Download Essilor (EI FP)-Buy: Bigger playing field becomes reality

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Consumer Brands & Retail
Global Luxury Goods
Company report
Equity – France
Essilor (EI FP)
Buy: Bigger playing field becomes reality
Buy
Target price (EUR)
Share price (EUR)
Upside/Downside (%)
Dec
HSBC EPS
HSBC PE
131.00
108.90
20.3
2014 a 2015 e
2016 e
2.99
36.5
3.67
29.6
4.15
26.2
Performance
1M
3M
12M
Absolute (%)
Relative (%)
2.3
6.9
1.8
9.7
25.3
22.7
2 October 2015
Anne-Laure Jamain *
Analyst
HSBC Bank plc
+44 20 7991 6587
[email protected]
Antoine Belge *
Analyst
HSBC Bank plc, Paris branch
+33 1 56 52 4347
[email protected]
Erwan Rambourg *
Analyst
The Hongkong and Shanghai Banking
Corporation Limited
+852 2996 6572
[email protected]
View HSBC Global Research at:
http://www.research.hsbc.com
*Employed by a non-US affiliate of
HSBC Securities (USA) Inc, and is not
registered/qualified pursuant to FINRA
regulations
Issuer of report: HSBC Bank plc
Disclaimer &
Disclosures
This report must be read
with the disclosures and
the analyst certifications in
the Disclosure appendix,
and with the Disclaimer,
which forms part of it
 “A captain of industry” in corrective lenses playing in a bigger
playing field with the expansion in sun and online, and, we
believe, likely also at some stage in contact lenses
 We forecast +5% pure organic sales growth for Q3 15 due on
22 October 2015
 Retain Buy, raise target price to EUR131 (from EUR125) on
DCF rollover to 2016e partially offset by our 2015e-17e EPS cut
Essilor remains by far a “captain of industry” in the corrective lenses but also in the optical
instruments market. The expansion in new markets (sun and online) supported by the global
roll-out of direct-to-consumer marketing campaigns (a game changer in our view as it is
targeting directly end consumers and not opticians) is acting as a catalyst for further market
share gains in a highly fragmented market. Essilor increased its market share in volume from
36% in 2012 to 39% in 2014. Ongoing investments in media spending should enable the group
to meet its +4.5% sales growth at constant FX and perimeter target in FY2015. We forecast
+4.6% for FY15e and +5% in Q3 15e due on 22 October.
The optical market is still significantly underpenetrated. The “Growing in a Bigger Playing
Field” strategy presented by Essilor at its June 2014 Investor Day is becoming a reality,
especially with the good execution in terms of expansion in sun and online. The group is now
not only addressing the needs of vision correction of 4.2bn people globally but potentially of
7.2bn in needs of corrective and protective lenses. Whilst the group was mostly involved in
prescription lenses (a cEUR11bn market in FY14e growing at 3-4% p.a), it now intends to
address a larger market which is expected to reach EUR27bn by 2018 growing at +6-7% p.a,
according to Essilor’s own projections, by expanding into the sunglasses market (estimated at
EUR8.5bn by FY18e, growing at +6-7% p.a) and the online market (EUR5.8bn by 2018e,
growing at +14% p.a). Longer-term, we believe Essilor could also decide to expand into
contact lenses, which could be another attractive segment, especially with the increase in
number of people affected by myopia in China.
Retain Buy rating and raise target price to EUR131 (from EUR125) on the back of our
DCF rollover to 2016e, partially offset by our 4%, 3% and 3% EPS cut in FY2015e-17e
respectively due to a higher tax rate. In 2015e, tax rate should increase 200bps to 28% due to a
less favourable geographical mix. Essilor is currently trading at 29.6xPE2015e and
26.2xPE2016e, a 90% premium to the DJ Stoxx 600 (above its 10-year average of 77%) but is
offering superior visibility on continuous earnings growth (23% EPS growth in FY2015e and
13% in FY16e-17e respectively). In addition, in the current market environment, Essilor’s
defensive status should appeal to risk –adverse investors.
Index
Index level
RIC
Bloomberg
Source: HSBC
SBF-120
3,500
ESSI.PA
EI FP
Enterprise value (EURm)
Free float (%)
Market cap (USDm)
Market cap (EURm)
Source: HSBC
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International
25099
92
26,274
23,537
abc
Essilor (EI FP)
Global Luxury Goods
2 October 2015
Financials & valuation
Financial statements
DCF analysis
Year to
12/2014a
12/2015e
12/2016e
12/2017e
Profit & loss summary (EURm)
Revenue
EBITDA
Depreciation & amortisation
Operating profit/EBIT
Net interest
PBT
HSBC PBT
Taxation
Net profit
HSBC net profit
5,670
1,440
-451
989
-32
948
948
-246
930
642
6,774
1,543
-332
1,211
-24
1,187
1,187
-332
789
789
7,347
1,708
-360
1,348
-19
1,328
1,328
-365
892
892
8,005
1,893
-392
1,501
-14
1,487
1,487
-404
1,005
1,005
1,032
-232
-2,068
-198
1,438
940
1,037
-339
-569
-219
14
624
1,290
-331
-580
-269
-451
879
1,429
-360
-632
-304
-498
984
Cash flow summary (EURm)
Cash flow from operations
Capex
Cash flow from investment
Dividends
Change in net debt
FCF equity
Balance sheet summary (EURm)
Intangible fixed assets
Tangible fixed assets
Current assets
Cash & others
Total assets
Operating liabilities
Gross debt
Net debt
Shareholders funds
Invested capital
6,200
1,154
3,162
626
10,789
2,418
2,447
1,821
4,915
7,472
6,200
1,391
3,671
675
11,535
2,655
2,510
1,835
5,359
7,933
6,200
1,612
4,031
799
12,116
2,777
2,183
1,384
6,140
8,266
6,200
1,852
4,755
1,252
13,080
2,918
2,138
886
7,003
8,636
Ratio, growth and per share analysis
Year to
12/2014a
12/2015e
12/2016e
12/2017e
11.9
32.1
17.3
12.2
7.3
19.5
7.1
22.4
25.2
22.9
8.5
10.7
11.3
11.9
13.0
9.0
10.9
11.4
11.9
12.6
Y-o-y % change
Revenue
EBITDA
Operating profit
PBT
HSBC EPS
DCF, comprising
Risk-free rate (%)
Equity premium (%)
Sector beta
Specific beta
3.50
5.50
0.90
0.50
EBIT growth 2015-25e CAGR (%)
EBIT growth 2025-45e CAGR (%)
Fade period 2045-53e
WACC (%)
1.0
12.3
14.8
7.9
25.4
17.4
45.0
34.6
1.3
56.7
0.9
11.3
15.4
7.9
22.8
17.9
63.4
32.2
1.2
56.5
0.9
12.1
15.5
8.3
23.2
18.3
88.4
21.3
0.8
93.2
0.9
12.9
15.3
8.7
23.6
18.7
132.1
12.1
0.5
161.3
Cost of capital vs fade period
4.33
2.99
1.02
22.88
3.67
3.67
1.25
24.95
4.15
4.15
1.42
28.58
4.68
4.68
1.60
32.60
5.88
4.9%
5.4%
5.9%
6.4%
6.9%
4 years
8 years
12 years
160
142
126
113
102
168
148
131
117
105
169
151
136
122
110
Valuation data
Year to
12/2014a
12/2015e
12/2016e
12/2017e
4.4
17.4
3.4
36.5
4.8
4.0
0.9
3.7
16.3
3.2
29.6
4.4
2.7
1.2
3.4
14.4
3.0
26.2
3.8
3.8
1.3
3.0
12.8
2.8
23.3
3.3
4.2
1.5
EV/sales
EV/EBITDA
EV/IC
PE*
P/Book value
FCF yield (%)
Dividend yield (%)
Note: * = Based on HSBC EPS (fully diluted)
Price relative
121
121
111
111
101
101
91
91
81
81
71
71
61
Oct-13
Apr-14
Oct-14
Apr-15
Essilor
Rel to SBF-120
Note: price at close of 30 Sep 2015
Per share data (EUR)
EPS reported (fully diluted)
HSBC EPS (fully diluted)
DPS
Book value
8.6
4.6
Sensitivity and valuation range
Source: HSBC
Ratios (%)
Revenue/IC (x)
ROIC
ROE
ROA
EBITDA margin
Operating profit margin
EBITDA/net interest (x)
Net debt/equity
Net debt/EBITDA (x)
CF from operations/net debt
HSBC assumptions
2
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International
61
Oct-15
abc
Essilor (EI FP)
Global Luxury Goods
2 October 2015
Bigger playing field
becomes reality
 "A captain of industry" in corrective lenses playing in a bigger
playing field with the expansion in sun and online, and, we
believe, likely also at some stage in contact lenses
 We forecast +5% pure organic sales growth for Q3 15 due on 22
October 2015
 Retain Buy, raise target price to EUR131 (from EUR125) on DCF
rollover to 2016e partially offset by our 2015e-17e EPS cut
Bigger playing field with the expansion in sun and online
39% volume market share in 2014 (vs 36% in FY2012) of the global lens market
Essilor has the competitive advantage of being “the captain of industry” in corrective lenses as well as in
optical instruments. The group increased its market share in volume to 39% in FY2014 (from 37% in FY13 vs
36% in FY12) with also the largest share of the R&D development, accounting for 75%. However, since 2014,
Essilor had widened its playing field: whilst the group was mostly involved in prescription lenses (a cEUR11bn
market in FY14e growing at +3-4% p.a), it now intends to address a larger market which is expected to reach
EUR27bn by 2018e growing at +6-7% p.a, according to Essilor’s own projections, by expanding into the
sunglasses market (estimated at EUR8.5bn by FY18e, growing at+ 6-7% p.a) and the online market
(EUR5.8bn by 2018e, growing at +14% pa). Longer-term, we believe Essilor could also decide to expand into
contact lenses, which could be another attractive segment, especially in China (6% of the group sales) where
there is a large number of people affected by myopia (estimated at c800m).
Essilor: Share of the global lens market 2014 (volume)
Essilor: Share of global eyewear R&D spent 2014
Other
industry
players
25%
Others
43%
Essilor
39%
Carl Zeiss
7%
Essilor
75%
Hoya
11%
Source: Essilor, HSBC estimates
Source: Essilor
3
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International
abc
Essilor (EI FP)
Global Luxury Goods
2 October 2015
Raising its brands awareness through Direct-to-consumer media campaigns
We continue to believe direct-to-consumer marketing campaigns - targeting directly end consumer and
not opticians - are a game changer. From the synergies derived from the integration of Transitions –
acquired in 2014 - the group has decided to re-invest some in advertising. This strategy boosted organic
sales growth in H1 2015 and should continue to do so going forward by increasing Essilor brand
awareness in lenses and in other categories (i.e sunwear). Management mentioned during the H1 15
conference call that the group was planning to invest EUR215m in FY15e in media campaigns (vs
EUR150m in FY2014). Note that no indications have been shared regarding FY2016.
Sun and online industry segments offer the biggest growth opportunities
At this stage, sun and online are Essilor’s main expansion priorities.
Breakdown of the EUR27bn market targeted by Essilor by 2018e
30
27.0
25
20
15
12.7
8.5
10
5.8
5
0
a EUR27bn market by 2018e
Prescription lenses
Sunglasses
Online
Source: Essilor
Essilor sales in lenses accounted for 88% of the group sales in FY2014, a market segment in which the
group has by far the most significant share of R&D vs peers with c75% end FY2014. Essilor is now
transferring its know-how in optical lenses to sunglasses, in improving online consumer experience but
also developing affordable innovations dedicated to Fast-Growing markets (23% of the group sales in
FY2014), which are key for the group to capture growth in every market segments. In addition, the
above-mentioned media campaigns are also supporting the growth of the sun and online segments.
Online is well fitted for easily solved visual problems
Essilor online sales are still very small in the group sales mix with cEUR200m in FY2014. The group
plans to reach EUR400-500m in online sales by 2018. Online has the advantage to give access to visual
correction for easily solved problems such as myopia, well fitted for countries where there is a lack of
optometrists. In China, there is a large number of people affected by myopia (c800m), people in need of
visual correction can have a direct access to visual correction through the online channel while there is a
lack of professionals especially in Tier 4 & 5 cities. Note that even if North America accounts for c60%
of Essilor’s total on-line sales due to the weight of the acquisition of Coastal.com, the penetration for the
online business is much higher in China than in Europe and North America, which we take as a positive
for future growth in Europe and North America.
4
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International
abc
Essilor (EI FP)
Global Luxury Goods
2 October 2015
Essilor: online regional sales mix in FY2014e
Rest of the
world
20%
Europe
20%
North
America
60%
Source: Essilor
Sunwear (12% of the group sales in FY2014)
Sunwear reached 12% of Essilor sales in FY2014. Management expects to reach EUR1.1bn sales by 2018
implying a 10% CAGR. The strategic goal for this division is to innovate beyond fashion by boosting lens
performance, but also to acquire and develop strong regional brands and to have a wide price offering and
channel expertise. In addition, by expanding in sun, the group is addressing a larger market by offering a
visual protection and not only a visual correction to 4.2bn people globally but potentially to 7.2bn in needs
of corrective and protective lenses. Note that corrective lenses only account for 5% of the sun business.
Contact lenses could be another attractive segment for Essilor
We estimate that the contact lenses market value was cEUR6bn in FY2014e growing at a slightly higher
pace (i.e at +5% p.a) than prescription lenses (+3-4% p.a). It could add another cEUR7bn to Essilor’s
EUR27bn targeted market by 2018e. We believe that longer-term, Essilor could also decide to expand into
contact lenses, which could be another attractive segment for the group, especially in China where there is
a large number of people affected by myopia (estimated at c800m). The contact lenses market is highly
concentrated, according to GIA, the global market share of Johnson and Johnson, Ciba Vision, Bausch &
Lomb and Cooper was c90% in 2011 and we do not see any material reason why it should have changed
that much in FY2014. Even if we understand from Essilor that the main priority between now and 2018 is
about expanding in sun and online, we believe there is no structural reason which can explain why Essilor
would not be interested in developing in this market segment. We believe that contact lenses could be
another attractive opportunity for the group. In our view, it would be a good complement to Essilor’s
existing portfolio. Essilor is relatively small in this market, only distributing (not manufacturing) contact
lenses through two channels: (i) the opticians (sales of cEUR113m in FY14e) and (ii) Coastal.com (73% of
its sales).We believe that Essilor could potentially expand in contact lenses through acquisitions either of
small players or larger groups.
Potential merger with Luxottica
M&A will continue to be a significant part of the business model of Essilor. While Essilor is the captain of
the industry in lenses and optical instruments, Luxottica (LUX MI, Hold, EUR62, TP EUR66) is the
captain in framewear. We believe Luxottica’s main focus is likely to be on acquiring retail chains in
emerging markets, with the intention to re-brand the acquired stores into LensCrafters or Sunglass Hut,
5
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International
Essilor (EI FP)
Global Luxury Goods
2 October 2015
abc
while Essilor is likely to continue to acquire laboratories, distributors and build its sunwear and online
businesses. Regarding Luxottica, the potential to add new brands or new licence contracts to the existing
portfolio is less significant than in the past, so any possible acquisition in this area would be likely to be an
add-on rather than a strategic deal. During Luxottica’s 1 September 2014 conference call, Luxottica
mentioned that a potential merger had been envisaged with Essilor. During Luxottica’s investor day on
March 3rd 2015 management stressed that each of the two companies had its specific strength (lenses for
Essilor, frames for Luxottica), but did not say anything other than "we will see". In our view, a possible
merger between Luxottica and Essilor would have strategic merit, as it would combine the worldwide
leader in frames with that of lenses and would generate significant distribution synergies. We note that the
two groups have relatively similar market caps (EUR28bn for Luxottica and EUR22bn for Essilor). The
main hurdle in our view would relate to corporate governance, ie what type of involvement in the new
entity the Del Vecchio family (which owns 61% of Luxottica shares) would ask for and which would not
be seen as an issue by Essilor, as was highlighted in the FT press article of 2 September 2014.
Earnings valuation and risks
H1 2015 earnings released on 30 July 2015
H1 2015 “contribution from operations” grew 24% y-o-y to EUR651m, implying a “contribution from
operations” margin up 20bps to 19.1%. Gross margin improvement of 190bps in H1 15 to 59.9% margin
was partially offset by higher operating expenses which increased 170bps as % of sales to 40.8% mainly
due higher media spend.
Q2 2015 sales came in at EUR1,749m up 20% reported and 4.4% at constant FX and perimeter. Sales
growth at constant FX and perimeter in Q2 15 showed a slight acceleration from the +4.0% achieved in
Q1 15, mainly driven by a solid acceleration in Europe boosted by the direct to consumer marketing
campaigns.
Tax rate came in at 29% in H1 15 much higher than in H1 14 due changes in the scope of consolidation
and increased sales in North America. EPS rose 19% y-o-y to EUR1.83
Unchanged FY2015 guidance
Management unchanged its FY2015 guidance of sales growth at constant FX and perimeter in excess of
4.5% and 8-11% sales growth at constant FX. The “contribution from operation margin” is expected to be
at least 18.8% (vs 18.6% in 2014). In FY2015 tax rate should increase to c28% (i.e by 200bps vs FY14,
vs 29% in H1 15), due to a less favourable regional mix. An improvement is expected in FY2016-17, an
update provided in H2 15.
Q3 2015 sales due on 22 October 2015
Essilor will report its Q3 2015 sales on 22 October. We expect organic sales growth at constant FX and
perimeter of 5%, accelerating sequentially from the 4% reported in Q1 15 and 4.4% in Q3 15. By region,
we believe that the performance in Europe should remain solid (HSBCe +4.5% vs +5% in Q2 15) as well
as in North America (HSBCe +3.5% vs +3.7% in Q2 15). Asia-Pacific should improve, our forecast
assumes a +7.2% organic sales growth rate in Q3 15 (vs 5.2% in Q2 15), and +10.5% in Latin America in
line with Q2. Laboratory equipment should remain in negative territory. It should remain impacted by
6
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International
abc
Essilor (EI FP)
Global Luxury Goods
2 October 2015
intra-group sales to acquired companies. For FGX we expect growth at constant FX and perimeter of
+6.2% (vs 3.2% in Q2 15).
Essilor: quarterly sales growth at constant Fx and perimeter FY2013-17e
7.0%
6.0%
6.0%
5.0%
5.0%
4.0%
3.9%
3.5%
3.1%
3.0%
5.0%
3.7%
4.0%
4.4%
5.0%
5.5%
4.6%
2.9%
2.3%
2.1%
2.4%
2.0%
1.0%
0.1%
0.0%
Q1 13
Q2 13
Q3 13
Q4 13 FY2013 Q1 14
Q2 14
Q3 14
Q4 14 FY2014 Q1 15
Q2 15
Q3 15e Q4 15e FY2015e FY2016eFY 2017e
Source: Essilor, HSBC estimates
2015-17 EPS estimates cut by 4%, 3% and 3% respectively
We cut our 2015-17 EPS estimates by 4%, 3% and 3% respectively due to a higher tax rate for
FY15e-18e. For FY2015e, we expect organic sales growth at constant FX and perimeter of 4.6%
implying a 5.0% growth rate in both Q3 and Q4 15e which should remain boosted by the direct-toconsumer marketing campaigns but also an improved performance in Asia, product innovations and the
ramp-up of new contracts in Europe and in the US (with CVS for instance). Our forecasts assume “a
contribution from operations” of 18.9% (vs 19.1% in H1 2015). Note that the positive impact from FX at
the top line level (10% in FY15e) is only a conversion impact ie no impact on the EBIT margin in
comparison with exporters such as luxury goods companies as Essilor manufactures locally.
For FY16e-17e, we expect organic sales growth at constant FX and perimeter in excess of 5% at
respectively 5.5% and 6.0% and “a contribution from operations” of 19.3% and 19.6% respectively. We
are now 1%, 2% and 4% above Bloomberg consensus estimates.
Essilor: Summary of HSBC sales estimate changes and comparison with Bloomberg consensus
(EURm)
Sales
EBIT*
EPS*
_________________ 2015e ________________ _________________ 2016e __________________ __________________2017e __________________
___ HSBC ____
HSBC __ HSBC____
HSBC ___ HSBC ____
HSBC
New
Old
Cons
Chg vs Cons
New
Old
Cons
Chg vs Cons
New
Old
Cons
Chg vs Cons
6,774
1,211
3.67
6,789
1,229
3.83
6,771
1,227
3.67
0%
-1%
-4%
0%
-1%
0%
7,437
1,348
4.15
7,363
1,356
4.28
7,299
1,353
4.13
0%
-1%
-3%
1%
0%
1%
8,005
1,501
4.68
8,023
1,502
4.80
7,837
1,469
4.55
0%
0%
-3%
2%
2%
3%
* Note that our 2015 numbers are on an adjusted basis, ie not affected by the treatment of exceptionals mainly related to Transitions
Source: HSBC estimates, Bloomberg consensus
Valuation and risks
We raise our fair value target price to EUR131 (from EUR125) mainly on the back of our DCF roll-over
to 2016e, partially offset by our 2015e-17e EPS cut. The assumptions used in our DCF are detailed on page
2. Our target price of EUR131 implies an upside potential of 20%. Therefore we retain our Buy rating.
Essilor is currently trading at 29.6xPE2015e and 26.2xPE2016e, a 90% premium to the DJ Stoxx 600
(above its 10-year average of 77%) but is offering superior visibility on continuous earnings growth (23%
7
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International
abc
Essilor (EI FP)
Global Luxury Goods
2 October 2015
EPS growth in FY2015e and 13% in FY16-17 respectively). In addition, in the current market
environment, Essilor’s defensive status should appeal to risk –adverse investors.
Essilor – Forward PE since 01/01/2002
Essilor – Forward PE rel. to DJStoxx600 since 01/01/2002
30 x
2.9
2.7
2.5
2.3
2.1
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
28 x
26 x
24 x
22 x
20 x
18 x
Average since
01/02/04: 21.7x
16 x
14 x
12 x
Average since
01/02/14: 1.7
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Source: Factset
Source: Factset
Downside risks to our rating include: (i) lower than-expected “pure” organic sales growth, (ii) lower
contributions from acquisitions, (iii) depreciation of the USD against the EUR. From a share price
perspective, sector rotation out of defensive stocks in favour of cyclical stocks is theoretical downside risks.
Essilor – P&L
EURm
Revenue
Cost of sales
Gross profit
Gross margin
Research and development costs
Selling and distribution costs
Other operating expenses
Total SG&A
SG&A as % of sales
Contribution from operations
Contribution as a % of sales
Compensation costs on share-based payments and others
Operating profit (EBIT)
EBIT margin
Finance costs
Income from cash and cash equivalents
Other financial income and expenses, net
Profit before taxes
Income taxes
Tax rate
Net profit of fully-consolidated companies
Share of profits of associates
Profit for the period
Attributable to minority interests
Adjusted net attributable profit
EPS (basic) EUR
EPS (Diluted) EUR
YoY evolution
Sales
Gross profit
SG&A
EBIT
Adjusted net attributable profit
EPS diluted
2006
2007
2008
2,690
-1,123
1,567
58.2%
128
605
352
1,084
40.3%
483
17.9%
-22
460
17.1%
-31
20
-9
441
-138
31.2%
303
29
332
3
329
1.61
1.55
2,908
-1,234
1,674
57.6%
138
643
366
1,147
39.4%
527
18.1%
-23
505
17.4%
-36
33
-4
498
-156
31.3%
342
29
371
4
367
1.78
1.74
3,074
-1,325
1,749
56.9%
145
672
381
1,198
39.0%
551
17.9%
-37
514
16.7%
-28
29
-3
512
-149
29.2%
363
26
389
6
382
1.85
1.81
11.0%
12.7%
12.0%
16.7%
14.2%
13.9%
8.1%
6.8%
5.8%
9.6%
11.6%
12.2%
5.7%
4.5%
4.5%
2.0%
4.3%
4.0%
2009
2010
2011
2012
2013
2014*
2015e
2016e
2017e
3,268 3,892 4,190 4,989 5,065 5,670 6,774 7,347 8,005
-1,435 -1,732 -1,868 -2,205 -2,227 -2,342 -2,720 -2,928 -3,174
1,833 2,160 2,321 2,784 2,838 3,328 4,054 4,419 4,831
56.1% 55.5% 55.4% 55.8% 56.0% 58.7% 59.9% 60.2% 60.4%
151
151
151
162
164
188
217
238
261
707
860
960 1,140 1,145 1,367 1,687 1,837 1,993
380
444
462
588
612
717
868
930 1,003
1,238 1,455 1,573 1,889 1,921 2,271 2,772 3,004 3,258
37.9% 37.4% 37.6% 37.9% 37.9% 40.1% 40.9% 40.9% 40.7%
595
705
748
894
917 1,057 1,282 1,415 1,573
18.2% 18.1% 17.9% 17.9% 18.1% 18.6% 18.9% 19.3% 19.6%
-39
-86
-65
-62
-74
-68
-71
-67
-72
555
618
683
832
843
989 1,211 1,348 1,501
17.0% 15.9% 16.3% 16.7% 16.6% 17.4% 17.9% 18.3% 18.7%
-32
-12
-14
-24
-26
-32
-33
-28
-23
19
9
11
17
18
0
9
9
9
2
-8
-10
-11
-12
-12
0
0
0
544
608
670
814
823
945 1,187 1,328 1,487
-168
-167
-179
-207
-199
-246
-332
-365
-404
30.9% -27.5% -26.8% -25.5% -24.2% -26.0% -28.0% -27.5% -27.2%
376
440
490
607
624
699
854
963 1,082
26
32
28
24
22
3
0
0
0
402
472
518
630
646
702
854
963 1,082
8
10
13
46
53
60
65
71
78
394
462
506
584
593
642
789
892 1,005
1.91
2.20
2.44
2.80
2.82
3.05
3.75
4.24
4.77
1.89
2.18
2.41
2.77
2.78
2.99
3.67
4.15
4.68
6.3%
4.8%
3.3%
7.9%
3.0%
4.3%
19.1%
17.8%
17.5%
11.4%
17.3%
15.3%
7.7%
7.5%
8.1%
10.4%
9.5%
10.6%
19.1%
19.9%
20.1%
21.8%
15.5%
14.8%
1.5%
2.0%
1.7%
1.4%
1.5%
0.6%
11.9%
17.3%
18.2%
17.3%
8.2%
7.3%
Note*adjusted for non-recurring items mainly related to the Transitions Optical, Coastal.com and Costa acquisitions
Source: company data, HSBC estimates
8
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International
19.5%
21.8%
22.1%
22.4%
22.9%
22.9%
8.5%
9.0%
8.4%
11.3%
13.0%
13.0%
9.0%
9.3%
8.4%
11.4%
12.6%
12.6%
Essilor (EI FP)
Global Luxury Goods
2 October 2015
abc
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Anne-Laure Jamain, Antoine Belge and Erwan Rambourg
Important disclosures
Equities: Stock ratings and basis for financial analysis
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's
existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons
when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different
securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and
therefore investors should carefully read the definitions of the ratings used in each research report. Further, investors should
carefully read the entire research report and not infer its contents from the rating because research reports contain more
complete information concerning the analysts' views and the basis for the rating.
From 23rd March 2015 HSBC has assigned ratings on the following basis:
The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12
months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will
be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a
Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is
between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more
than 20% below the current share price, the stock will be classified as a Reduce.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage,
change in target price or estimates).
Upside/Downside is the percentage difference between the target price and the share price.
Prior to this date, HSBC’s rating structure was applied on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate,
regional market established by our strategy team. The target price for a stock represented the value the analyst expected the
stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as
Overweight, the potential return, which equals the percentage difference between the current share price and the target price,
including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the
succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight,
the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or 10
percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral.
*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12
months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However,
stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the
past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in
rating, however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to
change.
9
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International
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Essilor (EI FP)
Global Luxury Goods
2 October 2015
Rating distribution for long-term investment opportunities
As of 01 October 2015, the distribution of all ratings published is as follows:
Buy
46%
(32% of these provided with Investment Banking Services)
Hold
40%
(29% of these provided with Investment Banking Services)
Sell
14%
(18% of these provided with Investment Banking Services)
For the purposes of the distribution above the following mapping structure is used during the transition from the previous to
current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our
current model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings
and basis for financial analysis” above.
Share price and rating changes for long-term investment opportunities
Recommendation & price target history
Essilor (ESSI.PA) Share Price performance EUR Vs HSBC rating history
From
Underweight
Overweight
Target Price
116
106
96
86
76
66
56
46
36
26
Oct-15
Oct-14
Oct-13
Oct-12
Oct-11
Oct-10
Price 1
Price 2
Price 3
Price 4
Price 5
Price 6
Price 7
Price 8
To
Date
Overweight
Buy
Value
09 January 2013
31 March 2015
Date
70.00
90.00
94.00
97.00
94.00
100.00
104.00
125.00
22 October 2012
09 January 2013
08 March 2013
14 October 2013
17 February 2014
16 June 2014
05 November 2014
31 March 2015
Source: HSBC
Source: HSBC
HSBC & Analyst disclosures
Disclosure checklist
Company
Ticker
Recent price
Price Date
Disclosure
ESSILOR
ESSI.PA
108.90
30-Sep-2015
2, 4, 5, 6
Source: HSBC
1
2
3
4
5
6
7
8
9
10
HSBC has managed or co-managed a public offering of securities for this company within the past 12 months.
HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next
3 months.
At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company.
As of 31 August 2015 HSBC beneficially owned 1% or more of a class of common equity securities of this company.
As of 31 August 2015, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of investment banking services.
As of 31 August 2015, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-investment banking securities-related services.
As of 31 August 2015, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-securities services.
A covering analyst/s has received compensation from this company in the past 12 months.
A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below.
A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below.
10
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International
Essilor (EI FP)
Global Luxury Goods
2 October 2015
11
abc
At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives)
of companies covered in HSBC Research on a principal or agency basis.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment
banking revenues.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
company available at www.hsbcnet.com/research.
Additional disclosures
1
2
3
This report is dated as at 02 October 2015.
All market data included in this report are dated as at close 30 September 2015, unless otherwise indicated in the report.
HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research
operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier
procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or
price sensitive information is handled in an appropriate manner.
11
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International
Essilor (EI FP)
Global Luxury Goods
2 October 2015
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Disclaimer
* Legal entities as at 30 May 2014
Issuer of report
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HSBC Bank plc
Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada,
8 Canada Square
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London, E14 5HQ, United Kingdom
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‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC
Telephone: +44 20 7991 8888
Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking
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073/06/2015 , MICA (P) 136/02/2015 and MICA (P) 041/01/2015
12
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International
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Global Consumer Brands & Retail
Research Team
Europe
Asia
Consumer Brands & Retail
Antoine Belge
Head of Consumer Brands and Retail Equity Research
+33 1 56 52 43 47
[email protected]
Consumer Brands & Retail
Erwan Rambourg
Head of Consumer Brands and Retail Equity Research
+852 2996 6572
[email protected]
Anne-Laure Jamain
Analyst
+44 207 991 6587
[email protected]
David McCarthy
Head of Consumer Retail, Europe
+44 207 992 1326
[email protected]
Christopher Leung
Analyst
+852 2996 6531
[email protected]
Lina Yan
Analyst
+852 2822 4344
[email protected]
Catherine Chao
Analyst
+852 2996 6570
[email protected]
Andrew Porteous
Analyst
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[email protected]
Paul Rossington
Analyst
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Charlene Liu
Analyst
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[email protected]
[email protected]
Scott Chan
+852 3941 7005
[email protected]
Karen Choi
Analyst
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[email protected]
Jérôme Samuel
Analyst
+33 1 56 52 44 23
[email protected]
Emmanuelle Vigneron
Analyst
+33 1 56 52 43 19
[email protected]
Graham Jones
Analyst
+44 20 7992 5347
Permada (Mada) Darmono
Analyst
+65 6658 0613
[email protected]
Amit Sachdeva
Analyst
+91 22 2268 1240
[email protected]
Kuldeep Gangwar
Analyst
+91 22 3396 0686
[email protected]
Anthony Bucalo
Analyst - Beverages
+44 20 7991 9815
[email protected]
Chloe Wu
Analyst
+ 8862 6631 2866
[email protected]
CEEMEA
Jenny Chae
Associate
+822 3706 8774
[email protected]
Damian McNeela
Analyst
+44 20 7992 4223
[email protected]
[email protected]
Consumer Brands & Retail
Bulent Yurdagul
Analyst
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[email protected]
North & Latin America
Jeanine Womersley
Analyst
+27 21 6741082
[email protected]
Consumer & Retail
Richard Cathcart
Analyst
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[email protected]
Ankur P Agarwal
Analyst
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Ana C Hernandez
Associate
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[email protected]
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Associate
+55 11 3847 6066
[email protected]
Yazeed Al Turki
Analyst
+966 11 299 2260
Food & Beverage
Carlos Laboy
Global Head of Beverages Research
+1 212 525 6972
[email protected]
Specialist Sales
David Harrington
+44 20 7991 5389
[email protected]
James Watson, CFA
Analyst
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Henry Nasser
Analyst
+55 11 2169 4424
[email protected]
Agricultural Products
Alexandre Falcao
Analyst
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[email protected]
Ravi Jain
Analyst
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[email protected]
Gustavo Gregori
Analyst
+55 11 3847 9881
[email protected]
[email protected] Christine Balle 10/02/15 04:25:40 AM Essilor International