. Rating lifted to Buy.
Implications for investment case. ISS continue to build credibility. Q2 15
showed improvements in sales, profitability and cash flow - again. FY guidance
has been raised more than we expected following good growth in major markets
led by IFS (+10%) and GCC (+13%) contracts. Organic revenue growth was 4.8%
vs. cons of 3.1%. More contracts should ramp up throughout the rest of 2015.
Estimate changes. ISS now expect organic sales growth of 3.5-4.5% (up from 2-
4%) for 2015 and an EBIT margin above 5.6% (unchanged). We lift our organic
growth estimate to 4.1% from 3.6% and we expect the current 3.2% consensus
estimate to rise. Our FY15E EBIT margin is unchanged at 5.7%. Although we
raise slightly our underlying estimates, FX movements over the past two weeks
lead us to cut our EPS estimates by c.2% for the coming years.
Yield case intact. We see a net debt to EBITDA of 2.2x at end-2015, declining to
1.9x at end-2016. We believe that ISS, assuming no excessive acquisitions, could
initiate share buy backs from 2017 at the latest (potentially in H2 2016) – implying
a potential total yield from 2017 of some 5%.
Valuation. Our 12-month TP is unchanged DKK260. At our target price, ISS
would trade broadly at a slight discount to its peers.
Key financials
Important disclosures and certifications are contained from page 12 of this report.
Post-results note
Price (DKK) * 233
Target price, 12 mth (DKK) † 260
Market cap (DKKm) 43,261
Market cap (EURm) 5,796
Reuters ISS.CO
Bloomberg ISS DC
No. of shares (m) 185.7
Net debt (current Y/E) (m) 11,051
Free float 100.0%
Avg. daily vol, 12M (000) 763.7
150160170180190200210220230240250
Aug 14 Nov 14 Feb 15 May 15 Aug 15
ISS.CO FTSE EU 300/Support Services rebased
Absolute -0% -2% 32% n.a.
Rel. local market 9% 6% 12% n.a.
Rel. EU Sector 10% 9% 14% n.a.
Sales -0.3% -1.8% -1.8%
EBITDA -0.4% -2.0% -2.0%
EBIT (adj.) 0.1% -1.9% -1.9%
EPS (adj.) 0.1% -2.1% -2.2%
Next event
Q3 18-NovYear-end Dec (DKK) 2013 2014 2015E 2016E 2017E
Revenues (m) 78,459 74,105 79,231 80,550 83,619
Revenues growth -1.3% -5.5% 6.9% 1.7% 3.8%
EBITDA (m) 5,002 4,722 5,114 5,230 5,457
EBIT, adj. (m) 4,315 4,150 4,490 4,560 4,757
EBIT growth -2.2% -3.8% 8.2% 1.6% 4.3%
Pre-tax profit (m) 293 1,658 2,931 3,096 3,295
EPS (adj.) 8.30 12.3 14.3 14.9 15.6
DPS 0.00 4.90 6.73 7.04 7.41
Dividend yield 2.8% 2.9% 3.0% 3.2%
FCF yield 4.7% 5.6% 5.6% 6.0%
EBIT margin (adj.) 5.5% 5.6% 5.7% 5.7% 5.7%
Net debt/EBITDA (x) 4.2 2.6 2.2 1.9 1.6
ROIC 9.9% 10.4% 11.4% 11.7% 12.4%
EV/sales (x) 0.6 0.7 0.7 0.6
EV/EBITDA (x) 9.3 10.3 9.9 9.2
EV/EBIT (adj.) (x) 10.9 12.1 11.7 10.9
P/E (adj.) (x) 14.5 16.3 15.7 14.9
P/BV (x) 2.6 3.1 2.9 2.7
Source: Company data, Danske Bank Markets estimates
Analyst(s)
Poul Ernst Jessen
+45 45 12 80 48
2 | ISS Buy www.danskemarketsequities.com
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Table 1. ISS: Deviation table (DKKm)
DEVIATION: ACTUAL VS EXPECTED
Q2 15 Q2 15E Deviation Cons. Deviation Q2 14
Net sales 20206 20042 1% 19787 2% 18397
Personnel 13214 13520 -2% 12416
Other Opex 5736 5273 9% 4842
EBITDA adj 1256 1248 1% 1238 1% 1139
Depreciation 356 360 -1% 0 334
PPA adj EBIT 1067 1052 1% 1043 2% 956
Non-recurring items -44 -30 -36 -29
EBIT 856 858 0% 798
Ass. Income 0 0 0 0
Net financial items -164 -170 -178 -218
Pre-tax profit 692 688 1% 354
Taxes 213 206 0 180
Minorities 2 0 0 0
Net earnings 479 482 -1% 459 4% 378
PPA adj. net income 601 627 -4% 582 3% 558
Sales growth (y/y) 9.8 % 8.9 % 7.6% -3.8 %
Organic growth (y/y) 4.8 % 3.4 % 3.1% 2.0%
EBITDA adj. 6.2 % 6.2 % 6.3 % 6.2 %
EBIT PPA adj. margin % 5.3 % 5.3 % 5.3 % 5.2 %
Source: Company data, company-collected consensus, Danske Bank Markets estimates
Q2 headlines
An organic growth of 4.8% y/y is the highest since Q4 2013, and beat expectations
of 3.4% (DME) and 3.1% (consensus). In our view the outperformance was a
consequence of the ramp up of new contracts like Vattenfall, Bankia and
Swisscom which had a larger than expected impact. Versus our model Western
Europe (+5% y/y) and Asia (+10%) were the positive surprises. In general, ISS still
lacks macroeconomic tailwind especially in the European markets. We expect
some tailwind throughout 2015 and into 2016.
ISS has signed some larger contracts to ramp up throughout 2015. These include
Danske Bank (from Q4), UBS and Huawei (both in from H1). The loss of Statoil in
Q2 2014 should also support organic growth in H2 in the Nordics.
The EBIT margin improved 10bp y/y to 5.3% in line with guidance for FY.
The operating cash flow before NWC changes improved 28% to DKK861m while
the free cash flow before M&A improved 52% to DKK617m. Cash flow is typically
strongest in Q4.
3 | ISS Buy www.danskemarketsequities.com
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Chart 1. NWC changes – 2011-2015E (DKKm) Chart 2. FCF excl M&A – 2011-2015E (DKKm)
Source: Danske Bank Markets estimates and the company
Net interest bearing debt at Q2 15 was down DKK0.7bn y/y to DKK14.0bn.
Including pension liabilities there was an increase of DKK0.1bn. Net debt to
EBITDA is down 0.1x to 3.1x including pensions but down 0.2x to 2.8x excluding
pensions.
Chart 3. Net debt to EBITDA (incl. pension liabilities)
Source: Company data, Danske Bank Markets
2015 financial guidance increased slightly
Table 2. ISS: financial guidance
2014 2015
Mar-15 May-15 Aug-15
DBM
estimate
(median)
Consensus
Sales - organic growth 2.5% 2-4% 2-4% 3-5-4.5% 4.1% 3.2%
Sales – reported growth -5.6% 5-7% 5-8% 6.5%-8.5% 7.6% 6.3%
EBIT margin 5.6% >5.6% >5.6% >5.6% 5.7% 5.7%
Source: Company data, Danske Bank Markets (post Q1), SME Direkt collected consensus estimates (pre Q2)
ISS increased its FY15 organic sales growth guidance slightly and left its EBIT margin
guidance unchanged.
Valuation
We leave our DKK260 12-month TP unchanged – no major changes to our model. At
our target price the gap to peers would be reduced to 5-10% by most measures. Our
target price reflects an upside of c.12%. We see potential for the initiation of share
-2000
-1500
-1000
-500
0
500
1000
1500
2000
2500
2011 2012 2013 2014 2015
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
3,000
2011 2012 2013 2014 2015
6.1 6.1 6.1 5.9 6.0 6.1
5.4 5.2 5.0 4.94.6 4.6
3.1 3.2 3.32.9
3.1 3.1
0
1
2
3
4
5
6
7
Q1 1
1
Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
2
Q2 1
2
Q3 1
2
Q4 1
2
Q1 1
3
Q2 1
3
Q3 1
3
Q4 1
3
Q1 1
4
Q2 1
4
Q3 1
4
Q4 1
4
Q1 1
5
Q2 1
5
4 | ISS Buy www.danskemarketsequities.com
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buybacks from H2 2016 which would increase the total cash return to a little more
than 5%.
Table 3. Peer multiple valuation
Ticker Price
Market
cap
(DKKm) Dividend Yield Cash flow yield EV/EBIT P/E EV/NOPLAT Ebit Margin % Sales
2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E CAGR
Primary multi service peers
Aramark ARMK US 31.1 45,586 1.1% 1.3% 1.4% 3.4% 5.1% 5.8% 16.1 14.3 13.4 20.2 17.9 16.2 24.0 22.2 5.7% 6.0% 6.0% 1.5%
Compass CPG LN 10.2 147,251 2.8% 3.0% 3.3% 7.3% 7.8% 8.7% 15.0 14.4 13.2 18.9 17.9 16.3 20.2 19.1 17.5 7.3% 7.3% 7.5% 4.4%
Coor COOR SS 30.2 2,490 4.6% 6.3% 6.9% 4.1% 14.3% 13.8% 18.3 14.3 11.9 10.3 8.8 8.5 23.8 18.6 16.4 2.9% 3.4% 3.8% 5.0%
Elior ELIOR FP 17.7 22,724 4.3% 5.7% 6.5% 13.8 12.2 11.0 20.0 17.2 15.0 24.8 20.9 18.5 5.7% 6.0% 6.3% 6.5%
Sodexo SW FP 78.7 92,274 2.7% 3.0% 3.3% 5.7% 6.3% 6.9% 11.5 10.1 9.2 19.3 17.3 16.0 18.4 16.2 14.7 5.7% 5.9% 6.0% 6.0%
Average 2.8% 3.4% 3.7% 5.0% 7.8% 8.3% 14.9 13.1 11.8 17.7 15.8 14.4 21.8 19.6 16.9 5.4% 5.7% 5.9% 4.7%
Median 2.8% 3.0% 3.3% 4.3% 6.3% 6.9% 15.0 14.3 11.9 19.3 17.3 16.0 22.1 20.0 17.5 5.7% 6.0% 6.0% 5.0%
Security companies
G4S GFS LN 26.0 40,097 4.0% 4.3% 4.5% 4.9% 6.0% 6.7% 12.7 11.9 10.9 16.2 14.6 13.2 23.8 18.6 16.4 6.3% 6.4% 6.5% 6.5%
Prosegur PSG SM 4.3 19,791 2.9% 3.1% 3.4% 7.0% 7.5% 8.9% 9.4 8.3 7.3 13.3 12.0 10.3 14.6 13.1 11.6 8.5% 9.0% 9.2% 5.7%
Securitas SECUB SS 108.4 34,055 3.2% 3.4% 3.8% 6.3% 6.9% 7.5% 13.4 12.3 11.1 14.5 13.8 13.0 19.2 17.6 15.8 4.7% 4.8% 5.1% 7.7%
Average 3.4% 3.6% 3.9% 6.1% 6.8% 7.7% 11.8 10.8 9.7 14.7 13.4 12.1 19.2 16.4 14.6 6.5% 6.7% 6.9% 6.6%
Service companies
MITIE MTO LN 2.9 9,317 4.2% 4.4% 4.7% 7.5% 8.1% 9.2 8.3 7.6 11.5 10.7 10.1 12.6 11.0 5.5% 5.7% 5.8%
Rentokil RTO LN 1.5 23,531 1.9% 2.0% 2.3% 5.3% 5.9% 14.7 13.9 12.6 17.9 16.3 15.0 19.1 18.3 16.7 13.3% 13.4% 13.8% 0.2%
Serco SRP LN 1.1 9,291 0.0% 0.1% 0.0% 17.7 20.1 17.0 44.7 44.6 32.4 39.5 48.4 23.5 2.6% 2.6% 3.0% -7.3%
Average 2.0% 2.2% 2.3% 7.5% 6.7% 5.9% 13.9 14.1 12.4 24.7 23.9 19.2 23.7 25.9 20.1 7.1% 7.2% 7.5% -3.6%
ISS 233 43,298 2.9% 3.0% 3.2% 6.0% 5.9% 6.3% 12.1 11.7 10.9 16.3 15.7 14.9 15.7 15.1 14.2 5.7% 5.7% 5.7% 4.1%
Dev to multi-service -4% -1% 3% -29% 6% 9% -19% -18% -8% -15% -9% -7% -29% -24% -19%
Source: Danske Bank Markets. Factset (ISS price as at 11:45 CET, 27 August, remainder price as at close 26 August)
Our DCF model indicates a value per share of DKK280 (current value) using a WACC
of 5.7% and a sales growth of 4% p.a. An increase in the WACC of 1pp would reduce
the DCF value to DKK232.
Risks
The main risks to our model and 12M TP include the general macroeconomic
conditions, the management’s ability to secure organic growth through, for example,
more IFS and GCC contracts and to improve profitability. Larger acquisitions could
affect market sentiment negatively.
5 | ISS Buy www.danskemarketsequities.com
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Table 4. ISS : Key financials (DKKm)
Profit & Loss
DKKm 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E
Revenue 74,073 77,644 79,454 78,459 74,105 79,231 80,550 83,619 86,710
Staff costs 47,990 50,089 52,071 51,234 48,849 51,753 52,645 54,635 56,650
Cost of sales 6,359 6,751 7,009 6,949 6,413 6,901 7,020 7,286 7,554
Other operating expenses 14,607 15,561 15,110 15,174 13,961 15,300 15,505 16,091 16,684
EBITDA 5,117 5,243 5,264 5,102 4,882 5,277 5,380 5,607 5,822
Depreciation and amortisation 850 855 853 787 732 787 820 851 882
Operating profit before other items 4,267 4,388 4,411 4,315 4,150 4,490 4,560 4,757 4,939
Non-recurring items -118 -223 -308 -100 -160 -163 -150 -150 -150
Operating profit 4,149 4,165 4,103 4,215 3,990 4,327 4,410 4,607 4,789
Share of result from associates 10 0 4 6 0 0 0 0 0
Net finance costs -2,368 -2,802 -2,726 -2,276 -1,296 -734 -659 -656 -653
Profit before tax 1,791 1,363 1,381 1,945 2,694 3,593 3,752 3,951 4,137
Tax 760 888 960 919 878 1,096 1,138 1,197 1,253
Minorities -20 -7 -3 -2 -3 -2 0 0 0
Net profit 1,011 468 418 1,024 1,813 2,496 2,614 2,753 2,884
Adj for non-recurring items 160 163 150 150 150
Adj for normalised net finance 562 0 0 0 0
Tax -235 -50 -45 -45 -45
Adj net profit 2,300 2,609 2,718 2,858 2,988
Special items
Goodwill impairment and write-down 938 501 385 985 448 6 0 0 0
PPA related amortisation 869 708 679 667 588 656 656 656 656
Tax impact 244 231 193 229 234 166 164 164 164
Total 1,563 978 871 1,423 802 497 492 492 492
Reported net profit -552 -510 -453 -399 1,011 1,999 2,122 2,261 2,392
Revenue breakdown
Nordic 17,301 18,085 17,736 16,853 15,449 14,715 14,821 15,266 15,724
Western Europe 39,121 39,321 39,414 39,704 37,318 40,716 41,322 42,768 44,265
Eastern Europe 1,602 1,641 1,605 1,657 1,597 1,589 1,572 1,586 1,600
Asia 5,401 6,090 7,367 8,019 8,221 9,827 10,497 11,213 11,867
Pacific 5,018 5,525 6,007 5,105 4,444 4,517 4,304 4,476 4,655
North America 2,625 3,369 3,539 3,459 3,477 4,197 4,328 4,544 4,771
Latin America 3,070 3,648 3,820 3,708 3,597 3,652 3,747 3,808 3,871
Group 74,073 77,644 79,454 78,459 74,105 79,231 80,550 83,619 86,710
Organic growth
Nordic 4.0% 4.0% -1.0% 0.5% 2.0% 2.4% 3.0% 3.0% 3.0%
Western Europe 1.0% 4.0% 1.0% 4.7% 0.3% 3.5% 3.5% 3.5% 3.5%
Eastern Europe 0.0% 2.0% -1.0% 4.6% -0.5% 1.6% 2.0% 4.0% 4.0%
Asia 12.8% 11.5% 15.3% 15.1% 8.3% 8.5% 9.0% 9.0% 8.0%
Pacific 8.0% 3.0% 0.0% -0.6% 9.8% 6.5% 3.0% 4.0% 4.0%
North America -0.6% 34.7% -2.9% 1.7% 1.3% 1.8% 5.0% 5.0% 5.0%
Latin America 28.8% 20.7% 7.1% 6.7% 9.8% 5.8% 8.0% 7.0% 7.0%
Group 3.5% 6.3% 1.7% 4.3% 2.5% 4.1% 4.3% 4.4% 4.3%
EBITA breakdown
Nordic 1,228 1,268 1,190 1,246 1,153 1,127 1,134 1,168 1,203
Western Europe 2,278 2,268 2,407 2,388 2,310 2,613 2,603 2,694 2,789
Eastern Europe 113 112 102 109 109 108 102 103 104
Asia 407 486 564 608 603 713 808 863 914
Pacific 333 358 311 253 220 241 219 224 233
North America 132 116 151 101 125 158 164 186 196
Latin America 178 215 91 145 173 170 180 190 194
Corporate -402 -434 -404 -534 -542 -650 -670 -690 -711
Group 4,267 4,389 4,412 4,316 4,151 4,479 4,542 4,739 4,921
EBITA margin
Nordic 7.1% 7.0% 6.7% 7.4% 7.5% 7.7% 7.7% 7.7% 7.7%
Western Europe 5.8% 5.8% 6.1% 6.0% 6.2% 6.4% 6.3% 6.3% 6.3%
Eastern Europe 7.1% 6.8% 6.4% 6.6% 6.8% 6.8% 6.5% 6.5% 6.5%
Asia 7.5% 8.0% 7.7% 7.6% 7.3% 7.3% 7.7% 7.7% 7.7%
Pacific 6.6% 6.5% 5.2% 5.0% 5.0% 5.3% 5.1% 5.0% 5.0%
North America 5.0% 3.4% 4.3% 2.9% 3.6% 3.8% 3.8% 4.1% 4.1%
Latin America 5.8% 5.9% 2.4% 3.9% 4.8% 4.6% 4.8% 5.0% 5.0%
Corporate (as % of revenue) -0.5% -0.6% -0.5% -0.7% -0.7% -0.8% -0.8% -0.8% -0.8%
Group 5.8% 5.7% 5.6% 5.5% 5.6% 5.7% 5.6% 5.7% 5.7%
Deviations to the front page and key financials relate to ISS’s use of PPA adjusted numbers
Source: Company data, Danske Bank Markets estimates
6 | ISS Buy www.danskemarketsequities.com
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Table 5. ISS - key financials
Source: Danske Bank Markets estimates and the company
P ro f it & Lo ss
D KKm Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3E Q4E
Revenue 19,545 20,097 19,143 19,674 18,251 18,397 18,410 19,047 19,150 20,206 19,799 20,076
Staff costs 13,114 13,357 12,384 12,379 12,342 12,416 11,688 12,403 12,917 13,214 12,568 13,054
Cost o f sales 1,692 1,838 1,687 1,732 1,583 1,593 1,558 1,679 1,686 1,773 1,675 1,767
Other operating expenses 3,684 3,678 3,659 4,153 3,361 3,249 3,804 3,547 3,513 3,963 4,090 3,733
EBITDA 1,055 1,224 1,413 1,410 965 1,139 1,360 1,418 1,034 1,256 1,466 1,522
Depreciation and amortisation 200 196 199 192 194 209 199 51 197 189 195 212
Operating profit before other items 855 1,028 1,214 1,218 771 930 1,161 1,367 837 1,067 1,271 1,310
Special items -57 94 48 -185 -104 -29 20 -47 -19 -44 -50 -50
Operating profit 798 1,122 1,262 1,033 667 901 1,181 1,320 818 1,023 1,221 1,260
Share of result from associates 0 2 4 0 1 0 0 -1 0 0 0 0
Net finance costs -444 -713 -543 -576 -558 -218 -248 -272 -216 -164 -170 -184
Profit before tax 354 411 723 457 110 683 933 1,047 602 859 1,051 1,076
Tax 120 245 397 157 51 223 299 380 182 254 306 352
M inorities -1 0 0 -1 -1 0 -1 -1 -1 -2 -1 2
Net profit 233 166 326 299 58 460 633 666 419 603 743 726
Special items
Goodwill impairment and write-down 63 25 347 550 0 0 0 448 0 0 0 0
PPA related amortisation 136 125 130 276 136 125 130 276 164 167 167 158
Tax impact 36 44 32 117 44 43 41 181 41 41 41 41
Total 163 106 445 709 92 82 89 543 123 126 126 117
Net profit 70 60 -119 -410 -34 378 544 123 296 477 617 609
D KKm
R evenue breakdo wn Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3E Q4E
Nordic 4,314 4,363 4,058 4,118 3,835 3,996 3,750 3,868 3,578 3,751 3,558 3,817
Western Europe 9,696 10,156 9,704 10,148 9,290 9,258 9,259 9,511 9,759 10,376 10,214 10,351
Eastern Europe 399 415 421 422 373 401 408 415 357 404 404 409
Asia 1,913 2,051 2,028 2,027 1,937 1,979 2,069 2,236 2,392 2,518 2,464 2,434
Pacific 1,423 1,311 1,168 1,203 1,142 1,045 1,118 1,139 1,129 1,167 1,122 1,070
North America 871 859 882 847 833 828 878 938 990 1,036 1,096 1,071
Latin America 941 956 896 915 853 900 926 918 946 949 951 934
Group 19,545 20,097 19,143 19,674 18,251 18,397 18,410 19,047 19,150 20,206 19,799 20,076
Organic Gro wth
Nordic -1.0% 0.0% 1.0% 2.0% 1.0% 3.0% 1.0% 3.0% 1.0% 1.0% 3.0% 4.5%
Western Europe 3.0% 5.0% 6.0% 5.0% 1.0% -1.0% 1.0% 0.0% 2.0% 5.0% 3.0% 4.0%
Eastern Europe 0.0% 5.0% 7.0% 6.0% -3.0% -1.0% -1.0% 3.0% 1.0% 4.0% 1.0% 0.5%
Asia 13.0% 15.0% 16.0% 15.0% 13.0% 8.0% 5.0% 7.0% 8.0% 10.0% 8.0% 8.0%
Pacific -2.0% -3.0% 0.0% 3.0% 6.0% 9.0% 11.0% 13.0% 10.0% 8.0% 5.0% 3.0%
North America 7.0% 1.0% 2.0% -3.0% 1.0% 2.0% 0.0% 2.0% -2.0% 1.0% 4.0% 4.0%
Latin America 7.0% 5.0% 5.0% 9.0% 10.0% 12.0% 11.0% 6.0% 6.0% 4.0% 7.0% 6.0%
Group 2.8% 4.4% 5.2% 5.0% 2.8% 2.0% 2.4% 2.6% 3.1% 4.8% 3.9% 4.5%
EB IT A breakdo wn
Nordic 211 285 408 342 193 265 384 311 188 252 366 321
Western Europe 442 560 590 796 427 527 620 736 500 611 695 807
Eastern Europe 15 29 31 34 15 29 31 34 18 26 31 33
Asia 139 153 160 156 137 139 156 171 162 176 190 185
Pacific 67 58 53 75 50 43 62 65 58 57 62 64
North America 25 12 36 28 19 27 30 49 26 43 41 48
Latin America 35 40 36 34 43 42 42 46 38 46 41 45
Corporate -79 -108 -100 -247 -98 -115 -147 -182 -147 -144 -148 -211
Group 855 1,028 1,214 1,218 785 956 1,178 1,231 843 1,067 1,277 1,293
EB IT A margin
Nordic 4.9% 6.5% 10.1% 8.3% 5.0% 6.6% 10.2% 8.0% 5.3% 6.7% 10.3% 8.4%
Western Europe 4.6% 5.5% 6.1% 7.8% 4.6% 5.7% 6.7% 7.7% 5.1% 5.9% 6.8% 7.8%
Eastern Europe 3.8% 7.0% 7.4% 8.1% 4.0% 7.2% 7.6% 8.2% 5.0% 6.4% 7.7% 8.0%
Asia 7.3% 7.5% 7.9% 7.7% 7.1% 7.0% 7.5% 7.6% 6.8% 7.0% 7.7% 7.6%
Pacific 4.7% 4.4% 4.5% 6.2% 4.4% 4.1% 5.5% 5.7% 5.1% 4.9% 5.5% 6.0%
North America 2.9% 1.4% 4.1% 3.3% 2.3% 3.3% 3.4% 5.2% 2.6% 4.2% 3.7% 4.5%
Latin America 3.7% 4.2% 4.0% 3.7% 5.0% 4.7% 4.5% 5.0% 4.0% 4.8% 4.3% 4.8%
Corporate (as % of revenue) -0.4% -0.5% -0.5% -1.3% -0.5% -0.6% -0.8% -1.0% -0.8% -0.7% -0.8% -1.1%
Group 4.4% 5.1% 6.3% 6.2% 4.3% 5.2% 6.4% 6.5% 4.4% 5.3% 6.4% 6.4%
2013 2014 2015E
2013 2014 2015E
7 | ISS Buy www.danskemarketsequities.com
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Chart 4. Regional performance
Source: Danske Bank Markets and the company
Nordic: Sales (DKKm) and organic growth (% p.a.) Nordic: EBIT (DKKm) and EBIT margin (%)
Western Europe: Sales (DKKm) and organic growth (% p.a.) Western Europe: EBIT (DKKm) and EBIT margin (%)
Eastern Europe: Sales (DKKm) and organic growth (% p.a.) Eastern Europe: EBIT (DKKm) and EBIT margin (%)
Asia: Sales (DKKm) and organic growth (% p.a.) Asia: EBIT (DKKm) and EBIT margin (%)
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Q1 1
0
Q2 1
0
Q3 1
0
Q4 1
0
Q1 1
1
Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
2
Q2 1
2
Q3 1
2
Q4 1
2
Q1 1
3
Q2 1
3
Q3 1
3
Q4 1
3
Q1 1
4
Q2 1
4
Q3 1
4
Q4 1
4
Q1 1
5
Q2 1
5
Sales Change % p.a.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0
50
100
150
200
250
300
350
400
450
Q1 1
0
Q2 1
0
Q3 1
0
Q4 1
0
Q1 1
1
Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
2
Q2 1
2
Q3 1
2
Q4 1
2
Q1 1
3
Q2 1
3
Q3 1
3
Q4 1
3
Q1 1
4
Q2 1
4
Q3 1
4
Q4 1
4
Q1 1
5
Q2 1
5
EBIT EBIT margin
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
0
2,000
4,000
6,000
8,000
10,000
12,000
Q1 1
0
Q2 1
0
Q3 1
0
Q4 1
0
Q1 1
1
Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
2
Q2 1
2
Q3 1
2
Q4 1
2
Q1 1
3
Q2 1
3
Q3 1
3
Q4 1
3
Q1 1
4
Q2 1
4
Q3 1
4
Q4 1
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Q1 1
5
Q2 1
5
Sales Change % p.a.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
0
100
200
300
400
500
600
700
800
900
Q1 1
0
Q2 1
0
Q3 1
0
Q4 1
0
Q1 1
1
Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
2
Q2 1
2
Q3 1
2
Q4 1
2
Q1 1
3
Q2 1
3
Q3 1
3
Q4 1
3
Q1 1
4
Q2 1
4
Q3 1
4
Q4 1
4
Q1 1
5
Q2 1
5
EBIT EBIT margin
-4%
-2%
0%
2%
4%
6%
8%
0
50
100
150
200
250
300
350
400
450
Q1 1
0
Q2 1
0
Q3 1
0
Q4 1
0
Q1 1
1
Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
2
Q2 1
2
Q3 1
2
Q4 1
2
Q1 1
3
Q2 1
3
Q3 1
3
Q4 1
3
Q1 1
4
Q2 1
4
Q3 1
4
Q4 1
4
Q1 1
5
Q2 1
5
Sales Change % p.a.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0
5
10
15
20
25
30
35
40
45
Q1 1
0
Q2 1
0
Q3 1
0
Q4 1
0
Q1 1
1
Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
2
Q2 1
2
Q3 1
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Q4 1
2
Q1 1
3
Q2 1
3
Q3 1
3
Q4 1
3
Q1 1
4
Q2 1
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Q3 1
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Q4 1
4
Q1 1
5
Q2 1
5
EBIT EBIT margin
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0
500
1,000
1,500
2,000
2,500
3,000
Q1 1
0
Q2 1
0
Q3 1
0
Q4 1
0
Q1 1
1
Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
2
Q2 1
2
Q3 1
2
Q4 1
2
Q1 1
3
Q2 1
3
Q3 1
3
Q4 1
3
Q1 1
4
Q2 1
4
Q3 1
4
Q4 1
4
Q1 1
5
Q2 1
5
Sales Change % p.a.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
0
20
40
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80
100
120
140
160
180
200
Q1 1
0
Q2 1
0
Q3 1
0
Q4 1
0
Q1 1
1
Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
2
Q2 1
2
Q3 1
2
Q4 1
2
Q1 1
3
Q2 1
3
Q3 1
3
Q4 1
3
Q1 1
4
Q2 1
4
Q3 1
4
Q4 1
4
Q1 1
5
Q2 1
5
EBIT EBIT margin
8 | ISS Buy www.danskemarketsequities.com
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Chart 5. Regional performance
Source: Danske Bank Markets and the company
Pacific: Sales (DKKm) and organic growth (% p.a.) Pacific: EBIT (DKKm) and EBIT margin (%)
Latin America: Sales (DKKm) and organic growth (% p.a.) Latin America: EBIT (DKKm) and EBIT margin (%)
North America: Sales (DKKm) and organic growth (% p.a.) North America: EBIT (DKKm) and EBIT margin (%)
0%
5%
10%
15%
20%
25%
30%
35%
0
200
400
600
800
1,000
1,200
Q1 1
0
Q2 1
0
Q3 1
0
Q4 1
0
Q1 1
1
Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
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Q2 1
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Q3 1
2
Q4 1
2
Q1 1
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Q2 1
3
Q3 1
3
Q4 1
3
Q1 1
4
Q2 1
4
Q3 1
4
Q4 1
4
Q1 1
5
Q2 1
5
Sales Change % p.a.
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
-60
-40
-20
0
20
40
60
80
Q1 1
0
Q2 1
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Q3 1
0
Q4 1
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Q1 1
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Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
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Q2 1
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Q3 1
2
Q4 1
2
Q1 1
3
Q2 1
3
Q3 1
3
Q4 1
3
Q1 1
4
Q2 1
4
Q3 1
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Q4 1
4
Q1 1
5
Q2 1
5
EBIT EBIT margin
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
200
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800
1,000
1,200
Q1 1
0
Q2 1
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Q3 1
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Q4 1
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Q1 1
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Q2 1
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Q3 1
1
Q4 1
1
Q1 1
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Q2 1
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Q3 1
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Q4 1
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Q1 1
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Q2 1
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Q3 1
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Q4 1
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Q1 1
4
Q2 1
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Q3 1
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Q4 1
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Q1 1
5
Q2 1
5
Sales Change % p.a.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
0
10
20
30
40
50
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70
Q1 1
0
Q2 1
0
Q3 1
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Q4 1
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Q1 1
1
Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
2
Q2 1
2
Q3 1
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Q4 1
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Q1 1
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Q2 1
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Q3 1
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Q4 1
3
Q1 1
4
Q2 1
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Q3 1
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Q4 1
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Q1 1
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Q2 1
5
EBIT EBIT margin Adj EBIT margin
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Q1 1
0
Q2 1
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Q3 1
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Q1 1
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Q2 1
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Q3 1
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Q4 1
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Q1 1
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Q1 1
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Q2 1
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Q3 1
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Q4 1
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Q1 1
4
Q2 1
4
Q3 1
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Q4 1
4
Q1 1
5
Q2 1
5
Sales Change % p.a.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
0
20
40
60
80
100
120
Q1 1
0
Q2 1
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Q3 1
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Q1 1
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Q1 1
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Q2 1
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Q3 1
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Q1 1
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Q4 1
3
Q1 1
4
Q2 1
4
Q3 1
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Q4 1
4
Q1 1
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Q2 1
5
EBIT EBIT margin
9 | ISS Buy www.danskemarketsequities.com
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Company summary
Sales breakdown, geographical areas Sales breakdown, divisions
Company description
Main shareholders
Company information
Management
Net sales and EBITDA margin (DKKm)
EBIT and EBIT margin (DKKm)
P/E - 12 months forward (x)
P/BV - 12 months forward (x)
Source: Company data, FactSet, Danske Bank Markets estimates [all charts and tables]
Western Europe, 71%
Eastern Europe, 2%
North America, 5%
APAC, 17%
Latin America, 5%
Western Europe., 56%
Nordic., 23%
Eastern Europe., 2%
Asia., 12%
Pacific., 7%
ISS A/S engages in the provision of cleaning, security, property, catering, support
and facility management services. It offers its services to the information
technology, manufacturing, public administration, healthcare, transportation and
infrastructure, retail and wholesale, energy and resources, hotels, leisure and
entertainment, food and beverage and pharmaceuticals sectors. The firm also
provides security services comprising manned guarding, access control and
patrolling of customer facilities. The company was founded in 1901 and is
headquartered in Copenhagen, Denmark.
Name Votes (%) Capital (%)
Ontario Teachers' Pension Partnership 12.0% 12.0%
Artisan Partners Limited Partnership 11.0% 11.0%
Kirkbi Invest 10.3% 10.0%
ISS
Søborg
Denmark
www.issworld.com
CEO: Jeff Gravenhorst
CFO: Heine Dalsgaard
IR: Nicholas Ward
6%
6%
7%
7%
65,000
70,000
75,000
80,000
85,000
10 11 12 13 14 15E 16E 17E
Net sales EBITDA margin
0%
2%
4%
6%
0
2,000
4,000
6,000
10 11 12 13 14 15E 16E 17E
EBIT EBIT margin
11
12
13
14
15
16
17
18
14 152.0
2.2
2.4
2.6
2.8
3.0
3.2
14 15
10 | ISS Buy www.danskemarketsequities.com
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Summary tables
Source: Company data, Danske Bank Markets estimates
INCOME STATEMENT
Year end Dec, DKKm 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Net sales 74,073 77,644 79,454 78,459 74,105 79,231 80,550 83,619
Cost of sales & operating costs -69,074 -72,624 -74,498 -73,457 -69,383 -74,117 -75,320 -78,162
EBITDA 4,999 5,020 4,956 5,002 4,722 5,114 5,230 5,457
Depreciation -850 -855 -853 -787 -732 -787 -820 -851
EBITA 4,149 4,165 4,103 4,215 3,990 4,327 4,410 4,607
Amortisation -1,807 -1,209 -1,064 -1,652 -1,036 -662 -656 -656
Impairment charges 0 0 0 0 0 0 0 0
EBIT 2,342 2,956 3,039 2,563 2,954 3,665 3,754 3,951
- of which non-recurring items -1,925 -1,432 -1,372 -1,752 -1,196 -825 -806 -806
EBIT before non-recurring items 4,267 4,388 4,411 4,315 4,150 4,490 4,560 4,757
Financial items, net -2,368 -2,802 -2,726 -2,276 -1,296 -734 -659 -656
Associated companies 10 0 4 6 0 0 0 0
Pre-tax profit -16 154 317 293 1,658 2,931 3,096 3,295
Taxes -516 -657 -767 -690 -644 -930 -974 -1,033
Minorities -20 -7 -3 -2 -3 -2 0 0
Discontinued operations 0 0 0 0 0 0 0 0
Net profit -552 -510 -453 -399 1,011 1,999 2,122 2,261
Net profit (adj.) 1,129 691 726 1,124 1,973 2,659 2,764 2,903
CASH FLOW
DKKm 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
EBITDA 4,999 5,020 4,956 5,002 4,722 5,114 5,230 5,457
Change in working capital 0 -317 116 80 -71 87 -126 -93
Net interest paid 0 -2,224 -2,236 -1,599 -782 -734 -659 -656
Taxes paid 0 -749 -885 -933 -1,082 -977 -1,022 -1,085
Other operating cash items -4,999 -278 -332 -434 -392 -150 -100 -100
Cash flow from operations 0 1,452 1,619 2,116 2,395 3,291 3,327 3,520
Capex 0 -1,010 -762 -803 -848 -872 -886 -920
Disposals/(acquisitions) 0 678 15 2,134 1,335 -364 0 0
Free cash flow 0 442 857 1,313 1,547 2,419 2,441 2,600
Incr./(decr.) in equity 0 0 3,696 0 8,036 0 0 0
Incr./(decr.) in debt 0 -285 -4,341 -3,554 -9,839 -1,725 0 0
Dividend paid 0 0 0 0 0 -910 -1,249 -1,307
Minorities and other financing CF 4,449 -1,065 1,367 -479 -2,277 0 0 0
Cash flow from financing 4,449 -1,350 722 -4,033 -4,080 -2,635 -1,249 -1,307
Disc. ops and other 0 0 0 0 0 0 0 0
Incr./(decr.) in cash 4,449 -230 1,594 -586 -1,198 -580 1,193 1,293
BALANCE SHEET
DKKm 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Cash and cash equivalents 4,449 4,219 5,813 5,227 4,029 3,449 4,642 5,935
Other current assets 12,619 13,745 13,231 12,354 12,416 13,289 13,510 14,025
Fixed tangible assets 2,055 2,077 1,887 1,715 1,638 1,773 1,839 1,908
Intangible assets (incl. goodwill) 35,358 34,097 31,969 28,346 27,465 27,117 26,461 25,805
Other non-current assets 954 842 988 934 1,186 1,236 1,231 1,235
Total assets 55,435 54,980 53,888 48,576 46,734 46,864 47,683 48,908
Trade payables 2,830 3,466 3,669 3,436 3,562 3,645 3,705 3,846
Short-term debt 5,212 5,778 5,607 5,648 1,338 2,500 2,500 2,500
Other current liabilities 11,991 11,928 11,954 11,932 10,849 11,726 11,760 12,041
Long-term debt 29,032 28,181 24,011 20,416 14,887 12,000 12,000 12,000
Other long-term liabilities 3,719 3,488 3,540 2,898 3,178 2,981 2,833 2,681
Total liabilities 52,784 52,841 48,781 44,330 33,814 32,852 32,798 33,069
Shareholders' equity (incl. min.) 2,651 2,139 5,107 4,246 12,920 14,012 14,884 15,839
Total liabilities and equity 55,435 54,980 53,888 48,576 46,734 46,864 47,683 48,908
Net debt 29,795 29,740 23,805 20,837 12,196 11,051 9,858 8,565
Working capital -2,202 -1,649 -2,392 -3,014 -1,995 -2,082 -1,955 -1,863
11 | ISS Buy www.danskemarketsequities.com
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Summary tables
Source: Company data, Danske Bank Markets estimates
PER SHARE DATA 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E No. of shares, fully diluted (y.e.) (m) 100.0 135.4 135.4 185.7 185.7 185.7 185.7 No. of shares, fully diluted (avg.) (m) 100.0 117.7 135.4 160.6 185.7 185.7 185.7 EPS (reported) (DKK) -5.10 -3.85 -2.95 6.30 10.8 11.4 12.2 EPS (adj.) (DKK) 6.91 6.17 8.30 12.3 14.3 14.9 15.6 DPS (DKK) 0.00 0.00 0.00 4.90 6.73 7.04 7.41 CFFO/share (DKK) 16.4 16.0 16.3 15.7 18.6 18.5 19.6 Book value/share (DKK) 21.3 37.6 31.3 69.5 75.4 80.1 85.2
MARGINS AND GROWTH 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E EBITDA margin 6.7% 6.5% 6.2% 6.4% 6.4% 6.5% 6.5% 6.5% EBITA margin 5.6% 5.4% 5.2% 5.4% 5.4% 5.5% 5.5% 5.5% EBIT margin 3.2% 3.8% 3.8% 3.3% 4.0% 4.6% 4.7% 4.7% EBIT margin (adj) 5.8% 5.7% 5.6% 5.5% 5.6% 5.7% 5.7% 5.7% Sales growth 4.8% 2.3% -1.3% -5.5% 6.9% 1.7% 3.8% EBITDA growth 0.4% -1.3% 0.9% -5.6% 8.3% 2.3% 4.3% EBITA growth 0.4% -1.5% 2.7% -5.3% 8.4% 1.9% 4.5% EPS (adj.) growth -10.8% 34.6% 48.1% 16.5% 4.0% 5.1%
PROFITABILITY 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E ROIC (after tax, incl. GW, adj.) 18.2% 9.0% 9.1% 9.9% 10.4% 11.4% 11.7% 12.4% ROIC (after tax, excl. GW, adj.) 78.3% 33.5% 30.9% 36.2% 39.6% 45.5% 49.9% 55.8% ROE (adj.) 85.2% 28.9% 20.0% 24.0% 23.0% 19.7% 19.1% 18.9% ROIC (adj.) - WACC 12.5% 3.3% 3.4% 4.2% 4.7% 5.7% 6.0% 6.7%
MARKET VALUE 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E Share price (DKK) 178 233 233 233 Outstanding number of shares (m) 100.0 135.4 135.4 185.7 185.7 185.7 185.7 Market capitalisation (m) 33,067 43,261 43,261 43,261 Net debt, year-end (m) 29,795 29,740 23,805 20,837 12,196 11,051 9,858 8,565 MV of min. and ass. comp. (m) 16 5 -1 4 10 12 12 12 Enterprise value (m) 45,273 54,323 53,131 51,838
VALUATION 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E EV/sales (x) 0.6 0.7 0.7 0.6 EV/EBITDA (x) 9.3 10.3 9.9 9.2 EV/EBITA (x) 10.9 12.1 11.7 10.9 EV/EBIT (x) 10.9 12.1 11.7 10.9 P/E (reported) (x) 28.3 21.6 20.4 19.1 P/E (adj.) (x) 14.5 16.3 15.7 14.9 P/BV (x) 2.56 3.09 2.91 2.73 EV/invested capital (x) 5.7 7.5 7.8 8.2 Dividend yield 2.75% 2.89% 3.02% 3.18% Total yield (incl. buybacks) 2.75% 2.89% 3.02% 3.18% Free cash flow yield 4.67% 5.59% 5.64% 6.01%
FINANCIAL RATIOS 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E Net debt/EBITDA (x) 6.0 5.9 4.8 4.2 2.6 2.2 1.9 1.6 Net debt/equity (x), year-end 11.2 13.9 4.7 4.9 0.9 0.8 0.7 0.5 Dividend payout ratio 0.0% 0.0% 0.0% 77.8% 62.5% 61.6% 60.9% Interest coverage (x) 1.2 1.3 1.4 1.3 2.3 5.0 5.7 6.0 Cash conversion (FCF/net profit) n.m. n.m. n.m. n.m. 153.0% 121.0% 115.1% 115.0% Capex/sales 0.0% 1.3% 1.0% 1.0% 1.1% 1.1% 1.1% 1.1% NWC/sales -3.0% -2.1% -3.0% -3.8% -2.7% -2.6% -2.4% -2.2%
QUARTERLY P&L Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15E Q4 15E Sales (m) 18,251 18,397 18,410 19,047 19,150 20,206 19,799 20,076 EBITDA (m) 861 1,110 1,380 1,371 1,015 1,212 1,416 1,472 EBIT before non-recurring items (m) 782 956 1,178 1,234 843 1,050 1,268 1,330 Net profit (adj.) (m) 217 558 671 527 438 623 778 821 EPS (adj.) (DKK) 1.60 3.48 3.61 2.84 2.36 3.35 4.19 4.42 EBITDA margin 4.7% 6.0% 7.5% 7.2% 5.3% 6.0% 7.1% 7.3% EBIT margin (adj.) 4.3% 5.2% 6.4% 6.5% 4.4% 5.2% 6.4% 6.6%
12 | ISS Buy www.danskemarketsequities.com
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Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( ‘Danske Bank’). The author of the research report is Poul Ernst Jessen.
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analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report.
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Danske Bank, its affiliates, subsidiaries and staff may perform services for or solicit business from ISS and may hold long or short positions in, or otherwise be interested in, the
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responsible for the preparation of this report, which might affect the analysis and opinions expressed in this research report.
On 27 August 2015, Danske Bank, its affiliates and subsidiaries, in the aggregate, beneficially own 1% or more of a class of shares issued by ISS.
Danske Bank is a market maker and may hold positions in the financial instruments mentioned in this research report.
Within the previous 12 months, Danske Bank has acted as Lead Manager of a public offer of credit bonds for ISS Global A/S and Joint Lead Manager and Joint Bookrunner in connection
with the secondary sale of shares in ISS on behalf of EQT and GS PIA.
As an investment bank, Danske Bank, its affiliates and subsidiaries provide a variety of financial services, including investment banking services. It is possible that Danske Bank and/or
its affiliates and/or its subsidiaries might seek to become engaged to provide such services to ISS in the next three months.
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disclosed to ISS and no amendments have accordingly been made to the same before dissemination of the research report.
Financial models and/or methodology used in this research report
Recommendations and opinions in this research report are formed on the basis of a combination of discounted cash flow analysis, industry knowledge, peer group analysis and
company-specific and market technical elements (events affecting both the financial and operational profile of the company). Forecasting of company sales and earnings is based on
segmented bottom-up models using subjective views of relevant future market developments. In addition, the expected macroeconomic environment is taken into account. The
output is aggregated into models for group profit and loss, balance sheets and cash flow estimates – all taking into account the recent development in historical research reports.
Risk warning
Major risks connected with recommendations or opinions in this research report, including a sensitivity analysis of relevant assumptions, are stated throughout the text.
Expected updates
We expect to update this research product on a regular basis (at least twice per year).
See the front page of this research report for the date of first publication.
Recommendation structure
The Danske Bank Markets recommendation system is absolute. It means that each stock is rated on the basis of a total return, measured by the upside potential (including dividends
and capital reimbursement) over a 12-month time horizon.
The Danske Bank Markets spectrum of recommendations (or ratings) for each stock comprises three categories: Buy, Hold, Sell ( in short B, H, S). In specific cases and for a limited
period of time, analysts may have to rate stocks as Rating Suspended (RS) or Not Rated (NR), as explained below.
Meaning of each rating or recommendation:
• Buy: we expect the stock to generate a total return of more than 10% over the next 12 months.
• Hold: we expect the stock to generate a total return of 0% to 10% over the next 12 months.
• Sell: we expect the stock to generate a total return below 0% over the next 12 months.
• Rating Suspended: the rating is suspended due to a capital operation (e.g. takeover bid, share issue) where the issuer or a related party of the issuer is or could be involved or to a
change of analyst covering the stock.
• Not Rated: Danske Bank Markets produces investment research on Danske Bank but does not have an investment recommendation to buy, hold or sell or any target price on the
stock.
13 | ISS Buy www.danskemarketsequities.com
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As at 27 August 2015, Danske Bank Markets had investment recommendations on 242
securities. The distribution of recommendations is represented in the Securities ratings
breakdown diagram below.
The proportion of issuers corresponding to each of the recommendation categories
above to which Danske Bank provided investment banking services in the past
12 months is shown below.
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Financial Instruments’).
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Buy55%
Hold33%
Sell12%
Rating Investment banking relationships
Buy 63%
Hold 27%
Sell 6%
Changes to recommendation in the past 12 months:
Date Old rec. New rec.
New Hold Buy
6 May 2015 Buy Hold